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

Larry Solow - CJS Securities Scott Henry - Roth Capital Larry Haimovitch - HMTC

Thank you, operator, and good morning everyone. Earlier today we reported third quarter revenue of 5.7 million, GAAP net income of $0.02 per diluted share and non-GAAP net income of $0.07 per diluted share.

We meaningfully exceeded our GAAP and non-GAAP earnings estimates with revenues slightly above the high-end of our estimate. All of which are find as a positive indication of the quality of our business.

Additionally, IV pump bookings continue to show strength and as announced on October 26th, we received FDA 510(k) clearance for our new MRI compatible patient vital signs monitoring system. Achievement of the 510(k) clearance for our monitor is a significant event in the Company’s history and is the result of the tremendous effort displayed out over the past four plus years has been through the hard work of so many of our people that made this achievement possible.

Their collective efforts have been admirable and we now turn to the work of integrating this device into our daily production and sales routine, while guiding our IV pump business and maintaining the momentum developed over these past quarters. Regarding integration of the monitor, our engineering and production teams continue to work closely for a smooth U.S.

launch, ensuring capability to hand the levels of near-term demand that we expect. Much has been accomplished in this area of the past year.

As we satisfy demand from our international customers, establishing a firm based from which to expand. Our U.S.

sales team has been trained and already carrying the demo units and performed numerous demonstrations to potential customer throughout the month of October. We are now circling back with those customers that have orders for competing devices for Q4 purchase and plan to persuade them with the right choice will be to switch our revolutionary new monitor.

While Brent will provide more color on the feedback received from customer demos, I will say that one thing has emerged. Our customers get it.

They look at the compact size of our monitor and get it. They look at the possible uses of our highly transportable monitor and they get it.

Many of the customers that have seen the demo realized without it being pointed out, but they no longer have to be limited to oversize MRI monitors that have occupied the marketplace for decades. Customers get that our device is revolutionary for this market and for that reason they are rethinking purchases of competitor monitors and several already taken action.

To quickly sum up, we have a solid third quarter -- we've had a solid third quarter -- excuse me, and crossed the milestone in the Company’s history with the monitor clearance. However, there is much more to be done.

And now before turning over the call to Brent for discussion of bookings and review of the MRI monitor market, I would like to review our financial guidance for the fourth quarter. We expect revenue of 6.7 million with GAAP earnings per share of breakeven to $0.02.

Non-GAAP diluted earnings per share of $0.05 to $0.06. For the full year 2017, we reiterate our revenue guidance of 22.7 million to 23.1 million and GAAP earnings of $0.03 to $0.04 per diluted share.

However, we are raising our non-GAAP earnings estimates to $0.17 to $0.18 from 10% to 13% per diluted share previously announced. As we discussed previously, 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.

This implies revenue guidance from the sales of IV pumps, disposables and related services of 20.7 million to 21.1 million or approximately 3% to 5% higher than 2016 revenue exclude in the backlog, which we have previously spoken about. Now, I’d like to turn the call over to Brent for a discussion of our customer orders.

Thank you, Roger. Bookings for the third quarter which is seasonally is our most challenging period of each year were strong this year exceeding our forecast and handle exceeding the booking for third quarter last year.

We view this is highly positive and additional evidence that our sales team continuous to develop and strength the application of our critical care strategies and those techniques are resonating with multiple departments within the hospitals. The composition of orders for our pump system in the current was consistent with the first six months of the year with approximately half the orders coming from first-time adopters and the other half coming from existing customers.

I’ve spoken several times about our critical care strategy over the past few quarters and I add with that discussion today. Our strategy of targeting the critical care departments along with our historic core market in the MRI department continues to gain traction and see the higher levels of orders for our pumps and higher levels of multi-pump orders.

We’re experiencing great rates of success with our critical care strategy by stimulating the demand for pumps in those departments and changing their practice of either using conventional pumps with long IV lines extending to the MRI room or waiting until patients are stable enough to go to MRI without IV medication. Another positive result of our critical care strategy is, even when we don’t sell directly to critical care, the interest shown by the critical care departments and the desire for changing current practice is putting pressure in the MRI department to order our MRI compatible pump and satisfy the demand from critical care departments that provides the higher level of patient care that our IV pump offers.

