Roger Susi - President and CEO Brent Johnson - EVP, Worldwide Sales and Marketing Chris Scott - CFO

Chris Lewis - ROTH Capital Partners Larry Solow - CJS Securities

Thank you, and good morning everyone. Earlier today we reported first quarter financial results that were in line with our guidance revenue of $5.2 million as compared to $9 million for the first quarter of last year.

A GAAP loss of $0.02 cents per diluted share for Q1 this year as compared to GAAP earnings of $0.19 per diluted share for Q1 last year and a breakeven non-GAAP diluted earnings for Q1 2017 as compared to $0.21 for Q1 2016. We also announced the authorization of an 8 million share repurchase -- $8 million share purchase -- repurchase program this morning and continue to actively evaluate other uses of our cash.

Brent will add more color around bookings but -- later, but from a high level, bookings came in as expected, with March being an especially strong month. First quarter bookings give us a positive indication regarding our selling strategy and we look forward to build on that going forward.

However, we do stand ready to make adjustments to our methods and our cost structure should the circumstances dictate as we are still in the early stages of these selling methods. From a regulatory perspective, I'd like to provide a review.

In July 2016, we submitted 510(k) application to the FDA for our MRI compatible patient by the signs monitor. In September of that year, we received an additional information letter requesting more documentation and testing surrounding certain aspects of the device.

In October of 2016, we held a phone meeting with the FDA to review several of those items, including a comment related to human factors testing. In the latter portion of 2017, we submitted our responses to that September AI letter and very recently, FDA indicated they have a number of unresolved concerns remaining in this interactive phase.

We had expected to have some level further interaction, possibly even receive a second AI letter and build time into our project [Indiscernible] to respond to such a letter. Many of these unresolved concerns received just over two weeks ago are relatively simple and did not take much time to address.

However, there are two points raised by FDA that were not expected and which we feel will consume more time than the interactive phase made accommodate. The first of the two relates to ECG quality in the MRI, because of the principles upon which an MRI operates, can and do, show various MR caused artifacts.

This is for all existing MR monitors. While our patient monitor has proven to be superior to the predicate devices, ECG quality, FDA asked us to provide them with a side-by-side comparison of waveform quality in the MR.

We're well down the path of completing this testing, though it has caused us to incur costs that were not initially expected. Testing, so far, has gone well and the data is showing that our device indeed exceeds the presentation quality of an already clear device.

We expect to complete this testing and documentation short order. Now, the second relates to FDA's request for additional human factors test.

The additional human factors testing requested is supplementary to the HF testing that we've already performed, which was based upon our understanding of the testing requirements established in the October 2016 phone meeting with FDA. We are currently in the process of requesting a face-to-face meeting with FDA to discuss their expectations in detail and our approach in addressing a now expanding human factor study.

We anticipate having this meeting by the end of May, with establishment of the HF study very shortly thereafter. In the meantime, we are addressing the other unresolved concerns.

One further point that I would like to make is with regard to our actions given the time remaining for the interactive phase. Our first effort was to ask the FDA to issue a hold to allow us the time to respond effectively stopping the review clock and extending the interactive phase.

FDA declined to issue the hold and suggested a withdraw in resubmission of the subject 510(k). Considering that request and given the amount of time needed to complete the additional HF testing, the interactive phase would surely run to the limit.

So, we felt the best path forward is for us to withdraw and resubmit the monitors by 10-K as guided. This allows us the time to address the new unresolved concerns without running the review clock on a 90-day limit and risking FDA issuing a not substantial equivalence determination.

After consulting with counsel and our FDA lead reviewer, we believe that this is the best path forward and should result in obtaining 510(k) clear as faster than other alternatives and therefore, we withdrew the 510 submission for the monitor. Discussing this with our lead reviewer from FDA, we received his commitment to remain the lead reviewer of the resubmission and to help resolve those remaining issues efficiently.

We have the same reviewer -- having the same reviewer, I should say, we hope will avoid any potential delays due to unfamiliarity with our device and minimize the chances for a large number of new concerns. We fully expect to complete all additional testing and thoroughly respond FDA's recently raised concerns by the end of June and resubmit the monitor 510(k) very shortly thereafter.

These actions will, however, delay our planned U.S. launch of monitor.

