IRadimed Corp (IRMD) 2017 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the IRadimed Corporation Third Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. As a reminder, this conference call is being recorded today, October 30, 2017, and contains time-sensitive information that is accurate only as of today.

Earlier IRadimed released financial results for the third quarter of 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 90 days.

The agenda for today's call will be as follows. Roger Susi, President and Chief Executive Officer of IRadimed, will be presenting 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 reports 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 call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi, you may begin.

Thank you, operator, and good morning everyone. Earlier today we reported third quarter revenue of $5.7 million, GAAP net income of $0.02 per diluted share, and non-GAAP net income of $0.07 per diluted share. We meaningfully exceeded our GAAP and non-GAAP earnings estimates with revenue slightly after the high end of our estimate, all of which I find as a positive indication of the quality of our business.

Additionally, IV pump bookings continue to show strength. And as announced on October 26, we received FDA 510(k) clearance for our new MRI compatible patient vital signs monitoring system. Achievement of the 510(k) clearance for our monitor is a significant event in the company's history and is the result of a tremendous effort which has played over the past four plus years. It has been through the hard work of so many of our people that made this achievement possible. Their collective efforts have been admirable, and we now turn to the work of integrating this device into our daily production and sales routines while guarding our IV pump business and maintaining the momentum developed over these past quarters.

Regarding integration of the monitor, our engineering and production teams continue to work closely for a smooth U.S. launch, ensuring capability to handle the levels of near term demand that we expect. Much has been accomplished in this area over the past year as we satisfied demand from our international customers, establishing a firm base from which to expand.

Our U.S. sales team has been trained and are already carrying their demo units and have performed numerous demonstrations to potential customers throughout the month of October. We are now circling back with those customers that have orders for competing devices for Q4 purchase and plan to persuade them that the right choice will be to switch to our revolutionary new monitor.

While Brent will provide more color on the feedback received from customer demos, I will say that one thing has emerged. Our customers get it. They look at the compact size of our monitor and they get it. They look at the possible uses of our highly transportable monitor and they get it.

Many of the customers that have been the demo realized, without it being pointed out, that they no longer have to be limited to oversized MR monitors that have occupied the marketplace for decades. Customers get that our device is revolutionary for this market. And for that reason, they are rethinking purchases of competitor monitors, and several have already taken action.

To quickly sum up, we have a solid third quarter -- we've had a solid third quarter, excuse me, and crossed a milestone in the company's history with the monitor clearance. However, there is much work to be done. And now, before turning over the call to Brent for a discussion of bookings and review of the MR monitor market, I would like to review our financial guidance for the fourth quarter.

We expect revenue of $6.3 million to $6.7 million, with GAAP earnings per share of break-even to $0.02 and non-GAAP diluted earnings per share of $0.05 to $0.06. For the full year 2017, we reiterate our revenue guidance of $22.7 million to $23.1 million and GAAP earnings of $0.03 to $0.04 per diluted share. However, we are raising our non-GAAP earnings estimates to $0.17 to $0.18 from 10% to 13% (sic -- $0.10 to $0.13 cents) per diluted share as previously announced.

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

Now I'd like to turn the call over to Brent for a discussion of customer orders.

Thank you, Roger. Bookings for the third quarter, which seasonally is our most challenging period of each year, were strong this year, exceeding our forecast and handily exceeding the bookings for third quarter last year. We view this as highly positive and additional evidence that our sales team continues to develop and strengthen the application of our critical care strategy and those techniques are resonating with multiple departments within the hospital.

The composition of orders for our pump system in the current quarter was consistent with the first six months of the year, with approximately half the orders coming from first time adopters and the other half coming from existing customers. I've spoken several times about our critical care strategy over the past few quarters and I echo that discussion today. Our strategy of targeting the critical care department along with our historic core market in the MRI department continues to gain traction that's seen by higher levels of orders for our pumps and higher levels of multi pump orders.

We're experiencing greater rates of success with our critical care strategy by stimulating the demand for pumps in those departments and changing their practice of either using conventional pumps with long IV lines extending into the MRI room or waiting until patients are stable enough to go to MRIs without IV medication.

