IRadimed Corp (IRMD) 2018 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the IRadimed Corporation Third Quarter 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded today, October 30, 2018, and contains time-sensitive information that is accurate only as of today.

Earlier, IRadimed released financial results for the third quarter 2018. 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 and 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 future performance, results, plans and events and include the company's expected results for 2018. 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 again 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?

Thank you, operator, and good morning, everyone. This morning, we reported third quarter 2018 revenues of $7.6 million, with GAAP net income of $0.20 per diluted share and non-GAAP net income of $0.14 per diluted share. In comparison, third quarter revenue increased 33.8% over last year, with both GAAP and non-GAAP earnings significantly higher than last year. Both of these metricses also above our estimates.

On sequential basis, revenue increased over 3%. Especially worth noting is that Q3 bookings grew significantly over booking levels of the last several quarters, which we feel confirms both the market attractiveness of our products as well as our ability to execute. I find these results especially gratifying and as validation of our building of a continued positive momentum.

As I look across IRadimed, I see all functional areas are performing well and especially would note that with regards to sales and marketing, we have now achieved our headcount growth plan for the year and starting to see the payoff of additional investments we have made in this team.

We plan to continue to grow the size and abilities of the team and make the necessary investments in coming years. While our VP of Sales and Marketing, Brent Johnson, will speak more about customer orders, bookings for our new patient monitors -- monitor system continue to impress us and are increasing each quarter, resulting in sequential revenue growth of nearly 15% (technical difficulty) this device.

Additionally, our international business continue to be a bright spot this quarter, and we expect that to carry forward into the fourth quarter. With regards to new product development, we continue progressing as planned on the next generation IV pump and remain on track with our project calendar and the anticipated commercialization dates for the new devices that we are actively working on.

From the regulatory standpoint, as announced in September, we received clearance to begin sales and importation of our patient monitor to Japan. This is very important event for us, as Japan is a strong and growing market. And since receiving this clearance, we have already received a sizable monitor system order. Additionally, just after the end of the quarter, we underwent and successfully completed our first ISO MDSAP audit. The entire regulatory team stepped up and performed very well, and I'm proud of them all.

Again, from my vantage point, the company is performing well, and I believe we have both the correct sales and development strategies in place that will ensure our long-term growth.

Now I'd like to outline our financial guidance for the rest of the year. For the fourth quarter, we expect revenue of $7.9 million to $1.8 million (sic) [$8.1 million]. GAAP earnings per share of $0.09 to $0.10 and non-GAAP diluted earnings of $0.12 to $0.13. For the full year, we are increasing our revenue and earnings guidance primarily to reflect the strong third quarter results we've just reported. We now expect to report revenue of $30 million to $30.2 million, with GAAP diluted earnings per share of $0.47 to $0.48 and non-GAAP diluted earnings of $0.50 to $0.51.

And with that, I'll turn the call over to Brent for a discussion of customers.

Thank you, Roger, and good morning, everybody. The sales team had a great third quarter, posting sequential growth in bookings of over 17% when compared to the second quarter, with a nice balanced increase in both IV pump and monitoring bookings in both the international and domestic parts of our business. This increase is even more significant when you consider that it came in the third calendar quarter, which is typically our weakest quarter of the year.

On the domestic side, we saw another strong quarter of increased bookings of patient monitors when compared to the prior quarter. This is an indicator that the market and our customers are recognizing unique patient safety and workflow advantages of our new monitor versus the competition as well as the abilities of the sales team to effectively position our product versus the competition.

On the international side, our patient monitoring bookings for the quarter had a strong increase over Q2 bookings with new orders from Japan coming online and increased bookings from the rest of the international team. Again, this highlights the international customers' interest in the monitor as well as our distributor sales teams fully integrating the product into their selling efforts.

We have continued to see success with bundling our new patient monitor with our IV pump in sales opportunities with all our customers. By bundling our IV pump and monitor into a combined sale, we can really differentiate our product offering as IRadimed is the only company in the world with a capability to provide hospitals with a truly mobile patient care system that allows for transporting patients to the MRI and back without having to make multiple time-consuming equipment changeovers. This concept really resonates with our customers and is a key differentiator between IRadimed's product offering and anything else in the market.

On the IV pump side of the business, we saw some nice increases in bookings versus the third quarter of last year and the second quarter this year in both the domestic and the international areas. Our domestic team is doing a good job of balancing their selling effort between the pump and the monitor and in increasing their efficiencies in selling the monitor as their skill level advances. This combined with the shift in IV pump incentives, additional IV pump related sales education and expanding our feet on the street is delivering the solid growth in the pump side of the business that we've all been expecting.