Before turning to call over to Brent, I'd like to review our financial guidance for the second quarter and full year 2017 with the monitor launch delay effect included. For the second quarter, we expect revenue of $5.4 million to $5.5 million.

GAAP earnings per share of breakeven to minus $0.01 and non-GAAP diluted earnings per share of $0.01 to $0.02. For reasons just discussed related to the movement of the expected U.S.

launch of our patient monitor from Q3 to Q4 this year, we revised our full year guidance and now expect revenue of $22.7 million to $23.1 million. GAAP diluted earnings expected to be $0.03 to $0.04 and non-GAAP diluted earnings per share of $0.08 to $0.11.

Included in our full year revenue estimate is approximately $2 million in sales from our patient monitors, of which $1.5 million is expected from international sales. This implies a revenue guidance from sales of IV pumps, disposables, and related services of $0.7 million to $21.1 million or approximately 3% to 5% higher than 2016 revenue ex-backlog, which we have previously spoken about.

Now, I'll turn the call over to Brent for discussion of customer orders.

Thank you, Roger. First quarter bookings came in above our estimates with March being especially strong month for us.

We're not drawing any conclusions for the rest of the year, we view this first indications since our January sales meeting as positive and now look to build on this momentum going forward. In reviewing the composition of pump system orders for the quarter, approximately half of the orders came from first-time adopting customers and half the orders came from our current installed base of hospitals, which we view as a very healthy mix.

Consistent with my comments during the last quarterly conference call, orders from our former competitors/customers remain negligible. We expect a similar composition of orders for the foreseeable future.

We continue to see improvements in the pump system sales mix with customers purchasing more accessories and more options than in the past and we will continue to make this a focus area for our sales. Another area of focus is going back to our existing pump system customers and helping them identify ways that will increase pump system utilization rate and identify additional areas in the hospital that can benefit from our MRI Compatible IV Pump Technology.

Both of these initiatives will help ensure that we are maximizing revenue in each facility that we place equipment and potentially leading to additional equipment sales in each facility as well as increasing the sale of our disposables. As for the MRI compatible patient vital signs monitor, we are pleased with the number of orders we've received thus far from our international customers, which are in line with our expectations.

We continue to receive positive feedback from our international distributors regarding the interest they are generating from international customers giving us a firm base of support for the confidence we have in the quality of the product and in the success of its U.S. launch.

While disappointed in the delay of the U.S. launch of the monitor, we remain excited and still believe there's a tremendous opportunity for us to enter this market and expand its overall size.

As a reminder we're the only company with an MRI compatible patient vital signs monitor that has the potential to expand to other areas of the hospital and actually increase the size of the overall market. After receiving a clear 510(k), we expect to add an incremental $50 million in revenue annually from the sales of our patient monitor within 24 months of commercial shipments to the U.S.

We are now preparing for a Q4 launch -- U.S. launch of our product and look forward to selling this one of a kind device.

Now, Chris will provide a summary of our financial results.

Thank you. Today I'll be discussing our financial results on a GAAP basis as well on a non-GAAP basis.

Our non-GAAP operating results excludes stock-based compensation expense and the related tax effects. Our free cash flow measure 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 already discussed, we reported first quarter revenue of $5.2 billion compared to $9 million for the first quarter last year. Revenue from domestic sales was approximately $4.3 million or 84% of total revenue for the current quarter compared to approximately $7.9 million or 88% of total revenue for the same quarter in 2016.

Revenue from international sales was approximately $900,000 or 16% of total revenue for the current quarter compared to approximately $1.1 million or 12% of total revenue for the same quarter in 2016. International revenue for the first quarter 2017 included approximately $400,000 in sales of our MRI compatible patient vital signs monitoring systems.

Revenue from devices was approximately $3.4 million or 66% of total revenue for the current quarter compared to approximately $7.3 million or 81% of total revenue for the same period last year. Again, approximately $400,000 of device revenue came from sales of our MR patient monitoring systems.

Revenue from IV sets and services was approximately $1.8 million or 34% of total revenue for the current quarter compared to approximately $1.7 million or 19% of total revenue for the same period last year. As of March 31st, 2017, backlog was approximately $1.8 million, up slightly from the year-end level.

We expect that backlog will remain in this range throughout 2017. We recognize revenue on 87 IV pump systems this quarter compared to 263 pumps in the first quarter last year.

