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KORU Medical Systems, Inc. (KRMD)

Q2 2025 Earnings Call· Thu, Aug 7, 2025

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Transcript

Operator

Operator

Hello, and welcome to the KORU Medical Systems Second Quarter 2025 Financial Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Louisa Smith of the Gilmartin Group. Please go ahead.

Louisa Smith

Analyst

Thank you, Judith, and good afternoon, everyone. Joining me on the call today are Linda Tharby, President and CEO of KORU Medical Systems; and Tom Adams, Chief Financial Officer. Earlier today, KORU released financial results for the second quarter ended June 30, 2025. A copy of the press release is available on the company's website. I encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on the quarter. Additionally, we will use slides to support further commentary in today's call, which are also available on the Investor Relations section of our website. During this call, we will make certain forward-looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to risks and uncertainties, including those mentioned in the associated press release and our most recent filings with the SEC. We assume no obligation to update any forward-looking statements. During the call, management will also discuss certain non-GAAP financial measures. You will find additional disclosures, including reconciliations of these non-GAAP measures with comparable GAAP measures in our press release, the accompanying investor presentation and SEC filings. For the benefit of those listening to the replay, this call was held and recorded on Wednesday, August 6, 2025, at approximately 4:30 p.m. Eastern Time. Since then, the company may have made additional comments related to the topics discussed. I'd now like to turn the call over to Linda Tharby, President and CEO. Linda, please go ahead.

Linda M. Tharby

Analyst · Lake Street Capital Markets

Thank you, Louisa. Good afternoon, everyone, and thank you for joining today's earnings call. I'll begin with some commentary on our strategic vision and the opportunity ahead in the large volume subcutaneous drug delivery market, followed by highlights from the second quarter. Tom will then review our financial results before we open the call for your questions. Let me start with the big picture. KORU is a leader in the large-volume subcutaneous drug delivery market with the Freedom system being cleared for use with the first drug in 2017. We are well positioned to capitalize on the accelerating shift from hospital IV-based treatments to more convenient subcutaneous therapies delivered at home and in infusion clinics. Today, our Freedom system serves approximately 45,000 patients primarily on Ig therapy for chronic conditions, providing a strong, stable base of recurring revenue. We are also focused on expanding beyond SCIg, where we currently have 10 active opportunities and many more we are pursuing to bring new drugs onto our Freedom Infusion platform. Over the past decade, health care has begun to shift from the hospital to infusion clinics to the home, and KORU is uniquely positioned to capitalize. We are cleared for use with all SCIg drugs on the market. Between subcutaneous and IV formulations, we estimate that the opportunity for drug delivery devices for Ig therapy is approximately $450 million, with only 20% penetrated by subcutaneous formulations. Beyond Ig, there are currently more than 50 drugs in development that are formulated at volumes of greater than 10 ml, requiring a specialized drug delivery solution, a significant opportunity that aligns with KORU's core competencies in large volume drug delivery. Our strategy is based on 3 growth pillars: defending and growing our core domestic business where we are the market leader and have the opportunity…

Thomas Adams

Analyst · Lake Street Capital Markets

Thank you, Linda. Starting with revenue, we were pleased to deliver record revenues of $10.2 million in the second quarter, representing 21% growth over the prior year period. Our domestic core revenues were $7.1 million, a 15% increase over the prior year. This performance continues to demonstrate our ability to outpace the overall SCIg market growth driven by new patient starts and market share gains, leading to continued strength in consumable volumes. In our international core business, we delivered revenues of $2.2 million, representing growth of 34% over the prior year. This growth was driven by expansion into new geographies and the continued success of our prefilled syringe strategy in Europe. Our Pharma Services and Clinical Trials revenues were $900,000, representing 42% growth over the prior year, driven by strength in clinical trial orders from a non-Ig partner, demonstrating the diversification of our PST business beyond SCIg. Moving over to our gross margin performance. Starting with the chart on the left side, our second quarter margins were 63.5%, representing a 150-basis point decline year-over-year. This decline was primarily driven by 2 specific factors, tariff impacts this year of 90 basis points and a prior year favorable inventory revaluation adjustments of 90 basis points. These headwinds were partially offset by volume efficiencies and improved PST margins. For the second half of the year, we expect gross margins in the 61% to 63% range, impacted by increased revenue and lower average selling price markets and ongoing tariff impacts. We are reiterating our guidance range of 61% to 63% for the full year 2025. Turning to cash. We finished the quarter with an $8.1 million cash balance, representing cash usage of $600,000 during the second quarter, driven by lower net losses resulting from higher revenues, sustained gross margins and disciplined operating expense spending.…

