Ladies and gentlemen, thank you for standing by. Welcome to the IRadimed Corporation Third Quarter 2016 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded today, October 28, 2016 and contains time-sensitive information that is accurate only as of today. Earlier today IRadimed released financial results for the third quarter 2016. A copy of this press release announcing the company's earnings is available under the heading, News, on their Web site at iradimed.com. A copy of the press release is also furnished to the Securities and Exchange Commission on Form 8-K. A copy of the Form 8-K can be found at sec.gov. This call is being broadcasted live over the Internet on the Company's Web site at iradimed.com. And a replay of the call will be available on the Web site for the next 90 days. The agenda for today's call will be as follows. Roger Susi, President and Chief Executive Officer of IRadimed will present opening comments; then Chris Scott, IRadimed's Chief Financial Officer will summarize the Company's financial results before opening the call up to questions. Some of the information to be furnished in today's session that will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on the future performance, results, plans, and events, and include the company's expected results for 2016. IRadimed reminds you that future results may differ materially from these forward looking statements, due to a number of risk factors. For a description of the relevant risk and uncertainties that may affect the company's business, please see the Risk Factors section of the Company's most recent reports filed with the Securities and Exchange Commission, which may be obtained for free at the SEC's website at sec.gov. I would now like to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi?

Thank you, operator, and good morning, everyone. Earlier today we reported Q3 2016 revenue of $7.7 million compared to $8.2 million for the third quarter last year. We also reported GAAP diluted earnings per share of $0.13 as compared to $0.15 for Q3 of last year and non-GAAP diluted earnings of $0.14 per share compared to $0.19 for the third quarter last year. As you recall on October 4, we highlighted that we are experiencing a lengthening sales cycle which we attribute to a sales strategy focused that would began implementing last fall. I’d like to summarize the sales approach discussed in detail during our previous announcement. The sales strategy centers around our sales team calling upon various critical-care departments with hospitals we prospect in addition to calling on those radiology and anesthesiology departments that we historically focused on selling into. The objective of this strategy is to expand the overall market by selling more pumps to each hospital and driving demand from departments to own many of those patients transported to MRI on any given day. We believe that being successful with this approach will result in selling more pumps from MRI scanner increasing the overall size of the market. One of the factors that we believe is causing us sales cycle to lengthen is that these critical career departments have never before been approached to purchase an MRI Compatible IV Pump and therefore such as purchase is not currently a budgeted item. This situation is not unlike when we first introduced our device to radiology and anesthesia more than 10 years ago. A second factor that we believe is also pushing the sales cycle stems from the very interest that we are generating from multiple departments within each hospital. Field reports regarding the interest in our pumps by…

Thank you, Roger. Today I will 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 expenses 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 Roger stated, we reported third quarter revenue of $7.7 million compared to $8.2 million for the third quarter last year. Approximately $3.4 million of Q3 2016 revenue came from backlog while approximately $2.4 million of Q3 2015 revenue came from backlog. Revenue from domestic sales was approximately $6.9 million or 90% of total revenue for the current quarter compared to approximately $7.7 million or 94% of total revenue for the same quarter in 2015. Revenue from devices was approximately $6 million or 78% of total revenue for the current quarter compared to approximately $6.9 million or 84% of total revenue for the same period last year and revenue from IV sets and services was approximately $1.7 million or 22% of total revenue for the current quarter compared to approximately $1.3 million or 16% of total revenue for the same period last year. We recognize revenue on 184 IV pumps this quarter compared to 248 pumps in the third quarter last year. Our average selling price for the 2016 quarter was approximately $32,000 compared to $27,600 for the 2015 quarter. Gross margin was 81.7% for the 2016 quarter and 80.6% for the 2015 quarter. The increase…

[Operator Instructions] Our first question comes from Chris Lewis with ROTH Capital Partners. Your line is open.