Another positive result of our critical care strategy is, even when we don't sell directly to critical care, the interest shown by the critical care department and their desire for changing current practice is putting pressure on the MRI department to order our MR compatible pumps and satisfy the demand from critical care departments to provide the higher level of patient care that our IV pump offers.

As for the 3880 MRI compatible patient vital signs monitoring system, we're enthusiastic about the timing of the FDA clearance and believe we have an opportunity to take advantage of a strong buying cycle that occurs with MR monitors in the U.S. during the fourth quarter of each year. In early October, we held a sales meeting in Orlando with our U.S. sales team where we trained each sales manager on the 3880 monitor and thoroughly discussed the MRI monitoring market and the competition.

Immediately after the two day meeting, our sales managers began performing demonstrations for potential customers that we had targeted based on their intent to make an MR purchase before the end of the year. We're extremely happy with the feedback we've received. And as Roger stated, customers are getting it. Customers are very impressed with the monitor's functionality, compact size, and lightweight design.

In addition to the traditional use of a monitor in the MRI department, many customers have already embraced the potential to use our monitor in patient transport scenarios, which will ultimately drive the number of MRI patient monitors they purchase higher, giving us the MRI scanner multiple that we are targeting. This also dovetails nicely with our IV pump strategy, as the demand for multiple monitors will come from the critical care departments that also need our MRI IV pumps to stack safely and efficiently transport those patients to MRI.

Again, in regard to this multiple, our monitor is the only one in the world that can expand the overall size of this market. And further, IRadimed is the only company in the world that can sell into this expanded market. As we've previously discussed, we expect that our sales of our monitor could produce an additional $22 million in annual revenue within the next 24 months and continue to grow from there.

Now I'll turn it over to Chris to summarize third quarter financials.

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 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 just said, we reported third quarter revenue of $5.7 million compared to $7.7 million for the same quarter last year. Geographically, revenue from domestic sales was $5 million or 88% of total revenue for the current quarter, compared to $6.9 million, or 90% of total revenue, for the third quarter last year.

Revenue from international sales was approximately $0.7 million, or 12% of total revenue, for the current quarter compared to $0.8 million, or 10% of total revenue, for the 2016 quarter. International revenue for the third quarter of 2017 included $100,000 in sales of our MRI compatible patient vital signs monitoring system.

Revenue from devices was $3.7 million, or 65% of total revenue, for the current quarter compared to $6 million, or 78% of total revenue, for the same quarter last year. Revenue from IV sets and services was $2 million, or 35% of total revenue, for the current quarter compared to $1.7 million, or 22% of total revenue, for the 2016 quarter. We recognized revenue on 103 IV pumps this quarter compared to 184 pumps in the third quarter last year.

Our average selling price for the third quarter 2017 was approximately $35,000 compared to approximately $32,000 for the same quarter last year. The increase in ASP is the result of a favorable sales mix, as we sold more higher priced optional pump features per pump sale on average than in the 2016 quarter.

Gross margin was 77% for the current quarter and 81.7% 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 current quarter when compared to the 2016 quarter, 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 third quarter 2017 were $4.2 million, or 74% of revenue, compared to $3.7 million, or 48% of revenue, in the third quarter 2016. The increase in operating expenses is due to higher stock compensation expense, primarily resulting from a charge related to the modification of underwriters' warrants, higher payroll and employee benefits due to higher headcount, and higher regulatory costs, partially offset by lower consulting costs, corporate and franchise taxes, and administrative fees paid to our GPO.

Our effective tax rate for the current quarter was 14.4% compared to 39.7% for the 2016 period. The lower effective tax rate is primarily due to the favorable provision to return adjustments and the impact of the domestic production activities deduction and research and development tax credits on a lower base of pre-tax income when compared to last year. Additionally, our effective tax rate is being affected by the 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 $0.02 per diluted share compared to $0.13 per diluted share for the third quarter 2016. On a non-GAAP basis, net income was $0.07 per diluted share for the current quarter compared to $0.14 for the third quarter last year.

For the 9 months ended September 30, 2017, cash provided by operations was $2 million compared to $7.2 million for the 2016 period. The decrease is 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 reduced inventory purchases, customer receipts on accounts receivable, and lower cash outflows for payroll.

