Iradimed (IRMD -2.51%)
Q2 2019 Earnings Call
Jul 30, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by. Welcome to IRADIMED Corporation's second-quarter 2019 financial results conference call. [Operator instructions] As a reminder, this conference call is being recorded today, July 30th, 2019, and contains time-sensitive information that is accurate only as of today. Early, IRADIMED released financial results for the second-quarter 2019.
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 Securities and Exchange Commission on Form 8-K and can be found on -- 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 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 customers' orders; and finally, Chris Scott, IRADIMED's chief financial officer, will summarize the company's financial results before opening up the call 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 that include the company's expected results for 2019. IRADIMED reminds you that future results may differ materially from those forward-looking statements due to the number of risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see 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 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. Sir, you may begin.
Roger Susi -- President and Chief Executive Officer
Thank you, operator, and good morning, everyone. This morning, in addition to our usual quarterly operations and performance review, we have an additional important and exciting topic to discuss. But first, I'll start with a brief review of our performance in the second quarter. I am very pleased to report that our second-quarter revenue was $9.2 million, which is a 25% increase over the second quarter last year.
GAAP net income was $0.17 per diluted share, a 51% increase over last year, and non-GAAP net income was $0.20 per diluted share or 42% higher than the second quarter of last year. Our bookings remained strong as our MR monitor continues to become a larger contributor to sales volume, and we continue to add headcount to our sales team and implement further enhancements to our sales strategy. Overall, this was a solid, on-target quarter, making me very proud of our entire team. Before discussing the business operations, I'd like to spend a few moments discussing the leadership change we announced yesterday afternoon.
In yesterday's release, we announced that Leslie McDonnell was elected to serve as chief executive officer, and that I am taking a new role as chief technology officer while also retaining my role as chairman of the board. In Leslie, we have found a highly confident executive with significant medical device experience. She has held leadership positions at Natus, 3M Healthcare, and Medtronic. During the search process, Leslie impressed us with her strong strategic vision and her deep understanding and experiences in all aspects of the medical device industry.
The board and I believe that she is perfect person to lead IRADIMED to the next growth phase and beyond. As announced, with this move, I will be taking on a newly creative -- created role as chief technology officer. This is essentially one of the roles I have played at IRADIMED since its founding. However, with Leslie in place, I will now be able to solely focus on the development of new products that are aimed at propelling IRADIMED toward achieving our long-term growth goals, including our 100-million in revenue goal announced some six quarters ago.
Continuing in my role as chairman and now being able to dedicate nearly all of my effort on new product development, I assure you that I will -- that I intend to remain highly engaged with the company. Now on to the business update. All of our functional areas continue to perform very well. From a regulatory perspective, I'd like to remind you of our January 2019 announcement that -- when we were notified by the U.K.
Notified Body, UL, that their recent technical file review of our 3880 MRI compatible patient vital signs monitoring system could not be completed as aspects of the clinical evaluation reporting, per newly issued guidance from the European Union, was not acceptable, resulting in a technical nonconformity. Upon receiving this notification, we immediately suspended shipments of our 3880 MR compatible patient vital signs monitoring system into all markets requiring the CE mark. Concurrently, UL issued a temporary EC certificate that included our MR compatible infusion pump system and related IV tubing sets and excluded our 3880 patient vital signs monitoring system. These temporary EC certificates extended through July 27, 2019.
But on July 3, 2019, during the process of addressing the technical nonconformity associated with the review of the 3880 MRI compatible patient vital signs monitoring system, UL notified its customers of their decision to cease operations as a notified body, and would be transferring all customers to a Polish-notified body, a process UL began as a result of the Brit ex. UL recently notified us that they have transferred our EC certificates for IV pump and sets to the Polish-notified body, and we are currently awaiting the Polish firm to process the transfer and reissue a new EC certificate for our MR compatible infusion pump system and related tubing sets with an additional four-year term. So the Polish-notified body is extremely busy digesting all of the transfers from UL, we expect to receive renewed EC certificates before the end of August. And in the meantime, we have taken steps to mitigate risk associated with this administrative processing time through placing of an adequate supply of inventory within the EU.
UL's decision to cease operations as a medical device notified body caused us to seek a new notified body for certification of our 3880 MRI compatible patient vital signs monitoring system. Concurrent to UL's announcement, we had engaged an Italian-notified body to recertify our 3880 monitoring system. We are actively working through the recertification with the Italian firm and expect to complete this process and resume shipments of our monitor into all markets requiring the CE mark near the beginning of our fiscal fourth-quarter 2019. As I said on past calls, only shipments of the 3880 into EU countries are being held by this lapse in CE marking.
