IRadimed Corp (IRMD) 2020 Q3 法說會逐字稿

Welcome to the IRadimed Corporation Third Quarter 2020 Financial Results Conference Call. (Operator Instructions) As a reminder, today's call is being recorded today, October 30, 2020, and contains time-sensitive information that is accurate only as of today.

Earlier, IRadimed released financial results for the third quarter 2020. 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 MaryBeth Smith, Vice President of Sales, will discuss the current environment and recent trends in customer orders; and finally, Chris Scott, IRadimed's Chief Financial Officer, who 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, either in the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are those focused on future performance, results, plans, and events and may include the company's expected future results. IRadimed reminds you that the 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 Factor 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, and good morning. As the COVID pandemic continues to challenge traditional norms, our teams are fully focused on maintaining consistency in servicing and selling to our customers. While constant ups and downs created by the pandemic have obscured our business visibility, I'm very pleased to report third quarter revenue of $7.7 million. Though this is near a 23% decrease from our third quarter last year, we feel that our efforts during this difficult time are paying off.

For the third quarter 2020, we also reported earnings of $0.09 per share on a GAAP basis and non-GAAP earnings of $0.11 per share. Given the environment, I believe it is also important to note that sequentially, Q3 revenue was 13% higher than in Q2. While MaryBeth Smith will speak about the overall sales environment in a moment, we view this sequential increase positively and expect growth in the fourth quarter as well. 

As I've already alluded to, uncertainty around the COVID issues continue to swirl and impact us daily. The rise in positive tests around the world, including in the U.S., has caused governments to take a number of actions from reinstating travel restrictions to the partial closing of businesses. As a result, hospitals in many parts of the world are preparing for yet another wave we see being discussed in the daily news cycles, all of which continues to make reliable projections of future performance impossible. To reiterate a point made last quarter, the virus continues setting the pace and IRadimed is not alone in experiencing uncertainty. To offset this challenging environment, we continue to find innovative ways to engage our customers and drive the benefits of our products. We believe these efforts are helping us currently and will further pay off in the form of accelerated growth -- revenue growth once we are in a post-COVID setting segment. 

As an update on our regulatory activities, last quarter, we reported that we would soon be filing a 510(k) application for our next-generation MRI IV pump with the FDA. That was accomplished just days after that earnings call. We expect clearance to take yet another 12 or 14 months, however, the usual cycle. At this time, we see no major issues impeding its release and are preparing for its production. Regarding our development of new products, we continue to make progress on our FMD device, and currently in the final stages of development, our commercialization plans remain unchanged as we will expect to have a small number of operational units available before the end of the year. However, the launch and actual sales of this device, we expect may be significantly slowed due to the current environment.

Now I'd like to turn it over to MaryBeth to provide more color around what we are seeing in the field and recent trends in customer orders.

Thank you, Roger, and good morning to everyone. As Roger just said, our ability to sell during the third quarter was negatively impacted by COVID. We started the quarter with limited access to hospitals. And as the quarter progressed, we were able to gain access to radiology and MRI suites on a case-by-case basis. However, access to the critical care areas of the hospital remain inaccessible. To offset these limitations on access, we continued with our strategy of engaging customers through virtual meetings and demonstration of our products.

We have made significant strides in our ability to sell in this manner, as have our customers who are also learning to procure in new ways. Our success with this strategy can be seen in the customer orders when comparing 2 COVID-impacted quarters. Q3 2020 customer orders grew 27% over Q2 2020. Additionally, Q3 2020 orders were down 6% over Q3 last year. Given the current environment, we believe a 6% decline in customer orders when compared to a pre closed period is a very strong showing.

To provide a little bit more granularity on orders for the MRIV pumps for third quarter 2020 declined 36% from Q3 last year. However, Q3 2020 IV pumps grew 22% over the second quarter this year. Additionally, customer orders for MR patient monitoring during Q3 2020 grew 26% over Q3 of last year, and it grew -- monitors grew 42% over Q2 of this year. 

Orders for IV sets are trending positively with Q3 2020 orders growing 23% over last year and 12% over Q2. We view the sequential increases positively and indications that a volume process is underway, and that we and our customers are adjusting to a new selling process.

As we look into Q4, we expect some of the level of growth over Q3. But I reiterate Roger's earlier comments, the pandemic continues to set our pace of business, and our visibility remains largely abstracted. With the increase in COVID cases around the globe and recent decisions by various authorities to state restrictions on travel and business, we will remain flexible and proactive in adapting to these continuing changes.

