iRadimed Corporation

Welcome to the Erotemed Corporation Fourth Quarter of 2024 Financial Results Conference Call. Currently, all participants are in a listen-only mode. And at the end of the call, we will conduct a -and-answer session. This call is being recorded today, February 13, 2025, and contains time-sensitive, accurate information only today. Earlier, Erotemed released its financial results for the fourth quarter of 2024. A copy of this press release announcing the company's earnings is available under the heading News on their website at erotemed.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 erotemed.com, and a replay 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. Forward-looking statements focus on future performance, results, plans, and events that may include the company's expected future results. Erotemed reminds you that future results may differ materially from these forward-looking statements due to several risk factors. For a description of the relevant risk 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 Roger Soussi, President and Chief Executive Officer of Erotemed Corporation. Mr. Soussi?

Thank you, and good morning, and thank you all for joining us on today's call. Once again, I am in a fairly unique position to report yet another record quarter, our 14th consecutive quarter. Driving this record quarter is revenue at over $19.4 million. Gross profit came in at $76.1 million, with earnings very strong as well, meaning GAAP diluted earnings per share, increasing 11% from Q4 2023. For the year, pump sales continued their extraordinarily strong trend. However, also proud to say that the team also has brought in monitor bookings domestically for the quarter at a record tying rate. And pump sales continue their extraordinarily strong trend as well. This is due to the sales team's focus and continuing customer interest and demand. Jack Glenn, our CFO, shall provide more details on revenue and earnings comps in a bit, while I would like to discuss the new pump's progress through FDA clearance. As previously discussed, we received an additional information letter from the FDA shortly after the submission was made in early September. We've engaged with the agency twice via SIR meetings to clarify certain items in this AI additional information letter. With our team pushing, our teams have been pushing very hard, gathering data and writing the formal responses. With that, we plan to have this response back to the FDA the first week of April. From there, we would expect a few possible follow up questions to come in May, with our final responses shortly thereafter. Given the turmoil with various agencies in the current administration, it's anyone's guess if the FDA may be operating more slowly than usual. However, we do not see any strong sign as of yet. And so we will expect clearance as previously stated, midsummer. To reiterate what I mentioned, this new device, the 3870 MRI View Pump, will be a 2026 story. Clearance in mid-25 means that we expect only light revenue from the new device in fourth quarter of 2025, as the sale and shipment cycle is measured in months, not days. However, as witnessed by the strong sales of replacing the older IV pump after we discontinued offering our extended maintenance on pumps seven years and older, the new 3870 pump sales are expected to dwarf sales of this older model. As the quarters progress through 2026 and into 2027 and beyond. Finally, with regard to our new facility, it's now under construction, progress has been steady and to plan with only minor material supply disturbances, which the general contractor has managed to mitigate well. Interior walls wrap electrical and plumbing are well past halfway, and with the installation of the glass going in very soon, the building will be totally dried in and ready for the interior final trim. We remain confident in the June final certificate of occupancy and commencements of our move shortly thereafter. I'd now like to provide a bit of what we expect to see in Q1 2025. For this first quarter of 2025 financial guidance, we expect revenue of $19.2 to $19.4 million, with a gap diluted earnings per share of $35 to $39 cents, non-gap diluted earnings per share of $39 to $43 cents. We look forward to reporting revenue of $78 to $82 million for the full year, and we would expect gap diluted earnings per share of $1.55 to $1.65, with non-gap diluted earnings per share of $1.71 to $1.81. And with that, I'll turn the call over to Jacqueline, our CFO, to review the quarter's financial results.

Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a gap basis and a non-gap basis. You can find a description of our non-gap operating measures in this morning's earnings release and a reconciliation of these non-gap measures to the gap measure on the last page of today's release. As we reported earlier this morning, revenue in the fourth quarter of 2024 was $19.4 million, an increase of 11% compared to the fourth quarter of 2023. For fiscal year 2024, revenue increased 12% to $73.2 million. The increase for the quarter and the year was due to the sustained strong demand for our IV pump as our -of-life replacement program continues to drive exceptional growth for our pumps. Domestic sales increased 21% to $16.5 million, and international sales decreased 24% to $2.9 million. Overall, domestic revenue accounted for approximately 85% of total revenue for Q4 2024 compared to 78% for Q4 of 2023. Device revenue increased 12% to $14.3 million in the fourth quarter and 13% to $52 million in fiscal 2024, again driven by a 34% and 36% increase in pump revenue, respectively. Revenue from disposables and services increased 9% for both the fourth quarter of 2024 and fiscal 2024. The gross margin was .1% for the fourth quarter of 2024, slightly below the .9% for the 2023 quarter. The gross margin for fiscal 2024 increased to .9% compared to .5% for fiscal 2023. The increase in overhead spending year over year primarily was driven by the slight decline in the gross margin for the quarter. Operating expenses were 9 million or 46% of revenue compared to 8.3 million or 47% of revenue for the fourth quarter of 2023. For 2024, operating expenses were 34 million or 47% of revenue compared to 30 million or 46% of revenue for 2023. The dollar increase in operating expenses for the quarter and the year is primarily due to increased sales and marketing expenses due to higher sales commission expenses. We accrue and pay sales commissions on orders booked, so the higher sales and marketing expenses in the fourth quarter reflect the exceptional bookings for the quarter and a resultant record backlog as we enter 2025. Operating income was 5.8 million for the quarter and 22 million for fiscal 2024 as we maintained a solid operating margin of 30% for the quarter and the year. We recognize the tax expense of approximately 5 million for fiscal 2024, resulting in an effective tax rate of .8% for the year and .9% for the fourth quarter. This rate was in line with the .9% effective rate in 2023. On a gap basis, net income for the quarter was 40 cents per diluted share compared to 36 cents per diluted share for the 2023 fourth quarter. On a gap basis, net income for fiscal 2024 was $1.50 per diluted share compared to $1.35 per diluted share for fiscal 2023. On a non-gap basis, adjusted net income was 44 cents per diluted share for the fourth quarter of 2024 compared to 39 cents per the fourth quarter of 2023. On a non-gap basis, adjusted net income was $1.66 per diluted share for fiscal 2024 compared to $1.48 per diluted share in 2023, an increase of 12% year over year. Cash from operations was 6 million for the three months ending December 31, 2024, up from 3.9 million for the same period in 2023 as we drove efficiencies in our working capital management, particularly in inventory. For the three months ended December 31, 2024, our free cash flow, a non-gap measure was 2.9 million down from 3.3 million for the same period in 2023. This decline is related to our ongoing capital expenditures for construction of our new building, which were 2.7 million for the quarter. As Roger noted, we expect to complete the new facility by June and will spend approximately another $5.5 million to complete the project. With that, I will turn the call over to the operator for questions. Operator?

Thank you. We will now begin our Q&A session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jason Witz of Roth Capital Partners. Your question, please, Jason.

Hi. Thanks for taking the questions and solid quarter here. So in terms of next year, should we assume that the sales force is going to focus more on the monitor business and we see an uptick there? Or how do you see this 2025, at least on the top line, sort of forming?

Hey, Jason. Yeah, this is Roger. Good question. I've spoken to it, I guess, the last maybe two quarters here since probably mid-year last year that 2025, we would indeed be highlighting sales of the monitor as far as how we are going to incentivize the sales team. And so we would expect that the monitor business in 2025 will be significantly impacted. As I mentioned, it started to show already. We had some very strong bookings for the monitor in this fourth quarter. So yeah, 2025, as you put it, is going to have more to come on the monitor.

So related to the uptick, has there already been sort of a shift in focus to the sales force? That is part of the reason we saw this sort of uptick in monitor business or is it just sort of?

Yes, yes. Yeah, I'd say mid-year, slightly past last mid-year, we did some minor tweaks to the monitor versus the pump. And that's starting to show it bared some fruit already in Q4. And it didn't impact the pump business. So very, pretty happy with that.

Yeah. So then if I think about, then I'm looking at your bottom-line assumptions, does R&D come down because you now have submitted for the pump? And also, what do I think about gross margins for 2025?

Jack? Yeah, Jason, this is Jack. So yeah, from the R&D spend, I would say it's going to be pretty consistent, maybe a little uptick from where we're at right now, because we might add some headcount in that area into 2025, but fairly consistent. As far as the gross margin, I think, yeah, an R&D. And then as far as the gross margin, I would say that we right now feel that it's pretty much going to be in line with where we're at, in that 76, 77% range going into 2025. Always a little dependent upon the mix as far as geographical. As you know, roughly 20% of the business is international and we sell it at a fairly sizable discount through distribution. But overall, I should say, pretty in that range for 2025.

I'm sorry, just to clarify, on a dollar basis or a percentage basis? Percentage basis. Yeah, yeah, pretty consistent in that, like I said. Okay, got it. And then, so I guess that means that you're going to see, you know, if I look at the map here in terms of getting to, you know, plugging in the numbers you've provided for guidance, sounds like there's going to be some leverage in G&A and S&M. I don't know if you can elaborate any on that and how that might play out this year.