Hi guys. Good morning. Thanks for taking the questions. Just on new bookings and new booking trends, obviously Roger you mentioned that in your prepared remarks that new bookings have continued along with recent trends. Fourth quarter has historically been your best booking quarter I believe, so I was hoping you could just elaborate on what you're seeing in terms of the new booking orders, new trend of bookings so far this quarter versus third quarter? Thanks.

Yes. So, we were just discussing that, so when you compare to the first month of last quarter we're doing quite a bit better on the one hand. But that wasn’t too hard to do because first quarter of last year was in the middle of summer and so one of the weakest when it's measured from. So it's not too hard to do better than that. But we're just now approaching the last week of the first month of the quarter. And early this month we did put in some - we highlighted the urgency to the sales force and we did put in a few - let's say motivational speech to help things along. And so far it appears to be doing that. Yes, this month is running way ahead of our first month that we'd had last quarter. But I'll let Brent maybe speak to that just a little bit as well. He is our VP of Sales and Marketing.

Hi Chris, how're you doing?

I'm good, Brent.

I just kind of echo what Roger said, we are seeing stronger bookings this quarter. Q4 is typically in that and that's just for us, but the capital cycle on hospital is typically seems to be a strongest quarter for most companies. And yes, so again running at our expectations and we expect to see a stronger quarter this quarter and October starting up well.

All right. That's good to hear. If I back out just to backlog sales and the disposable services component from third quarter total revenues, you kind of get in that $2.5 million to $3 million range in terms of new pump sales during the third quarter understand that was softer than you expected. I guess first two parts, first is that math kind of the reasonable way to think about it? And then second, I know you are not ready to give 2017 guidance, but any color you can provide on just general expectations about the growth rate for that underlying pump business excluding backlog and disposable services going forward would help? Thanks.

Chris, I think your math seems to make sense taking total revenue, backing up the change in sales and then taking out sets and services trying to get to the fewer pump sales number is that all seems to make sense with how we are looking at things in here. Brent, do you have any thoughts about 2017 and where that might leads us growth rates and bookings and how folks should think about 2017?

Sure. I mean again as we've been talking about this critical care strategy that we've been employed we are in area right now where - but we don’t have a lot of budgets, right, we're having to go out and get special funds, contingency funds and it's tough to get these orders. Now going into next year, we are going to be in a lot more budget. This is the ground work that we've been doing this year, and next year we are going to show up in the budget. Now we still need to make sure we flow to the top of the budget and we stay high end of priority list and that's all come back to follow-up and that's what we really been driving home with you guys is how to continue once we get that - we get that initial interest and excitement. We pull those meetings together, we get people putting it in their budgets, now it's all about follow-up, follow-up, follow-up to make sure that we remain there. But again really - again seeing the positive sign there, the new business that we are putting into that the prospect bank, the folks that are going out to customers, all that shows positive, so a lot of positive sides for 2017. And again I believe we are going to deliver much stronger sales.

All right. And just a follow-up to that, the critical care department budgets the most of those churn at the end of the calendar year meaning should we expect kind of the bump in terms of the inclusion of your products in those new budgets for as they roll out into 2017?

Yes, Chris, I mean I think that December 31 end of the calendar year is end of fiscal year for many institutions and it's a most popular, but there are still - again other institutions out there that have end of March, end of June, end of September date. So you see a lot of that out there, but I'd say the large majority is the end of the calendar year. So yes, I think beginning in January we are going to start seeing more of that.

Okay. Thanks, guys. I'll hop back in queue.

And our next question comes from Larry Solow with CJS Securities. Your line is open.

Thanks. Certainly, you guys have identified that they are not approved - that the long approval cycle and the longer selling cycles and that the key - seems like the key issue there or in many cases not in their actual budgets. And which would I guess imply that hopefully is fiscal years turn some of these early get into their budgets. But are there other issues you are facing that's extending the sales cycle and might there be issues in getting the hospital to put it into budget so fast might have take a while before that happens too?