Our strategy of targeting multiple hospital departments with our IV pumps is working and delivering increased demand for multiple pump channels and as follows, more IV pump orders. Our critical care strategy is succeeding by increasing IV pump sales directly to those individual departments as well as stimulating the demand for more pumps in radiology to support this increased awareness on the part of the clinical -- the critical care stakeholder.

As we've stated before, changing hospital practice is difficult and time-consuming. But with the time investment we're making here, we're continuing to see success in converting customer's long-standing practice of using conventional pumps with long IV lines extending into the MRI room or just waiting until patients are stable enough to go to MRI for a diagnosis scan without IV medication.

As Roger alluded to in his remarks, we've completed our plans for the sales team expansion for this year, and our increase in tenure and number of sales managers in the field are paying dividends with increased bookings in both product lines. We now have a U.S. field sales organization of 24 direct sales managers reporting to our 3 area directors and a strong team of 5 clinical nurse specialists for support. We are committed to continuing to aggressively expand our sales teams in both the U.S. and the international markets during the 2019 calendar year.

Now I'll turn it over to Chris to summarize our financial results.

Thanks, Brent. Before I get started, just -- I wanted to make one correction real quick. I believe when Roger stated our revenue guidance for the fourth quarter, he misstated the high end of the range. It should be $7.9 million to $8.1 million, and he said $1.8 million. So I just wanted to correct that real quick before I get started here.

So today, as in the past, I'll be discussing our financial results on a GAAP basis as well as on a non-GAAP basis. Our non-GAAP operating results exclude stock-based compensation expense and the related tax effects. A free cash flow measure is cash flow from operations, less cash used for purchases of property and equipment.

And lastly, infrequent tax items are considered based on their nature and excluded from the provision for income taxes as these costs are not indicative of our normal or future provision for income taxes. We believe the presentation of these non-GAAP measures, along with our GAAP financial statements, can be helpful in providing 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 already stated, we reported third quarter revenue of $7.6 million compared to $5.7 million for the same quarter last year. For the third quarter 2018, domestic revenue was $6.1 million compared to $5 million for the same quarter last year. Revenue from international sales was $1.5 million for the current quarter compared to $0.7 million for the 2017 quarter. Revenue from devices was $5.4 million for the third quarter 2018 compared to $3.7 million for the same quarter last year. Included in the revenue from devices for the third quarter of 2018 is $1.7 million in sales of our new MRI-compatible patient vital signs monitoring system compared to $0.1 million for the same period in 2017.

Revenue from disposables and services was $1.9 million for the current quarter compared to $1.7 million for the 2017 quarter.

And finally, revenue from the amortization of our extended maintenance contracts was $0.4 million for the current quarter compared to $0.3 million for the prior year quarter.

The average selling price of our IV pumps recognized in revenue during the third quarter 2018 was approximately $31,800 compared to approximately $35,000 for the same quarter last year. The decrease in ASP is the result of higher international sales as a percent of revenue during the third quarter 2018 and an unfavorable sales mix when compared to the 2017 period. ASP for our patient vital signs monitor was approximately $37,900 for the third quarter 2018 compared to approximately $26,100 for the 2017 period. The increase in ASP is mostly due to the U.S. sales of the monitor in the current quarter compared to only having international sales in the prior year quarter.

Gross margin was 76% for the current quarter and 77% for the 2017 period. The decrease in gross margin percent is primarily the result of higher international sales as a percent of revenue, which had a negative impact to margin, and an unfavorable inventory materials and overheard cost adjustments compared to the third quarter last year. These negative impacts were partially offset by higher average selling price for our MRI-compatible patient vital signs monitoring system when compared to the third quarter last year.

Operating expenses for the third quarter 2018 were $4.3 million or 57% of revenue compared to $4.2 million or 73.6% of revenue in the third quarter last year. On a dollar basis, operating expenses were unfavorably impacted by higher payroll expenses due to higher headcount, sales commissions due to higher sales and sales activities expenses partially offset by lower stock compensation expense primarily due to a onetime charge recorded in the third quarter last year related to the modification of the underwriter's warrants.

Our effective tax rate for the current quarter was negative 61% compared to 14.4% for the 2017 period. The lower effective tax rate is primarily due to excess tax benefits associated with the exercise and sale of employee stock options during the current quarter.

On a GAAP basis, net income was $0.20 per diluted share compared to $0.02 for the third quarter last year. On a non-GAAP basis, net income was $0.14 per diluted share for the current quarter compared to $0.07 for the third quarter last year.

