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spk04: Welcome to the ArataMed Corporation first quarter of the 2023 Financial Results Conference Call. Currently, all participants are in the 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, May 4th, 2023, and contains time-sensitive information that is accurate only as of today. Earlier, ArataMed released its financial results for the first quarter of 2023. A copy of this press release announcing the company's earnings is available under the heading News on their company's website at aratamed.com. A press release copy was also furnished to the Securities and Exchange Commission on Forms 8-K and can be found at the sec.gov. This call is also being broadcast live over the internet on the company's website. at iratamed.com, and a replay of the call will be available on the website for the next 90 days. Some of the information in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Looking forward statements focus on future performance, results, plans, and events, and may include the company's expected future results. IRATAmed reminds you that future results may differ materially from those forward-looking statements due to the severe 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 may be obtained free from the SEC's website at sec.gov. I would now like to turn the call over to Mr. D. Good morning, and thank you all for joining us on today's call.
spk02: Once again, I have the pleasant task of reporting that RADMED has had yet another excellent and exceptional quarter of revenue and earnings growth, as reported in this morning's release. Q1 2023 was our top revenue quarter ever and our seventh consecutive quarter of record revenues. As reported in this morning's release, first quarter 2023 revenue was $15.5 million, representing a 26% increase over the first quarter of last year. Gap diluted earnings per share for the first quarter were $0.27, with non-gap diluted earnings per share for the first quarter of 2013 at 30 cents per share, a 36% increase over the first quarter of 2022. These results make for a very proud CEO and validate the hard efforts of our team. With such a stellar start to the year, having growth at record levels, we feel comfortable in raising our guidance for the year, but more on that in just a little bit. Still, though, supply concerns have become a constant The team continues finding ways to overcome these rather frequent obstacles, which continue to mitigate supply issues from impacting upon revenue and earnings growth. Looking at bookings, our sales team continues to perform exceptionally well, increasingly driving customer demand for our products. The total backlog built through Q1 bookings continues to be at record levels. The strong backlog provides excellent visibility and allows us to maneuver and reallocate resources as supply issues may arise. For example, the relatively large pump revenue as compared to monitor revenue in Q1 was not due to order intake differences, but rather a catching up of pump shipments that could not be made in Q4 due to part shortages then, which was rectified in Q1. Now, I'd like to touch upon our FDA efforts regarding the new 3870 MRI IV pump. Since last quarter, we have expanded our RA team, and there's been much solid work put forth. We have written three rather detailed, intricate Q-Sub request documents and received two confirmations so far of appointment dates that will occur in these next six weeks for meetings. We plan yet a fourth Q-Sub regarding human factors testing, which should be in the FDA's hand by the end of this quarter. As background, a Q-Sub is FDA speak for a meeting to clarify and hopefully obtain a sort of buy-in from the FDA as to the content and or methods we propose to supply regarding clearance information to FDA for coming, in our case, the 510K application. As discussed in previous emails, I've indicated that the FDA had given us several letters and follow-up calls regarding issues that need to be explained and are supported, which we generally consider as AI or additional information requests. With these two sub-meetings, we hope to now present FDA with our approach to answering their AI issues and obtain as clearly as possible FDA's okay with our approach and or indication as to exactly what more they would be expecting. Armed with more clarity from these two sub-meetings, we will push ahead with increased confidence that our information we subsequently file will affirmatively answer each AI issue and pave the way for expeditious clearance. Now I'd like to recap our performance and given the great level of business performance in Q1, our confidence that this upward trend will continue, plus increasing our outlook for revenue and earnings in 2023. We now expect revenue of 62 to 63 and a half million, gap diluted earnings per share of $1.12 to $1.20, and non-gap diluted earnings per share of $1.25 to $1.34. For the second quarter 2023, We expect to report revenue of 15.6 to 15.8 million, gap diluted earnings per share of 27 to 29 cents, and non-gap diluted earnings per share of 30 to 32 cents. Now, I'll turn the call over to our CFO, Jack Glenn, to review the financial results for the quarter in more detail.