I think we've been paying that paper already as far as long we get it into budget, we started to - we started to see as I said these multi pump orders from multi departments, we started pursue over a year ago. And that's been an ever increasing percentage of what we have in our prospect bank and in our coding bank. So we have been in that now for quite a while and obviously some of it is coming out the other end already and has been coming out the other end, but not as they levels that they are going in. And not as level that anyone appreciate to get the business showing some real revenue growth. So we have been in that long time. Maybe the question is how long do you need to be in there.

I guess the question is when - you'd sound like you definitely expects some inflection point, is it your quotations are up 2 to 3 times. It just a matter - it sounds like - an inflection point will come, it just I guess matter when, right?

Clearly, we feel that - clearly, we feel that and yes. And I think also it's been pretty clear from what I said early here in the month that the last call we probably fell on our shoulder little bit in this gap and between generating and generating people that want quotes and recognizing just how long the difficulty if you will of taking more players through the process to get more dollars budgeted.

Right, okay. And then just to follow-up on Chris's question obviously doing the math it looks about $2.5 million in sales, so this quarter and more of actual sales and then about $4 million next quarter plus the disposables. I guess in this full year it looks like you are going to do about $14 million plus disposable, which is total about $20 million and in through sales. So would you be happy with like $25 million total revenue number in the next year. I mean that's without blessing that as guidance that's pretty good growth, right so?

Yes, in the pump, yes.

It's on the pump side I mean obviously the monitor is the wild card?

Well, I think what we are saying is that for this year if there really is $13 million of revenue at this year – or $13 million of backlog in this year’s revenue that tells us that our business at $20 million. So to go from $20 million to $25 million you’re looking at 25% growth. That’s just the pump business without the monitor.

But, that’s an aggressive number. So it’s probably somewhere in there, but you do expect growth off that 20, is that a fair statement?

We expect growth off of the 20, yes, absolutely.

So the 25, is too high and I am just trying to put higher parameters than I can okay. And then just couple of more questions, the average price 32,000 obviously I think you started like year like 30. I know your mix is better and more in the U.S. now but your mix outside the U.S. has never been that high, right. So is there – and then some of the higher disposables are helping I guess a little bit but is there anything else in there or you guys have been pricing higher on the pump itself or are they getting more buzz and whistles or anything that the house is driving a pretty considerable price increase?

I mean there has been modest changes in pricing over the year, but when I’m referring to the sales mix it’s more, we have more customers today that are buying more the accessories, which is I think what I referred to in the comment. So we talk about the geographical sales mix with internal and domestic and what percentages of total revenue they make up, but it’s more – we’re selling more these accessories and that’s I think the sales team is really going out there focusing on pushing these customers into buying the accessories that we think they need.

Gross margin actually held up surprisingly pretty well even with a little bit of a decline in sales. Do you expect that to continue or is that just sort of a lag effect and you’ll some little of a slippage going forward with lower sales.

I anticipate margins will be somewhere in the mid 70s in the fourth quarter, we just have fewer units absorbing for the most part that’s coming on with overhead. So I do expect some decrease in gross margins in the fourth quarter and going forward.

Okay. And then obviously you’ve added quite a few new bodies to you sales force. I don’t know if you can share an update on where you stand today on that, I think it was 2018 if I am not mistaken but or 2019. And then your thoughts as you look out into 2017 clearly a little bit lower revenue base but you are growing business so I would expect in the long run you would like to grow your sales force some more, so any thoughts for that.

In the long run, we will but I think we messaged a few weeks ago that 2018 is kind of we’re looking at flat now and we’re going to any changes, any increases from 2018 will be dependent upon how the business is looking and the launch of the patient monitors. So I think we’re done expanding the sales team for this year until we start to see those other signs of the business coming through.

Okay great. Thank you very much.

