iRadimed Corporation

welcome to the aradamid corporation third quarter 2021 financial results conference call currently all participants are in a listen-only mode and at the end of the call we will conduct a question and answer session as a reminder this call is being recorded today october 29 2021 and contains time sensitive information that is accurate only as of today earlier aradamid released its financial results for the third quarter 2021 A copy of this press release announcing the company's earnings is available under the heading News on their website at aradamed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8K and can be found at sec.gov. This call is being broadcast live over the Internet on the company's website at aradamed.com, and a replay of the call will be available on the website for the next 90 days. Some of the information to be furnished in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on the future performance, results, plans and events, and may include the company's expected future results. Aratabed reminds you that future results may differ materially from these forward-looking statements due to several risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see the risk factors section of the company's most recent reports filed with the Securities and Exchange Commission, which again, may be obtained for free for the SEC's website at sec.gov. I'll now turn a call over to Roger Susi, President and Chief Executive Officer of Eranimid Corporation. Sir, you may now begin.

Good morning and thank you all for joining the call today. I'm again happy and very pleased to report a very good quarter of revenue and earnings growth. As we reported in this morning's press release, Q3 revenue was 10.9 million or nearly 42% over last year. Non-GAAP earnings were 23 cents or 103% over Q3 of last year. And on a sequential basis, We continued along our well-established trends with revenue growth of over 11% from Q2 this year and earnings growth of over 74%. I'm proud of these results and the team's performance in what remains in many ways a very challenging environment. The team's collective resiliency in dealing with the lingering effects of COVID are exhibited here every day. From a sales perspective, Bookings for our products have been strong all year, and that did not change during Q3. In fact, we saw record bookings again this quarter, surpassing our previous high watermark from Q2 this year by nearly 10%. This level of demand for our products exceeded our expectations and allowed us to grow backlog, providing visibility into the coming quarters, along with growing our overall confidence. What may also be telling about the demand for our products is a comparison to 2019. With our year to date revenue expectations for Q4, we are now firmly on a pace to show revenue growth over the pre-pandemic 2019 time period of approximately 8%. With this level of visibility and confidence, we expect to report Q4 revenue of $11.5 million to $11.7 million, with GAAP earnings per share of $0.17 to $0.18, and non-GAAP earnings per share of $0.20 to $0.21. These earnings include anticipated one-time costs related to our 510K application that Chris will discuss in just a moment. We are also increasing our full year financial guidance and now expect revenue of 41.4 million to 41.6 with gap earnings per share of 60 to 61 cents and non-gap earnings per share of 70 to 71 cents. Our previous full year guidance called for revenue of 40 million to 40.4 and gap earnings of 53 to 55 and non-gap of 60 to 62 cents. Now I'll turn the call over to Chris to run through some more of the details in depth.