Linda M. Tharby

Analyst · Lake Street Capital Markets

Thank you, Tom. We're very pleased with our second quarter performance and the momentum across all of our strategic growth pillars. Our strong results, expanding pipeline and profitability trajectory demonstrate the strength of our business model and the significant opportunities ahead. Key milestones ahead include advancing our Phase II flow controller and next-gen pump submissions, continuing our international expansion with focus on the prefill opportunity and pipeline progression with expected filing of 3 new drugs by Q1 of 2026. As for the longer-term vision for the company, our goal is to sustain plus 20% growth through investments in core international and new product and new drug pipeline initiatives. 2025 has been a pivotal year in setting that foundation. To close, a few key takeaways that we believe make KORU a compelling growth story. We delivered another strong quarter with revenue growing over 20%, fueled by recurring core revenue and continued patient growth in our core Ig business, further strengthened by international expansion. We are starting to see the tailwinds of macro trends favoring subcutaneous delivery. Our pipeline of 10 new drugs with more on the horizon meaningfully expands our long-term opportunity. Our raised guidance reflects the confidence we have in our strategy and execution. And finally, a sincere thank you to the entire KORU team for showing up with purpose and passion every day to help patients around the world. Operator, please open the line for questions.

Operator

Operator

[Operator Instructions] Our first question comes from Frank Takkinen of Lake Street Capital Markets.

Frank James Takkinen

Analyst · Lake Street Capital Markets

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.

Linda M. Tharby

Analyst · Lake Street Capital Markets

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.

Thomas Adams

Analyst · Lake Street Capital Markets

Yes. So Frank, the way we're looking at our business is with the $1 million raise, as Linda mentioned correctly, most of that raise, we will see in our international markets. We're seeing some really nice revenue growth with the prefilled opportunity that we both recognized in our prepared remarks. And so you can expect really steady and strong growth outpacing what you'd see in the first 2 quarters. And then as Linda mentioned domestically, yes, we did receive some work from a large U.S. distributor that they're going through an inventory reduction program here in Q3. So we see a little bit of drop-off in Q3 from that, but then we should see a bounce back up in Q4. And then on the PST side, we continue to see stable growth in our PST, which is our clinical trials and services business. So you can expect more of what you saw in the first half of the year in the back half.

Frank James Takkinen

Analyst · Lake Street Capital Markets

Got it. That's helpful. And then maybe just to follow up on kind of something you guys both referenced, prefilled syringes in Europe. I know that's just getting started, and that's a large growth opportunity. So, any incremental color you can provide on what's driving that success? And then kind of how we should think about the durability of that growth and how large of an opportunity that can be for you guys?

Linda M. Tharby

Analyst · Lake Street Capital Markets

Yes. So on prefills, quite excited to see that really taking shape this quarter. But just to describe the broad opportunity, pharma is converting their drug, specifically our Ig partners from presentation in a vial to a prefilled syringe. Our Freedom system works perfectly with the prefilled syringe in that the patient puts that syringe in the pump, closes the device and you're ready to perform your infusion. So it cuts out a number of the steps more than a 40% reduction and plus 75% patient preference for prefills. So what's driving the international opportunity is the -- our share position has historically been in the 10% to 15% range in Europe. And what we see is as the prefill market converts to prefills, that we are the preferred device. And so that conversion you're seeing now is just one country that we've converted, and that's reflected partially in our Q2 results. We expect to see more in the back half. And we're working now with all of our pharma partners, but one in particular on their prefilled syringe conversion program. We believe there are several more markets that we can convert into '26. And then with our new pump opportunity in -- we expect to be launching with them by the mid of '26 in several new markets around the world.

Operator

Operator

The next question comes from Chase Knickerbocker with Craig-Hallum.

Chase Richard Knickerbocker

Analyst · Craig-Hallum

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?

Linda M. Tharby

Analyst · Craig-Hallum

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.

Chase Richard Knickerbocker

Analyst · Craig-Hallum

Got it. And so, is that low 20s number, are you saying in Europe? Or you're saying in that market specifically, right? And so [indiscernible] 10% of market share...

Linda M. Tharby

Analyst · Craig-Hallum

Yes. I'm saying overall in Europe, we don't have yet all of the details on exactly how much we have in that particular market, whether that has broaden us to -- we just don't have that range for that particular market yet. The team will be in Europe and working more closely with the pharma partner to figure that out over the course of the next couple of months. As you know, a lot of, obviously, untapped opportunity. We know that, that market, in particular, was one where our share position was probably lower than most. It's where we faced our biggest competitor in electronic pumps. So, it -- so we feel good about that first market. And more to come.