Our average selling price for the 2017 quarter was approximately $34,500 compared to approximately $27,700 for the 2016 quarter. The increase in ASP is a result of favorable sales mix as more accessories and options are being sold with each pump sale.

Gross margin was 73.1% for the current quarter and 81% for the 2016 quarter. The decrease in gross margin percent was the result of lower sales leverage and higher international sales as a percent of total revenue when compared to the 2016 quarter.

Operating expenses for the first quarter 2017 were $4 million for 78% of revenue compared to $3.8 million or 42% of revenue in the prior year quarter. On a dollar basis, the increase in operating expenses relates to higher payroll and employee benefits, resulting from higher headcount when compared to Q1 2016 and higher consulting expense, partially offset by lower administration fees paid to our GPOs, lower corporate franchise taxes, and lower legal and professional fees.

Our effective tax rate for the current quarter was negative 11.7% compared to 35% for the 2016 period. The lower effective tax rate is primarily due to the loss before provision for income taxes, higher research and development tax credits, and other deductions relative to our loss before provision for income taxes.

Offset by tax shortfalls associated with exercise stock options investing restricted stock units. Tax shortfalls and windfalls related to equity awards are now recognized in the tax provision as required by the new accounting standards rather than an additional paid in capital under previous accounting guidance.

On a GAAP basis, net loss for the current quarter was $0.02 per share compared to net earnings of $0.19 per diluted share in the first quarter 2016. On a non-GAAP basis, net income was breakeven for the first quarter this year compared to $0.21 for the first quarter last year.

For the three months ended March 31st, 2017, cash used in operations was approximately $200,000 compared to cash provided by operations of $2.4 million for the 2016 period. The decrease is due to net loss during the 2017 period and higher cash outflows related to accrued income taxes and accounts payable, partially offset by higher cash inflows from accounts receivable accrued payroll and inventory purchases.

Our free cash flow non-GAAP measure was negative $400,000 for the first quarter 2017 compared to $2.2 million for Q1 2016. As of March 31st, 2017, we had $25.2 million of cash in investments.

With that, I'll turn the call over to the operator for questions. Andrew?

Hey, good morning guys and thanks for taking the questions. Brent, maybe the first one for you.

Can you elaborate on what you're seeing regarding the March acceleration in bookings you pointed out and how that's the trend up to this point in the quarter? And digging into that a little bit deeper, what do you attribute that to, is it kind of just the new sales techniques taking hold, is it building tenure for some of those newer reps you added throughout the back half of last year, or just getting into new hospital budgets?

I guess any way you could kind of parse out what you feel is driving that early improvement would be helpful? Thanks.

Yes, Chris thanks and good morning. Yes, I think you provided a pretty good answer for your question.

It is a combination of those things. As we've talked about on the call, we had big March.

Coming out of that January meeting, it was right -- late in January, so it took a month out of January and again getting start up again in February. So, I believe that we really saw some of the effects from that meeting take hold and, again, a lot of that meeting was about closing business, was about bringing those -- bringing those opportunities through the system and bring them to closure.

So, I really believe it did help the techniques and the tools that we talked about in the last call that we spoke guys at the meeting. I think that helped a lot for the quarter.

Again, April, we're continuing to see some good volumes of orders for April, so continuing to build-off of that, but that's probably the biggest thing that affected us for the quarter.

And how many reps do you have today? And was there any additional turnover that you experienced in the first quarter?

We did not experience any turnover in the first quarter. We have 18 salespeople in the -- of course, the two Area Directors that they report to in the field and we -- again, continuing to ad tenure, which, of course, is also continuing to help us in our efforts to book more and more orders.

Obviously, the more experience and the more they come up to speed, the more effective they are on the field.

And I think you mentioned about half of your orders came from first-time customers. Seems may be up versus kind of your historical mix, can you walk us through that?

Yes, that's been pretty consistent with the last couple of call we've had. And said I before, I really view that as a healthy mix.

I mean, again, obviously our main goal, so to speak, is to go out and convert new customers and to go out and find new business in areas where we haven't been before. But there still is some great opportunities within our base out there that we've really been focusing the guys on as well.

We have many customers out there that are under-utilized in the number of pumps they use and there are still areas that don't use our pumps. A good example is a hospital that's using our pumps for sedation, so anesthesia is using our pumps.

