Ladies and gentlemen, thank you for standing by. Welcome to the IRADIMED Corporation Third Quarter 2019 Financial Results Conference Call. Currently, 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 30, 2019, and contains time-sensitive information that is accurate only as of today. Earlier, IRADIMED released financial results for the third quarter 2019. 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 was also furnished to the Securities and Exchange Commission on Form 8-K and can be found at sec.gov. This call is being broadcast live over to 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. Leslie McDonnell, President and Chief Executive Officer of IRADIMED, will present opening comments; then Brent Johnson, IRADIMED’s Executive Vice President of Worldwide Sales and Marketing, will discuss customer orders; and finally, Chris Scott, IRADIMED’s Chief Financial Officer, will summarize the company’s financial results before opening up the call for questions. Some of the information to be furnished in today’s session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on the future performance, results, plans and events, and include the company’s expected results for 2019. IRADIMED reminds you that future results may differ materially from forward-looking statements due to a number of risk factors. For a description of the relevant risks 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 again may be obtained for free from the SEC Web site at sec.gov. I would now like to turn the call over to Leslie McDonnell, President And Chief Executive Officer of IRADIMED Corporation. Ms. McDonnell?

Thank you, and good morning, everyone. Since this is my first opportunity as the new CEO to present IRADIMED’s performance results, I thought I would also spend a few moments telling you a little bit about my background and why I’m so excited to be a part of IRADIMED and share a few of my initial thoughts after being on the job for about 10 weeks. I first would like to complement Roger Susi and the team for building and growing a truly outstanding business. I believe it is no exaggeration to say that IRADIMED’s products are recognized for their critical value in improving patient care. Everyone at IRADIMED should be proud of the work we do here every day. Now a little about my background. I come to IRADIMED after holding senior and executive positions of public companies in healthcare for over 20 years. Most recently, I was an officer and general manager at Natus Medical and was at Medtronic and 3M Healthcare before that. I served in roles ranging from corporate M&A, to therapy and product development, to marketing, and to business and operations management. I have learned much and carry with me the knowledge of best practices, team development, strategy and process from companies among the most respected in med tech. With all this, I’m confident in my abilities to lead IRADIMED into the future. Now since joining IRADIMED, I have had opportunity to interact with a few of you. One common question was why I chose to join IRADIMED? So let me address that question now for everyone. As I studied the company, a few particularly compelling things struck me. First, IRADIMED has developed novel technologies to solve very real challenges in providing high levels of patient care during MRI procedures. The devices IRADIMED developed to…

Thank you, Leslie, and good morning, everyone. As Leslie mentioned in her remarks, the third quarter was another good booking quarter for our sales team with a strong overall year-over-year increase in total worldwide orders. Our U.S. sales team continued our record of growth with another big quarter of increasing year-over-year IV pump orders, and we are significantly ahead of where we were last year-to-date in both multi-pump orders and dual-pump orders. As we’ve talked about previously, these multi-pump and dual-pump sales are an important indicator of the success of our critical care strategy and shows how this effort drives not only the increased demand for IV pumps, but also drives demand for increased pump channels as well. Our critical care strategy has been fully adopted by our sales team, and we expect to see continued growth in this area of our business, especially as the tenure of our fast growing sales team increases. On the monitoring side of the business, our domestic sales team had another good year-over-year increase for third quarter. And on top of that, we had our best quarter ever with putting new monitor opportunities into our sales pipeline. The small size of our non-magnetic patient monitor and the workflow advantages it offers over the large 100-pound cart-based systems in the market is really resonating with our customers and changing the way they look at managing their anesthetized and critical-care MRI patients. Our U.S. sales team is also continuing to gain experience with the monitor for better success when we go head-to-head on competitive deals. We continue to have success in getting our MRI monitor on contract with national group purchasing organizations and with integrated health delivery systems in the U.S. We are in the final stages of signing an agreement for our monitor with the…

Good morning, everyone. 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 exclude stock-based compensation expense and the related tax effects. Infrequent tax items are considered based on their nature and excluded from the provision for income taxes as these items are not indicative of our normal provision for income taxes. Free cash flow is cash flow from operations less cash used for purchases of property and equipment. We believe the presentation of these non-GAAP measures along with our GAAP financial statements can be helpful in providing a more thorough analysis of our ongoing financial performance. You can find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today’s press release. As Leslie stated a moment ago, revenue increased 30.8% over the third quarter last year. Once again this quarter, the increase in revenue was driven by healthy growth across all line items. Revenue from devices for the current quarter was $7.3 million compared to $5.4 million for the third quarter 2018, a 37% increase. Included in revenue from devices for the current quarter is $2.6 million in sales of our 3880 MRI compatible patient vital signs monitoring system compared to $1.7 million for the 2018 quarter, a 49.1% increase. Revenue from disposables and services was $2.2 million for the 2019 quarter compared to $1.9 million for the 2018 quarter, a 15.4% increase. And lastly, revenue from the amortization of our extended maintenance contracts was $500,000, a 21.4% increase over the third quarter last year. Domestic revenue was $8.3 million for the current quarter compared to $6.1 million for the 2018 quarter, a 35.8% increase. Revenue from international sales, which again were impacted by the CE Mark, were $1.7 million…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Scott Henry of ROTH Capital. Your line is open.