Our free cash flow, a non-GAAP measure, was $1.7 million for Q3 2017 compared to $3.3 million for Q3 2016. During the nine months ended September 30, 2017, we used $1.8 million to repurchase approximately 210,000 shares of our common stock pursuant to an $8 million repurchase authorization that was announced on April 28 of this year. As of September 30, 2017, we had $25.2 million of cash and investments.

Before turning the call over for questions, I would like to briefly address a few items related to our initial thoughts for 2017. We will be providing our actual guidance of the full year 2018 during the first half of January, which is consistent with our historical timing.

With the recent FDA 510(k) clearance of the patient monitor and the traction we are seeing in our pump business, we believe that revenue could be meaningfully higher in 2018 and that trend could continue in 2019. Additionally, with an eye toward accelerating development and commercialization of new products and ultimately increasing revenue and earnings growth, we may make higher levels of investment in our R&D efforts, including working with outside development houses for certain projects while internally continuing to focus on our new product pipeline that we have publically spoken about and is included in the presentation that can be found on our website.

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

Thank you. We will now begin the question and answer session. (Operator Instructions) Our first question comes from Larry Solow with CJS Securities. Your line is now open.

Great, thanks. Good morning guys.

Good morning.

Good morning.

Just one quick follow up before I ask my main questions. On the preview for '18 and forward, the higher levels of R&D including some on the expected spending on the outsource side, would that be sort of outsourced to CROs, or is that more JV type things you expect, or hard to say at this point?

No, not JV.

No. Yes, these would be just R&D houses that we'd be working with.

Okay. Okay. And just to clarify, did Brent say, for the sales target within 2 years on the monitors, $15 million was the prior number? Is that what he said? I thought it sounded like he said a higher number.

No, basically what I said was that we believe it could be -- that we're at $22 million in business on an annual within 2 years.

$22 million on an annual basis within 2 years. Okay, got it. Okay, because I thought you had said $15 million was the prior. Wasn't that the prior number you had given?

In the prior call?

So $15 million doesn't include the expanded market that we talked about before.

Okay, fair enough. Okay. And it's a couple quick ones on the quarter. It sounded like pump orders in a slower time of the year continue to slowly work their way up. Any trends that we could look at? I know you don't want to give actual numbers, but it is nice growth year-over-year, and is it sequentially improving maybe in the later part of the quarter after the summer, maybe in September into October?

Yes. September was much stronger than July and August, Larry, which is a typical situation. So again, it followed pretty much what we were looking for. And I think it's --.

And -- okay.

Go ahead.

And then maybe does the monitor approval -- because obviously the monitor is a replacement market, so I guess almost every MRI suite should have one of these. Does that maybe actually open up more doors for you or increase potential for the pumps, talking to customer who at one point had said we'll just do workaround methods instead of actually putting a pump into our suite?

Yes, sure. We're knocking all those doors anyway, but absolutely it gives us a great opportunity with the patient monitor to bundle our IV pump with those patient monitors. So it does open new doors of maybe places where they haven't been considering the pump or it's been a tougher sales opportunity in some institutions.

Having that patient monitor, it really -- every MRI that does any kind of sedation is going to have a patient monitor. So it does open some of those doors for us, even though we've been knocking on those doors diligently as we've gone along. And it does give us an opportunity to bundle IV pumps with our patient monitor.

Got it, okay. Great. Thanks; appreciate it.

Your next question comes from Scott Henry with Roth Capital. Your line is now open.

Thank you and good morning; a couple questions. First, congratulations on the vital signs monitor. The question is what steps remain for you to ultimately start booking revenues for that product in Q4? And what kind of expectations should we have in Q4? It sounds like -- I thought I heard a $2 million number with $1.5 million international. Is the delta there, what we should be thinking about for vital signs monitors? Just trying to get a sense of how we should model that.

Yes, the -- this is Brent again. We've set some pretty -- I guess to answer the first part of your question first, is really the only thing that really kept us from booking orders is the fact that we couldn't quote the system. And as soon as we had 510(k), we could quote the system and have done a lot of quotes on Thursday and Friday last week. We've got a lot of business that we've indentified out there.