As per the 3880 MRI compatible patient vital signs monitoring system, we’re enthusiastic about the timing of the FDA clearance and believe we have an opportunity to take advantage of a strong buying cycle that occurs with MRI monitors in the U.S. during the fourth quarter of each year.

In early October, we held the sales meeting in Orlando with our U.S. sales team where we've trained these sales managers on the 3880 monitor and thoroughly discuss the MRI monitoring market and the competition.

Immediately after the two day meeting, our sales managers began performing demonstration for potential customers that we had targeted based on their intent to make an MRI purchase before the end of the year. We’re extremely happy with the feedback we've received and as Rogers stated customers are getting.

Customers are very impressed with the monitor’s functionality, compact size and lightweight design. In addition to the traditional use of the monitor in the MRI department, many customers have already embraced the potential to use our monitor in patient transport scenarios which will ultimately drive the number of MRI patient monitors they purchased higher, giving us the MRI scanner multiple that we are targeting.

This also does help nicely with our IV pump strategy as the demand from multiple monitors will come from the critical care departments that also need our MRI IV pump to stack safely and efficiently transport those patients to MRI. Again in regard to this multiple, our monitor is the only one in the world that can expand the overall size of this market and further IRADIMED is the only company in the world that can sell into this expanded markets.

As we previously discussed, we expect that the sales of our monitor could produce an additional 22 million in annual revenue within the next 24 months and continue to grow from there. Now, I’ll turn it over to Chris to summarize third quarter financial results.

Today, I’ll be discussing our financial results on a GAAP basis as well as on a non-GAAP basis. Our non-GAAP operating results excludes stock-based compensation 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 that the presentation of these non-GAAP measures along with our GAAP financial statements can be helpful in providing more thorough analysis of our ongoing financial performance.

You can kind a reconciliation of these non-GAAP measures to the nearest GAAP measure from the last page of today’s press release. As Roger just said, we reported third quarter revenue of 5.7 million compared to 7.7 million for the same quarter last year.

Geographically, revenue from domestic sales was $5 million or 88% of total revenue for the current quarter compared to 6.9 million or 90% of total revenue for the third quarter of last year. Revenue from international sales was approximately 0.7 million or 12% of total revenue for the current quarter compared to 0.8 million or 10% of total revenue for the 2016 quarter.

International revenue for the third quarter 2017 included a $100,000 in sales of our MRI compatible patient vital signs monitoring system. Revenue from devices was 3.7 million or 65% of total revenue for the current quarter compared to 6 million or 78% of total revenue for the same quarter of last year.

Revenue from IV sets and services was $2 million or 35% of total revenue for the current quarter compared to 1.7 million or 22% of total revenue for the 2016 quarter. We’ve recognized revenue on 103 IV pumps this quarter compared to 184 pumps in the third quarter last year.

Our average selling price for the third quarter 2017 was approximately $35,000 compared to approximately $32,000 for the same quarter last year. The increase in ASP is a result of a favorable sales mix as we sold more higher-priced optional pump features per pump sale on average than in the 2016 quarter.

Gross margin was 77% for the current quarter and 81.7% for the 2016 quarter. The decrease in gross margin percent was the result of unfavorable overhead absorption rates due to lower production output during our current quarter when compared to the 2016 quarter, higher depreciation and amortization expense, and higher international sales as a percent of total revenue when compared to the same period last year.

Operating expenses for the third quarter 2017 were $4.2 million or 74% of revenue compared to $3.7 million or 48% of revenue in the third quarter of 2016. The increase in operating expenses is due to higher stock compensation expense primarily resulting from a charge-related to the modification of the underwriters’ warrants, higher payroll and employee benefits due to higher headcount, and higher regulatory costs, partially offset by lower consulting costs, corporate and franchise taxes and administrative fees paid to our GPOs.

Our effective tax rate for the current quarter was 14.4% compared to 39.7% for the 2016 period. The lower effective tax rate is primarily due to favorable provision to return adjustments and the impact of the domestic production activities deductions and research and development tax credits on a lower base of pre-tax income when compared to last year.