[Operator Instructions] And our next question comes from Larry Haimovitch with HMTC. Your line is open. Q – Larry Haimovitch: Good afternoon, gentlemen, good morning sorry. So I’m a little confused at this point I understand that most of the backlog has been chewed up and shipped, you’ve shifted your whole selling process over the last several months to encompass bigger parts of the hospital where you’re going to be getting larger orders. And I understand that, that’s all very clear. But Roger you said just a couple of minutes ago that it looks like October has been a very, very good months and you mentioned something about motivating the sales force. I am not surprise that it’s working but I am surprised that it’s working so quickly. I mean you’ve had a maybe it’s something that’s been going on historically and you’ve been able to do something with the sales reps but I would thing that shift and that momentum in that newer area of the business would take a little longer to get going versus the historical business. So that’s my question or that’s my confusion. I hope you understand my confusion.

Sure, I know. Let me go over that gain. So I think the first thing I said is maybe it’s not – I mentioned what we did as far as motivating the sales force and offering some [stiffs] [ph]. I think first I said it wasn’t too hard to defeat on the comparative basis first month of last quarter to the first month of this quarter because that really, that’s really more or less – that’s a case to compare to right and this our fourth quarter more business just conventionally comes in the fourth quarter, people are back from holidays. So, on the other hand I don’t want to say that we’ve been all that smart or accurate with what we did to motivate the sales force and offer some incentives to our customers but I hope you can appreciate that we’re probably also a bit fortunate just with the timing. Q – Larry Haimovitch: All right, that helps a little bit. I joined the call just a tad late. I don’t know if you provided any update on the FDA status situation the law and order. Did you provide that? If you did I can take it offline. If you didn’t maybe you could give us a quick update.

I think I covered it. It’s pretty well. It’s at this point simple. But yes, there is long and short of it is the long and the short of it is that we’re wrapped – we’re doing as we said a month ago. No real change in that effort. We’ll get that response in January and we hope to be cleared and certainly selling and we’re seeing revenue from the monitor in domestic markets in the third quarter. Q – Larry Haimovitch: And then maybe one follow-up question to that Roger and maybe Brent can address this. When the monitor gets FDA approved and god willing it will be approved hopefully first few months of next year. At that point your salesmen will have a new toy, a wonderful product, I’ve seen the product it looks wonderful and it looks like it’s going to be very, very competitive. And so will the salesmen get distracted with a new toy and new product which salesmen typically do something that should be fairly easy to sell because it’s got such better features and benefits and maybe take their eye off the ball a little bit in what they’re doing now in trying to get multiple orders via critical care and other parts of the hospital. Have you thought that through at all Brent and just wondering what thoughts you might have on that?

Sure Larry. That’s a great point. Remember though that call point for the monitor does not take us out of our current call pattern. We do continue to call on radiology, we do continue to call on anesthesiology which are the two biggest divers for the monitor purchased in a hospital. So these are continuing call points. It’s not like we’re making a major shift to talk to these folks. It’s part of our daily call point. So as you said yes, any time a sales person gets a new product in a new area it’s very enticing and it’s distractive for them to work on and that’s where myself my two area directors that I have in the field and our comp program for next year needs to focus them in the right direction and focus them on continuing to maintain at high activity levels with critical care. That comes down to sales management and that’s what we’ll be doing. Q – Larry Haimovitch: And then just one more follow-up if I could. Chris, do you have any in your budgeting for 2017 do you have any assumption of monitor sales in the budget.

I won’t be budgeting or forecasting any monitor sales until the third quarter next year. Q – Larry Haimovitch: Okay. So we shouldn’t expect anything in the first half, but beginning on the second half and again those are…?

There will be international sales beginning this quarter, and fourth quarter is what we’re pushing forward. Again those will be that lower prices and representing those not representative of that typical margin pattern and things like that. First and second quarter, yes, we’ll be pushing the monitor internationally and I will at that point build in some what I think will probably be some pretty nominal monitor sales.

Our next is from Chris Lewis with ROTH Capital Partners. Your line is open.

Hi guys, thanks for taking the follow-up. Just a couple on the pump re-approval likelihood, I think you said you’re expecting to submit your spots next month. Any sense of how long it’s expected to take for the FDA to finally signoff on that new approval for the pump? And then Roger in your prepared remarks, you talked about going back to the customers and kind of updating their products in line with the new clearance. What does that process entail and what are you going to need to update or replace devices in the field or how should we think about that?