As we all know, we've been working towards this for some time. We've anticipated a Q4 launch. And so we've been -- the salespeople have been out there identifying fourth quarter business speaking to those customers, and we have a lot of customers that are waiting for quotation. So yes, that has really been the only hold up to actually booking the business, and we're very involved in that right now. And yes, we've set some modest goals that we think there is some upside on based on the reaction that we've seen from customers in the marketplace.

And I just want to clarify, that $2 million number, Scott, that was for the full year. We estimated about anywhere from $750,000 to $1 million in the fourth quarter related to monitor markets -- or monitor sales, rather. But just wanted to be clear that when Roger spoke about the $2 million, that was a full year number.

Okay, thank you. That's helpful. And then following up as far as seasonality in the year for purchasing, obviously fourth quarter is a strong end of the year purchasing quarter. But how should we think about launching a new product that clearly has a lot of benefits over what's out there and customers' ability to purchase it in the first quarter and second quarter? Do we see less seasonality with a new product like this in the beginning of the year? Just trying to get a sense of how we should think about those trends going into next year.

Well, this is Roger. I might jump in on this and then I'll let Brent finish up. The business is generally seasonal. The fourth quarter is the strongest and we have found that our second quarter is second in line next to that; third quarter being the weakest and first quarter somewhere middling.

However, when you're talking about the monitor and from -- where we're coming from zero, you're starting to split hairs then thinking about seasonality. As we've laid out, we think that initially we're going to be just -- rather than starting up a whole new selling cycle with a customer, we'll be in many, many cases stepping into business that's already being renewed and reordered quarter by quarter from the domestic customers out there.

So at this point, I wouldn't be able to guide much on seasonality to expect in these initial few quarters as we come out with the monitor. And Brent might go ahead and add something to that.

Yes. Just to echo what Roger said, there really won't be seasonality associated with the MRI patient monitor purchases that we're seeing, because as Roger said we're starting from zero. So there are plenty of opportunities that are happening in the first quarter, second quarter, or third quarter of next year. Again, in looking at -- if you looked at our competition, of the incumbent, that might affect their flow. But it's really not going to affect ours.

Okay. Thank you for the color. That's very helpful. Last monitor question, how are you on the manufacturing side as far as capacity? Is that an issue at all in the early launch, or do you feel pretty comfortable there?

Look, the manufacturing capacity is -- as we said, we've been already learning the ropes on how to build these things for the past year. We've made, oh, north of 60 or 70 of these units over the year, so we're at a point where manufacturing is fairly stable on doing it. Now, with the volumes that we hope to get, even on the high side in our wildest dreams, manufacturing capacity itself is not a problem.

Some of the materials, of course, are long lead time. So if we get a huge -- a bigger influx of business than we thought, it won't be a manufacturing bottleneck as such because of space or people here. But lead times for certain materials are what they are, and so our deliveries could stretch out because of that reason. But still, that would take a pretty good positive surprise on the amount of orders coming in.

Okay, great. And then just quickly on the pump business, how should we think -- there's been a lot of events that have impacted growth positively and negatively kind of in the rearview mirror. How should we think about organic growth there? I thought I heard a number around 20% when you pull out backlog. Just trying to get a sense of where you think the organic growth rate in that business currently is.

Well, we certainly think that in the neighborhood of 20% is achievable. If you look at the results and the unit quantities that we're doing now, just 5 more pumps a quarter would get us at the 20% growth rate level, assuming that we maintain a consistent ASP with what we see now, which we don't see any risk to.

So I think 5% sequential growth for the next several quarters on the pump business is certainly in our -- those are things that we're targeting. And certainly, we feel pretty good about that going into next year after coming off some pretty good quarters here this year with the new strategy, and feel like we're really gaining traction there.

And then as Brent mentioned, the opportunity -- the monitor provides another opportunity to get in front of those customers primarily with the monitor, but also talk to them about their use of pumps and challenge their use of long lines and challenge their use of not scanning customers and -- or not scanning patients and really push our devices on them a little bit, maybe in a setting that we wouldn't have had that opportunity had we not had the monitor. So I think we see those as all stacking up as pretty good things in our favor for achieving somewhere in the range of 20% growth on the IV pump side.