For the 9 months ended September 30, 2018, cash provided by operations was $3.8 million compared to $2 million for the same period in 2017. This increase is primarily the result of higher net income and lower cash outflows related to accounts payable, prepaid expenses and other assets, partially offset by lower cash inflows related to the account receivable and deferred revenue.

For the 3 months ended September 30, 2018 and 2017, our free cash flow, a non-GAAP measure, was $0.7 million and $1.7 million, respectively. As of September 30, 2018, we had $31.2 million of cash and investments.

Now I'll turn the call over for questions. Mark?

(Operator Instructions) And our first question comes from the line of Larry Solow of CJS Securities.

Just -- can you give us a little more color on the bookings for pumps? So I guess it's a 2-part question. Bookings for pumps just sort of the outlook because if I look sequentially, sales on the pump side have been sort of on the $3.5 million to $3.7 million range for 4, 5 straight quarters, and so that's part one. And then part two, it just looks like, I guess, on the positive side, you're getting more international sales but that's hurting the overall pricing. So what's your outlook for that and sort of, basically, just growth on pumps in general?

All right. The outlook, I believe, is strong. I mean, we did have a good increase in Q3 on the overall volume. Part of that in -- and I'm speaking domestically, in the U.S. Part of that is the increased headcount and the increased tenure that we've gotten from some of these new salespeople, but even when you look at it on a headcount basis, the average per man, there was a nice increase in Q3. And like I said in my remarks, Q3 is typically a slower quarter for us. The summer quarter, you get July and August in there, lots of vacations, lots of decision-makers vote, and like I said, typically, it's a little bit of a slower quarter. So we're really bullish on what we saw this quarter and the increases we saw. And based on that, again, we believe Q4 is going to continue that increase.

So I know you won't give the actual book-to-bill anymore or the actual orders. But fair to say that book-to-bill in the quarter for -- on the pump side was above 1?

I don't know that we've ever given a book-to-bill number, Larry. I think we try to stick to the revenue number and earnings numbers for guidance.

Okay. Fair enough. And just second question just on the -- you mentioned that you've sort of reached your goals for the year on the sales force expansion to I guess 24. As you look out to 2020, where do you see that number going? And do you see yourself getting more direct on the international side or adding more distributors, particularly with Japan and other new markets coming on board?

Sure. The -- on the international side, Japan is not a new market for us. It's a new market on the patient monitor, established market for us on pumps. And we're pretty well established in most significant countries in the world with distribution. I am hiring more sales managers on that side of the business to help drive the business with those distributors. I think that's where some additional headcount can really help us to continue to increase the international sales. On the domestic side, again, we're continuing to add salespeople on the domestic side. In 2019, we're going right back at it and aggressively hiring more sales managers. And I've got another area director budgeted for next year as well in 2019.

And our next question comes from the line of David Solomon of Roth Capital Partners.

First thing on monitors. It looks like it was sequentially up a hair on the unit side worldwide and then as well on the ASP front. I guess my first question is regarding pricing. What's going on out there between yourselves and Invivo as far as the domestic pricing environment?

Well, I mean, on the domestic side, we are definitely competing head to head with these guys on a daily basis. And our pricing strategy hasn't changed. We came in with a better -- we believe a better price strategy than our competition -- a little bit lower strategy than our competition. And again, we haven't changed our approach, and we haven't had to further discount our sales because of competition. We believe our approach is working. And it's giving us the sales increases that we're looking for.

Excellent. And this ties into Q4 guidance here. It seems like possibly about 45 monitors, and our estimates going into Q4 were 53 for Q4. It seems like given the momentum you have here, is it possible that guidance, even though you increased it a little bit, is still a little bit conservative on the revenue side?

David, I think we're pretty comfortable with our guidance.

Okay, okay. And then just in Japan. Just stay on the monitors. I kind of sense that this could be a pretty big market for you now that you're in it. What do you think the potential is in the next year or 2 for this market? Is there any way you could give any guidance on what it could be? Or is it a little hard to say at this point?

Well, David, this is Roger. Maybe the patient -- multiparameter patient monitors are relatively newly accepted in Japan. They were just going with pulse oximeters. I think we talked about this maybe a quarter or 2 ago. Maybe just using pulse oximeters for the long time, single parameter. And about 2 years ago, they -- the Ministry of Health gave some guidelines there that they should use more vital signs devices on patients while they're undergoing MRI. So that sort of lit a fuse to this business of the Japanese welcoming in multiparameter MRI patient monitors. How many? There is -- I guess, we could do by comparison. They're moving by way of having thousands of just MRI pulse oximeters located in their MRI systems to where now the recommendations are to have multiparameter unit. So there is a void there of several thousand monitors that should be filled. How fast? It's probably -- right now, it's looking like it's just starting to take hold. It's on the order of a couple of hundred per year.