This is not due to any safety concerns and does not impact the patient monitors that were already in the field. Once the 3880 is recertified, we will immediately resume shipments of the monitor to customers located in the EU that not only have patiently waited for resolution and renewal of our ability to apply the CE mark, but in many cases, have continued to place orders. Now from a research and development perspective, we continue as planned, making progress toward our next-generation IV pump and maintain the project calendar without adjustment. I still expect to release the next-gen pump to international customers in 2021 and U.S.
customers soon thereafter. This time line may prove conservative considering my abilities to solely focus on the development of new products. Regarding the magnetic device -- detection device, we call FMD, we continue to make steady progress and remained committed to our initial plan for a late fourth-quarter 2019 launch. Finally, moving to our financial guidance for the full year and the third-quarter 2019.
For the full-year 2019, we maintain our original guidance and continue to expect revenue of $38.5 million to $39.5 million. We are revising our full-year earnings guidance and now expect to report GAAP diluted earnings per share of $0.65 to $0.69, and non-GAAP diluted earnings per share of $0.70 to $0.74. This compares to our previous guidance of GAAP diluted earnings per share of $0.60 to $0.64, and non-GAAP diluted earnings per share of $0.69 to $0.73. As stated in our release this morning, costs associated with our new CEO are expected to negatively impact the full-year GAAP diluted earnings by $0.03 per share, and non-GAAP diluted earnings by $0.02 per share.
For the third quarter 2019, we expect revenue of $9.7 million to $10 million, GAAP earnings per share of $0.12 to $0.14, and non-GAAP diluted earnings per share of $0.14 to $0.16. Again, costs associated with our new CEO are expected to negatively impact third-quarter GAAP diluted earnings per share by $0.01. We expect an insignificant impact to non-GAAP diluted earnings related to these costs. Now I'd like to turn the call over to Brent for a discussion of our customer orders and our expanding sales force.
Brent?
Brent Johnson -- Executive Vice President of Worldwide Sales and Marketing
Thank you, Roger, and good morning, everyone. Our second-quarter orders were strong with an overall year-over-year increase in total worldwide orders of over 30%. This growth in orders show strong support for our current sales strategies and our sales force expansion efforts, and we expect these sales execution levels to continue in future quarters. On the domestic side, we saw continued strength in Q2 bookings of IV pumps and in both multi-pump orders and dual-pump orders.
Our strategy of targeting the critical care areas of the hospital continue to show how this effort drives the increased demand for MRI IV pump purchases and helps us drive the demand for increased pump channels to handle the multiple critical medications that these patients require. Our critical care strategy is delivering the IV pump growth we need, and we expect to see this continued expansion in this area of our business as we grow the number of sales managers we have deployed in the field. The domestic sales team continues to gain expertise with the MRI patient monitor product for better head-to-head results against our competition. Along with this increase in expertise, we've seen the number of MRI patient monitoring sales opportunities increase, which has delivered a strong pipeline of deals for the second half of the year.
We've also made great strides in getting the MRI monitor on contract with some of the largest, most compliant purchasing organizations and integrated health delivery systems in the nation. Many of these agreements are dual-source agreements with our competitors but are important because they give us the opportunity to compete for the business on an equal footing. We are happy to announce that we have just signed a sole-source MRI monitoring agreement with one of the largest IDNs in the nation, and we expect to see orders for new monitors from that agreement beginning in Q3. We're confident that these positive developments will translate to large increases in MRI monitoring sales in the second half of 2019.
Our international team made another solid contribution to the quarter, even with some of the continuing regulatory issues around our CE mark for the MRI patient monitor that Roger just spoke about. The team has done a great job of keeping our EU-based distributors engaged and active with the product while we're making progress with our regulatory efforts. And as I reported at the end of our first quarter, we continue to receive orders from -- for our monitor from these EU partners that we intend on shipping immediately upon receiving recertification of the device. During the second quarter, we continued with our sales force expansion to put more feet on the street and better penetrate the U.S.
marketplace. We added two additional direct sales territories to our domestic sales team, bringing our total number there to 28 territories with two more sales hires planned before the end of the calendar year. We continue to focus a lot of our efforts on training with our new sales managers and providing a strong team of area directors to help facilitate and accelerate this learning process. Our demonstrated success in translating these additional sales hires into additional increased sales with our current product offering gives us the confidence that this strategy will continue to deliver the targeted sales growth we need in future quarters.