Additionally, our effective tax rate is being affected by the shortfalls and windfalls related to equity awards that are now recognized in the tax provision as required by the new accounting standard rather than in additional paid-in capital under the previous accounting guidance. On a GAAP basis, net income for the current quarter was $0.02 per diluted share compared to $0.13 per diluted share for the third quarter 2016.

On a non-GAAP basis, net income was $0.07 per diluted share for the current quarter compared to $0.14 for the third quarter last year. For the nine months ended September 30, 2017, cash provided by operations was $2 million compared to $7.2 million for the 2016 period.

The decrease was primarily the result of lower net income and higher net cash outflows related to accrued income taxes and accounts payable, partially offset by higher net cash inflows from reduced inventory purchases, customer receipts on accounts receivable, and lower cash outflows paid for payroll. Our free cash flow on non-GAAP measure was $1.7 million for Q3 2017 compared to $3.3 million for Q3 2016.

During the nine months ended September 30, 2017, we used $1.8 million to repurchase approximately 210,000 shares of our common stock, pursuant to an $8 million repurchase authorization that was announced on April 28 of this year. As of September 30, 2017, we had $25.2 million of cash and investments.

Before turning the call over for questions, I would like to briefly address a few items related to our initial thoughts for 2018. We will be providing our actual guidance for the full year 2018 during the first half of January which is consistent with our historical timing.

With the recent FDA 510(k) clearance of the patient monitor and the traction we are seeing in our pump business, we believe that revenue could be meaningfully higher in 2018 and that trend could continue into 2019. Additionally, with an eye toward accelerating development and commercialization of new products and ultimately increasing revenue and earnings growth, we may make higher levels of investment in our R&D efforts, including working with outside development houses for certain projects, while internally continuing to focus on our new product pipeline that we have publicly spoken about and is including in the presentation that can be found on our website.

And with that, I'll turn the call over for questions. Operator?

Just a one quick follow-up before I ask my main question. On the preview for '18 and follow that the higher levels of R&D including some on the expected spending on the outsource side.

Would that be sort of outsourced to comp to CROs? Or is that more a JV-type thing you expect?

Or how to say at this point?

It would be just R&D [indiscernible]

Okay. And just to clarify, did Brent say for the sales target within two years on the monitors, $15 million was the part number, is that what you said?

Because it sounds this is a higher number.

Basically, what said was that we believe that could be -- we're at $22 million business with on an annual basis within two years.

$22 million on an annual basis within two years, okay, got it. It's like that just 15 and prior wasn't that the part number you had given?

It's in prior call.

15 doesn't include the expanded market that we've talked about before.

Okay, fair enough. Okay, just in as -- a couple of quick ones.

On the quarter sounds like pump orders in the slower time of the year continued to slowly work their way up. Any trends that we could look at?

I know you don't give actual numbers, but is it nice growth year-over-year? And is it sequentially improving maybe in the later part of the quarter when -- at to somewhere maybe September into October?

Yes, September was much stronger than July and August which is the typical situation. So, again, it follows pretty much what we were looking for.

And maybe does the monitor approval because obviously the monitor is a replacement market, so I guess almost every MRI suite and it should have one of these. Does that maybe actually open up more doors for you?

Or increase potential for the pumps to talk on the customers who are at one point that said that will just do work around methods instead of actually putting a pump into our suite?

Yes, sure. I mean, we're not going to knock on those doors anyway, but absolutely it gives us a great opportunity with the patient monitor to bundle our IV pump with those patient monitors.

So, it does open new doors of maybe places where they haven't been considering the pump or it's been a tougher sale opportunity in some institutions, we're having that patient monitor. I mean it really every MRI that does any kind of sedations is going to have a patient monitor.

So, it does open some of those doors for us even though we've been knocking on those doors diligently as we're going to follow. And it does give us an opportunity to bundle IV Pumps with our basic monitor.

A couple of questions. First congratulations on the vital signs monitor.

The question is, what steps remained for you to openly start booking revenues for that product in Q4? And what kind of expectations should we have in Q4?

It sounds like I thought I heard $200 million with $1.5 million international, is the delta there what we should be thinking about for vital signs monitors? Just trying to get a sense how we should model that?