Okay. So this could be substantial. And then just on the pump side. What were the -- any chance we can get the multi-pump orders that we've gotten in prior quarters? I know you mentioned in the prepared remarks, but any chance we can get a sense of what share of the pump sales were multi-pump orders?

Well, again, David, we classify multi-pump orders as 3 or more. We do have a number of those each quarter. The other thing that we look at as well is dual-pump sales. And we've seen some nice increases in that area as well, where we're selling 2 pumps instead of 1 pump. The idea here is to increase that 1 pump sale. And I think we've talked about it before in past calls that it used to be 1 pump per MRI was basically the kind of the rule of thumb years ago. We've been working to increase that. And like I said, we have seen some nice increases. We don't go to the granular level of reporting out those sales individually each quarter, but again, suffice to say that we've seen some nice increases.

Excellent. And just last question on the sales force expansion. What kind of numbers are we thinking about over the next couple of years, provided things continue in this direction? Are we thinking potentially upwards of close to 30 by the end of next year? Or is it hard to say at this point?

I mean, again, we added 6 salespeople this year. I think that -- again, we see a lot of room here for the number -- for expanding the number of salespeople. We'd like to do that in a measured approach so that we're doing that effectively, not hiring too quick, not hiring too slowly. But yes, I think it's fair to look in terms of what we did this year as continuing on into the future.

(Operator Instructions) Our next question comes from the line of Larry Haimovitch of HMTC.

Congrats on the progress. You've really been performing very, very well. Roger, given the strong performance, are there any areas of concern or any areas where you think the company could even be executing better? Certainly, you're executing extremely well. No criticism on this end, but are there areas where you feel you could be doing even better and could be even more successful?

Well, Larry, the top line is the -- packs the most punch. So that's selling execution. As I said, I think we're -- we've done well. We've added both people, right? We've expanded the sales force, and we see these guys doing -- gaining the skills and doing a better and better job each time at selling both pumps and monitors. So there's a lot to learn for them, learning the monitors. It's a little bit different. The call points are the same. The concepts are different, and where we have an IV pump without much competition, it's a pioneer sale. And in the case of the monitor, we have competition, so there's a little differences there. But as I said, that was -- that's a matter of training and gaining some experience and confidence, and we're seeing it pay off. So we think more and more investment in exactly that area will continue to pay off with the biggest bang. There's -- everything else is relatively smaller impact to that. So another end where we're seeing some smaller impact is as we build more and more monitors, of course, we're seeing that the cost of them is coming down. We're taking cost out of the monitor really on both fronts of the pump, not just -- but parts, we are seeing and shaving out some significant amount of dollars out of some componentry as we make more of them. And also, the labor cost. Here, our burden is -- our burden rate and our labor is always someplace that we can squeeze out more earnings from. So it's coming as a natural process by increasing the amount of devices, both pumps and monitors that we're making in a facility. So I think that's an area where we didn't talk much, but again, the biggest bang comes from selling more. And it ripples manufacturing and the cost of materials as well.

Okay. So next question. Have you seen any specific competitive responses on the monitor side that your competitor didn't have any competition and now they're competing against you with an obviously superior product. Have they done anything in the marketplace competitively that we should be aware of?

Yes, we saw them come out swinging real hard back in the first quarter. I think we talked about that, and I think maybe they allocated a little too much time to chase us around that. So they're competing. I mean, I don't want to minimize it, but we see them every day and we're seeing them in almost every deal. So it's not a walk in the park, but there's nothing -- there were -- I suppose there's always that thought in people's mind that the competitor is going to start really dropping their price way down or something like that, and we're just not seeing that. I mean, they already have dropped their price because remember, they were basically the only game in town when it came to patient monitoring in the U.S. for all intents and purposes. But -- so of course, when we came up, they have brought prices down. But yes, I mean, they're not doing anything different this quarter than they were the prior quarter or the quarter before that.

I'm showing no further questions in the queue. I would like to turn the call back to Roger Susi for closing remarks.

All right. Thank you all for participating in today's call. Again, I'm very pleased with the results and the growth in our business, and we look forward to reporting our fourth quarter and a full year result early in February. Thank you all.

Thank you. This concludes the call. Ladies and gentlemen, please disconnect.