Yes. If I could just add, the patient monitor really helps with that whole transporting that critical care patient down to MRI. And we believe that it's going to add a strong focus on that whole transport issue, which will drive IV pumps along with it. So we see that as a very complementary strategy there that should produce additional IV growth -- IV pump growth.

Right. And you could probably tell by my opening statement we're pretty pleased with what we are seeing with the pump sales that we've done this past year, these past few quarters. It's hard to look at it maybe from some people's perspective outside the business when you just look at revenue, given that we had those huge quarters when we still had that Medrad backlog going through our system, a bit like a snake swallowing a mouse that's 4 times its diameter.

Anyway, that's fairly past us here. And actually, it's still reflecting and it will still be seen when we do a comp of this fourth quarter to last fourth quarter. But once we turn the corner into 2018, that comp from those Medrad days drops out and it's all just the business -- the hard selling that we have done in the past year and will continue to do that will keep up growing and growing both businesses, the pump business and establishing a strong foothold in the monitor business as well.

Okay, great. Thank you all for taking the questions.

Thanks, Scott.

Our next question comes from Larry Haimovitch with HMTC. Your line is now open.

Good morning, gentlemen.

Good morning, Larry.

Hey, Larry.

So a couple questions. Question number one is the labeling you got for the new product. Did you get everything you wanted? I know it was a long struggle to get the approval. Is it labeled in a way that your completely comfortable?

I'm not sure what would bring that question up. But certainly yes, it's got everything we need in it.

Okay. Well, just checking, because sometimes you get FDA approvals -- it may be not relevant for you, but just checking in general. Sometimes FDA approvals come in and there's some restrictions on whatever. Just wanted to clarify that.

I see, yes. You're more in the know that maybe most. Yes, let's think. Nothing that would give us any reason to even think it would cost us a penny in a sales situation, so nothing meaningful at all.

Okay. And then a question probably for Brett. You've got a sales force now that's got a hot new product. You've been waiting for this product. You clearly, in my mind at least, have a superior product competitively. I've seen it and I've seen the others, so I can say that from my own eyes. You've got now a sales force with a very hot product. Salesmen tend to migrate to hot new products. Obviously, the bulk of your business today and probably for some many quarters will continue to be the legacy business. Brent, how do you manage the sales force so that they don't just focus on the new candy of the new product, which is obviously a very attractive product, and take their eye off the ball of the legacy product, which still accounts for so much of your business?

Yes, that's a great question and something that we've given a lot of thought here over the past few months. And again, what it really comes down to is it comes down to designing a compensation plan that has the right levers to make sure that our key focuses are the salespeople's key focus. That's really what it comes down to.

And that's no different than I told my sales team on a conference call last Thursday when we talked about it. And I tried to again give them the view going forward that IV pumps are an extremely important part of the way that they're going to be compensated and that they will continue to be that way. And they can count on that. So that is the best way.

Also, again, I don't think the two products are -- again, it's not like they're mutually exclusive here either, because the products -- the MRI patient monitor, they're going to be focusing on MRI but they're also going to be talking about that product with their critical care customers and talking about this whole strategy that we've got of patient transport.

And that's our market alone. As Roger talked about in his comments, that market is us. No one makes a monitor that's 10 pounds that can do that. Every other monitor out there is 80 or 100 pounds. So again, I really believe that it's not like we've got a new product and we're sending them off to call on an entirely new department in the hospital. They're calling on the same department. They're talking about the same products. So again, I think the two products are very compatible.

So I'm assuming from your answer, Brent, that you have made adjustments or will make adjustments in comp so that you don't have the very problem that I raised.

Yes.

Yes, Larry, let me follow up. We had this at the beginning of the year. We felt pretty strongly we would be sitting here in this fourth quarter with this approval. And as we talked about the $2 million that we anticipated in monitor sales for the year earlier, we rolled in -- we already put that into the compensation program early in 2017 for this year, knowing the monitor would become part of it. So yes, we've been keen on this.

And a follow up to Brent on the sales force, the number of sales reps you now have in the field. Are you going to be adding reps? You may have said this earlier in the call, and forgive me if I'm going over territory you've already covered. Are you going to add new reps? What's the turnover rate been? And Brent, I know there was some issues with the sales force. You felt some changes had to be made. Bring us up to date on kind of sales force issues broadly.

