IRadimed Corp (IRMD) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the IRadimed Corporation Second Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded today, July 28, 2017, and contains time-sensitive information that is accurate only as of today.

Earlier today, IRadimed released financial results for the second quarter 2017. A copy of this press release announcing the company's earnings is available under the heading News on their website at iradimed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8-K. A copy of the Form 8-K can be found at sec.gov.

This call is being broadcast live over the Internet, on the company's website at iradimed.com. And a replay of the call will be available on the website for the next 90 days.

The agenda for today's call will be as follows. Roger Susi, President and Chief Executive Officer of IRadimed, will present opening comments. Then Brent Johnson, IRadimed's Executive Vice President of Worldwide Sales and Marketing, will discuss customer orders. And finally, Chris Scott, IRadimed's Chief Financial Officer, will summarize the company's financial results before opening the call up to questions.

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 include the company's expected results for 2017. IRadimed reminds you that future results may differ materially from these forward-looking statements due to a number of 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 report filed with the Securities and Exchange Commission, which may be obtained for free from the SEC's website at sec.gov.

I would now like to turn the conference over to Mr. Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi?

Thank you, operator, and good morning, everyone. Earlier today, we reported second quarter revenue of $5.5 million with GAAP net income of $0.03 per diluted share and non-GAAP net income of $0.06 per diluted share. Of course, I'm pleased with these results considering current quarter revenue was up 7% over the first quarter of 2017, and we exceeded our GAAP and non-GAAP earning estimates as well, though comparison to our 2016 Q2 is against our highest ever quarter.

Additionally, IV pump bookings for the quarter were strong, plus international interest in our patient monitor is growing at an exciting pace. We still are somewhat early in our new sales process; however, these results are positives and give us confidence in our methods and products that we remain vigilant and ready to make adjustments to our selling strategies and our cost structures if needed. Clearly, at this time, we look to continue growing momentum into the second half of the year.

In a few moments, Brent will provide you with an update on bookings, and Chris will review the quarter's financial results. But first, I'd like the time now to give you an update on our regulatory status of the patient vital signs monitor. As many of you may recall, during our last quarterly update, we announced that we have withdrawn the monitors 510(k) application after conferring with counsel and our FDA lead reviewer. This allowed more time to understand and respond to additional documentation and testing concerns around certain aspects of our device that FDA was concerned with, specifically additional documentation and testing around ECG effects in the MR and an additional human factors testing that is supplementary to the human factors testing we'd already perform.

I also stated during our last update with you that we were in the process of requesting a face-to-face meeting to clarify those issues with FDA and discuss those new documentation and testing expectations in detail and our anticipated approach in addressing each concern. On June 1, we were able to have that face-to-face meeting with FDA. And after a highly positive and productive meeting, we walked away with a clear path to address their unresolved concerns. We immediately began the process of compiling the additional documentation and performing additional testing, and I'm now happy to report you that we have resubmitted the 510(k) application to FDA earlier this month. We have also confirmed with FDA that they received our resubmission and have assigned its review to the same lead reviewer as the original 510(K) application. This should result in an efficient review process as the lead reviewer and team is already familiar with our device and much of its documentation as well as agreements reached during our meeting. This should also help minimize the chances for a large number of new concerns.

Given the timing of the resubmission and the responsiveness previously with this FDA review team, we remain hopeful for clearance late in the third quarter, allowing for a fourth quarter launch in the United States. As we now wait to hear from FDA on their review, I've turned our focus internally towards enhancing our high quality and efficient patient monitoring production line. We made much progress in this area over the past several months, and we feel very confident that we will be prepared to handle a high level of demand from customers upon launch of the MR patient monitor in the U.S.

Now before turning the call over to Brent for discussion around bookings, I'd like to review our financial guidance for the third quarter, which historically is the lowest booking quarter of the year. We expect revenue of $5.5 million to $5.6 million with GAAP earnings per share of breakeven to minus $0.01. The non-GAAP diluted earnings should be plus $0.02 to plus $0.03. At this time, we are reiterating our full year 2017 guidance of $22.7 million to $23.1 million in revenue, GAAP earnings is $0.03 to $0.04 per diluted share and non-GAAP earnings of $0.10 to $0.13 per diluted share.

As stated in our last quarterly update, included in our full year revenue estimate is approximately $2 million in sales from our patient monitor, of which $1.5 million is expected from international sales. This implies revenue guidance from sales of IV pumps, disposables and related services of $20.7 million to $21.1 million or approximately 3% to 5% higher than the 2016 revenue ex backlog, which we have previously spoken about.