Thank you. Good morning, everyone. First, I'll start with an update on the regulatory status of our 510 application for our next generation IV pump. We continue to progress through the process and have had some recent communication with FDA regarding their review of our application. Their review is comprehensive. and as expected, they have requested additional testing be performed on the new device. Much of this testing can be performed in-house, while other testing will need to be performed by third parties. There are also administrative tasks that we need to work through in the form of meetings and other communications with FDA to clarify the need for additional testing regarding some of their requests. While we expected to receive comments on our application, the nature of their questions will take some additional time to resolve. For these reasons, we now believe clearance is more likely to come in the second half of next year. We also expect to incur additional costs than initially anticipated related to the testing and administrative matters. We believe much of these costs will be incurred during Q4 and are not indicative of an ongoing run rate. Our estimates on timing of potential clearance are always based on our analysis of the information we have at the time. Despite the movement in our current estimate, we do not believe this has any impact on the longer-term success of the next generation IV pump or of the company. Regarding supply chain, the trend of limited supplies and higher costs for certain materials that we noted last quarter continued during Q3. However, we have also been able to obtain favorable pricing for many other components used in our products. Net for the quarter, we placed orders for materials going out 12 months at prices that were slightly favorable to our historical costs. Please note that purchases are variable from quarter to quarter, and we may not be able to achieve favorable pricing on future purchases. Regarding the limited supplies of certain materials, we continue to exert elevated levels of energy in our sourcing efforts. Like many other companies, we expect this will continue for an extended period of time. With that said, to date, we have not experienced any significant changes to our production schedules. We remain cautious regarding the global supply chain and the potential impact to Aratamid. Now I'll review our financial results for the quarter. And as always, I'll be discussing these results on a GAAP basis as well as on a non-GAAP basis. You can find a description of our non-GAAP operating measures in this morning's release. You can also find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today's release. Also, please keep in mind that when comparing year-to-date results during the first nine months of 2020, we recognized $2.8 million of G&A expenses related to our former CEO. Excuse me. As we reported earlier this morning and Roger summarized a moment ago, third quarter revenue, third quarter 2021 revenue was $10.9 million, an increase of 41.7% compared to the third quarter last year. On a sequential basis, revenue grew 11.2% over Q2 this year. From geographic mix, revenue from domestic sales increased 7.9 percent to $8.7 million during the current quarter. Revenue from international sales also increased 26.2 percent to $2.2 million. The increase in domestic revenue was primarily driven by higher sales of our devices. Our domestic revenue accounted for 79.5 percent of total revenue for the current quarter compared to 82 percent for the prior year quarter. Device revenue increased 61.1 percent to $7.1 million for the third quarter 2021. This was driven by a 65.6 percent increase in monitor revenue and a 56.4 percent increase in IV pump revenue. The average selling price of our MRI-compatible IV infusion pump system during the third quarter 2021 was approximately $33,000 compared to approximately $37,800 for the third quarter 2020. This decrease relates to higher international unit sales during the current quarter. The average selling price of our MRI compatible patient vital signs monitoring system during the third quarter 2021 was approximately $40,600 compared to approximately $43,000 for the same period in 2020. This decrease also relates to higher international unit sales during the current quarter. Revenue from disposables and service increased 17.3% to $3.3 million for the current quarter. And revenue from our maintenance contracts was consistent at a half a million dollars for both periods. Gross margin was 77.1% for the 2021 quarter compared to 74.6% for the 2020 quarter. The increase in gross margin percent is the result of favorable overhead absorption from higher unit production required to meet customer demand. Going back to our comments about the global supply chain, we remain cautious about materials at this time, about material costs at this time. However, we continue to believe that any negative impact from higher costs will likely be limited and partially offset by higher levels of unit production required to satisfy customer demand resulting in gross margins that are very consistent with our historical ranges. Operating expenses were $5.3 million, or 48.8% of revenue, compared to $5 million, or approximately 64.4% of revenue for the third quarter last year. On a dollar basis, this increase is primarily due to higher sales commissions and sales activities expenses incurred during the current quarter, partially offset by lower stock compensation expense. As a result, income from operations grew to $3.1 million for the current quarter compared to $800,000 for the third quarter last year. As mentioned earlier, we expect higher operating expenses in Q4 from increased regulatory and engineering costs related to our next generation IV pump. And again, we believe these additional expenses are limited to the 510 clearance process and not indicative of a go forward run rate. We recognize tax expense of approximately $518,000 this quarter compared to a tax benefit of approximately $281,000 in the 2020 quarter. This increase is due to higher taxable income in the current quarter and the benefit taken last year from the CARES Act that allowed us to carry back NOLs to years prior to the Tax Cuts and Jobs Act. On a GAAP basis, net income was 20 cents per share compared to 9 cents for the 2020 quarter. And on a non-GAAP basis, adjusted income was 23 cents per diluted share for the current quarter compared to 11 cents for the third quarter last year. Cash from operations grew to $7.9 million for the nine months ended September 30th, 2021, from $3.3 million for the same period last year. For the 2021 period, cash provided by operations was positively impacted by higher net income and cash inflows from accounts receivable and deferred revenue, and negatively impacted by cash outflows for prepaid expenses, income tax payments, and inventory purchases. For the three months ended September 30th, 2021 and 2020, our free cash flow, a non-GAAP measure, was $3.2 million and $1.3 million, respectively. And with that, I'll turn the call over for questions.