spk01: Jack? Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and non-GAAP basis. You can find a description of our non-GAAP operating measures in this morning's earnings release and a reconciliation of these non-GAAP measures to the GAAP measure on the last page of today's release. As we reported earlier this morning, revenue in the first quarter of 2023 was 15.5 million, an increase of 26% compared to the first quarter of 2022. Domestic sales increased 20% to $11.9 million, and international sales increased 50% to $3.5 million. Overall, domestic revenue accounted for 77% of total revenue for Q1 2023 compared to 81% for Q1 of 2022. Device revenue increased 24% to $10.5 million. This was driven by a 69% increase in pump revenue as we shipped a large percentage of the strong bookings of pump orders received in Q4 of last year. Revenue from disposables and services increased 34% to $4.4 million for the first quarter of 2023, while our maintenance contracts were consistent at a half a million dollars for both periods. The gross margin was 75.7% for the 2023 quarter compared to 76% 0.2% for the 2022 quarter. The decrease in gross margin is primarily due to the geographic mix as international sales with their inherently lower ASPs represented a larger portion of total sales in the quarter as compared to the first quarter of last year. Operating expenses were 7.7 million or 49.7% of revenue compared to 6.3 million or 51.2% of revenue for the first quarter of 2022. On a dollar basis, this increase is primarily due to higher general and administrative expenses for additional headcount and higher in legal professional expenses. As a result, income from operations grew 30% to $4 million for the 2023 first quarter. We recognize the tax expense during the first quarter of 2023 of approximately $944,000, resulting in an effective tax rate of 21.7% compared to a tax expense of approximately $573,000 with an effective tax rate of 18.7% in the first quarter of 2022. This increase in the effective tax rate is largely due to the higher taxable income in the quarter as compared to the same period last year. On a GAAP basis, net income was 27 cents per diluted share compared to 20 cents for the 22 quarter. On a non-GAAP basis, adjusted income was 30 cents per diluted share for the 2023 first quarter compared to 22 cents for the second quarter of 2022. Cash from operations was 4.6 million for the three months ended March 31st, 2023, up from 1.4 million for the same period in 2022. For the three months ended March 31st, 2023, our free cash flow, a non-GAAP measure, was a negative 1.9 million, which was due to the purchase of land for our future office and manufacturing facility of 6.2 million in the quarter. And with that, I will now turn the call over for questions. Operator?
spk04: Wonderful. Our first question comes from the line of Frank Takanan from Lake Street Capital. Go ahead, Frank.
spk00: Great. Thanks for taking the questions and congrats on all the progress in the quarter. I wanted to start with one related to the pumps and monitors expectations for 2023. Can you guys just kind of walk through what you're thinking for roughly speaking growth rates from each of those line items and really trying to get at pumps was obviously disproportionately strong here. Monitors maybe was a little bit below where it's been in previous quarters, but it sounds like it's not a demand thing and it's more supply related. So maybe kind of talk through the different factors you're thinking about in the growth of those two line items in 2023.
spk02: Sure, Frank. This is Roger. Good to have you on the call. So I'll just go over again, you know, when you look at revenue in Q1, the pump revenue was large because of a holdback in pump shipments in Q4 due to some parts shortages. So that doesn't equate to bookings at all. You know, as we mitigate supply chain issues, by picking and choosing different product lines off of our backlog. Let's answer now your question more directly. What do we expect for how we're going to book business and bring business in over the coming year, the rest of this year? Monitors are going to be the story. It's getting a lot of our attention from the sales team. I alluded to this last call. Basically, we have one competitor in that space being Philips, and they're highly preoccupied with other difficulties there. And they have been slashing their sales force that was in that group that sells their MRI patient monitor quite a bit. And so that's put a lot of wind in our sail here. uh, as, as we went through last year, we started to see it and it continues to be, uh, uh, giving us a lot of, let's call it a low hanging fruit opportunities as they seem to be, uh, not as present in the marketplace and certainly not, uh, as, as, uh, as much of a competitive obstacle. So of course the sales team gravitates to that as hunters, they're going where the, where it's, uh, you know, the shooting's easy and, uh, That opportunity is going to continue to unfold here throughout this year, we expect. So you'll probably see the monitors in this next couple of quarters really be the higher growth story with the pump being much less since these monitors are drawing attention and we're going to continue to pick up that more low-hanging fruit as we can. Having said that, there's still growth in the pump business, of course, but the monitor will be the story. Hope that gives you some color.
