Clearpoint Neuro Inc (CLPT) 2014 Q2 法說會逐字稿

Greetings and welcome to MRI Interventions' second-quarter 2014 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Oscar Thomas, Vice President of Business Affairs.

Great. Thanks, Ron. Good afternoon and thank you for joining us. With me are Kim Jenkins, our CEO, and David Carlson, our CFO.

Before we begin, I want to point out that some statements we make during today's call will be forward-looking statements. Any statements we make today, whether in our prepared remarks or in responses to questions, that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements, by their nature, address matters that to different degrees are uncertain and involve risk, and they are made based on the current beliefs of MRI Interventions' management. Uncertainties and risks may cause our actual results and the timing of events to differ materially from those expressed or implied in forward-looking statements we make today.

Detailed information regarding the risks and uncertainties that could affect our actual results and the timing of events are described in the Risk Factors section of the Form 10-Q that we filed with the SEC on May 13, 2014. You can find our SEC filings in the Investors section of our website at mriinterventions.com.

With that, I will turn the call over to Kim.

Thanks, Oscar, and good afternoon, everyone. Thank you for joining us for our Q2 2014 earnings call. On behalf of the management team and employees of MRI Interventions, we appreciate your interest in our Company. And for those of you who are shareholders, thank you for your support; we are honored to be working for you in building this great Company.

We had a very strong quarter. We reported record total product revenues. We reported record disposable product revenues. We have generated eight consecutive quarters of sequential growth in revenues from our disposable products.

We now have 37 ClearPoint sites. Drug delivery trials are going well. Our ClearTrace development effort in coordination with Siemens is going well. And we believe Medtronic's acquisition of Visualase, which was announced last week, is a very positive development for our Company and for our emerging field.

I will come back to you with some additional comments in a minute; but for now I would like to turn the call over to David Carlson, our CFO, to walk you through our second-quarter results. David?

Thanks, Kim. We are pleased to report a strong second quarter. I will first cover the results for the quarter, and then we will talk about what happened in the first half of the year.

For the quarter, we recorded total product revenues of $1.2 million compared to $497,000 in Q2 of last year, more than doubling, representing an increase of 132%. Disposable product revenues were $766,000 in Q2 of this year compared with $404,000 in the second-quarter 2013, representing growth of 90%.

We recognized $389,000 in product revenue related to our ClearPoint capital products compared to $93,000 in the same period in 2013. Due to the nature of capital product sales, ClearPoint capital product revenues may vary significantly from quarter to quarter.

Other service revenues, related mostly to installation services and ClearPoint service agreements, were $29,000 in Q2 of this year. And there were no such revenues recorded during the same period last year.

Development service revenues related to contract product development were $5,000 in Q2 of this year compared to $65,000 in the same period in 2013. The decrease reflects the completion of the development project the Company has been performing on a contract basis. The Company does not expect development service revenues to be an ongoing source of revenues.

Cost of product revenues was $577,000 for Q2 of 2014 compared to $296,000 for the same period last year, an increase of 95%. The increase in cost of product revenues of 95% was less than the 132% increase in product revenues, as we are beginning to leverage certain fixed costs over greater production volumes.

Research and development costs were $898,000 in Q2 of 2014, compared to $742,000 for the same period in 2013. Selling, general, and administrative expenses were $1.9 million in the second quarter of this year, compared to $1.7 million for Q2 of 2013.

Net other income was $902,000 for Q2 of 2014, compared to $948,000 for the same period last year. Net interest expense was $279,000 for Q2 of this year, compared with $122,000 for Q2 of 2013.

Our net loss for the quarter was $1.6 million or $0.03 per share, compared with a net loss of $1.4 million or $0.02 per share in Q2 of last year.

During the first half of 2014, we recorded product revenues of $1.9 million, compared to $958,000 for the first 6 months of last year, an increase of 95%. Disposable product revenues were $1.3 million for the first 6 months of this year, compared with $752,000 for the same period in 2013, representing growth of 77%.

ClearPoint capital product sales were $481,000 in the first 6 month of this year, compared to $206,000 for the same period in 2013. Product revenues for the first half of 2014 included $56,000 in ClearTrace system components sold to a site for research use.

Other service revenues related to installation services and ClearPoint service agreements were $40,000 in the first half of 2014. And again, no such revenues were recorded in the prior-year period.