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

Thanks, MaryBeth. Good morning, everyone. Consistent with past calls, 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 other operating expenses that we believe are not indicative of our ongoing core operating performance. Infrequent tax items are considered based on their nature and excluded from the provision for income taxes as these items are not indicative of our normal provision for income taxes, and free cash flow 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 reported this morning, third quarter 2020 revenue decreased 22.7% compared to the third quarter last year. Revenue from domestic sales decreased 21.9% to $6.5 million during the current quarter, and revenue from international sales decreased 26.6% to $1.2 million for the current quarter. The decrease in global sales was primarily driven by lower device revenue, which was partially offset by higher sales of disposables and service. Device revenue decreased 39.4% to $4.4 million for the third quarter 2020. This decrease was driven by a 54.8% decline in IV pump revenue and a 10.7% decline in revenue from our monitoring systems.

As Roger and MaryBeth noted earlier, the sequential comparison of Q3 to Q2, both being COVID-impacted time periods, are of use when thinking about current trends in our selling environment. For that purpose, Q3 revenue increased 13.3% over Q2, driven by a 16.7% increase in our -- in sales of our devices and a 10.5% increase in our disposables and service. Of the increase in revenue from devices, pumps grew 14.9% over Q2 and monitors grew 18.4% over Q2. 

Now going back to our Q3 2020 to Q3 2019 comparisons, the average selling price of our MRI compatible IV infusion pump system during the third quarter 2020 was approximately $37,800 compared to approximately $35,100 for the same period in 2019. This increase in ASP relates to higher revenue from the education and drug library components of our pump systems when compared to the third quarter last year. The impact of these components on ASP were magnified due to a smaller number of IV pump units sold during the current quarter.

Looking forward to Q4, we expect ASPs that are more reflective of historical ranges. The average selling price of our MRI-compatible patient vital signs monitoring system during the third quarter 2020 was approximately $43,000 compared to approximately $33,700 for the same period last year. This increase in ASP relates to a favorable product mix and higher domestic sales of our monitoring systems recognized in revenue when compared to the third quarter last year. Revenue from sales of disposables, service, and other increased 29.6% to $2.8 million for the current quarter, from $2.2 million for the same quarter in 2019. And lastly, revenue from the amortization of extended maintenance contracts was consistent at $0.5 million for both periods. 

Gross margin was 74.6% for the 2020 quarter and 78.2% for the 2019 quarter. The decrease in gross margin percent is a result of unfavorable overhead variances compared to the same quarter last year. Operating expenses were $5 million or 64.4% of revenue compared to $5.3 million or 53% of revenue for the third quarter last year. On a dollar basis, this decrease primarily relates to lower sales expenses, legal and professional fees and regulatory costs, partially offset by higher sales commissions. 

We recognized a tax benefit of approximately $300,000 in the current quarter compared to tax expense of approximately $200,000 in the 2019 quarter. Our effective tax rate for the 2020 quarter was negative 35.3% compared to 6.6% for the 2019 period. Lower effective tax rate is primarily due to higher favorable discrete items related to stock compensation. Additionally, we recognized the benefit resulting from the CARES Act that allowed us to carry back our net operating loss created during 2019 and 2020 to date, to years prior to the enactment of the Tax Cuts and Jobs Act, which increases the benefit to the previously-enacted federal tax rate of 35% versus the current federal tax rate of 21%. 

For the third quarter of 2020, we recognized net income of $0.09 per share compared to $0.20 per share for the 2019 quarter. On a non-GAAP basis, net income was $0.11 per diluted share for the current quarter compared to $0.23 for the third quarter last year. From a cash flow perspective, we generated $3.3 million of cash from operations for the 9 months ended September 30, 2020, compared to $6.3 million for the same period in 2019.

For the 9 months ended September 30, 2020, cash provided by operations was positively impacted by cash inflows from accounts receivable and deferred revenue, and negatively impacted by prepaid income taxes, inventory, prepaid expenses, accrued payroll and benefits to accounts payable. For the 3 months ended September 30, 2020 and 2019, our cash flow -- our free cash flow, a non-GAAP measure, was $1.3 million and $3.1 million, respectively. Lastly, we exited the quarter with a combined cash and investments balance of $49.9 million and no third-party debt or other restrictive covenants.

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

(Operator Instructions) Our first question comes from Scott Henry of ROTH Capital.

Solid quarter given the situation. A couple of questions and, Roger, I know you've talked about this in the past, but could you perhaps reiterate why the monitors seem to do better than the pumps kind of in this challenging environment?