But the ICU is still isn’t bringing patients down to the MRI because they don't bring patients down when they're on critical medications. So, part of what the guys are doing is educating those ICUs on the fact that, look -- again, there is a pump like this out there, you do have this available to you.

This will give you these benefit of being able to scan your patients earlier. And again reaching up into those departments and getting them to buy pumps.

So, we've had a lot of success with that. And so when you see that half of our business is coming from that existing base, many, many of those orders are from those efforts.

Got it. Roger maybe hop into the regulatory side for the news to withdraw and resubmit the 510(k) submission for the monitor.

Can you provide any granularity on what the additional human factors testing will require? How extensive will that be?

And I guess what do you think the agency wants additional data? Seems like -- I would assume that was already included in the initial submission, so just kind of your thoughts on the regulatory path going forward?

Yes sure Chris. Good morning to you too.

Well, as I mentioned, we had a call with FDA to clear those areas up because as we all learned with IV pump, human factors can be a bit -- it's more art than science. It's a bit hard to quantify exactly what needs done and what's a positive answer.

So, we were pretty cautious with that when we saw in original AI letter 41 or whatever 41 or 42 questions back last year that included human factors, we wanted to go over that pretty well. We had a phone meeting and the human factors person that was part of the team then, we felt that we got a pretty good clarity on what we should do.

So, what happened is that we've got new human factors person has come onto the scene in the group of experts under our lead reviewer and we had a phone call already to discuss these issues. This is before we withdrew the 510(k) just with the additional questions they had.

And this new person is basically opening up the kind -- I'd have to say you fell back on. She wasn't part of the -- what we discussed back in October and so she felt she had a license to pretty much open this stuff up again and bring everything back on the table.

So, she's simply -- the guidance from that call was rather simple. It was just follow the human factors guides.

So, that's why we want to have a face-to-face meeting. We want to basically go up there and say here's a patient monitor, what we think we need to do to follow human factors guidance.

And the idea being that you pull out the use errors that could cause a serious situation, either critical or catastrophic as we classify these hazards, right. You pull those out and you test how humans interact with the product in that case.

Frankly, with a patient monitor that number of those things that can cause critical or catastrophic results that an operator could misuse the product by are relatively small as compared with the IV pump. An IV pump is dosing drugs and so there are, I suppose, more degrees of freedom for a user to misuse the device and lead to some serious injury of critical or catastrophic event.

With the monitor, it's just not so much. So, some of our question with this new person is going to be to try to get clarity on what she believes are those critical aspects of the pump.

At this point, we just have our own hazard analysis to follow. And we hope to get more clarity on that.

So, I mean that's I guess as granular as I can get. Until we have that meeting, we don't have much more insight to it than that.

No, that's helpful. I appreciate it.

And then I think I missed it, but what are you assuming just for total monitor sales for I guess the full year in the fourth quarter?

For the full year is about $2 million and about $1.5 million of that is from our international customers.

Great, okay. And then Brent I think in your prepared remarks you pointed to the monitor a goal of doing $15 million annually with that product within 24 months.

Can you help us understand what you think kind of the first 12 months the sales will look like for that product as you ramp commercial efforts?

Well, as you eluded to, there will be a ramp up there when we do introduce the product. We've got a fair amount of interest in the marketplace.

We talked about on prior call and the guys have a pretty extensive prospect bank at this point. So, we think we can jump in pretty quickly and ramp things up because it's not -- it's different than the process with the pump.

There's a lot of business that's already in process with competitive products. And from what we're seeing in the international markets and the success we're having there and the feedback we're getting there, we think we can take some of the business away from the competition and jump in on some of these orders fairly quickly.

So, it will be a ramp up process. I don't have any exact numbers other than I think what we're putting in the numbers for the fourth quarter domestically would be about $1.4 million.

Great. And just one more for me.

Chris, can you walk us through what we should assume for gross margins in OpEx in the second quarter relative to the guidance and also for the full year? Thanks.

Yes. Margins -- for gross margins in the second quarter, I'm still looking in the low 70s, probably down from the first quarter around 71.5% or so.

OpEx, there's some slight favorability coming through total OpEx, I'm looking still around $3.9 million, $4 million.

And for the full?

Full year, we bounce back a little bit, closer to 73%, 74% gross margins for the full year and about $15.5 million, $15.7 million in total OpEx.

Okay. Thanks guys.