Development service revenues related to contract product development were $104,000 for the first half of 2014, compared to $219,000 for the same period in 2013.

The Company recorded license revenues of $650,000 during the first 6 month of 2013, while no such revenues were recorded during the same period in 2014. The decline was attributable solely to the expiration of the revenue recognition period for license fees the Company received in 2008 from Boston Scientific that were deferred and recognized over time.

Cost of product revenues was $928,000 for the first half of 2014, compared to $522,000 for the same period last year, an increase of 78%. This increase in cost of product revenues of 78% was less than the 95% increase in product revenues, as again we are beginning to leverage some of our fixed costs over greater production volumes.

Research and development costs were $1.7 million for the first half of 2014, compared to $1.5 million for the same period in 2013. Selling, general, and administrative expenses were $3.7 million for the first 6 months of 2014, compared to $3.3 million for the first half of 2013.

During the first half of 2014 the Company recorded a gain of $4.3 million related to the sale of certain intellectual property to Boston Scientific. The purchase price was satisfied through the cancellation of notes payable previously issued to Boston Scientific in the aggregate principal amount of $4.3 million. The Company recorded a gain equal to the purchase price, as the assets sold had not been previously recorded on the Company's balance sheet.

Net other income was $1.5 million for the first 6 months of 2014, compared to $1.6 million for the same period last year. Net interest expense for the first 6 months of 2014 was $428,000, compared with $221,000 for the same period in 2013.

For the first 6 months of 2014, the Company recorded net income of $1 million, which resulted in earnings per share of $0.02, compared to a net loss of $2.2 million for the same period in 2013, which resulted in a net loss per share of $0.04.

Moving over to the balance sheet, we ended the quarter with a cash balance of $4.1 million. Our cash burn for the quarter was $1.7 million, which was up from $1.4 million in the first quarter.

The additional cash used in operations relates in large part to spending related to conferences, as two of our most significant medical congresses were held in Q2. We also had an increase in professional fees associated with the timing of patent filings and patent prosecutions.

Our net cash burn when compared to Q1 was also negatively impacted by the lower accounts receivable balance at the end of the first quarter, which turned into cash collections in Q2, compared with the AR balance at year-end that was converted to cash in Q1.

Our accounts receivable collections continue to be predictable and steady, as we ended the quarter with a DSO of 43 days. Our inventory levels have increased by approximately $400,000 since year-end as a result of planned growth in sales and the impact of product line extensions.

We strengthened our balance sheet during the first half of the year, which is evidenced by the $5.3 million reduction in current liabilities when comparing our June 30 balance sheet with our balance sheet at year-end. With that, I will turn it back over to Kim.

Thanks, David. I am very pleased. We had a very strong quarter. I would like to take a minute to provide some additional commentary on a few items.

First, as David mentioned, we reported record product revenues of $1.2 million, which is up year-over-year and also up sequentially 62% over our first quarter. We reported record disposable product revenues of $766,000, which is up year-over-year and also up sequentially 36% over our first quarter.

We now have eight consecutive quarters of sequential growth in our disposable product sales. This is an important trend, since our disposable product revenues are the key driver to our business, with our razor/razor-blade business model.

We are pleased to add three new ClearPoint sites: Duke University Health System, Robert Wood Johnson University Hospital, and University of Michigan. This brings our current number of sites to 37: 35 in the United States, and two in Europe. Our footprint is growing.

Our presence within the neurosurgeon community continues to build. During the quarter, we participated in two major neurosurgeon conferences, the American Association of Neurological Surgeons Annual Meeting in San Francisco, and the American Society for Stereotactic and Functional Neurosurgery Biennial Meeting in Washington. Both events were very successful for us, with neurosurgeon podium presentations on ClearPoint and a substantial level of activity in our booth.

As you are aware, we are involved in six drug trials in which our ClearPoint system is being used in the direct delivery of drugs to neurological targets. Four of the trials relate to delivering drugs to treat brain tumors; two of the trials relate to delivering drugs to treat Parkinson's disease.

These trials are going well. The procedures are going well, and ClearPoint is performing as promised.

Last week, Medtronic announces its acquisition of a company called Visualase. We view this as a significant development for our emerging field and a significant development for our Company, so I would like to take a minute to provide a bit more color.

