IRadimed Corporation (NASDAQ:IRMD) Q2 2021 Earnings Conference Call July 30, 2021 11:00 AM ET
Roger Susi - President & Chief Executive Officer
Chris Scott - Chief Financial Officer & Chief Operating Officer
Conference Call Participants
Scott Henry - ROTH Capital
Lisa Springer - Singular Research
Welcome to the IRadimed Corporation Second Quarter 2021 Financial Results Conference Call. Currently, all participants are in a listen-only mode. And at the end of the call, we’ll conduct the question-and-answer session. As a reminder, this call is being reported today, July 30, 2021, and contains time-sensitive information that is accurate only as of today.
Earlier, IRadimed released financial results for the second quarter 2021. 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.
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 may not include the company’s expected future results. 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 maybe 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, please begin.
Thank you, operator, and good morning, and thank you all for participating today. Once again, I am happy to report that what we feel was a very good quarter, showing significant growth over the COVID-induced low reached in Q2 of 2020 and further also a very healthy revenue and earnings growth over Q1 of 2021.
During the first half of 2021, the team had worked diligently in what continues to be a less than optimal environment. It seems that though some of the COVID headwinds appear to be lessening, for example, with our hospital customers again purchasing, new issues have presented themselves, specifically around supply chain, which I'm sure everyone has been hearing of lately. Chris will provide some color around that issue in just a moment.
Despite what it can appears near-constant changes created by the pandemic, IRadimed is on pace to show revenue growth from our pre-COVID full-year 2019 level, which was our previous record high revenue level. We are seeing growing demand for our products with our patient monitor leading the way.
As we look forward, we are optimistic about the future of IRadimed and the potential for accelerated revenue and earnings growth created by the recent launch of our FMD and the expected commercialization of our next-generation IV pump early next year.
Regarding our second quarter 2021 financial results, we reported revenues of $9.8 million, which comes in over 44% higher than the second quarter last year and 6.4% higher than the first quarter of this year.
Our non-GAAP earnings were $0.14 per share compared to $0.05 per share in Q2 last year. As I just mentioned, I'm very happy with these results and our ability to continue growing in a seemingly ever-evolving environment.
Another very positive trend is that bookings for the quarter remained impressive and set a new high watermark for the company. This not only allowed us to exceed our internal forecast, but also give us visibility and confidence for the back half of the year and going into the anticipated launch of our next-generation IV pump.
Further, we expect bookings to remain strong for the second half of the year as we continue to gain more access to our customers. For these reasons, we have reestablished financial guidance, which Chris will review in just a few moments.
Regarding our ferromagnetic detection device, when we reported last quarter, we had just released the product to the area leaders of our sales team and very recently now to the entire sales group.
Since then, interest in the product has been positive and earlier this month we received our first order for three units. We are encouraged by the quick interest shown in this device and expect a growing number of bookings with more time for our sales team to develop additional opportunities.
Now, I'd like to turn the call over to Chris Scott, our CFO, who has recently accepted the expanded operational duties as Chief Operating Officer. Chris?
Thank you, Roger, and good morning, everyone. First, I'll start with the regulatory status of our 510(k) application for our next-generation IV pump. We have begun a highly interactive phase of the review process and are in frequent communication with FDA.
We believe this phase of the review benefits both IRadimed and FDA, as it opens a line of communication where we are able to respond to their comments more frequently than the more traditional review process we've completed in the past. Based on our recent interactions, we continue to believe that clearance could come as early as December this year or early next year.
Regarding our supply chain, as Roger hinted to, we noted last quarter that we were seeing higher materials costs, some stretching of lead-times and difficulty in sourcing certain parks. This trend remains and we continue to put an increasing amount of energy in managing through these global shortages.
However, despite these challenges, we have not yet experienced a significant impact on our ability to source materials. We continue to see cost increases typically ranging from approximately 10% to as high as 30%, as well as greater enforcement of tariffs by our vendors. To-date, we have been able to digest these cost increases without a significant impact to margin.
Also as we mentioned last quarter, we are increasing the size of our material orders and building inventory in an attempt to mitigate risk of extended delays and disruptions in global supply chains. While we are exerting an increasing amount of energy in this area, we have not experienced any changes to our production schedules to date.