Yes, this is Brent again. We expect them pretty -- I guess to answer to first part of your question first is really the only thing that really kept us from booking orders is the fact that we couldn’t quote the system and it seems we had 510(K) we could quote this and have done a lot of quotes on Thursday and Friday last week.

We have got a lot of business that we've identified out there as we all know we have been working toward this for some time. We have anticipated a Q4 launch and so we have been -- the sales people have been out there identifying fourth quarter business, speaking to those customers, and we have a lot of customers that are waiting for quotations.

So, yes, that has really been only hold us to actually booking the business and we are very involved in that right now. And, yes, we set the some modest goal that we think there is some upside on.

And based on the reactions that we have seen from customers in the market place, so…

And I just want to clarify that $2 million number Scott that was for the full year. We estimated about anywhere from $750,000 to a $1 million in the fourth quarter related to monitor markets or monitor sales rather, but just wanted to be clear that when Roger spoke about the $2 million that was the full year number.

And then following up, as far as seasonality in the year for purchasing, obviously fourth quarter is a strong end of the year purchasing quarter, but how should we think about launching a new product that clearly has a lot of benefits over what's out there and customers' ability to purchase it in the first quarter and second quarter? I mean do we see less seasonality with the new product like this in the beginning of the year just trying to get a sense that how we should think about those trends going into next year?

Well, you know -- this is Roger. I might jump in on this now as Brent finish up.

The business is generally seasonal. The fourth quarter is strongest and we have found that our second quarters second, second in line next to that, third quarter the weakest and first quarter somewhere middling.

However when you are talking about the monitor and from where we are coming from zero, you are starting to split hairs than thinking about seasonality. As we blade out, we think that initially we are going to be just rather than starting up a whole new selling cycle with the customer will be in many, many cases stepping in to business that’s already being renewed and reordered quarter-by-quarter from domestic customers out there.

So at this point, I wouldn't be able to guide much on seasonality to expect in these initial few quarters, as we come out with the monitor. And Brent might go ahead and add some of that.

Yes, it echo arrives that. I mean there really won't be seasonality of associated with the MRI patient monitor purchases that we're seeing because it's right that we're starting from zero.

So, there're plenty of opportunities that are happening in the first quarter, second quarter, third quarter of next year. Again, if looking at -- if you looked at our competition of the incumbent that might affect their flow, but it's really not going to affect ours.

Okay, thank you for the color. That's very helpful.

Last monitor question. How are you on the manufacturing side as far as capacity?

Is that an issue at all in the early launch or do you feel pretty comfortable there?

Manufacturing capacity is as we said we've been already learning the ropes on how to build these things for the past year. We've made all north of 60 or 70 of these units over the year.

So, we're at the point where manufacturing is fairly stable on doing it. Now with the volumes that we hope to get even on the high side and while the trading manufacturing capacity itself is not a problem.

Some of the materials of course are long lead times, so if -- we get a huge -- a bigger influx of business than we thought, it won't be a manufacturing bottleneck as such because of the space of people here. But lead times for certain materials are what they are and so our deliveries could stretch up because of that reason, but still that would take a pretty good positive surprise on them on the amount of orders coming in.

And then just quickly on the pump business. How should we think - there's been a lot of events that have impacted growth positively and negatively kind of in the rearview mirror.

How should we think about organic growth there? I mean I saw they heard a number around 20% when you pullout backlog.

Just trying to get a sense of where you think the organic growth rate in that business currently is?

Well, we certainly think that in the neighborhood of 20% is achievable. If you look at the -- I mean if you look at the results on the unit quantities that we're doing now, just five more pumps a quarter would get us at the 20% growth rate level, something that we maintain a consistent ASP is what we see now, which we don't see any risk to.

So I think 5% sequential growth for the next several quarters on the pump business is certainly -- that's I mean -- those are the things that we're targeting and certainly feel pretty good about that, going into next year after coming off some pretty good quarters here this year with a new strategy and feel like we really gained traction there. And then as Brent mentioned, the opportunity -- the monitor provides another opportunity to get in front of those customers, primarily with the monitor but also talking them about their use of pumps and challenge their use of long lines and challenge their use of that you would not see any customers or not see any patients, and really push our devices on them a little bit, maybe getting in a setting up, we wouldn't have that opportunity having not, having monitor.