For those of you that don't know Visualase, they are a privately held company that markets a product for MRI-guided laser ablation. We have known and worked closely with Visualase for a number of years. Our ClearPoint system is highly complementary to the Visualase product.

Let me elaborate a little on how the companies' two products work together. Our ClearPoint system enables the placement of the Visualase laser catheter under real-time MRI guidance and is increasingly being used in Visualase procedures.

Here is why. In a Visualase case without ClearPoint, the patient is brought to the operating room. The neurosurgeon and his team then use conventional stereotaxy to blindly place the Visualase catheter without visualization. The patient is then bundled up and transported to the MRI suite, where the surgeon gets his first view of where the laser is relative to the target anatomy.

If the laser catheter is in the wrong location, the patient is then taken off the MRI table, transported back to the operating room, where the laser catheter is repositioned. After completing the repositioning, the patient is again bundled up and transported back again to the MRI suite for the surgeon to see if the laser is in the correct location. Assuming yes, then the laser is turned on and the energy is delivered.

Needless to say, this is a cumbersome workflow for the neurosurgeon and his team. This is also highly inefficient for the hospital because it ties up two rooms, both the neuro operating room and the MRI suite.

By comparison, in a ClearPoint/Visualase procedure, the entire procedure is performed in one room, the MRI suite, and the workflow is a simple, streamlined approach. The patient is brought to the MRI suite; the laser is placed using real-time MRI guidance. The laser is turned on, and the energy is delivered.

So ClearPoint enables a one-room procedure instead of two. No neuro operating room usage, no transporting the patient back and forth. And ClearPoint enables a highly accurate, fully visualized procedure.

Without ClearPoint, the placement of the Visualase laser catheter is performed blind. With ClearPoint, the neurosurgeon can see what he's doing; the laser catheter is placed under interoperative visualization.

Since the ClearPoint technologies and the Visualase technologies are complementary, we have enjoyed a strong collaborative relationship with Visualase. Going forward, we look to continue that relationship as Medtronic takes over the sales of the Visualase product. And we are excited about the potential that Medtronic's salesforce brings, because they are many times larger than the Visualase salesforce.

We view the Visualase acquisition as noteworthy for two other reasons. First, we see this transaction as a powerful endorsement of the emerging field of MRI-guided therapies. Our fundamental business premise is that the delivery of therapies under MRI guidance is the next inevitable evolutionary step in neurosurgery. We believe Medtronic's acquisition is strong evidence that the industry agrees with our view.

Second, we believe the Visualase transaction price is a positive indicator of the value in our Company.

Lastly, a quick comment on our ClearTrace program. We are continuing to make good progress in our development efforts in coordination with our partner, Siemens Healthcare. As noted in our press release this afternoon, we remain on track for an initial European product release of our ClearTrace system in the fourth quarter of next year.

All in all, we had a very strong quarter. Our Company is growing, and our field is growing. With that, I will open the call to questions.

(Operator Instructions) Jose Haresco, JMP Securities.

Hi, guys. Good afternoon. Quick question, just a housekeeping item. You did $389,000 in systems capital sales this quarter. Can you give me an exact number of systems and the ASP associated with that?

Let's see, that was four system sales; is that correct?

Correct.

Yes. It's four system sales.

Okay.

Hey, Jose? Just one second.

Yes.

The price on the system sales vary from hospital to hospital, in large part due to the equipment that a hospital may or may not already have. So that factors into an ASP, if you took that $389,000 and divided it by 4.

Got it. Thank you. The Visualase acquisition is obviously very significant. What response, or what have your customers said since that news hit?

And I guess how has your interaction with Visualase, if any, changed since that news broke?

With regard to Visualase, again, we've known these guys for a very long time. We work closely with them.

And they are excited about it; we are excited for them. It is really business as usual in that regard.

For the neurosurgeons, for the folks we have talked with, I think it is good news there. Not surprising; the two technologies work really well together. That is a well-known fact.

So again I think all in all it is a positive announcement for everybody involved.

Okay. Great. Thanks for the questions.

Steven Schwartz, First Analysis.

Good afternoon, gentlemen. Just to carry on from Jose's question, you said four systems, but you noted three sites. Is that to say you sold two systems at one site, or can you clarify that for me?

You want to speak to that?

Sure. The systems that were sold were actually part of our ClearPoint placement program that were existing sites as of the end of the first quarter that we sold during the second quarter. So none of the three sites that were mentioned as new sites are sites that we sold systems to during the quarter.

