ICAD Inc (ICAD) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the iCAD fourth quarter and year end 2007 financial results conference call.

At this time all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of today's conference call.

(OPERATOR INSTRUCTIONS).

As a reminder this conference is being recorded for replay purposes.

I will now turn the presentation over to Ms.

Anne Marie Fields, Senior Vice President.

Please proceed, Ma'am.

Thank you.

Good morning.

This is Anne Marie Fields with Lippert/Heilshorn & Associates.

Thank you all for participating in today's call.

Joining me from iCAD are Ken Ferry, Chief Executive Officer, and Darlene Deptula-Hicks, Executive Vice President and Chief Financial Officer.

Earlier this morning iCAD announced financial results for the fourth quarter and full year 2007.

If you have not received this news release or if you like to be added to the Company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with [Cheryl Palazzo].

Before we began, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of iCAD.

I encourage you to review the Company's past and future filings with the Securities and Exchange Commission including, without limitation, the Company's Form 10-K and 10-Q which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore the contents of this conference call contain time-sensitive information that is accurate only as of the date of the live broadcast, March 6, 2008.

ICAD undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said I would like to turn the call over to Ken Ferry.

Ken.

Thanks Anne Marie, and good morning, everyone.

Welcome to iCAD's fourth quarter and fiscal 2007 financial results conference call.

I am delighted to report that iCAD had an excellent year in 2007 fueled by record revenues in the fourth quarter and for the full year.

We have begun to turn the corner on profitability.

We have been cash flow positive for two consecutive quarters and, as importantly, we strengthened every balance sheet metric critical to building a healthy and sustainable growth company.

We are proud of our progress we've made and we look forward to sharing our outlook with you for the first half of '08 as well.

After a brief overview of the business and industry, I will turn the call over to Darlene, who will review the financial results in greater detail.

As I said in my opening comments, iCAD has made significant strides throughout 2007, underscoring that our new management team's growth strategy and financial controls are on track and delivering results.

Our strong fourth quarter and full year revenues were led by continued strong demand for products used in digital mammography, specifically SecondLook Digital Cad and TotalLook.

This growth reflects strong demand for full field digital mammography technology in CAD.

There is still considerable room for growth in the digital mammography CAD market, is only approximately 30% of the mammography systems at the 8800 certified mammography sites in the U.S., have transitioned to digital technology from film-based technology.

In the U.S., CAD is considered the standard of care in digital mammography and CAD purchases are running nearly 1 to 1 with full field digital mammography systems underscoring the clinical and workflow benefits derived from CAD.

We expect to maintain a leadership position in digital CAD and to capitalize on a growing global market opportunity.

This was evident in Europe and Japan as international sales grew at a rapid pace in 2007; and as of today, our CAD systems are now connected to over [1500] full field digital mammography systems worldwide.

Our film-based product sales achieved solid performance for the quarter and full year.

We saw substantial increase demand for TotalLook, our film digitizing solution enables comparative reading with prior exams.

Targeted marketing programs in channel-focused improved film-based CAD sales in Q4 versus prior quarters as well.

In addition, we recently announced the introduction of TotalLook MammoAdvantage which converts prior mammography films to digital images for a comparative review on a digital review workstation.

This new version of iCAD state-of-the-art film digitizing solution offers improved image quality, enhanced image customization options, and workflow efficiency features.

As a result, this new system enables the most efficient comparative reading of current and prior mammograms optimizing workflow in all care settings.

With the high growth in the conversion to digital mammography, we expect to see strong demand for this system as it plays a major role in creating an end-to-end digital workflow environment.

We expect continued overall growth in our film-based products as I said earlier as nearly 70% of the mammography systems in the U.S.

still use some form of film-based technology.

So for example, if only 15% of the installed base converts to digital each year, it would still leave over 40% of the U.S.

sites that are at least two years away from converting to digital technology.

These latter converting sites are excellent candidates for film-based CAD solutions.

In addition we are confident that the sale from TotalLook MammoAdvantage will continue to grow rapidly and continue to represent greater than 50% of all film-based product revenues in 2008.