So, I think we see those as all stacking up as pretty good things in our favor for achieving somewhere in the range of 20% growth on the IV pump side?

If I could just add that the patient monitor really, it really helps with that whole transporting that critical care patients down to the MRI. And we believe it is going to add us a strong focus on that whole transport issue which will drive IV pumps along with it.

So, we see that as a very complementary strategy there that should produce additional IV pump growth.

Yes, I think you could probably tell by my opening statement, we’re pretty pleased with what we are seeing with the pump sales that we’ve done this past year, these past new quarters. It’s hard to look at it maybe from some people’s perspective outside of business, when you just look at revenue given that we had those huge quarters, when we still have the MEDRAD backlog going through our system bit of like a snake swallowing a mouse as four times its diameter.

Anyway, that’s a fairly passed us here and actually it’s still reflecting and it will still be seeing when we do our comp of this fourth quarter, last fourth quarter. But once we turn in the corner into 2018 that comp from those MEDRAD, they drops out and it’s all of just the business -- the hard selling that we have done in the past year and we'll continue to do.

That will keep us growing and growing book business, pump business and establishing a strong foothold in a monitor business as well.

So couple of questions. Question number one is the labeling you got for the new product.

Did you get everything you wanted? I know it was a long struggle to get the approval.

Is it labeled in a way that you’re completely comfortable?

I’m not sure. What would bring that question?

But certainly, yes, it’s got everything we needing.

Okay. Or just checking because sometimes you get FDA approvals and maybe not relevant for you, but just tracking in general.

Sometimes FDA approvals come in and there is some restrictions on whatever. That’s just wanted to clarify that?

I’d say, yes, you want to know than maybe most, yes. Let’s think, nothing that would give us any reason even think with process a penny in a sales situations, so nothing meaningful at all.

Okay. And then the question probably for Brent.

You’ve got a sales force now there's got a hot new product. You’ve been waiting for this product.

You clearly in my mind at least have a superior product competitively. I've seen it.

I've seen others. So I can say that from my own eyes.

You’ve got now a sales force with a very hot product. Salesmen tend to migrate to hot new products.

Obviously, the bulk of your business today and probably for some many quarters will continue to be the legacy business. Brent, how do you manage the sales force for that they don’t just focus on the new candy of the new product, which is obviously a very attractive product and take their eye off the ball of the legacy product, which still accounts for so much of your business?

Yes, it’s great question, and something that we've given a lot of thought here, over the past few months. And again what really comes down to it, it comes down to designing a compensation plan that has the right levers to make sure that our key focus is or the sales people key focus is.

That's really where it comes down to and that had no difference than I told my sales team on a conference call last on Thursday when we talk about it and I tried to again give them the view going forward that IV pumps are an extremely important part of the way that they’re going to be compensated and that they will continue to be that way and they can count on that. So that is the best way.

Also again, I don’t think the two products are -- again it's not like they’re mutually exclusive here either because the products, the MRI patient monitor, they’re going to be focusing on MRI, but they’re also going to be talking about that product with their critical care customers and talking about this whole strategy that we’ve got of patient transport, and that’s our market alone. As Roger talked about in his comments, you know that market is up.

I mean no one makes the monitor that's 10 pounds. They can do that.

Every other monitor out there is 80 to 100 pounds. So again, I really believe that it’s not like we’ve got a new product and we’re sending them off to call on entirely a new department in the hospital.

They're calling on the same department. They’re talking about the same products.

So again, I think that's new products are very compatible.

So I’m assuming from your answer Brett that you have made adjustments or will make adjustments in comps so that you don’t have the very problem that I raised?

Yes.

Yes, Larry, let me follow-up. We had this -- at the beginning of the year, we felt pretty strongly we would be sitting here in this fourth quarter with this approval.

And as we talked about the 2 million that we anticipated in monitor sales for the year earlier, we rolled in -- we've already put that in to the compensation program early in 2017 for the year knowing the monitor would become part of us. So, yes, we’ve been keen on this.

And a follow-up to Brent. On the sales force, the number of sales rep -- new sales reps you now have in the field, are you going to be adding reps?