I see; okay. Then you did address it in your commentary, but if I could ask, the $389,000 in the second quarter compared to the number of systems sold in the second quarter of 2013 versus the revenue, so a big disparity. You did just touch on the fact that it can depend on what equipment is already existing at the hospital.

But if you look at your pipeline -- and for forecasting purposes for us going forward -- what should we be thinking about in terms of a per system?

An ASP -- Steven, to make sure I follow your question, you're wondering about an average selling price per ClearPoint system for the capital products?

Yes. And understanding that, yes, it can vary widely from site to site and so forth. But just in terms of helping us understand going forward for the next couple quarters, and what you see in the pipeline: What is a good number?

I think a good number to use is $115,000. It does vary, but I think $115,000 is a good average number to use.

Okay. All right. That's helpful.

Just to elaborate a little bit on that, over the last year or so we have been able to utilize -- to find ways to utilize equipment that already exists at the hospital, so they don't have to buy it from us. That is actually what has been the largest driver of the reduction in the price of our ClearPoint capital component.

This is good news for us. We have got this razor/razor-blade model, and so to the extent we don't have to sell, for example, a head coil if the hospital already has a set of coils that will work, then that is fine for us.

Yes, I guess one other comment on that is that the items that we are no longer selling were typically our lowest-margin products. So we weren't -- it didn't -- we were happy to see that change take place.

Okay, so mix is improving in what you are selling. Then if I could ask a follow-up question, and along the same lines of what the revenue run rate is: Were there any delays in the first quarter with orders, or any kind of inventory build in the second quarter in terms of especially disposable product revenue?

What should we think about from an average quarter-to-quarter basis or normalized run rate here for the next couple quarters?

Yes, I guess a couple of comments. One is we are not giving guidance at this point, so I will limit -- I have got some limitation there, Steven.

But what is happening with -- as we build our business, we are getting into more sites. Obviously more cases are getting done; more cases getting done is leading to an increase in our disposable product revenue; and that is the way this is supposed to work.

So we're -- and I think what you see -- we are quite proud, I am particularly proud of those eight consecutive quarters of growth in our disposable product revenues. It has got a -- that is a nice run that we are proud of.

I think, I guess it speaks to the way the business is building. Again, with outgoing and giving guidance, I think it speaks to the way the business is building for us.

Yes, no doubt impressive. But you don't see any pull forward of orders? Or there is nothing like that that you can see with the second-quarter numbers?

No. You know, it is just the -- one of the reasons we are not giving guidance right now is that we are the pioneers in this field; right? We are literally creating this market.

And we are excited about the growth we are experiencing. We are excited about and encouraged by what we are seeing. However, with this new market comes a lot of variables -- variables for us, as well as variables for the emerging field.

So it is hard, although I know it would be helpful, to try to draw some conclusions for you. It is still -- these variables still make it a little hard to give you metrics, which maybe is what you are looking for.

Yes, understandable. Well, thank you, Kim. Nice quarter.

Thank you.

James Terwilliger, Newport Coast Securities.

Yes, hey, Kim. Can you hear me?

Hey, James, how are you?

Good. Congratulations on a good quarter, and thanks for taking my question. A lot of my questions have been answered.

But the first one is really: how was the tone on the clinical conferences in San Fran and DC, in terms of the clinical community and adopting this type of technology? What was the tone like from the clinicians?

It is very positive, James. We're -- really each conference that we go to, the momentum builds, the chatter builds. The number of cases that have gotten done, the presentations, the activity at our booth, the discussions at dinners, all of that is growing.

And what is neat about it is it's growing across different kinds of neurosurgeons. So we do -- as you know, we facilitate electrode placement -- DBS electrode placement, for example -- for Parkinson's and dystonia patients, and that is one sort of neurosurgeon.

The epilepsy application that we are pursuing in connection with, for example, Visualase, that is often a different kind of neurosurgeon, a different guy or girl. And that is another set of discussions.

The biopsy applications brings in the tumor docs. So we are really building this critical mass at these conferences, and we are building these sub-themes, these subsets of doctors that are getting excited. That's been our objective all along, and we're seeing it really bear fruit.

Success begets success. So when you go from six sites to seven sites, you've got one level of momentum. And when you go from 36 sites to 37 sites, it is just a lot easier.