Now I'll turn it over to Chris to summarize the financial results.
Chris Scott -- Chief Financial Officer
Good morning. 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. 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 tax provision.
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 Roger stated, revenue increased 25.1% over the second quarter last year.
This increase was not isolated to a single product but driven by greater than 20% increases across all line items. Revenue from devices was $6.4 million for the current quarter, compared to $5.1 million for the 2018 quarter, a 26.4% increase. Included in revenue from devices for the second quarter of 2019 is $1.8 million in sales of our 3880 monitor, compared to $1.5 million for the 2018 quarter, a 22.6% increase. Revenue from disposables and services was $2.3 million for the current quarter, compared to $1.9 million for the 2018 quarter, a 21.2% increase.
And lastly, revenue from the amortization of our extended maintenance contracts was approximately $500,000, a 26.5% increase over the second quarter last year. Domestic revenue was $7.6 million for the current quarter, compared to $5.7 million for the prior-year quarter, a 31.9% increase. Revenue from international sales, which again were impacted by the CE mark, was $1.7 million for the second quarter of 2019, compared to $1.6 million for the 2018 quarter. The average selling price of IV pumps recognized in revenue during the second-quarter 2019 was approximately $35,300, compared to approximately $29,400 for the 2018 quarter.
The increase in ASP is the result of a favorable geographic and product sales mix when compared to the same quarter last year. ASP for our patient vital signs monitoring system was approximately $32,200 for the second-quarter 2019 and approximately $34,100 for the 2018 quarter. The decrease in ASP is due to an unfavorable geographic sales mix when compared to the 2018 quarter. Gross margin was 79.9% for the current quarter and 76.8% for the same quarter last year.
The increase in gross margin percent is the result of favorable overhead variances. Operating expenses were $5 million and $4 million for the 2019 and 2018 quarters, respectively, which is 54.1% of revenue for both periods. On a dollar basis, operating expenses increased due to higher sales commissions, legal and professional expenses, and payroll expenses. Our effective tax rate for the current quarter was 14.9%, compared to 20.5% for the 2018 period.
The lower effective tax rate is primarily due to tax windfalls associated with the exercise of employee incentive stock options during the current quarter, partially offset by a lower deduction related foreign-derived intangible income. On a GAAP basis, net income for the current quarter was $0.17 per diluted share, compared to $0.11 for the prior year quarter. And on a non-GAAP basis, net income was $0.20 per diluted share for the current quarter, compared to $0.14 for the second quarter last year. The number of dilutive shares for the second quarter 2019 increased by approximately 215,000 shares over the 2018 quarter.
For the six months ended June 30th, 2019 and 2018, cash provided by operations was consistent at $3.1 million. This is primarily the result of higher net income, offset by lower cash inflows from accounts receivable, and higher outflows related to income tax. For the three months ended June 30, 2019 and 2018, our free cash flow, a non-GAAP measure, was $2.4 million and $1.5 million, respectively. And as of June 30th, 2019, we had $37.8 million of cash and investments.
I will now turn the call over for questions. Operator?
Questions & Answers:
Operator
Thank you. [Operator instructions] One moment. And I'm currently showing no questions at this time. I'd like to turn the call back over to Mr.
Susi. You may begin.
Roger Susi -- President and Chief Executive Officer
Thank you, operator. I'd like to thank you all for participating in today's call and for your continued support of IRADIMED. While I do not intend to participate in future calls on a regular basis, I, once again, assure you of my continued involvement in IRADIMED's activities. By taking on this new role, I will return to what I love, the development of innovative medical devices for purposes of increasing patient care.
This can only be facilitated by installing a highly confident and highly experienced leader as CEO. We believe we have found such a leader in Leslie McDonnell, and I believe you will agree with me once you have had the chance to interact with her. Until then, everyone at IRADIMED would like to extend a warm welcome to her and her family. And with that, we look forward to reporting back to you later this year with our third-quarter results.
Operator
[Operator signoff]
Duration: 21 minutes
Call participants:
Roger Susi -- President and Chief Executive Officer
Brent Johnson -- Executive Vice President of Worldwide Sales and Marketing
Chris Scott -- Chief Financial Officer