You may have said this earlier in the call. Forgive me, if I’m going over territory you've already covered.

Are you going to add new reps? What’s the turnover rate?

And then Brett, I know there was some issues with the sales force, you felt some changes had to me made. Bring us up to date on sort of kind of sales force issues broadly?

Again, I’m very pleased with the sales team that we’ve got in place right now. We increased the size of the sales team up to 18 sales people.

By the beginning of the year, we’ve been moving through the year with staying at that level, and we’ve got plans to increase our level for next year. I mean we’ve got some expansion plans.

We plan to grow the business as we’ve done in the past to grow it in a smart way where we're increasing our net number of sales people overtime, and again taking advantage of that market opportunity that we’ve got out there. So, yes, we are expanding it and I’m very pleased with the sales team we’ve got in place right now.

Any specific guidance on how big the sales force might go to next year? Could you add another 5 or 10, is that a possibility?

That’s definitely the range we’re working at.

Okay, good. And then a turnover, you mentioned you’re happy with the sales force.

Of course I can imagine on a conference call you get on a call and say, oh my god I hate my sales force, but…

They’re probably -- some of my probably, I know it's not on my listening.

Oh, I am sure. So, you don't there as day and night, but I wouldn’t expect you to say that privately as well.

But has there been much turnover, did you -- I mean every sales force has some normal attrition, normal turnover, but what about the turnover issue in sales force over the last several months?

Yes, we had very little turnover. We -- through this year, we’ve had two positions turnover.

One, which was kind of one of us you expect and one caught us a little bit by surprise. But, yes, so low turnover, we’ve really been focusing on cleaning the sales team.

If I talk last year, we had over half our sales team had less than a year of experience with us and we’ve really grown those sales people and grown their experience here. And like I said, I am very pleased with the results.

Great. Thanks for the follow-up.

Just you guys I think is the competing monitor sales I think close to 80, 90 maybe up further 100,000. You’ve spoken about ASP in sort of 50 to 60 range.

Is that where we're sort of targeting? I guess that product is already out.

Is that where our [indiscernible] quote change would be even a little bit discount in the beginning? And then similar question to that is sort of profitability level of that -- would be sort of similar to pumps in terms of gross margin?

And will there be a ramp period where it's sort of some inefficiencies at the beginning? Thanks.

Sure, this is Roger. Maybe I will take that.

So, yes, those numbers you remember well and that is what we are doing. So, one of the most popular competing units, the biggest one in the market that is as you recall the high upper 70,000 ASPs, and that we indicated that far there is several monitor -- models of this thing.

But in the U.S., we are primarily selling the top model to compete with that top model that mean competitor and that is priced in the mid 50s, mid to upper 50s as you said. And that’s what the quotes are going out.

That is the super discount price. So, no, we’re not pushing it any lower than we'd indicated before.

And as far as a gross margin goes, that figure gives us a gross margin just like we have with our pump.

Okay. Even in the beginning when the volume -- production levels are still low where I guess would have the real for improvement than I guess on that it looks like?

In the beginning meaning the next 50 or 100 units, we might end up with a few more labor hours in that that will settle out. But, no, I don’t think any material impact to that gross margin estimates.

Okay, and then just on the operating expense side. Brent mentioned maybe 5 to 10 more guys or what have you over whatever that may be 12 months or may be 12 to 18 months or whatever it maybe.

Will SG&A expense -- will there be some other increases in expenses where -- should we expect sort of an acceleration in SG&A growth maybe even where you don’t get much leverage on that line or should do you expect to get leverage on that line as the moderate sales grow?

No, we didn't expect to get some leverage. And certainly, if we would expect to get leverage, it would be dampened a little bit, higher sales equals to higher administration fees that we have paid on our GPOs.

So you got to kind of factor that into the equation also. But absolutely, we don't expect to get some leverage out of the incremental monitor sales.

Thank you all for participating in today's call. Again, we are delighted with the 510(k) clearance for our patient monitor and with the opportunities it brings.

Coupled with the traction in our IV pump business, IRADIMED is poised for growth and we anticipate making more pleasing announcements in the future. We're excited about the future and we look forward to finishing the year strong speaking with you again soon.

Thank you.