Excellent. The second question is, the Medtronic acquisition of Visualase is very exciting. Do you see any, say, sales and marketing displacement by the acquisition, something you guys can capitalize on and expand your salesforce? And remind me again how large your sales and marketing department is currently.

Sure. We have got 14 people in our sales, marketing, and support teams.

15.

15, sorry. And that is, and David, correct me, six support -- I mean six sales folks; that includes Rob, our VP of Sales. Five clinical field support people. And the balance in marketing and support, case support. So that is our group.

As I mentioned in our prepared remarks, we've been working closely with the Visualase guys really for many years, I mean going back to like 2008 or something -- maybe actually before then. They have been around for a long time; we have been around for a long time.

We wanted to make sure our products would work together from the very beginning, for the reasons I outlined a minute ago. We have had a very natural collaboration at the field level, at the account level, with Visualase, again because of the complementary nature of our products.

And we have every expectation that that will continue as Medtronic takes over this sales effort. Now, the leverage if -- the leverage there would come from the fact that the Medtronic salesforce is many, many times larger than the Visualase salesforce. And we are excited about where that may take us.

Okay. Again, thank you for taking my questions and congratulations on a good quarter.

Thanks, James.

Bruce Conway, private investor.

Thank you. Hi, Kim. I just want to say great quarter and great comments regarding the significance of Visualase acquisition to MRI.

I was, however, little disappointed there wasn't a better stock market reaction to that. Because I happen to agree; I think it's extremely significant for us.

In that light I wanted to ask, have you seen any revenue projections regarding Medtronic's acquisition? And does that give you any color -- and I realize this is forward-looking -- but does that give you any color for possible revenue projections for us?

Yes, Bruce, I have not. I am not aware -- I haven't seen any projections from Medtronic with regard to what they are hoping to do with this business.

One could assume, I think, and safely assume, that they expect to grow the business. So I don't have a direct answer.

What I can say is to reiterate what we have talked about. I think many of the folks on this call would have heard us talk about the size of the epilepsy market, right?

We believe one of the primary drivers of Visualase and the acquisition of Visualase by Medtronic was pursuing, was going after this epilepsy market. And the epilepsy market is a really exciting one.

There are 2.3 million patients in the United States that suffer from epilepsy. A little over 10%, or 250,000, of those patients are treatment refractory. What that means is the drugs simply don't work in eliminating the seizures, so the quality of life for these 250,000 patients is very poor.

That population is really center of the bull's eye for laser ablation therapy, where you go in, ablate the epileptic foci, and the idea is -- the clinical objective of that is to eliminate the seizures. So we think there is an enormous amount of potential in bringing this powerful therapy to that large patient population, and we think that is part of what has excited Medtronic about it.

Great. Okay. Thank you, Kim.

Thanks, Bruce.

[Michael Cerosky], private investor.

Good afternoon. First of all, I would like to see if someone can verify that -- if the equipment is being used at The Ohio State University in Columbus, Ohio.

Yes.

I was told that the doctors there actually fight to get their patients listed on the use for the next day, and that usually the senior doctors are the ones that end up using the process. My question is -- this from a layman -- is that most of the time we hear and learn that operations are to be done in a 100% sterile room, considered the operating room.

Is there any kickback from physicians or anyone else that these procedures are done in an MRI room versus the operating room?

Yes, great question. This is one of the key hurdles that we had to get over.

We do create a sterile environment in a diagnostic MRI suite for performing these ClearPoint procedures. We take a nonsterile environment and create a sterile environment for the procedure. So you are exactly right in the question that you raise.

The way we do it is we developed a sterile draping system that we had to get FDA clearance for, specific for that draping system, to create that sterile environment. And that has worked very well for us.

Is it a matter of discussion for new hospitals? Absolutely.

We always -- with no exception -- we always with the sterility committee inside of a new hospital, and we share with them the results we have had at all the rest of the hospitals, the very strong, good results that we have had with creating a sterile environment for these procedures. We walk them through the data that we have that shows that we are successful in creating a sterile environment.

And again, as you can tell with the number of sites, we are successful in getting the sterility committees comfortable with this new approach. But you are right on the money. It is an issue that we had to solve, and we are pleased o that we solved it.

Thank you.

Thank you, Michael.

(Operator Instructions) Raymond Pirello, Pendulum. (technical difficulty) He must've gotten cut off.