Sure, Scott. Good to hear your voice. Yes, it's pretty easy, and maybe MaryBeth will have something to comment in that regard as well. But it's fairly simple, right, the monitors are -- that's a device where we're not the pioneers. And there's a lot of that business that's been ongoing now for some 30 years since the introduction of MRI monitoring back in the late '80s. So this is a product that's in a pipeline, and the customers out there are fairly accustomed to a replacement cycle every 5, 6 years or so. And we're essentially riding that wave. So that business wasn't nearly as impacted as we flip over to pump business.

Pump business we have is also -- though separated into 2 sort of sections, right, we have a good bit of our pump business that's repeat orders, where customers were already sold by more. But then another big chunk of -- and it classically -- we always talked in terms of it being about 50-50, was in the truly greenfield, right, those people that have never yet had a pump. And as years go by, that greenfield is even more targeted, maybe, let's call it, ICUs. So as MaryBeth said, these ICUs in the hospital, these -- especially with corona, the ICUs are the hot spot where the tough patients go and essentially, as MaryBeth said, we just really can't get in there. So we can't cultivate that business that's totally virgin. On the other hand, the pumps that we did sell came from -- in the last quarter, even in Q2, came primarily from existing customers just needing a few more pumps. 

So end result, a big chunk of the pump business is off limits, temporarily locked out of, while the monitor business is more or less, let's say, it's on autopilot. The only stretches you see there are people -- they plan to buy them. They're in the works, and it's only been somewhat less damaged than the pump side because pretty much the only thing they're doing is figuring if they should spend that money now or wait another month or 2. I hope that answers your questions.

That was great, Roger. Very clear. And then a question for Chris. OpEx in the quarter, should we think about this as kind of a low point and perhaps starting to grow going forward? Or how should we think about Q3 reflective of coming quarters on OpEx?

I mean I think Q3 is a pretty good data point when we think about going forward, of course, there will be some level of growth. But when I think about most immediately next quarter and probably the early half of next year, I think this level of this $5 million level is pretty reflective or pretty indicative of what we might see in those periods.

Okay, great. And final question, how are the sales reps numbers currently versus perhaps pre-COVID levels?

You mean the number of salespeople? I'm not sure I understand the question.

Yes, yes, the number of people that…

The number of salespeople remain as they started the quarter at 22. We had made those changes, as Roger announced at our last conference call, we went from 29 to 22 sales reps, that will remain constant. And there are -- their ability to access the MRIs in the hospitals, so they've been able to get out, do education with our CASs, do some trials and things in the MRI suite, where they have had limited access is to the ICU, so we are able to add to our pipeline some. Our limited ability for the pumps, as Roger said, is to the ICUs, so we expect the number of sales reps to remain constant.

One thing I might add, Scott, to this discussion around limited access to ICUs and the decline in pump businesses, this isn't demand that's evaporated. This is a timing issue. That demand still exists, and we're quite confident in our ability to go out and generate this demand in the future, once we're able to re-access these areas. So it's really just a cadence of how we harvest this demand that's going to come through. And that sort of ties into Roger's comments about post-COVID and whatever that might look like, accelerating demand and accelerating revenue growth. But again, once -- it's just once we're able to re-access those. And I just want to make that point clear that demand is not evaporating, it's just our ability to go out and generate and harvest that demand that's being restricted right now.

Our next question comes from Lisa Springer of Singular Research.

My question concerns the selling effort for the pump. I wonder if you're starting -- having filed for the FDA submission for the next-generation pump. I wonder if in the sales effort, you're encountering customers that maybe want to wait for the next-generation pump. And how you would handle that from the sales end?

So I have not seen people holding up waiting for the next-generation because the story hasn't changed that they still need the pump and the validation of the pump. So waiting for another 12 to 14, 18 months, we have not really addressed -- or as part of our presentation, that's not part of our presentation. The goals are still the same for the sales force. They go out and they're fulfilling the needs of the hospitals and the needs for the pump.

Okay. And regarding the vital science monitor, when you had the CE mark limit the sales of it because you were temporarily without that, was there a backlog of demand? And has that been worked through?

Absolutely. Yes, sure. That was, I think, last December, we regained that CE mark in late November, early December, and then the backlog that we had held on to got flushed through shortly there within weeks or thereafter.

Yes, that was pretty much a story for Q1 probably, yes.

Q1, correct.

(Operator Instructions)

Well, seeing no more questions, I'll thank you all for participating in the call. And as I said in the beginning, the pandemic continues to set our pace. However, we continue to engage our customers and show them the benefits of our products that we can offer, and we firmly believe that customers understand these benefits and find real value in our products such that in a post COVID world, accelerated demand will, as Chris said, return.

Again, thank you for participating in the call, and we look forward to speaking with you again in February.

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