KORU Medical Systems, Inc. Q2 FY2025 earnings call

• Strategic vision: KORU is a leader in the large-volume subcutaneous drug delivery market, well-positioned to capitalize on the shift from hospital IV-based treatments to subcutaneous therapies. The Freedom system serves ~45,000 patients for chronic conditions. - Second quarter highlights: Reached over $10 million in revenue with over 20% growth across strategic pillars. Domestic core outperformed SCIg market, international expansion accelerated, Pharma Services grew. FDA approved expanded indication for Empaveli, submitted 510(k) for a rare disease biologic, and initiated a U.S.-based oncology pilot program with over 50 patients enrolled. - Product development: Launched Phase I flow controller ahead of schedule. Phase II flow controller submission expected by first half of 2026. Next-gen pump development on track with 510(k) submission expected by Q4 2025 to Q1 2026. Plan to file 510(k) for new consumable sets in second half of 2026. - Leadership change: Adam Kalbermatten joined as Chief Commercial Officer.

In the second quarter, KORU Medical Systems achieved record revenues of $10.2 million, representing a 21% growth compared to the prior year period. The domestic core business generated $7.1 million in revenue, a 15% increase year-over-year. The international core business brought in $2.2 million, showing a 34% growth. The Pharma Services and Clinical Trials segment recorded $900,000 in revenue, which is a 42% growth over the prior year. The domestic core business outperformed the strong SCIg market growth due to market share gains in key accounts. Internationally, growth was driven by expansion into new geographies and the prefilled syringe strategy in Europe. The Pharma Services and Clinical Trials segment saw growth from clinical trial orders from a non-Ig partner.

• Raised revenue guidance to $39.5 million to $40.5 million, representing 18% to 20% growth, up from prior range, driven by international prefilled conversions and partially offset by inventory reduction from a large U.S. distributor in Q3. - Reiterated gross margins in the range of 61% to 63%. - Anticipates positive cash flow from operations for the full year 2025, with operating expenses exclusive of stock compensation in the range of $26 million to $27 million, and less than $2 million of investing activities and capital expenditures for new production lines.

• Tariff impacts: Year-over-year gross margin decline was partially driven by tariff impacts of 90 basis points. - Supply chain and pricing: Gross margin pressures from supply chain inflationary and tariff pressures, though pricing and manufacturing efficiencies are expected to mitigate some impacts. - Distributor inventory: Q3 dip in revenue due to a large U.S. distributor's inventory reduction program.

Q: Congrats on the solid quarter and guide. I was hoping to start with the guide. It looks like you flowed through the beat. It looks like you've got good momentum in the core business. OUS is clearly trending favorably as well. I'm just curious if you could kind of parse out expectations domestic versus OUS and then maybe cadence in Q3 versus Q4 expectations.

A: Yes. Frank, thank you. We're very pleased with the quarter and obviously, in the momentum we expect with the $1 million raise in the overall guidance range. What I would say on the guidance range is, obviously, the international is driving tremendous growth for us, and we expect that to continue at even an accelerated pace in the back half, offset by what Tom talked about on the U.S. side. I'll turn it over to Tom for further comments on Q3 versus Q4.

Q: Congrats on a nice quarter here. Maybe just a follow-up on something Frank asked there. In that one market -- I might have missed this, Linda, sorry, in that one market that has converted internationally, what is or what do you expect your market share to be there kind of compared to that market share rate that we -- that you just kind of shared in Europe?

A: Yes. So, we know that our share position coming into the year was probably somewhere between 10% and 15%. We think now it's in the low 20 percentage. That market is a top 5 market in Europe. And we believe that there are 4 or 5 other markets that we can go to for further conversions. So, we're just getting started. We don't think the conversion is fully complete. You'll see more on that, which is giving us the confidence to raise our guidance by the $1 million range due to what we anticipate will be further conversions in the back half.

Q: Congrats on a great quarter. Just going off of the next-gen pump, just a reminder of why that is important, particularly for OUS? And then with the prioritizing of that now, what is the timing of that clearance and then launch OUS?

A: So the next-gen pump, the importance of it is that with the launch of prefills, patients take multiple prefills with their weekly dosing regimen. And in order to use those multiple prefills, they're all in different sizes. And in order for patients to do that today, what they're doing is sometimes using a prefill and then they have to take a prefill and go to pull it into a different size syringe or they could use 2 different pumps. So just in explaining it, it sounds complex. So, our new pump will work with any prefill available on the marketplace to -- they go from 5 ml to 50 ml, and it will also work with any vial or prefill. It also has expanded mobility, dosing window, ease of use. So very excited about that and the value prop is very strong. Regarding timing, we expect to submit for U.S. 510(k), as I've said, and then EU, we would follow 1 quarter beyond that. So we're anticipating filing in the EU by mid of 2026.

Q: All right. Congrats on a nice quarter, everyone. Looks like you're expecting positive cash generation in the back half of the year here, Linda and Tom, it's good to see. I guess how are you thinking strategically about cash from here now that we're kind of in that cash generation mode? Are you going to build a cushion first? Are you thinking about reinvesting in the business to sustain that strong top line or maybe even accelerate it? And if it's the latter, do you see this more as an R&D push or an SG&A type investment? Any color there would be great.

A: Thanks, Jason, on congrats on the quarter. So regarding capital, first, we're obviously thrilled that we hit the cash flow positive in this quarter and the outlook for the remainder of the year, which, as we mentioned, is kind of the combination of both the top line revenue growth and the gross margin. But we started, I would say, about 1.5 years ago to really tighten in our capital allocation and look at the balance of our portfolio in both short- and long-term opportunities. What we see behind us are the big capital -- big investments in infrastructure and people and teams, which is why you saw the cash burn come down. And now moving forward, we have a very good operating model where our partnerships with pharmaceutical companies and our agreements with key accounts allow us to have a fairly low SG&A. So as we move forward, we will absolutely look at every opportunity for growth. We obviously feel that most of those investments will be in SSG&A, and we're fortunate in that most of them are 1-year payback, which allows us to maintain that $8 million cash balance is how we're thinking about it. But if we see big opportunities, outsized growth for international opportunities, those ones pay back quickly. The oncology pilot, let's see where that one goes, but that could be another opportunity. Those would be opportunities where we would look to say, "What can we do either what's in debt or otherwise to pursue those." But we feel good about our cash position and ability to maintain that growth above 20% with what we have today.