[Mark Abraham], private investor.

I have some questions as far as numbers go; I am kind of a numbers guy. You lost $1.5 million this quarter, and I am trying to get a handle on -- at what point can you guys make a profit?

Because the stock price is anemic, and there has got to be a reason, because people are looking at some point here to make some money. And by going with an extra three installations, I mean, how many more installations do you need to get to, to make a profit?

From what I am seeing here, last quarter you did about $790,000 worth of business. My question is how many procedures? They're around $7,000 a procedure; is that about right?

Yes, $7,300 is the average selling price that we --

So it is around 100 procedures over the whole quarter, which is around three procedures per place per quarter, which is like one a month. Is that what it is going to be? Do you see more procedures being done?

Because at some point if you keep losing $1.5 million a quarter, you're out of money in three quarters. So I am just trying to look at numbers at some point.

When are you going to make some money? I know you don't like to go forward and everything like that. But people want to know when you're going to make money before they are going to invest in your Company.

Sure.

And I have been an investor since day one, before you went public.

Yes, Mark, it is good to -- we appreciate your support and let me -- I will start and David may want to chime in. First, let me speak to utilization, right?

We have in our sites, in our set of sites, we have got some sites that are high-volume users and some that are low-volume users. A big part of that phenomenon is really just part and parcel of growing the business.

It is like if anybody has invested in -- it is like the same-store sales model for a retail operation. You know, you've got -- you set up a new store; you make investments in it.

And there is a certain level of sales in the first month and then it takes some number of quarters for that site to -- that store to mature. And you've got marketing to bring customers in and that sort of thing.

So our business is not really all that different from this. We have got sites that are mature and that are what we would consider high-volume users. And we have got sites that are relatively immature and that we are growing.

So the numbers that you gave, I word amend that just a little bit just to say: as you think about our business growing, you've got to think about sites. Some sites being mature, some sites being in process, some being new or relatively immature. And that has got a -- that has a big bearing.

As far as a number, I will tell you I think that a breakeven for us is going to be about 130 procedures a month. Is that right, based on our current infrastructure, is that about right, David?

Yes.

So that will give you a sense of where we are headed. So, does that -- Mark, is that responsive to you?

Well, I guess you need to do 130 a month; so you are doing about 110 a quarter now, so you need to triple your procedures to break even.

The other thing is, the salesforce you have out now, they are coming in with three extra sites here. When can they really do something?

Do you have anything in your horizon at all about possibly partnering up with a big medical device company that can get out and sell these things? Because if you have got to sell three sites a quarter, you're never going to get it done.

Yes, but -- okay, I understand what you're saying, but I want to point out that we grew disposable product revenue 36% sequentially, Q1 over Q2 -- Q2 over Q1, right?

I understand.

So there is inherent leverage in our business model, right? It is not -- as we were talking about, we get the store set up and then we grow revenue.

And for us, the driver, the key, is getting that disposable revenue which grows our business. There is, again, inherent leverage; and that leverage comes from taking a site that is doing one case a month and getting them to do two cases a month, or three cases a month.

And when you replicate that across 10 or 15 or 20 sites, then there is real leverage in it. And that is really what we have been working to build, Mark, over the last handful of quarters.

We have got a great sales team in place, finally. We have got a strong clinical support team in place. We've got a wide group of applications that range from treating Parkinson's patients with DBS electrode placement to laser ablation for epilepsy.

So all of these things are a part of really growing that utilization. And that is what propels growth.

Again, look, I just -- I understand; the numbers are still small. But we grew disposable product revenue 36% from Q1 to Q2. And I think to me that is evidence that the model is working.

Well, percentage is up; but you have still got to put numbers on the board; you still got to make money. You got a $50 million market cap right now and the reason this thing doesn't go up is because everybody is looking: when are they going to make some money? And you got to make numbers.

I mean, you're saying 38%. Those sound nice, but it's the real dollars of cash that really make a difference.

But, Mark, with all due respect, it is real cash to us. It is $766,000 in disposable revenue, you know? Again, versus $565,000 in Q1.

You said you are a numbers guy. I mean, that is real growth. That is real growth, and it doesn't take many of those -- it doesn't take growth like that for long to be real numbers. If you look over -- again, we've -- the business, we are eight quarters in a row of growing that disposable revenue stream.