Now, I'll review our financials for the quarter. As in the past, I'll be discussing these results on a GAAP basis as well as on a non-GAAP basis. You can find a description of our non-GAAP operating measures in this morning's earnings release. You can also find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today's release.
Also please keep in mind that beginning in Q2 of last year our business was negatively impacted by COVID-19. Additionally during the second quarter last year, we recognized $2.8 million of G&A expenses related to our former CEO. Since Q2 last year, we have experienced strong sequential revenue and non-GAAP earnings growth as we have adjusted to continuing -- to conducting business in the ups and downs treated by the global pandemic.
As we reported, this morning second quarter 2021 revenue was $9.8 million, an increase of 44.4% compared to the second quarter last year. This also represents the fourth quarter in a row of sequential growth, with a 6.4% increase in revenue over the first quarter of this year. At this growth rate we are on track to show full-year revenue growth over the pre-pandemic 2019 time period.
In addition to the continued sequential growth, we added to our already-elevated backlog, we reported at the end of 2020, which gives us confidence going into the second half of the year. Revenue from domestic sales increased 73.2% to $8 million during the quarter, while revenue from international sales decreased 17.9% to $1.8 million.
The increase in domestic revenue was primarily driven by higher IV pump and monitor sales, while the decrease in international revenue was driven by lower IV pump sales. Overall, domestic revenue accounted for 82% of revenue for the quarter, compared to approximately 68% for the prior year quarter.
Device revenue increased 53.4% to $5.8 million for the second quarter this year. This was driven by a 75.2% increase in monitor revenue and a 31% increase in pump revenue. The average selling price of our MRI-compatible IV infusion pump system during the second quarter 2021 was approximately $41,600 compared to approximately $30,200 for the second quarter of last year. This increase in ASP relates to higher domestic unit sales and a favorable product sales mix as more customers purchased optional features during the current quarter.
The average selling price of our patient vital signs monitoring system during the second quarter 2021 was approximately $39,700, compared to approximately $30,600 for the same period in 2020. This increase relates to favorable product mix and higher domestic unit sales.
Revenue from disposables and service increased 37.7% to $3.5 million for the current quarter primarily due to higher sales of our IV sets. And finally revenue from maintenance contracts was consistent at $0.5 million for both periods.
Gross margin was 74.7% for the 2021 quarter, compared to 72.6% for the 2020 quarter. The increase in gross margin percent is a result of favorable geographic sales mix, partially offset by unfavorable inventory reserve adjustments and overhead variances. To reiterate our comments about the global supply chain, we expect pressure on gross margin going forward due to cost increases.
However, we continue to believe the impact will be limited resulting in gross margins that are very consistent with our historical ranges. Operating expenses were $5.5 million or 55.9% of revenue, compared to 7.9% or 116% of revenue for the second quarter last year.
On a dollar basis, this decrease is primarily due to stock and cash compensation expenses incurred during the second quarter last year related to the separation of our former CEO. This decrease was partially offset by higher sales commissions and sales activity expenses incurred during the current quarter.
As a result, income from operations grew $1.8 million for the current quarter, compared to a loss of $2.9 million for the second quarter last year. We recognized tax expense of approximately $388,000 this quarter, compared to a tax benefit of approximately $799,000 in the 2020 quarter. This increase is due to higher taxable income in the current quarter and the benefit taken last year from the CARES Act that allowed us to carry back NOLs to years prior to the Tax Cuts and Jobs Act.
On a GAAP basis, net income was $0.12 per share, compared to a loss of $0.17 for the 2020 quarter. On a non-GAAP basis, adjusted income was $0.14 per diluted share for the current quarter, compared to $0.05 for the second quarter last year. Cash flow from operations was $4.5 million for the six months ended June 30, 2021, compared to $2 million for the same period in 2020.
For the 2021 period, cash provided by operations was positively impacted by cash inflows from deferred revenue and negatively impacted by cash outflows for prepaid expenses and inventory purchases. For the three months ended June 30, 2021 and 2020, our free cash flow, a non-GAAP measure was $3.5 million and $0.7 million respectively.