Sure. Good question. So I pushed them a bit when we had that call with them last Monday. But at the end of the call, once they had agreed, it was a very short call for eight minutes or something that they simply agreed with what we sent them as photographs of how the screens will look, it’s okay. But I advised them a little bit on what the process would be then once we hand it back into them early next month and try to get a feel for how long. So they basically gave me again the response that “there may be some administrative things to be follow it up on”. And what we take that to mean is they’ll want to discuss, how do we deliver this new software to the existing base. We’ve had some discussion of course with them in prior months, prior discussions even as much as a year ago that some in the FDA would want to us to distribute it out to all the existing customers. That’s a recall of source to update the software though we don’t actually get anything back here. We simply send out a little SD memory card, the new software that users plug it in and it updates itself. It could vary from that administrative detail. In other words that they hinted at on the call last week to maybe we just make it an ongoing change and cut it in ongoing. Here internally frankly we sort of prefer to actually do an update for all the units in the field and distribute this. Now whether we just call it simply a field software update or we call it a recall that’s what they’ll guide us to either one doesn’t – either one will behave the same essentially, cost the same, and it’s performed in the same fashion by sending this memory. So does that answer your question?

So that Chris, just to add to that, Roger mentioned the cost of building this new software. These are things that we’ve already started to accrue for and adjust each period so you shouldn’t expect a big pop once we go through this.

Okay. That was my next question. And then on the warning letter outstanding related I guess to the recent facility inspection. Can you just give us an update there on what are your latest expectations and timing?

Yes, I should have included that earlier, so thanks for reminding me. Yes, we have that going on also simultaneously with doing the V&V, the validation of the software change to the pump and submitting that in the next 10 days, two weeks or so, early November. We also want us to submit our final responses to the open issues from that inspection we had back in July. And that’s being prepared and closed out also right now. So we anticipate getting that to them in the early part of November as well. So once we have that that more or less closes the loop from our side on the issues from that warning letter follow-up inspection that we had in July. So then it’s a matter of waiting and seeing what the FDA’s next step is and there is just no way to predict that. That could take – that typically takes a few months.

Just one more for me Chris, maybe a question for you, if I look at the fourth quarter guidance implies kind of a non-GAAP operating margin, the mid-teens if my math is correct, you’ve been running obvious in the high 30s, low 40s range here over the past year or two, obviously going forward the revenue outlook has some unfavorable impact on with maybe gross margins. So as we think about margin going forward into 2017, any commentary you can provide where we should expect margin to trend into 2017? Thanks.

I think from an OpEx, let me talk about it from that side first. I think we’ll see just some natural decline in OpEx just because we’re wrapping up a few things here. I would expect to reduce R&D expense as we get closer to wrapping up the modern development. So the way that Roger has been able to scale the engineering department, I think there is some room there for reduction in cost next year when compared to this year. With lower sales figures, I would expect lower commissions to be paid out on the sales line. So I think there is some reduction in cost that we’ll see there and then on the pump 510(k), we’ve been dealing with that for a couple of years now and running at higher expense rates than normal. So if we do get this thing wrapped up this year or early next year or whatever that timing falls out to be. I would expect to see some natural decline in our regulatory cost associated with just dealing with the 510(k) and all the related outside testing and outside consulting that we incurred over the past year or two. So I think that there is some natural decline. I don’t think that you’ll see dramatic decline. We could come in early $0.5 million to $750,000 lower than the entitled run rate that we’re expecting this year. So those are I guess some high level thoughts on what I am thinking about next year.

Thanks guys.

Our next question comes from Michael Potter with [IRadimed] [ph]. Your line is open.

Obviously, a lot of thorough questions on the call so far. I was hoping if you can give us a couple of examples of the successes you have had with the new marketing program where we are actually seeing orders of 10 plus units coming from a hospital instead of the historic one, two, three units? Can you give or show us some examples why you are so confident that this new sales approach is working?