spk00: No, that's great context. And directly related to that, can you maybe speak to your manufacturing capacity specific to the monitoring line and talk to the manufacturing expansion initiatives?
spk02: Sure, yeah. Well, we're still running, you know, we're getting busy here, but we're still running just a single shift. I don't think the capacity will get tight here in the next quarter or two to where we'll be even looking at a second shift yet. But the new building, which gives us manufacturing space-wise, I think about triple the manufacturing space, that won't be ready until... late in 2024. As we approach that time during 2024, you know, if our opportunities continue to be so great in growing this monitor business, we'll surely be looking at, you know, extending work hours, maybe going to a second shift and so forth, but not in the very near term.
spk00: Okay, that's helpful. And then last one for me, appreciate the updated commentary on the 3870 IV pump. Can you talk to the timeline that you're thinking related to maybe submission and response from the FDA after submission?
spk02: Yeah, so we are, you know, we are getting the two sub questions out of the way so that we hopefully have a smoother path once we do file. We would anticipate filing in this fourth quarter. And spending, you know, the next three or four quarters, you know, dealing with subsequent, hopefully smaller list of questions. There's always more. And ultimately having the clearance sometime in the latter part of 2024.
spk00: Okay, perfect. I'll stop there. Thanks for taking the questions, and congrats again on all the progress.
spk04: Thanks. Thank you. Our next question comes from the line of Henry Scott from Ross Capital. Go ahead, Scott.
spk03: Thank you, and good morning, gentlemen. Another strong quarter. I just have a couple sort of follow-up questions to the prior questions. First on the competitive landscape for the monitors, everything you said seemed to indicate that it's just as favorable today as it was a month ago and perhaps even a little more favorable competitive. Am I interpreting that correct? There's no signs of that competitor changing the momentum in any way?
spk02: No, just the opposite. If you're talking about some sort of increasing competitive momentum, it's decreasing, if anything. So, yeah, it's, yeah, let's say, yeah, over these last few quarters, we've just continued to see it become, you know, much more open field for us to go and hunt in.
spk03: Wow. Fantastic. I appreciate that. update. And then it seems like you're pretty much selling everything you can make. And with regards to how much you can make, it doesn't sound like capacity is the issue, but is it more of, you know, are there some bottlenecks on some certain parts that you can only make so many so fast, or maybe everything, it sounds like that was an issue in fourth quarter with the pumps, but maybe not anymore. It Just could you talk about, you know, the individual parts? Are there any bottlenecks there worth mentioning?
spk02: Yeah. No, that's a good question. Good question. So, yeah, the real constraints are, as I said, you know, we have heartburn on a weekly basis with some parts either used in a pump or a monitor, and that continues. You know, they're just... Yeah, that's pretty much a constant. So we are, we set a course here as we ended up, ended last year, and we're planning for this year's 2023 with procurement. We set a course to buy over our targets as far as our target revenue would be by a good margin, right? So that we could start to build, if anything, safety stock, and, of course, get more visibility to it, any problem coming. So, you know, that's the plan. And so what we're seeing, though, is still some parts very hard to get. You know, last quarter, the pump issue was, I believe, that was castings, that was metal, you know, the chassis itself, castings. So not electronic, but, you know, a material issue nonetheless. And, you know, we have in this quarter, we had an obsolescence part with the monitor. And so we had to hustle around and redesign some new componentry into part of the base station for the monitor. And so that was a pretty big effort and a lot of white knuckle flying there. But, you know, we solved it. And, you know, so I guess I'm giving you the color that, yeah, if not for, I guess to say it this way, right, supply issues and getting adequate components, as you sort of alluded to when you started your question, that does keep us from, you know, just going crazy with what we can build. So we are building, as you said, all we can build, not because of the physical capacity of the plant, but as we get materials. That's really the throttling thing.