Now I'll turn the call over to Brent for discussion of our customer orders.

Thanks, Roger. Second quarter bookings came in above our estimates, with June actually being our strongest monthly performance in the past 2 years. This growth was driven by an increase in the overall volumes of pump systems orders and the continued increase in average selling prices in the U.S. market due to customers purchasing more higher-priced accessories and options than in the past. This has been a continuation of the positive results that we saw in our first quarter, and we look to build upon this momentum going forward.

In reviewing the composition of pump orders for the quarter, we have very similar mix as the first quarter, with approximately half of our orders coming from first-time adopting customers and half of our orders coming from current installed base of customers, and we view this as a very healthy mix. Consistent with my comments during the last quarterly conference call, orders from our former competitor's customers remain negligible, and we expect a similar composition of orders for the foreseeable future.

Our strategy of targeting the critical care departments, along with our core market in the MRI department, is beginning to pay off with increased orders for our pumps. We are experiencing higher rates of success with our critical care strategy by stimulating the demand for those pumps in those departments and changing their practice of either using conventional pumps with long IV lines extending to the MRI room or waiting until patients are stable enough to go to MRI without IV medication. Even when we do not sell directly to critical care department, the demand from critical care and their desire for changing current practice is putting pressure on the MRI department to order our MRI compatible pumps to handle the request for patient care. In many cases, it's this increased pressure from critical care that is motivating the MRI department to prioritize the decision to purchase our pumps. The same strategy works for our current customer base as well. Many of whom did not purchase enough pumps, as a result of the unexpected nonbudgeted expense they faced when they were rushing to replace their Medrad pumps during our former competitor's recall and departure from the market. In many of these cases, these hospitals can't meet the multiple IV line demand from critical care, and they have just continued to use workaround solutions or do not scan critical patients requiring IV line. We believe that this critical care strategy is the most effective way to drive increasing pump sales with both new users and our current installed base.

As for the MRI compatible patient vital signs monitor, we continue to be pleased with the number of orders we're receiving from our international customers. Additionally, we continue to receive positive feedback from our international distributors regarding the interest they are generating from customers, giving us a firm base of support for the confidence we have in the quality of the product and the success of its U.S. launch. As Roger stated previously, we are planning a fourth quarter launch of the monitor in the U.S., and we see lots of opportunity to capture business before the end of the calendar year. The fourth quarter of the year is historically when many of the MRI monitor purchases are made and should provide us a great environment for our launch. We remain excited about bringing the monitor to the U.S. market and believe there is a tremendous opportunity for us to expand the global market's overall stock. As a reminder, we're the only company with an MRI compatible patient vital signs monitor that due to its small light-weight size and transport capabilities has the potential to expand to other areas of the hospital and increase the overall size of this market. After receiving a cleared 510(k), we expect to add an incremental $15 million in revenue annually from the sales of our patient monitor within 24 months of commencing shipment in the U.S..

Now Chris will provide a summary of our second quarter financial results.

Today, I'll be discussing our financial results on a GAAP basis as well as on a non-GAAP basis. Our non-GAAP operating results excludes stock-based compensation expense and the related tax effects. Our free cash flow measure is cash flow from operations less cash used for purchases of property and equipment. We believe the presentation of these non-GAAP measures along with our GAAP financial statements can be helpful in providing a more thorough analysis of our ongoing financial performance. You can find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today's press release.

As Roger stated, we reported second quarter revenue of $5.5 million compared to $9.9 million for the second quarter last year. Revenue from domestic sales was $4.8 million or 88% of total revenue for the current quarter compared to $9 million or 91% of total revenue for the second quarter 2016. Revenue from international sales was $0.7 million or 12% of total revenue for the current quarter compared to $0.9 million or 9% of total revenue for the same quarter in 2016. International revenue for the second quarter of 2017 included approximately $400,000 in sales of our MRI compatible patient vital signs monitoring systems. Revenue from devices was $3.7 million or 67% of total revenue for the current quarter compared to $8.2 million or 83% of total revenue for the same quarter last year. Again, $400,000 of devices came from our sales -- came from sales of our MR patient monitoring systems.