Sure, specific hospital example.

It could be any example you’d like.

Yes, again we’ve had numerous situations where we have been successful as we were talking before we’re getting through an emergency fund purchase let’s say, so that again typically where that has worked is number a large institution right because they drive sales five plus, pumps is typically a largest size institutions something 300, 500 beds at least. And what we’ve done is we’ve basically done exactly what we thought about and that is getting to the critical care department pulling together a group of decision makers, which include critical care, radiology, sometimes biomedical engineering, many times the pharmacy department because we’re talking about infusing medications and getting that team together and providing them with the written input that we’ve gotten during the individual meetings at the hospital and putting that together we usually do that and what we call it an SBAR situation background, analysis and recommendation something that hospitals are very used to using and it’s speaks to their vernacular. And putting that all together and getting that group of decision markers together and then finding – what typically has been happening is we’re finding general funds in the hospital. It’s not coming from any one budget because as we said there are no budgets for their purchases of this size, and again when you’re talking about five pumps especially at the increased average that we’ve got now we’re talking about sales of close $200,000. So it has worked in a number of situations successfully and again that’s what gives us confidence and that’s why we’re still bullish next year because this is even without budget having this kind of success, now, when we do again get these sorted into the normal budgetary cycle of the hospital this should become a lot easier and instead of having a handful of examples, we should have a lot more.

Okay. And as you mentioned, this new sales strategy has been ongoing for about a year now. We are now entering most hospitals budgetary cycle Q4 and Q1. So I’m assuming the expectations are very high at this point that we’re going to really see a ramp up in orders?

You've got that right. We definitely do. Yes, and as we talked about again the majority of hospital fiscal budget are December, January, they do happens throughout the year in other quarters. But yes, we definitely expect to see pickup and as we kind of discussing the call, it’s the higher revenues.

And these orders now are from the example that you gave 5 pumps is $200,000 approximate order, and I’m assuming there are probably many that are significantly larger than that especially for much larger group hospitals if you will?

Sure, we had some that are higher than that. But again typically when you’re going into a hospital and you've got, let's say you’ve got one magnet or two magnet a sale of five pumps is still really two x what our average, more than two x what our average has been in the past. So I mean it's still - again a pretty significant increase and that’s a good size order. We’ve done lots of business, I mean we have a customer out there we’ve done $2 million worth of business was. But again that’s a lot of orders and that’s not typically one enterprise order that takes place through an IDM that’s a lot of individual orders coming from individual hospital within those delivery network.

Got it. Okay. Chris, a question for you, you’ve done a great job managing the cash flow of the company this year and it seems to we’re right on target for the free cash flow generation. So we assume the Q4 will continue the trend of being free cash flow positive?

Absolutely, it will be free cash flow positive, although not at the level that I was anticipating earlier in the year. I think in the past totally I was kind of shooting for $10 million cash from operations this year. I think we can probably be closer to $8 million, $8.5 million bucks in the – for the full-year when factoring what the fourth quarter looks like.

Okay.

Yes, but it will be cash flow positive next quarter.

All right guys, thank you. And keep working away.

And our next question comes from Larry Haimovitch with HMPC. Your line is open.

Earlier this year you guys did a pretty large share buyback, stocks back down again, you do have pretty good size cash balances, any thoughts on that Roger?

We've kick it around, I guess we had - I guess in our mind we didn’t seem to move the needle much when we did that the buyback to get earlier in the year and so we're not in a big hurry to consider that until 2017.

Okay. Fair enough. Thanks.

And I’m showing no further questions.

Okay, then thank you operator. I’d like to say again that we remain committed to our sales strategy and believe that it is the correct approach to increasing our sales growth. And thank you all for participating in today's call and welcome the great questions and comments and Chris and I look forward to reporting and Brent as well look forward to reporting back you again in February.

Thank you. This concludes the call. Please disconnect.