Now, I will say: look, why does this take time? The reason it takes time is we are changing physician practice. We are creating a new field of medicine, and that takes time.

But it is working. It is working.

And again that is why we are in the hospitals that we are in. We are in five of the top 10 U.S. News & World Report neurosurgery centers; some of the best doctors in the country are using ClearPoint and increasing their use.

So, look, it does take time. But again I would respectfully just push back a bit and say we are getting there. We are making it happen.

I think the product is fantastic. I don't understand why 100 hospitals don't sign up.

What is their reasoning? Why don't they want it?

I mean, everybody should have it. It is the best thing out there. There is nothing that's -- you guys got the greatest product in the world. Why aren't people flocking, beating your door down for it?

Listen, I --

That is basically my question.

I couldn't agree with you more that we have got a great product. And we are pleased -- again, we are pleased with all the things that we are seeing that indicate that adoption is increasing and that leads to growth in the business.

So, look, we may -- there may be frustration with regard to -- people would like things to happen faster; I would too. But I would say I am quite pleased with the way the business is growing.

We feel very good about our positioning in this marketplace. We are excited about not only the way our business is developing and building, our revenues are building, but the fact that you've got other players like a Medtronic saying: hey, what -- this field is important, and it is important for neurosurgery going forward.

Well, I think it was (multiple speakers)

But again, and I would be happy -- I don't want to go too long on this. I would be happy to talk with you further off-line, Mark, if you want.

No, I appreciate you taking my call. I am on your side, believe me.

I think you guys have got a great thing. I just wish there was some more people that would want it. That was my only concern.

Thanks a bunch. Hey, thanks for calling in, Mark.

Thank you.

(Operator Instructions) [Jeff Romoff], private investor.

Hi, guys. How are you? I just wanted to further on Mark's comment. What discussion has there been around and what implications might there be at providing the hardware at an extremely discounted rate, or even at no cost, if you really want to grow the disposable business?

Well, there are compliance hurdles to just giving it away. We can't -- just the guys in Washington don't let medical device companies give away capital. So we have got to get value for the capital piece.

We think our ClearPoint placement program is a good way to stay well within the confines of the compliance, of the regulations, and be square with all those, but at the same time give the neurosurgeons flexibility to bring the system in.

And we think that works pretty well. You will see the -- again, for example in this last, in what we are reporting here, the four sites, the four system sales that we had during the quarter were to existing. They were the sites that existed before the quarter.

And our new sites are under the ClearPoint placement program. So we think it is a good model for it.

Okay. I am just try to brainstorm ideas, as Mark points out, trying to just get into the new hospitals. That seems to be the biggest hurdle, right?

Yes. Look, we tell our sales guys to doe -- we ask them to do two things. We ask them to grow the number of sites, and we ask them -- so we want new sites in the pipeline. And we want to increase utilization at our existing sites.

So they split their time between both efforts, and that is going to be the -- we will continue with that going forward, with that direction for these folks.

Okay. Thanks for taking the question.

Thank you, Jeff.

Steve Schwartz, First Analysis.

Hi, Kim. I thought I would jump back on the call and into this discussion from the last few callers, and ask your opinion and perspective on something. We understand that the hospital environment is changing, right? Surgeons are going from private practice to becoming direct employees. Where the surgeon was a sole decision-maker, there are now value-added committees.

When you are partnered up with a Visualase, are the value-added committees -- are you riding in to the purchase decision by the hospitals with Visualase and these other companies? Or are you guys going up against the committee decision single-handedly?

Yes, so what -- that is a great question. As we were developing ClearPoint, we have envisioned it from the beginning as a platform, right?

Why is that important? The platform side is important because we have a product that helps the functional neurosurgeon with his movement disorder patients for electrode placement; and we help the epilepsy neurosurgeon who is treating his patients with now laser ablation; and the neurosurgeon, the tumor doc.

So when we go through the hospital process, Steven, our champion or champions are the neurosurgeons. And what helps a lot with these multiple applications is that you have not just one neurosurgeon saying I want to use this for my Parkinson's patients; but we can bring three neurosurgeons in: the guy for the Parkinson's patients, the guy for the epilepsy patients, the guy for the tumor patients.

And yes, to the extent we have got the epilepsy and tumor patients, then that brings in Visualase, and Visualase is a part of that. So there is leverage there that is sort of inherent in our platform model; and it is positive leverage. It is very helpful to us.

