IRADIMED CORPORATION (IRMD) Earnings Call Transcript & Summary

Hello, and welcome to the IRadimed Corporation's Second Quarter of 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded today, July 31, 2026, and contains time-sensitive accurate information that is valid only for today. Earlier IRadimed released its financial results for the second quarter of 2026. A copy of this press release announcing the company's earnings is available under the headings 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 on the company's website at iradimed.com, and a replay will be available there for the next 90 days. Some of the information in today's section will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements focus on future performance, results, plans and events and may include the company's expected future results. IRadimed reminds you that future results may differ materially from these forward-looking statements due to severe risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see the Risk Factors section in the company's most recent report filed with the Securities and Exchange Commission, which may obtain free from the SEC's website at sec.gov. I want to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi?

Thank you, operator. Good morning, and welcome to IRadimed Corp's Second Quarter 2026 Earnings Call. This quarter, we embarked on the first general release production of the new 3870 MR IV pump system as planned, targeting, as discussed last quarter, the building of 130 to 135 of these new pumps. I'm very pleased to report that our teams performed exceptionally well and achieved our manufacturing target, no small task. Taking 3870 production from a standing start to an impressive rate in the quarter. Those efforts with those efforts, we were able to achieve revenue and earnings per our guidance with revenue of $20.5 million and earnings of $0.41 on a GAAP basis and non-GAAP earnings of $0.46 per share. As we expected and guided. The new pump launch consumes significant effort, including increased labor and overhead expenses, much of which is reflected in the quarter's gross margin of 74%. I want to speak to what's next, and that starts with a discussion of how bookings were in the quarter, how fast we can continue to ramp the new 3870 pump production and a short recap of our opportunity. Opportunities for the new 3870 pump system are both the increased penetration of the greenfield which are predominantly those facilities that continue to deal with IV fluid delivery in the MR setting via the various old school workarounds, expansion of current customer use requiring more pumps, as well as the quite substantial replacement of IRadimed aged installed base of 3860 pump systems. The most immediate and significant increase coming from the large replacement opportunity. This replacement opportunity will be our key growth driver for the next several years and was indeed a significant factor for many of the orders booked in the second quarter. Recalling that for the U.S. market, there are approximately 6,400 5-plus year old 3860/61 pump channels up for replacement, we had been selling approximately 1,100 such 3860 channels annually. And with the new 3870, we target adding another 1,000 channels per year through replacement sales of those -- from those existing 6,400 old 3860 units that are over 5 years old. Bookings for the quarter were more than double the units shipped showing very strong customer acceptance and quick decision-making while only scratching this -- at the target replacement based mildly. Add to this that not only are we replacing those older 2-channel pump systems, but an astounding 70% of those were replaced with our 4-channel quad pump system, thus requiring twice the number of pumps. Additionally, the ASP of this quad systems has been north of $110,000, providing well over a 20% lift in the ASP per pump. In short, the demand is exceeding our expectations in both the number of pumps and the ASP. But there's also some fantastic news with our patient monitor. Though the sales team was quite busy obtaining orders for the new 3870, they outperformed themselves and brought in a record high of 71 monitors from the domestic market while maintaining a high ASP. With a strong backlog and the sales potential we have, it comes down to the ramp-up of production and the ramp down of costs associated with manufacturing learning curve, which we've all been climbing every day. Q2 was a huge effort with plenty of inefficiencies and costs as we went from 0 to 130-plus 3870 pumps. Q3 will remain a stretch as we plan to more than double production again to over 300 units. However, we see that we are indeed riding that learning curve well and taming it, so we expect that the start-up costs experienced in Q2 will be better than 50% reduced in Q3, while earnings will reflect such a strong positive move as well. This will continue into Q4 by which time we anticipate nearing our historic manufacturing efficiencies. So what's coming in Q3, let me have Jack Glenn, our CFO, detail this for you, but I will say that as we enter Q3 with a solid backlog of our pump and monitor systems as well as a strong backlog of FMD systems, We, again, however, will be in a controlled production ramp phase, though ramping from 130 to our Q3 production target of over 300 3870 pumps is certainly a very high ramp rate. The team is performing, and we will feel -- and we feel confident we will deliver along with ever more MRI patient monitoring systems as well. Thus, you can expect IRadimed to be heading back to and beyond the strong growth rates of the past with expectations that by Q4 and with 2 early product launch quarters in the rearview, our gross margins will have not only returned but be setting new records, which fall directly to the bottom line, of course. Now I'll turn the call over to Jack Glenn, our CFO, to review the quarter's financial results and provide a deeper color on the growth through the balance of the year.

Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and a non-GAAP basis. You can find a description of our non-GAAP measures in this morning's earnings release and a reconciliation to GAAP on the last page. For the 3 months ended June 30, 2026, revenue was $20.5 million, up 0.5% from $20.4 million in the second quarter of 2025. Pump revenue was in line with our expectations as we transitioned from the 3860 to the next-generation 3870 pump. MRI compatible patient vital signs monitoring systems contributed $6.7 million, up 12% year-over-year, and Ferro-magnetic Detection System contributed $0.8 million, up 57%. On the recurring side, disposables grew revenue -- disposables revenue grew 14% to $4.8 million, driven by continued increases in device utilization, amortization of extended maintenance agreements grew 28% to $0.8 million and services and other grew 7% to $1.1 million. Domestic sales were 82% of total revenue in the second quarter compared to 89% a year earlier as domestic 3860 pump revenues were exceptionally strong in Q2 of last year. For the 6 months, domestic sales accounted for 82% of revenue, down from 86% a year ago. Gross profit for the quarter was $15.2 million with a margin of 74% compared with $16 million and 78% in the second quarter of 2025. The decline in gross margin reflects the higher manufacturing costs associated with our first sizable production ramp of the 3870. For the 6 months, gross profit was $32 million with a margin of 75%, down from 77% a year earlier. We expect the gross margin to improve in the second half of the year as 3870 volumes build and manufacturing efficiencies take hold. Total operating expenses for the quarter were $8.8 million, down 4% from $9.2 million and 43% of revenue compared with 45% a year ago. General and administrative expense was $3.9 million, down 10%, primarily due to lower legal and professional fees, regulatory consulting and payroll and benefits. Sales and marketing expense was $4.2 million, up 6%, primarily due to higher sales commissions driven by the strong bookings in the quarter. Research and development expense was $0.7 million, down 25%, primarily reflecting an increase in capitalized internal software development on the next-generation monitor in the quarter. Income from operations for the quarter was $6.4 million or 31% of revenue compared with $6.8 million a year ago. Tax expense for the quarter was $1.7 million, with an effective tax rate of 24.2% compared with a 21.2% rate in the second quarter of 2025. The rate differs from the U.S. federal statutory rate, primarily due to state income tax expense, partially offset by benefits from research and development tax credits. As we stated in our first quarter call, the effective tax rate is also affected by the timing of deductions tied to the windfall deduction for equity grants, which is a discrete item taken at the time of vesting of the equity grants, most of which occur in the fourth quarter of the year. We no longer expect the windfall deduction to be as large as we originally thought, and therefore, believe the effective tax rate will be likely in the 24% range for the remainder of the year. Net income for the quarter was $5.2 million or $0.41 per diluted share compared with $5.8 million or $0.45 per diluted share. Non-GAAP net income was $5.9 million or $0.46 per diluted share compared with $6.4 million or $0.49 per diluted share, excluding $0.6 million of stock-based compensation expense net of tax benefit. For the 6 months, net income was $11 million or $0.86 per diluted share, up 5% and non-GAAP net income was $12.2 million or $0.95 per diluted share, up 4%. We ended the quarter with cash and cash equivalents of $59.1 million, up from $51.2 million at year-end. Cash flow from operations was $5.9 million for the quarter and $14.2 million for the 6 months, an increase of 18% over the first half of last year. Capital expenditures were $0.4 million for the quarter and $0.9 million for the 6 months, down from $6.7 million in the prior year period, which had included the construction of our new corporate office and manufacturing facility. Non-GAAP free cash flow was $5.5 million for the quarter and $13.3 million for the 6 months. Also, our Board of Directors declared a quarterly cash dividend of $0.20 per share payable on August 28, 2026, to stockholders of record as of the close of business on August 14, 2026. And lastly, to repeat our guidance. For the third quarter of we expect revenue of $23 million to $24.5 million, GAAP diluted earnings per share of $0.49 to $0.54 and non-GAAP diluted earnings per share of $0.54 to $0.59. For the full year 2026, we reaffirm our guidance and expect revenue of $91 million to $96 million, GAAP diluted earnings per share of $1.90 to $2.05 and non-GAAP diluted earnings per share of $2.09 to $2.24. Our non-GAAP earnings per share guidance excludes stock-based compensation expense and net of tax, which we expect to be approximately $2.5 million for the full year. And with that, I will turn the call over to questions. Operator?

[Operator Instructions] Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets.

This is Nelson on for Frank. I want to start with the 3870 ramp. You went from 0 to 130-plus pumps in Q2 and now are planning for over 300 in Q3. I mean can you talk a little bit more about what that requires operationally? And are you adding additional shifts or production headcount, or does the existing line gets you there? And does the pace keep stepping up in Q4? Or should we kind of -- or how are you kind of wanting us to think about that?

No, we're not -- we kind of did the staffing stuff over the previous several months anticipating exactly what we need to meet the demands of making a new pump. So we're no longer doing that. That's -- so those expenses those had been in place, and that's not where we're going. It's exactly what I mentioned a few times over. It's strictly learning curve. It's experience, it's the efficiencies come when the folks that are making these products, basically they becomes sort of second nature, muscle memory, what have you, that's the experience I'm talking about. So it's -- at this point, cost-wise, free. But time-wise, they look to work over time to do this learning, and they're not as efficient and as fast.

Helpful. And then as your 3860 units are phasing out, what happens -- how should we think about the service and disposable revenue attached to that install base. Maybe just talk through the 3870 quad replacement and your expectations with that for recurring revenue per site as those phase out. Is there any kind of transition gap you're thinking about? Or should we not really see anything like that?

Yes, I can take that one, maybe. As far as the disposal revenue, you're seeing some nice growth already, right? I think in the quarter, had over 14% growth on the disposables, so the 3860 installed base continues, hopefully, on the same kind of utilization. What we're really excited about and we think will help us even grow that more in the future is the quad stack. Of course, we're seeing, right? That should help us really drive utilization just as you see 4 pumps compared to 2, so we're excited about the opportunity there, I think, in the future on the 3870 and the utilization.