Operator. Jesse.

Thank you, speakers. Participants will now begin the question and answer session. To ask a question over the phone, you may press the star key followed by the number one. To withdraw your request, you may press the pound key. Again, that's star one to ask a question or the pound key to withdraw your request. Our first question is from the line of Scott Henry of Roth Capital. Your line is now open.

Thank you and good morning. Really strong results. I guess for starters, it seems like the monitors particularly are putting up some very solid numbers. Can you talk about the environment out there and perhaps what's driving this upside?

Yeah, I could take a crack at that, Scott. Good to hear from you. How are you doing? Good question. I'd say number one is, frankly, that we're learning to sell it better. I know the investment world, sometimes it seems when a company makes a new device, all the effort is in getting it designed and cleared. And as soon as it's cleared and you hand it to the sales force, they just go from zero to 100 miles an hour selling it right out of the gate. But, you know, that is not reality. And I think it's just taken a while for our era our team to really learn and understand the product and the environment, the use environment, the customers, and most of all, how to compete against the large, well-entrenched competition in the form of Philips in that space. So that's probably the number one thing that's been over these last couple of quarters, as you've seen and mentioned, that the monitor is just is just picking up and picking up and picking up. There's also, you know, a little bit of lift here we see in just the last couple of months due to Phillips having trouble, which is pretty well advertised in the news, you know, with their giant recall in the respiratory area. And I think generally they had their earnings call just the other day and reported that revenue was down because of supply chain issues. So I'd say a little bit of that is starting to help us too. So I hope that answers your question. I think the biggest factor is we're just better at getting out there and competing and finding the customers. Plus, once you get over that, you know, you get a few units planted in critical areas, then confidence that the product works to the next customer goes up. So it makes the job of introducing a new device, again, get less difficult because it's not quite so new. It's more and more proven each day.

Okay, great. Thank you, Roger, for that color. That was helpful. Next question, with regards to the regulatory pathway for the pump, We always knew it's a challenge to get pumps through the FDA. Eventually it happens, but this is expected to be a couple delays along the way. My question is, how confident are you of the second half 22 approval timeline versus where you were a quarter ago? We know it's going to be a little later, but how is your confidence level given this increased interaction that you've had with the FDA?

Well, you know, that's why Chris, what he said, we're confident with, you know, at this point with what we see and know that the back half of the year is the likely spot. Yeah. You know, the FDA has been a little challenged. Some of the reasons it's been, you know, it was slow to get the whole thing started was they're a little busy there at the FDA last year with all the emergency use uh issues they had to deal with that's been some of the explanation we've gotten from from our our people at the fda that are handling this this thing so we hope that that's easing off right as covid eases off and they'll start to go into work they're still working remotely most of them and uh and without the burden of all those eau things which i think is trailing off uh they'll be able to spend more time on the conventional business of the FDA, like clearing IV pumps.

Okay, great. And the final question is a little bit more of a big-picture question. Given the supply chain issues, sort of an inflationary environment as well, Do you expect to have some pricing power perhaps to take price on some of your product offerings? Given this backdrop, it seems like some of your competitors may struggle to fill their demand as well. But all of this could potentially lead to higher some pricing power for you. What are your thoughts on that topic?