As Roger mentioned, the strength of customer orders has given us visibility and confidence in the remaining portion of 2021. For that reason we are providing Q3 and full-year revenue and earnings guidance. For the third quarter, we expect revenue of $10.3 million to $10.5 million, GAAP earnings of $0.14 to $0.15 and non-GAAP earnings of $0.16 to $0.17. For the full-year 2021, we expect revenue of $40 million to $40.4 million, GAAP earnings of $0.53 to $0.55 and non-GAAP earnings of $0.60 to $0.62.
And with that, I'll turn the call over for questions. Norma?
[Operator Instructions] Our first question comes from Scott Henry with ROTH Capital. Your line is open.
Thank you. Good morning. Congratulations on the results and the expanded role as well, Chris. Just a couple of questions. First, looking at the quarter; clearly monitor sales were strong and pump sales were a little weaker, although still robust. Should we expect those trends to continue in the rest of the year with the outperformance being more monitor-driven than pump-driven, perhaps particularly in front of that next-generation pump coming? How should we think about that?
Scott, I think that our expectation is that, we'll see some normalization of pump sales in the second half. We were monitor-heavy this quarter, second quarter and in the first half. But when we take a look at our order book and the plan going forward, we do see some normalization of the IV pump business.
Okay. And then, the disposables and services revenue jumped up pretty significantly in Q2. Any thoughts on what's going on there? And should we expect that to revert back to the trend line, or how should we think about that?
Our viewpoint is that, the disposables and service line is going to continue to be strong for us. We're seeing higher IV set sales, but also remember now wrapped up in that line item, are the disposables related to our monitor. And as that business continues to grow, we're seeing more and more disposables -- monitor disposables roll out the door as well. So, we expect continued strength on that line item.
Okay. Great. And then, I think you mentioned that you had three units ordered for the FMD. Could you remind me, what is the price point? And I guess, maybe will it start out lower for the initial adopters, or how should we think about the price per unit?
Yes, may be I’ll take that one. Well, those units have a small discount I think of about 4% or 5%. It's not much. So, they were pretty close to the pricing we are targeting, which in that configuration, there's a couple of ways you can roll it out. But at that particular configuration of those three, the list price adds up to about $24,000.
Okay. Great. Thank you for the color, Roger. And then, final question gross margins. I think, Chris, you've given us a lot of color, but we did see a little -- it is still pretty high relative to the past years, a little downtick in 2Q versus 1Q. I think, what you're saying and I just want to confirm is, we should probably think of 2Q is more reflective of what we should see in the next couple of quarters and perhaps maybe a little bit lower, but still within historical range. Is that the right way to interpret that?
I think when we go forward, we expect one-off. Going forward with Q3 and Q4, we expect higher gross margins than Q2. So we expect growth there, largely due to the output higher volumes, based on higher revenue. But you won’t see, in our mines, you won’t see something like -- in the past, we've seen gross margins as high as 80%, 81.5%. I don't think you're going to see that this year. You'll see something that's more in line with those historical ranges like I said somewhere in the mid-70% to 78% something along those lines.
Okay. Great. That’s helpful. That should do it for me. Thank you for taking the questions.
Thank you. Our next question comes from Lisa Springer with Singular Research. Your line is open.
Thank you. Congratulations on the strong quarter.
I have a question. What are you seeing in terms of ASP early in the third quarter?
Lisa, I don't know that we would make any comments on that. I think, as you know, ASP is largely reflective of the geographic sales mix. So to the extent that we are heavy domestic, we see higher ASPs. I don't know that we're in a position right now to comment on where we think ASPs will end up for the quarter -- for this current quarter.
Okay. Well, that’s helpful. Thank you.
Thank you. I'll turn the call back over to Mr. Susi for any closing remarks.
Thank you. I continue to be pleased by the good work of everyone at IRadimed, which produced these results. We've shown the ability to grow in the face of uncertainty and I'm proud of the entire team. With the strong bookings we are seeing, the next-gen pump on the horizon and the first sales of our FMD, we are as optimistic about IRadimed's future as ever. Thank you and we look forward to speaking with you again in about three months.
Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect. Everyone have a wonderful day.