Well, again, I'm very pleased with the sales team that we've got in place right now. We increased the size of the sales team up to 18 salespeople by the beginning of this year. We've been moving through the year with staying at that level.

And we've got plans to increase our level for next year. We've got some expansion plans. We plan to grow the business as we've done in the past, to grow it in a smart way where we are increasing our net number of our salespeople over time and, again, taking advantage of that market opportunity that we've got out there. So yes, we are expanding it. And I'm very pleased with the sales team we've got in place right now.

Any specific guidance on how big the sales force might go to next year? Could you add another 5 or 10? Is that a possibility?

That's definitely the range we're looking at.

Okay, good. And then turnover; you mentioned you're happy with the sales force. Of course, I can't imagine on a conference call you'd get on a call and say, oh, my God, I hate my sales force. But --.

Yes, they're probably -- I know some of them are listening.

Oh, I'm sure, so you don't dare say that, and I wouldn't expect you to say that privately as well. But has there been much turnover? Did you -- every sales force has some normal attrition, normal turnover. But what about the turnover issue in the sales force over the last several months?

Yes, we've had very little turnover. Through this year, we've had two positions turn over, one which was kind of one of those you expect and one caught us a little bit by surprise. But yes, so low turnover. We've really been focusing on training the sales team.

As I talked about last year, we had -- over half our sales team had less than a year of experience with us. And we've really grown those salespeople and grown their experience here. And like I said, I'm very pleased with the results.

Thank you, Brent.

Sure.

(Operator Instructions) Our next question comes from Larry Solow with CJS Securities. Your line is now open.

Great. Thanks for the follow up. Just, you guys, I think -- the competing monitor sales I think are close to $80,000, $90,000, maybe upwards of $100,000. You have spoken about an ASP in a sort of $50,000 to $60,000 range. Is that where we're sort of targeting I guess now that the product is already out? Is that where -- or will quotes maybe be even a little bit discounted in the beginning? And then a similar question to that is sort of profitability level of that. Will this be sort of similar to pumps in terms of gross margin? And will there be a ramp period where it's sort of some inefficiencies at the beginning? Thanks.

Sure. This is Roger. Maybe I'll take that. So yes, those numbers you remember well, and that is what we're doing. So one of the most popular competing units, the biggest one in the market, that is, as you recalled, the high upper $70,000 ASPs, and that we indicated if our -- there's several models of this thing. But in the U.S., we're primarily selling the top model to compete with that top model of that main competitor.

And that is priced in the mid $50,000s, mid to upper $50,000s as you said. And that's what the quotes are going out at. That is the super discount price. So no, we're not pushing it any lower than we'd indicated before. And as far as gross margin goes, that figure gives us a gross margin just like we have with our pump.

Okay. Even in the beginning when the volume -- production volumes are still low? And I guess would there be room for improvement then, I guess on the flipside?

Look, let's say in the beginning, meaning the next 50 or 100 units, we might end up with a few more labor hours in that that will settle out, but I don't think any material impact to that gross margin estimate.

Okay. Okay. And then just on the operating expense side, Brent mentioned maybe add 5 to 10 more guys or what have you over whatever that may be, 12 months or maybe 12 to 18 months or whatever it may be. Will SG&A expense -- will there be some other increases in expenses? Should we expect sort of an acceleration of SG&A growth, maybe even where you don't get much leverage on that line, or do you expect to get leverage on that line as the monitor sales grow?

Well, we would expect to get some leverage. We certainly would expect to get leverage. It would be dampened a little bit. Higher sales equals higher administration fees that we got to pay to our GPO, so you got to kind of factor that into the equation also. But absolutely we would expect to get some leverage out of the incremental monitor sales.

Okay, great. Excellent. Thanks.

This concludes today's Q&A session. I would now like to turn the call back to Mr. Roger Susi for further remarks.

Thank you all for participating in today's call. Again, we are delighted with the 510(k) clearance for our patient monitor and with the opportunities it brings. Coupled with the traction in our IV pump business, IRadimed is poised for growth and we anticipate making more pleasing announcements in the future. Excited about the future, look forward to finishing the year strong and speaking with your again soon. Thank you.

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