Well, I think I mentioned this before. Maybe the last call, I mentioned that I kind of set it as a priority earlier this year, back in the spring, to start to try to move some of this pricing that we have, especially with the big GPOs, upwards. And over the last nine months, we have been successful at moving prices in that direction. So we think we're getting into a very good position with exactly that, increasing prices a bit to cover costs that have been coming up on us this past year. And I think it's starting to even reflect in some of the, when you look at the earnings, right? Some of this absorption, Chris mentioned, you know, we're getting better absorption, so costs are from our burden, you know, the way we burden our labor here is less of a negative factor. But also, we're starting to see the average pricing, certainly more along the lines of the monitor equipment than the pump equipment. We've been able to move that northward pretty well.

Okay, great. Well, thank you for taking the questions, and congratulations again on the strong results. Thanks. Thanks, Scott.

Again, participants, it's star one to ask a question or to pound key to withdraw your request. Speakers, our next question is from the line of Lisa Springer of Singular Research. Your line is now open.

Thank you. Good morning, and congratulations on a very nice quarter.

Thanks, Lisa. Good morning.

I wanted to ask you, do you feel that your access to customers is back at pre-COVID levels? And could you comment on the company's efforts to make sales outside your traditional hospital departments, you know, other than radiology?

Yeah, I could take that, I guess, again. So, you know, it's been pretty much opened up for most of the year. With the Delta variant here, about, seems like... Early in that third quarter, a couple months ago, we had heard of, I believe it was only one particular hospital group that had gone back on to restrict access. And we were for a time worried that that was going to spread like the Delta virus itself, but it didn't. And I believe they came back off of those precautions they reenacted. So nobody else followed suit. So it's, yeah, to answer your question just real directly, it's not, access is not a big limiting factor anymore. And I think a second part of your question was, you know, are we able to get into now, I was speaking about generally access to the hospitals and primarily our radiology and anesthesia contacts. Your second part of your question may be more about how we also have this, this call point in ICUs to really push forward the multi-pump business. So ICUs are still a little snug, not like they were, but yeah, there's still a bit of difficulty to actually get into the ICUs. And so maybe we don't actually have so many meetings actually in ICU, but we can get the ICU people out of there. for a meeting, let's say, down the hallway, that sort of thing. So that still has a ways to go before it's business as usual.

Okay. And did you have any sales of the FMD device during the quarter?

I believe we did. We had an order for three of them here about 60 days ago.

So I think the sales occurred, the deliveries have not yet occurred. I think they're tied to either new construction or refurbishment of an existing MRI. So I think those will come, I believe it's next year, right? Yeah, I think the deliveries will come next year.

These things are going in on, the installation of them and the delivery timing is way different for that device than pumps and monitors. It generally goes along, as Chris said, with construction, so. getting an order and then getting the exact time they want to put in, that's two different things.

Okay. And, Roger, could you comment on the R&D pipeline beyond the new infusion device? What would be next up, and do you anticipate maybe doing any other regulatory filings next year?

Well, the short answer to that is no. There won't be any other regulatory filings coming up in these next 10, 12 months. And working on the next thing, we've got a couple of irons in the fire. But frankly, we are working very hard with the FDA to clear the current pump. So we have, as you can see by the amount of money we spend on R&D, we don't have a lot of extra people laying around. And so when heavy demands come in for things like more testing, as Chris mentioned, for the pump, That takes up our capacity pretty well.

Okay, great. Thank you very much.

All right.

Thank you, participants. I'll now turn the call back over to Roger Susie for final remarks.

All right. Thank you, operator. As I said at the beginning of the call, I'm very pleased with these results and proud of how the team continues to perform. Overall, our business remains robust. Demand for our products is as high as it has ever been. with Q3 representing our second high water mark in a row. As Chris mentioned, we are cautious about global supply chain issues. However, we have been able to hold gross margins at our historical levels, and we are making progress on our 510K application, although it will take a little longer and a little more money than initially anticipated. We remain steadfast in our opinion, in our optimism, excuse me, and look forward to speaking with you once again soon. Thank you all.

And that concludes today's conference call. Thank you all for joining. You may now disconnect.