Good morning. Thanks.

Just a couple of follow-ups there. On the composition of orders, have you, sort of, hasn't changed too much in terms of new to existing.

What about volume of orders or multiple orders, have you seen that -- I know that that has been increasing or and I think that was actually also some of the hold-off in terms of getting orders approved because it was crossing into multiple parts of hospital. Can you -- any update on that or any thoughts on that, color on that?

Sure, sure. Start with the first part of your question, we actually -- as we talked about, we saw orders rise in Q1 from Q4, a modest rise in orders from our first quarter results compared to our Q4 of 2016.

And that's a good sign because typically, the fourth quarter -- in our business, the fourth quarter is almost always the stronger quarters. So, to do first quarter and actually increase the orders number, we view is very positive.

The second part of your question, talk about -- little bit about multi-pump orders. We've also seen increase in our multi-pump orders.

Through the first four months of this year, we've already bought almost as many multi-pumps orders we booked in the entire year last year and we've actually booked more units because some of those multi-pump orders have been larger. So, we've booked more units in multi-pump deals to the first four months of the year this year than we did all of last year in 2016.

So, on both accounts, we're seeing some nice increases and we think that's very favorable for the business.

Absolutely. And then on the -- just on the increased accessories and sort of in the bells and whistles there, I see you guys have done a great job there.

I mean 25% price differential is pretty significant, especially over a 12-month period. Is there room for -- is there further room to run on that metric?

I mean I imagine it would have to slow down somewhat, but that's a pretty significant growth, but any color on that?

Yes, I mean we really been working with the guys that sell everything and to try to maximize the dollars that each pump is pulling along. I think as we said we're doing a good job in that respect.

I think there is a little bit more room there. The other thing that you're not seeing necessarily in the revenue numbers is that the amount of extended warranty that the guys are booking to.

They're booking a significant amount of extended warranty, which is another area that we saw as an opportunity for product and we've made some very good strides there in developing that business as well.

Okay, great. And then maybe a question for Roger.

Just on the human factors testing, just -- I'm curious I know you said you requested a meeting with the FDA. It sounds like even if the FDA comes back and so they want you to do what you're willing to do what they ask you to do.

It still only will be a couple of months of testing, right, sounds like -- you think you'll be able to refile within two months, right? I mean regardless of that FDA meeting or unless somehow they come out with telling to do more than what they're already asking you to do?

Well, they are going to tell us to do more. They're going to tell us to do more than we did.

But we've already triage this pretty carefully and as I said we're going to the hazard analysis. We're identifying those critical and catastrophic possible pathways and there aren’t many with a pump -- with a monitor as they were with a pump.

So, even -- if they push us -- they push us up to look at all of those which we think are reasonably within the wheelhouse of pertaining to that, we're already creating -- and we're anticipating the outcome of this face-to-face meeting. We're building the protocol, we're going to start to actually rent a facility, get the participants booked and so forth so that right after that meeting, we start the test and should have it done in about a month.

So, that's why I said earlier that we anticipate sending -- we anticipate refiling the 510(k) the resubmission by having all the data done at the end of June and getting it in there early July with all these new things they wanted us to explore included. So, yes, I guess you're right, that's about two months -- a little over two months from now.

Got it, got it. And essentially just to clarify, you -- I know you've taken out all the domestic sales from your guidance $1.5 million and then -- I guess was a like another $1.5 million of revenues taken out, I guess that's from pump sales or less monitor international, where is that other $1.5 million coming from?

Some of the -- we had about $1 million in the fourth quarter initially from monitors.

Okay. Domestically you're saying.

I thought -- okay. So, you basically taken out -- it's the $1 million in revenue reduction is all domestic monitors?

Yes, right, for the most part, yes.

Okay. Because I thought it was $1.5 million international, $0.5 million domestic was -- is that--?

That's what remains in our guidance for the full year.

Got it. So, it was $1.5 million.

It was basically $3 million, you were saying $1.5 million, $1.5 million, and now you're essentially going $1.5 million and $0.5 million about round -- excluding round -- and round about. Well, okay, great.

Excellent thanks I appreciate that.

Yes, operator thanks. Thank you all for participating in today's call and for your continued support of iRadimed.

We expect the rest of the year will be busy in all areas of the business and are excited about updating you on our progress after the second quarter. Thank you.