Yes, no doubt. I recognize that. I think like the previous callers I certainly recognize that.

But do you agree the environment overall has become more difficult not only because of Obamacare but just because of the change in the surgeon/hospital relationship?

Oh, absolutely. Listen, healthcare is a different animal now than it was even 5 years ago. My feeling is a med device company, whether you are large or small, has to show up with a very compelling value argument for the patients: we are going to do better with the patients. For the doctor: it has got to be a procedure that the doctor wants to do over the existing approach. And for the CFO: it has got to work for the economics of the hospital.

And by the way, with where Obamacare has taken healthcare, it has got to work for the eventual payer, right? So you have got to hit on all cylinders.

We feel strongly that ClearPoint delivers on all of those metrics. And we are doing that by, again, moving -- we are doing it in a way that we have already seen it play out in other fields.

We have already seen this movie for taking care of heart attacks. You saw the move from open-heart surgery to minimally-invasive cath-lab-based procedures.

And that helped everybody, right? The hospitals, the surgeons, the patients, the payers; it was a win for everybody.

We are enabling that same idea, that same idea of real-time, minimally-invasive, image-guided procedure, which was done in the cath lab. We are enabling that same thing for neurosurgery.

So I think absolutely it is a much harder environment now than it was a few years ago. But fortunately, we are well prepared for it, and I think that is going to stand us in good stead over the coming months.

It has already, and it will continue to do that. It will continue to bear fruit for us.

Yes, no doubt. Okay. Well, thank you for the additional color, Kim.

Steven, thank you.

Raymond Pirello, Pendulum.

Thanks, Kim. It's Ray; how are you?

Ray, you're back. You were getting chased around by a dog or something the last time you called.

You know what? I am in the Stadium at the Jets game, and I've got my kids with me, and it is just crazy.

How many sales guys are on the ground that signed up the three hospitals? How many guys do we have out there?

We have six salespeople.

Okay. What is the criteria for these guys to keep their jobs? I mean, one -- you got only three hospitals out of six guys. I mean what are they -- what is their daily routine? I mean, how many hospitals are they able to see a quarter?

Ray, bear in mind, they are not just selling capital, right? They are working on increasing utilization. So they are spending some percentage of their time growing utilization and the other percentage of their time getting new sites. So we measure them on --

Okay, so I am involved (multiple speakers)

-- on those two metrics, not just one.

I am involved in other medical device deals right now, and they have outsourced their salesforces. And their margins in their business aren't as big, but they are already in 150-something hospitals because of that.

Have you guys looked into possibly bringing in some of these guys that do the sales for you?

Sure. We have considered distribution relationships or outsourcing. But we are creating a field. We are the pioneers in this new field of medicine, and because of that we need our own sales guys.

It is something we have looked at closely. And again, we feel a high degree of confidence that that is the right way of going at it, at this point in the development of the market.

At some point you have to feel there is going to be something else that comes to the market, a replacement of possibly you guys at some point (technical difficulty) product, right? So you want to get as far stretched as you can across hospitals before another product comes to the market.

That is why we work to grow the number of sites, to grow at sites that are the leaders in their respective fields. The volume centers: we want to keep getting those guys, and we are doing it.

And then we want to, at the same time, grow utilization.

Is it a capital issue? Is there more cash needed to hire more guys out there? Or you are not ready for that at this point?

Well, again, we feel good about the team we have got in place. We spent a lot of time last year getting the right guys in place, getting them trained, getting them going. And we have really got a lot of confidence, Ray, in the team we got.

For worldwide sales, you think six guys is enough?

No, this is just -- we are just US. We have got the two sites in Europe, but we are really focused -- all of our energies are focused on the United States.

Now at some point -- we have a CE Mark for this product; we will go O-US. But now it is really focused on the United States.

How many hospitals are in your target market?

Probably about 350 -- about 300.

And -- all right.

Listen, Ray, thanks a bunch for calling in. And happy to talk further with you if you want. We are always around.

You got it.

I don't want to bore everybody, so, operator, maybe one more call.

There are no further questions at this time. Would you like to make any closing remarks?

No. Listen, thanks for joining us for the call. We appreciate your interest. We appreciate your support for those of you that our shareholders, and please stay in touch.

Thanks, and hope you guys have a good evening.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.