Revenue from IV sets and services was $1.8 million or 33% of total revenue for the current quarter compared to $1.7 million or 17% of total revenue for the 2016 quarter. As of June 30, 2017, backlog was approximately $2.7 million and within our expected range for the full year 2017. We recognized revenue on 92 IV pump systems this quarter compared of 262 pumps in the second quarter last year. Our average selling price for the 2017 quarter was approximately $35,600 compared to approximately $31,100 for the 2016 quarter. The increase in ASP is the result of a favorable sales mix as we sold more higher-priced optional pump feature per pump sale on average than in the 2016 quarter.

Gross margin was 77.7% for the current quarter and 82.4% for the 2016 quarter. The decrease in gross margin percent was the result of unfavorable overhead absorption rates due to lower production output during the second quarter 2017 when compared to the second quarter 2016. Unfavorable inventory adjustments, higher depreciation and amortization expense and higher international sales as a percent of total revenue when compared to the same period last year.

Operating expenses for the second quarter 2017 were $4 million or 72% of revenue compared to $4.8 million or 49% of revenue in the prior-year quarter. On a dollar basis, the decrease in operating expenses is due to lower stock compensation expense resulting from a charge taken in the second quarter last year related to the modification of equity awards granted to our previous Chairman; lower administration fees paid to our GPOs and lower sales commissions expense partially offset by the write-off of nontrade accounts receivable; higher payroll and employee benefits resulting from higher headcount and higher consulting expense.

Our effective tax rate for the current quarter was negative 2.4% compared to 33.1% for the 2016 period. The lower effective tax rate is primarily due to the impact of research and development tax credits and domestic production activities deductions over -- on the lower base of pretax income when compared to the impact of those same credits and deductions last year. Additionally, our effective tax rate is being affected by tax shortfalls and windfalls related to equity awards that are now recognized in the tax provision as required by the new accounting standard rather than in additional paid in capital under the previous accounting guidance.

On a GAAP basis, net income for the current quarter was $0.03 per diluted share compared to $0.19 for the second quarter 2016. On a non-GAAP basis, net income was $0.06 per diluted share for the current quarter compared to $0.24 for the second quarter last year. For the 6 months ended June 30, 2017, cash provided by operations was $100,000 compared to $3.8 million for the 2016 period. This decrease was primarily the result of lower net income and higher net cash outflows related to accrued income taxes and accounts payable, partially offset by higher net cash inflows from accounts receivable, inventory and deferred revenue. Our free cash flow, non-GAAP measure, was $100,000 for the second quarter of 2017 compared to $1.1 million for the second quarter of 2016. During the second quarter, we used $1.6 million to repurchase approximately 183,000 shares of our common stock pursuant to an $8 million repurchase authorization that was announced on April 28 of this year. As of June 30, 2017, we had $23.8 million of cash and investments.

And with that, I'll turn the call over for questions. Amanda?

(Operator Instructions) And our first question comes from the line of Chris Lewis of Roth Capital Partners.

Wanted to start on just the booking trends for the pump in the quarter. On the last call, you talked about bookings accelerating in March, and it sounds like based on your prepared remarks today, you saw that continue through this quarter. Appreciate the prepared remarks from Brent, but perhaps you can elaborate on just what you feel is having the most impact for those improvements your experiencing, any additional color on that would be helpful?

Yes. Sure, Chris. It really comes down to the strategy that we're employing because, as Roger alluded to, we've been training the salespeople, and it's been a process. Before we were really concentrating most of our efforts on MRI and concentrating most of our efforts on the -- with anesthesia. But this focusing on critical care really is driving the demand quotient for the pumps. These are the people with the critical patients that they're taking care of and these are the people that are responsible for that care. And as I said in my remarks, it really helps to prioritize those purchases in MRI. MRI -- they like our product. They -- again, they see -- I've never been involved in a demonstration where they looked at it and they've gone, "No, the way we're doing it is better". They pretty much almost always agree that it's a great idea to use an MRI IV pump. But these departments have many, many priorities, and that's just one of them. So the more that we can work with critical care and the more that we can develop the grassroots interest in our product and demand for our product for those patient and actually change that -- the way they're practicing. And that's what we're talking about here. It's really changing their way of practicing. And once we get that engrained into those customers that are really responsible for taking care of those patients that's where we're having our greatest success. So this has been a process, though, educating the salespeople, bringing on a lot of new salespeople as we did over the past year or 18 months and getting them not only trained up in the process of representing our products but also in this critical care strategy has taken some time as well. And I think it's a combination of everything coming together. We're coming together with more seasoned salespeople working for us. Many of these quotes that we put out over the past couple of years are now coming to fruition and have been able to make it through some budgetary processes. And so -- overall -- I mean, there is a lot of factors that are leading into it, but really pleased with the positive results were seeing.