Yeah, I think that we will. Hopefully, that's our plan is get some leverage in the model and the G&A. Sales and marketing is right, you know, I spoke to is the big piece there is the variable expense, right? The sales commissions. And that was reflected in our Q4s. You know, we do accrue for the commissions on bookings. And we had, again, a very strong bookings quarter. You can see the increase in the sales and marketing in Q4. Going forward, I would say that, yeah, we expect it kind of to be in that same range, though, but certainly it may be a little more leverage as we go through the year. Always dependent upon, you know, how the performance is to plan, which is, if it succeeds that, certainly a good problem to have, right?

Right. We're trying to, you know, this year in getting prepared for having the new pump next year, though, we will be, we will be also, you know, extending, I guess, overextending, for lack of a better word, it would look like overextension in 2025 to get ready for the 2026 launch of the new pump in that we'll be adding some of the support people, you know, the clinical specialists, we probably put in some, we'll be starting to put in some territories, additional territory plug-in. So, yeah, there'll be some, there'll be some cost increases. There aren't directly, you know, commissions paid for actual sales made in 2025 as well.

Got it. I will jump back in queue. Thank you very much.

Thank you. Good to talk. Our next question, and cops to Kenan of Lynch.

Hey, hey, Roger and Jack, this is Nelson Cox on for Frank. Thanks for taking the questions. Kind of just following up on that, correct me if I'm wrong. I think the last we had talked, you talked about 35 territories kind of being an optimal number post the new pump approval. And I think that's versus 30 today. Is there any change to the thinking there on how you are thinking about an optimal sales organization kind of post approval of the new pump?

No, that's, that's, that's why we, that is, that is still the plan. And of course, it means, you know, we'll see that ground starting a little early, we won't put in 35 in calendar year 2025, on the one hand, but we will be putting in a few extra above our current 20, where we at 28 right now, actually. So that's why, you know, we'll have some expense there in preparation for, you know, right size in the sales team to, to, you know, do the, do the business we anticipate we'll

have with the pump.

Perfect. And then sounds like the backlog is providing good visibility and good to see the strength there. Can you maybe just walk us through how you're thinking about backlog as you move through the year? Any commentary on how you're thinking about the overall composition of the backlog possibly changing throughout the year would be helpful. Sounds like monitors maybe take a bigger portion with the focus there on the sales team, but any additional color there would be helpful.

Yeah, Nelson's Jack. Yeah, it is, as we mentioned, is a very strong backlog beginning the year. So that gives us very good visibility, especially into the first half of the year, I would say that the backlog right now is certainly based, you know, on the pump bookings is very strong on pump, but not in also at the same time, though, as Roger mentioned that we had a very strong bookings, as number of units here domestically on the monitoring side. So it's, I think, you know, a little more bias towards the pumps, but certainly our plan, as we've talked about, would be to have the monitors pick up as we go along. But it again, it gives us very good visibility, especially for the first half of the year.

Perfect. And then maybe just one last quick one of the current pump install base out there. Can you just walk us through, starting in 2026, how many pumps you think you can renew a year with the 3870?

Oh, you mean, you mean this replacement business? Yeah, yep.

Yeah. Well, as we've talked in the past, right, we'll have, we'll have over 4,000, -4,000 pumps that are older than five years, you know, of our current 3860 model. And we feel it'll be, you know, we feel that we want to kind of hold the demand to where it's going to be about 800 to 1,000 replacements of those systems, which ultimately is about 1,600 to 2,000 pumps, because most of the systems we'd be replacing are twin channel systems in the U.S. market. So that represents, you know, given that currently today twin, you know, twin channels, you know, what we're selling now is about 1,200. You know, we're looking at more than doubling the number of pumps that we sell.

In 2026. Perfect.

In 2026, yeah.

Yep.

All right. Thank you. Very good.

Thank you. I would now like to turn the conference back to Roger Susie for closing remarks.

Sir? Good. Well, thanks. Let's see. One last thought I had here is regarding concerns that folks may have over these various tariffs that are being implemented. And I'd like to say that, you know, this will mix in to probably most every manufacturer in the U.S. has some exposure to that. In our case, we source only three or four rather expensive components from countries that are going to be hit with the tariffs and increasing tariffs and or increased tariffs over what we've already been paying. And of course, there's a larger number of inexpensive components, which we feel the impact from those is very negligible. But still, these larger parts make up less than 3% of our bomb cost, the bill of material cost. So with tariffs as a fraction of that, you know, therefore do the math. And we wouldn't expect tariffs to affect gross margin materially. And I just thought I'd speak to that briefly. So and with that, as always, it has been a great pleasure that we take this opportunity to review Eradim as progress for you all. And we also probably state that we expect strong performance as 2025 progresses. With that, thank you.

Thank you. This concludes the call. You may now disconnect.