spk03: Okay, great. Thank you for that call, Roger. As well, the FMD device generated a bigger number this quarter. I think it was around 300,000. How should we think about the trend there? Is that an upward trend or is that just going to be lumpy? Just trying to get my arms around that.
spk02: Yeah, no, we think that's going to be quite an upward trend. So I believe I mentioned this last call as well. You know, the sale of the FMD is quite different. So our sales force is learning how to deal with it, right? Right. They're used to going in and pulling a pump out of their case, rolling with, or a monitor. They're small devices. They set them on a table. They turn them on, and they give the pizzazz to the clinical users, and that's what generates interest and ultimately gets orders. Well, an FMD is a sort of a set-it-and-forget-it device. It doesn't directly excite the clinician. And so they go in and they talk about it to these same clinical people and everybody nods their head and smiles. Oh yeah, that's great. We've got to have one of those, but who's going to, who's in charge of making the order? You know, they're, they're, they're sorting through what, what seemed like pretty simple issues. They are, but you know, it takes a group of 26, 20 of our reps that are out there a while to get their hands around all that. They are, and they're learning how to, how to deal with those things. And you, because of that learning, you'll see the orders start to follow. One thing we did to give them a little tool is we created a little demo ability. It's hard to demo the whole thing, right? You don't take it out of a case. It's got to be installed on a doorway. So that gives them the curveball. So we've given them a tool where they do have something. Now they can pull out of their hat and turn it on and walk through, display, of the rally box that comes with the system. And it has demo modes in it. And we think that'll get our guys more comfortable to sell in the way they like to. And they're learning how to find out who finally makes the decision. And as those things progress through the year, will it be lumpy? I mean, it probably won't be a straight vertical line, but we think the trend will be definitely upwards.
spk03: Okay, great. And then pricing, how would you kind of categorize the pricing environment, stable, improving, worsening, just in a big picture sense, how do you think about pricing?
spk02: Pricing's been improving these last four quarters, actually. That rate of increase, we're backing off a little bit too. I think we've put in motion the biggest changes, and some of them are yet to roll out and affect what you'll see as revenue, which you'll continue to see throughout the rest of the year. But yeah, pricing is still a positive trend.
spk03: Okay, great. And maybe I'll give one for Jack so he can participate. The G&A and sales It looked like G&A was a little higher than I expected in the quarter and sales was a little lower than I expected in the quarter. Was that noise or is there a shift going on? Just how should we think about those line items?
spk01: Yes, Scott. So the big reason primarily for on the G&A increase was in the first quarter as we did have some additional headcount and some of that has been focused on the regulatory side. But also in the first quarter, it sort of has some expenses that are sort of inherent to Q1, and that would be, you know, we have some legal, professional, and audit, and also just, you know, with the higher payroll taxes, et cetera. So those are kind of the reasons for on the G&A side. And the sales side is just a little bit as, you know, early in the year with the sales plan and so forth, the commissions were a little bit less. But I would expect, you know, overall, the OPEX will probably trend down just a little bit in the upcoming quarters. Okay, great.
spk03: Thanks again, gentlemen, for taking the questions in really strong order.
spk02: Thank you, Scott. Thank you.
spk04: Thank you. I would now like to turn it over to Roger Soucy for closing remarks.
spk02: Well, thank you, Operator. And again, thank everyone for joining the call today. It's been a great pleasure that we reported yet another quarter of great growth. and with this outlook guiding to continue to expect strong performance as the year progresses. I look forward to having the new 3870 Pump 510K filed later this year, as I mentioned, but more so continuing to generate stronger and stronger revenue and earnings results with the existing product lines. And with that, I look forward to reporting our future successes as the year progresses, and thank you very much.
spk04: This concludes the call. You may now disconnect.
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