All right. That's really helpful. How big is the sales force today? And did you experience any rep turnover during the quarter?

We actually did. We have 18 salespeople, remember, and 2 area directors that direct the day-to-day activities of those people. We did have 2 turnovers in the past quarter. One of them was expected as is healthy and happens with any sales organization. And one of them caught us a little bit by surprise. But -- so we did have 2 turnovers. We've got -- We're in the process to replace them and have -- identify candidates. Have not made final hiring decisions yet, but are very close.

Okay. So if we back out the backlog in the monitor sales this year, guidance implies around that 3% to 5% underlying pump growth rate that you talked about. As we look into next year, understandably you're not going to give guidance today, but do you see that 3% to 5% as kind of a normalized and reasonable baseline for kind of pump growth going forward?

I see that it's something that we should be able to achieve. Yes.

Okay. That's great.

Because I think -- this is really -- as we mentioned here in the comments, this is really the start of the process, and we think as we get deeper in the process, we're going to be able to achieve some higher growth rates. That's kind of why we laid the process out like this, and we knew that there was going to be a ramp to it. So if we think about next year, I think we would be pretty disappointed with 3% to 5% growth or 5% to 7% growth that we refer to on the pump business. I think we will be more -- we would really like to see something closer to 12%, 15%, something along those lines. Obviously, we got to do the detailed work around that. There's a couple of more periods to play out and this education to really take hold and this traction and momentum to continue to build. But I think we would overall be pretty disappointed with 3% to 5%, and we're really shooting for something 3 to 4x higher than that.

Okay. That's helpful. And then in terms of the monitor, the anticipated launch in the fourth quarter. Perhaps you can kind of just help us understand what you're doing ahead of that in terms of getting the reps up to speed on that product in anticipation of beginning to sell it in the fourth quarter?

Sure, Chris. We have had some training on the product already at some prior meetings. And we have really begun -- we've been talking to customers about the product for quite some time now. So we have a good base of customers that are anticipating the release of the product and customers that are, frankly, in many cases, are waiting for the release of the product because they want to see it, they want to try it and think they want to buy it at this point. We also have been basically correlating all that -- trying to find all the customers out there that are making Q4 decisions. So this is part of the daily discussions that the guys are having when they go to see the MRI department as they are talking about the pump they are identifying those customers that are making Q4 decisions, that's what we're really prioritizing at this point. We have many interested customers, but we're really trying to focus in on the ones that are making Q4 decisions so that we can target them as soon as we have that 510(k) and as soon as we can get equipment out into their hands and be demonstrating and showing the product. We do plan to have a full training for our sales people the first week of October as long as everything goes as planned, and we do get the 510(k) or anticipate the 510(k) by the end of Q3.

Okay. And just one more for me, and I'll hop back in queue. You talked about, I think, a $15 million kind of annualized run rate within 24 months for the monitor product. Kind of given what you've seen internationally so far, albeit still early, seems like that traction is progressing nicely. Now how should we think about the rate of adoption for the monitor in the U.S. just given the dynamics around the sales cycles and competition and rep training, and so forth?

Yes. Well -- I mean, it's a little bit of a different dynamic there, Chris, because unlike the pump market it's not a market that we're creating, right? All those pump sales are markets that we're -- go out there -- a lot of those pump sales, I should say, or tales that we're creating out there in the market. This is a market that already exists. It's a mature market. It's a market that, again, is going to buy x amount of patient monitors each quarter and that becomes an exercise of, a, identifying the business; and b, competing and winning that business against entrenched competitor. So as you can imagine, it will be a process where our people come up to speed on selling that technology on competing in that kind of a marketplace with a large entrenched competitor. But that's pretty much how we see it progressing. So it will be different than the pump sales. But that market is already there. We're going to be competing on these deals from day 1. So I believe that we're going to aggressively attack that market and take market share.

(Operator Instructions) Our next question comes from the line of Larry Solow of CJS Securities.

Just sticking with the monitor for a couple of questions first. You guys -- just any plans for sales force expansion? Or you're going to sort of go with what you have today initially and then play it by year?

Yes, I can answer that. We plan to -- once we launch the monitor, we plan to continue to expand our sales team. With the addition of the monitors, you can imagine it's a whole new product area that has a larger current market each year. So there's a lot of opportunity there, and we're going to need more feet on the street to address it.