Thank you and good morning. Just a couple of questions. I guess first on the pipeline side, I think you mentioned that the FMD got pushed into 2020 from late 2019. What was the driver for that?

Scott, this is Leslie. As I have mentioned in my remarks, the main drivers for that were we really wanted to focus on some near-term projects and cleaning the slate in the product development process so we could focus on our highest priorities. We think that will yield a higher benefit for us later on. And also, we want to make sure we get the product right and that it meets customer needs. So those were the main drivers.

Okay. And then staying on the pipeline, on the next-generation pump, what are the next inflection points that we should be thinking about in terms of gauging progress of that?

I think we’re at a point now, Scott, with the development of that where we’ve got some things left to do on the engineering side. We suspect that we’ll be very close to running through our validation procedures and testing – initial testing steps in the very early part of next year. It will take us a few months to work through that and iterate. And then by I suspect, last I’ve heard is towards the middle to the end of next summer, we’ll be in a position where we can file a 510(k). And then, of course, after that, you’re really subject to timelines of the FDA and the progress that they can make.

Okay, great. And then just a couple of questions on the model. I think you mentioned that – and the monitor sales in general look pretty good in the quarter. And I think you mentioned that it was driven by international. And my question is, so where are those monitors being sold? Are there other countries in the EU that are not impacted or is it non-EU international? Just trying to gauge where that strength is coming from.

Scott, this is Brent Johnson. The first thing I’d say is that, again, we had a good quarter, both domestically and international. I was pointing out in the remarks that international is having a very strong year-over-year increase, even in light of not being able to ship to the EU countries, the CE Mark countries. And yes, we are selling outside of that area. We have a number of large markets in the Asia Pacific area, Middle East, and Canada, Mexico, Latin America. So again, we are selling that worldwide. We do have a pretty good reach with having over 50 distributors worldwide that sell the product. You’re right. We haven’t been able to sell it in the – excuse me, deliver it in the EU. But we, again, have that strong order demand from the rest of the world.

Okay, great. Thank you for that color. Final question for Chris. Just with regards to the tax rate, it seems to bounce around a little bit from quarter-to-quarter. What should we think about as kind of a sustainable tax rate for you? I think in the past – I think you said 25%, 26%. But I just wanted to confirm that.

Yes, Scott, I generally model at those levels that you mentioned there. It’s quite difficult, especially given changes in the tax law, changes in some of the accounting around how tax benefits associated with stock options are recognized and where they’re recognized. And that’s created some complexity in trying to estimate a more precise tax rate. So my approach here is to just kind of fall back on what I think a more normalized Fed rate that’s been impacted for state taxes looks like. And that gets me to around that 25% level.

Okay, great. Thank you for taking the questions.

Thanks, Scott.

Our next question comes from Lisa Springer of Singular Research. Your line is open.

Good morning and congratulations on another strong quarter.

Good morning. Thank you.

Thank you.

I wanted to ask you, so the U.S. was a higher percentage of total sales this year versus last year. Do you expect that trend to continue in the fourth quarter? And if so, how should we think about fourth quarter gross margins in view of that?

Lisa, the sales mix generally runs somewhere around 80% domestic and international and we’re always within a few percentage points of that. But that change does impact gross margins and ASPs that we have outlined. So I suspect that the fourth quarter will remain within that sort of 80% plus or minus type range. It could be international plays a little bit stronger in the fourth quarter depending on the resolution of the CE Mark, which would then have a downward – that would put downward pressure on gross margin. But I think within – even with the resolution of that, we’d still be within that 80% plus or minus type of a range for domestic sales.

Okay. And then I don’t know if you have this information readily available, but do you have unit sales year-to-date for the vital signs monitor versus the IV pump?

We do. We typically don’t talk about that during the quarters. So I think more to follow at the end of the year when we file our annual report.

Okay. And also in the press release, Leslie’s comments, you mentioned about being opportunistic around identifying and investing in other technologies. That to me kind of suggests there might be M&A somewhere in the – in your thinking. I was wondering if that’s correct. And if so, what would be your criteria for M&A?

Lisa, Chris here again. M&A is something that we’ve always had on our minds. It’s something that was really played into the decision on going through the IPO process and raising some cash. So even dating back to the very beginning. It is something that we do think about. We have looked at a few things over the years. Never got completely comfortable, but this is – I think we’ve got a fairly healthy balance sheet. And we are – we remain to look – we remain active in looking for those types of opportunities and just don’t want to ignore that aspect of business. So something that we continue to remain aware and look for the opportunities that arise would be something medical device-related, MRI-focused that’s already commercialized and something that we think we could leverage our sales force and other distribution channels to accelerate some growth there. So a lot of things to talk about related – a lot of thoughts on how we consider M&A, but I think those are the highlights.

Okay. Thank you, Chris.

[Operator Instructions]. I am showing no further questions at this time. I would now like to turn the conference back to Ms. Leslie McDonnell.

I would like to thank everyone for listening and participating in this call. Once again, I’m very excited to be here and to be part of this continuing growth story. I look forward to continuing my transition and further developing plans on how best to leverage our technology, new product pipeline and commercial footprint, all with the goal of creating significant value in the coming years. Thank you, again, and we look forward to speaking with you in early February as we report our fourth quarter and full year results.

Thank you, everyone.

Thank you. This concludes the call. You may now disconnect.