Chase Richard Knickerbocker

Analyst · Craig-Hallum

Got it. Just on domestic SCIg market in the quarter. Can you share what the growth rate was and kind of any commentary you're hearing about kind of how your pharma partners are thinking about the remainder of the year for the SCIg market in the U.S.?

Linda M. Tharby

Analyst · Craig-Hallum

Yes. I would say we've seen the growth rates continue in that high single-digit, low double digit through the first half of the year. If we look at who has reported thus far in Ig, they're all reporting strong double-digit growth in their SCIg franchises. So, we're encouraged by that. And that is really just we continue to see further new patient starts on SCIg, which is really driving a lot of growth. We continue to see new patients being diagnosed. And then finally, we know that there is a trial occurring now for secondary immunodeficiency, which has prior been a very strong driver in Europe for SCIg. And when that trial is concluded, we believe will be another growth driver for the SCIg market in the U.S.

Chase Richard Knickerbocker

Analyst · Craig-Hallum

Got it. And maybe last couple for me. Maybe just on the consumable delay. Can you just speak to specifically what kind of product design elements you're looking to add to that, that kind of caused that delay? And then kind of along the same lines on the next-gen pump. What's left to do before the submission there? How kind of confident are you in that timeline, call it, late '25, early '26?

Linda M. Tharby

Analyst · Craig-Hallum

So, on the consumable delay, I think this was a major shift in our consumables line. It was both -- looking at 2 things. Number one was a dramatic improvement in comfort, which related to the needle technology. And the second was a big improvement in convenience. So, reducing the number of steps required by the patient to perform the infusion quite dramatically. Just in showing this in regular research with our customers, with patients and with our pharma partners, we just want to make a few tweaks to it that we think will appeal better to the overall requirements in the market. So chose to take a bit of a delay in that program. And again, I don't see that impacting our '25 or '26 revenues. So excited for what we learned, and we'll make those changes and progress forward. On the next-gen pump, we're -- we feel very confident. We've had it out with patients, with specialty pharmacies, with pharma companies. Everybody is super excited about that launch. We don't see any major delays at this point. We're through all of the major technical hurdles. And we believe, touchwood that by the end of Q1 at the latest, we'll be submitting for 510(k) approval.

Operator

Operator

The next question comes from Caitlin Cronin of Canaccord.

Caitlin Cronin

Analyst · Canaccord

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?

Linda M. Tharby

Analyst · Canaccord

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.

Caitlin Cronin

Analyst · Canaccord

That's great. And then with the tariff impact hitting, just any updates on the expectations of that and the cadence and how you're mitigating?

Thomas Adams

Analyst · Canaccord

Caitlin, I can -- I'll take that one. So, with respect to the tariffs, our largest supplier that has the highest impact on tariffs is our third- party contract manufacturer. We've looked at their bills and materials, and we've worked with them to really understand the impacts from a materials perspective, where the materials came from and what the actual tariff impact was from the value add from that contractor. And it's -- when we look at our business over the full year, it's about a 90-bps impact, which is roughly 2% on every order. That's how detailed we were at looking at that. So, we feel pretty strong that we have that under control. In terms of just mitigation, we're constantly doing operational excellence programs in our own facilities, looking at ways to create efficiencies through our volumes and also certain programs for rebates from vendors, et cetera. As we grow our company and we continue to see increases in volumes, we're able to take advantage of some of those volumes and some of those efficiencies through that process. So, we feel pretty good that we have everything under control from a tariff-related standpoint.

Caitlin Cronin

Analyst · Canaccord

Great. And maybe just one more. Confidence on the distributor impact in the U.S. is really going to be just a Q3 event?

Linda M. Tharby

Analyst · Canaccord

Yes. Maybe I'll start and then turn it to Tom. We look most importantly at our volumes relative to what we call our end user demand. So, we have data on what those distributors sell to our end user specialty pharmacies. That demand is very, very strong. So then we can deduce how much inventory they're carrying. And we know that based upon our demand and the overall market growth that we feel quite good about the end-user demand being sustained. So a onetime their overall company goal to reduce a week of inventory. We'll take a small hit in the third quarter, but won't impact us that much relative to some of the other growth drivers, i.e., international that we talked through.

Thomas Adams

Analyst · Canaccord

Yes. Just to add on to what Linda was saying, Caitlin, our distributors, they keep their own safety stocks and they keep their own inventory levels. And sometimes they reduce them. They have initiatives to reduce them. They still service our customers, but if they're carrying, let's say, they're carrying 4 weeks, they might choose to carry 3 weeks during a particular period. So we just react to that because at the end of the day, we sell to distributors, and that's the sales that we record. So that's the reason for the Q3 dip that I mentioned earlier.