Okay. And how about just -- outside the monitor, it looks like the sales force had been -- I know you said you had a couple of turnovers this quarter. You still -- I think you started the year at 16 or 17, right? So you've, I guess, trickled up a little bit. And I guess that's still sort of the plan to trickle up and then maybe that it advances a little bit with the monitor?

Yes. I mean, we started the year with 18 sales territories. We've still got 18 sales territories. We made a decision to hold the 18 until we release the monitor. But like I said, when we release the monitor. We're going to need more people, it's a lot more market.

And can you characterize -- I think you've said you filed -- I'm not sure if you've given an exact date, I think early July, I'm not sure if there was a date given. But just your discussions to date, I guess, with the FDA. I know they asked for some additional study, but it -- started out, but looked pretty benign. I guess you seem pretty confident that you'll get approval within, I guess, 90-day period. Any color on that, that you could add or what gives you that confidence?

Sure. Larry, it's Roger. Yes, I think you can probably tell by the tone of my voice, we're pretty confident.

Absolutely.

Yes, we're pretty confident it's going to happen a lot less than 90 days actually. So what -- and I -- maybe I'll give a little more color to something that I might have passed over a bit lightly, which is this team that does monitor approval, they looked at this twice now, right? -- already. The first go around when they looked at the original application that we filed about a little over a year ago, they looked at that and came back with 41 rather detailed questions and concerns in about 40-something days. My mind is -- I don't remember it's 42, 43 something like this days. So 90. And we responded to that large number of questions. That response was a couple of legal box size -- boxes full of paper. So it's a huge response. They responded to that in under 30 days. So they've been performing rather quickly, and we expect that they'll again respond to this reapplication since it's pretty targeted now what they're looking at. There were about 16 open concerns, most of -- a vast majority, which were very simple that led us to withdrawing and starting over again. The main reason why we had to do another human factors and that was time consuming. So for them to go over what we've now returned to them, we really expect that, that will be again less than 30 days. And so we should know in early part of August, certainly by the middle of August, where we stand with this latest 510(K). And anticipate that there wouldn't be any particularly difficult or time-consuming questions resulting from that. That's why we're very bullish that we'll have this thing cleared by -- ready to launch 1st of October.

Okay. Couple of more on -- just -- I know you didn't give an actual bookings numbers or a book to bill or anything like that. But just trying to get an approximate number because I know -- I see that you're -- essentially your sales were up a little bit sequentially, but if I take out the monitor, they were sort of flat, maybe even down a little bit excluding the monitor. And then going out into Q3, and I realize that's a little bit of a weaker quarter. But it looks like sales are expected to drop again. I know it's a small number, but a little bit down. So I'm just trying to connect the dots to what the bookings were or how favorable they were?

We don't -- I mean -- yes, so we don't really talk about what the bookings are other than Brent's comments. They were strong this quarter, and we felt like there was a lot of flow through them that we began to see in the first quarter. That sort of was the continuation there. Third quarter is typically our lowest booking quarter of the period. So we weren't -- there was really no reason to get aggressive or anything more when we're walking into the third quarter. But you see some flat to slightly up guidance for Q3, but we're highly confident in that guidance based on what we've see and based on what we're carrying into the quarter. And I think -- your commentary about flat revenue once you're backing out -- once backing out the monitor flat to down. It was truly flat. I mean, the monitor sales in the third and fourth quarter or -- I mean, in the first and second quarter were within $10,000 of each other. So you're -- it's really isn't apples-to-apples comparison. So there was some slight growth in the pump business.

Got it. Okay. Fair enough. Can you just -- last question. Just, Chris, on the -- gross margin had a little bit of a sequential bump up. Anything to read into that? And what's the outlook on the back half of the year?

Nothing to read into it. There wasn't anything unusual. We had a drop-off in the first quarter gross margin just due to some production. We carried more finished goods into the first quarter than we thought, and we didn't produce as much as we had planned in the first quarter. So we ended up with some variances there that really put a drag on margins. The second quarter we kind of caught all that up and produced a lot more, able to absorb a lot of those overhead costs. Going forward, we think we're straightened out now, and wouldn't expect too much movement. Of course, there's going to be some movement in margin, but I wouldn't expect some significant movements like what we saw between Q1 to Q2.

And our next question comes from the line of Larry Haimovitch of HMTC.

I just have one question. A lot of the other questions that I had lined up were asked by the previous questioners. Capacity for the new monitor. Assuming you get approval in a timely way and assuming demand is better than you thought, do you have the ability to deliver more than the number you suggested on the call?

Absolutely.

Larry, we have capacity to deliver many more than even in our wildest dreams. My gut is the first few -- several quarters of business.

Okay. So your sales forecast or your sales guidance, if you will, through the -- for the year is based on the selling cycle, not the ability to deliver product?

Right, that's right.

Right. So if it starts to take off, you'll have the ability to deliver?

Yes.

Yes.

And so how much can you save the margin in advance? Obviously, you don't have the approval yet. Hopefully, you'll have it within several weeks coming up here. Are you talking to customers at this point about it? And is it possible that customers will respond quicker than you thought and maybe will pleasantly surprise you?

Yes. As I was talking about on the previous question, we have been promoting the product. Again, you got to be careful on how you say that. We have not been pricing the product and have not been giving any kind of a delivery date for the product because we're not allowed to do that without 510(K). But we have been talking to customers about the product, and they are excited to see the product when we have it available to them. And like I said what we're really trying to -- what we're really trying to do is identify the business that's happening in Q4, right? There is a number of deals that are going to go down in Q4 that are budgeted patient monitoring deals that are going to happen, that happen quarter after quarter after quarter. So we're concentrating on our efforts on finding those deals and, again, being ready to get in there and promote the product with those customers as soon as we are able to do it.

And this fourth quarter business that you see available, I'm assuming this is 99% or 100% replacement business that there isn't any new installations going on at this point around the country?

Yes. There is new installations from the standpoint that -- the magnet base in the U.S. is still growing. I believe it's at a very slow rate of 5% to 7% a year. So there are more and more magnets that are being installed. Again, I'm talking about the U.S. market here, worldwide there's various rates of expansion. But just to focus on the U.S. market here, there is a small number of -- a small growth in that market. And of course, that growth represents new patient monitoring opportunities too. So there is some growth there.

Yes. And what's the relevant market opportunity? I know you've described it in the past. What do you think that the market -- the installed base in today's U.S. market?

For monitors?

Yes.

Annually, I would put that number at...

Installed base.

Well -- I mean, I'm just looking at an annual number as far as the installed base.

Well, either or both of the numbers is perfectly fine.

Yes. Looking at it from more of on annual -- on an annualized basis, somewhere in the range of $70 million to $100 million.

So let me understand that answer. If you captured 100% of the available market share at some point, 2018, 2019, 2020, that the monitor sales would be $70 million to $100 million or did I misunderstand what you're saying?

Yes, that's the total available market.

That's the total available annual market?

Yes. And in U.S. is probably more like -- it's taking about probably more like $60 to $80 million.

How much did you say, $60 million?

$60 million to $80 million.

$60 million to $80 million. So with a superior product and with available capacity, it is conceivable that you could in a year or 2 have a very, very robust monitoring business, am I thinking correctly here?

Yes. You're thinking correctly.

You're thinking correctly. In the prepared remarks...

Because I've seen the competitive products, I've seen your product and you talk about night and day. It's more than night and day. I mean, it's just a dramatic difference in the quality of the product. It's a clunker versus a Tesla, right? Or something like that. So it would seem that you'll have a very good opportunity to really pick up some significant business as we -- once we get the FDA approval and once you really get your selling team totally aligned.

We would agree with that, that's why we're excited.

Good. I'm excited now too. Thank you.

Thanks, Larry.

We have a follow-up question from the line of Chris Lewis from Roth Capital Partners.

Just one follow-up for me. What type of impact should we expect to see on gross margins upon the ramp-up of the manufacturing for the monitor? And then, as we look into '18, what impact do you think that will have on corporate gross margins over time?

Well, I mean, overall gross margins will have a favorable impact. We'll be pumping out more units with really very little change in our cost structure. So we would expect to have a highly favorable impact to gross margins once we get to that 150 to 200 units a year type of a run rate. We can see gross margins maybe a few percentage points north of what we experienced last year at certain quarters.

Thank you. And at this time, I'm showing no further questions. I'd like to turn the conference back over to Mr. Roger Susi for closing remarks.

Thank you. And thank you all for participating in today's call. We're encouraged by the business trends that we're seeing for IV pumps and highly positive feedback and interest in our patient monitor from all these international customers that we've been cultivating now for better than 6 months. We look forward to a timely clearance from the FDA for the monitor and are now preparing for and anticipating a successful fourth quarter launch. we're excited about the potential new -- this new product can bring and look forward to updating you on our expected exciting progress soon. Thank you.

Thank you. This concludes today's call. You may now disconnect. Everybody, have a great day.