Operator

Operator

We'll take the next question is from Jason Bednar of Piper Sandler.

Jason M. Bednar

Analyst · Piper Sandler

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.

Linda M. Tharby

Analyst · Piper Sandler

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.

Jason M. Bednar

Analyst · Piper Sandler

All right. That's helpful. And a nice segue into my follow-up question, Linda. So we are getting closer in almost real-time tapping into this new pipeline with new drugs, expanded indications. What's the right way to think about the commercial uptake of that pipeline? Is it more like a linear adoption curve? Is it taking more of a hockey stick type approach? I think we're all going to try and figure out how to model these as they get -- become more real and move further down the path. But how would you have us think about those collectively?

Linda M. Tharby

Analyst · Piper Sandler

Yes. I would say that we tried hard to give now a number of potential total infusions. Of course, that doesn't represent our opportunity. We'll try and give an indication. I think I said on the last call that the 2 we're pursuing on our own, the vancomycin and deferoxamine will be about $0.5 million next year. Similar numbers for the 2, the Empaveli and the rare disease indication next year. So probably next year between those 2, just shy of $1 million in upside. And then you'll see kind of a similar linear progression over the course of the year. I would say the big pops that we see would obviously be oncology, if that one occurs, given the overall size of that market. We're excited that we're in clinics. But obviously, the value prop is proving strong here, but more work to do in terms of reimbursement and economics around that one.

Operator

Operator

The next question is from Anderson Schock of B. Riley Securities.

Anderson Schock

Analyst · B. Riley Securities

Congrats on the really strong quarter and positive adjusted EBITDA. So, with the Japan launch expected to generate revenue in the back half of the year, I guess, how should we think about the back half for international growth? Is 30% still the target for 2025? It looks like if you remain flat sequentially on international revenue, you'd be closer to 50% growth year-over-year. Is there any seasonality we should be thinking about in the back half?

Linda M. Tharby

Analyst · B. Riley Securities

Yes. Maybe I'll just touch on Japan, and then I'll turn it to Tom for some of the more detailed questions on international. So overall, in Japan, we still believe that it is a top 10 Ig market. We're excited. SCIg is just getting started there. We just recorded our first sales. It is included in the guidance that we see, but we see a bigger impact in Japan for 2026 than 2025. Tom, maybe I'll hand it to you for the specifics around growth on international.

Thomas Adams

Analyst · B. Riley Securities

Yes, Anderson. So, if you think about the back half, as we mentioned, we've had a very strong front half of about 35-or-so percent growth. You can expect that to increase significantly over that number. As we mentioned, when we think about the $1 million increase, I'd say that's primarily all into the international business. So, as you think about your model and where that goes, I would say you'd want to layer that into Q3, Q4 almost evenly across the international business.

Anderson Schock

Analyst · B. Riley Securities

Okay. Got it. And then on the last call, you mentioned you anticipate another order from the first quarter's tender win in the back half of the year. Do you have any updates on the timing or size of this?

Linda M. Tharby

Analyst · B. Riley Securities

I would say it is included in the guidance that we provided. We do have visibility to it. I'm not going to give the exact numbers, but I would say the -- what we saw start to be fulfilled in quarter 2, we saw -- we'll see equally strong orders in the back half of the year.

Anderson Schock

Analyst · B. Riley Securities

Okay. Got it. And then on the Pharma Services and Clinical Trial side, I guess what drove this increase? Is this just onetime NREs? Or should we expect to see this quarter's revenue kind of as the new norm?

Linda M. Tharby

Analyst · B. Riley Securities

Yes. I would say I would not expect this quarter revenues to be the norm. It was driven by what we mentioned in the remarks, which is clinical trial orders for a non-Ig drug, which is encouraging for us. Those clinical trials generally mean the drug is in a clinical trial and we'll -- that one in particular is in a Phase III. So, we'll get a clearance soon. I think what we said about Pharma Services as Tom had mentioned in a prior question is you can anticipate front half and back half revenues for PST to be about the same. Possibly a little bit of upside if we get more opportunities than we're currently anticipating.

Operator

Operator

We have reached the end of the question-and-answer session, and I'll hand the call over to the CEO, Linda Tharby, for closing remarks.

Linda M. Tharby

Analyst · Lake Street Capital Markets

Thank you all for joining us this afternoon. We look forward to providing you with further updates on additional opportunities as we make progress against our 2025 milestones. Have a great rest of your day.

Operator

Operator

This concludes today's conference. You may now disconnect your lines and enjoy the rest of your day.