Service and supply revenue continued to grow, posting a nice increase in the fourth quarter compared with the prior year's fourth quarter and full year 2007.

We expect to see this growth trend continue as we increase our service contract penetration through focused efforts to enhance our service offerings and value to our customers in both the film and digital product areas.

International sales were strong in 2007, particularly during the second half of the year due in large part to strong demand from GE and Siemens in Europe and from initiations of shipments to GE in Japan.

During the quarter, international sales more than doubled.

Moving forward we will continue to exploit new opportunities with additional global partners, such as Philips, Agfa, Sectra, and others.

Now I will address the issue of our Fuji supplement with the FDA.

I would like to provide an update on our efforts to obtain FDA approval for SecondLook Digital CAD with Fuji.

We believe we are very close to completing an administrative appeal on our PMA supplement with the Center For Devices in Radiological Health.

During the fourth quarter, we submitted an appeal document to the Director of the Office of Device Evaluation.

We met face-to-face with the agency on December 3rd to discuss the key issues.

We believe our position was clear and compelling.

We are confident that it provided the information to support a favorable decision maybe as soon as the end of March and hence we have included revenue from Fuji on a global basis in our first half guidance.

The Fuji plan, post-FDA clearance, is to launch SecondLook Digital and TotalLook MammoAdvantage in early Q2 and work with Fuji to immediately begin shipments and installations to their priority customers.

We continue to be impressed with Fuji's success in penetrating and expanding this market and remain encouraged by the significant market opportunity for iCAD, both in fulfilling the backlog of customers awaiting SecondLook Digital, and as Fuji continues to gain traction in the market for digital mammography equipment.

Shifting topics on the strategic side, our strategic growth plan includes expansion of iCAD's market leadership beyond mammography.

CAD as a category is underpenetrated and we plan to use our platforms and core algorithm technology to develop and market cancer detection products for other disease states.

We believe CAD has significant potential in areas where there are established or emerging protocols for screening as a standard of care.

It is clinically proven that screening has a significant impact on patient outcomes.

There is an opportunity to lower health care costs.

The screening is not invasive or minimally invasive and public awareness is high for growing.

CT Colonography, or virtual colonoscopy, as it is often [refers] to meets all of this criteria.

Importantly positive results from the American College of Radiology Imaging Network National CT trial -- or ACRIN as it is referred to -- is expected to drive the adoption of virtual colonoscopy as a screening modality for colorectal cancer.

This 2600 patient trial found virtual colonoscopy to be comparable to the optical or traditional colonoscopy, which is the gold standard for detecting intermediate to large polyps.

In the trial virtual colonoscopy achieved a 90% sensitivity, an 86% specificity for adenomas or polyps 1 cm or larger, and 84% sensitivity was noted in lesions 7 mm or larger.

Specificity remained between 86 to 89% across all relevant lesion sizes.

In anticipation of this development as an accepted international screening tool in the battle against colorectal cancer, we are developing CT Colon CAD software which automatically identifies polyps on the CTC image.

Working in conjunction with state-of-the-art 3-D image visualization software partners such as Vital Images, [TerraRecon] and Viatronics, our CAD solutions will highlight polyps locations to the interpreting physician in much the same way our SecondLook automatically identifies and clearly marks suspicious areas of the breast for radiologists today.

Our current development program for our colon CAD software is to initiate our planned clinical trial in association with the American College of Radiology subsidiary, ACR Image Metrics -- some of the same individuals that conducted the earlier CT colonoscopy trial I just referenced.

We expect the trial to last four to six months.

This would put us on track for an FDA 5 10-K submission around the beginning of the fourth quarter of 2008.

Also it was announced yesterday that the American Cancer Society will include virtual colonoscopy in their next updated guidelines for cancer screening and, hopefully, the American College of Radiology will formally petition CMS for screening reimbursement in the near future, especially as the data suggests that most patients undergoing CTC would not need subsequent colonoscopy, sparing them the cost, risk and inconvenience of a second test.

We believe reimbursement for virtual colonoscopy as a screening tool could be obtained by the late 2008, early 2009 timeframe although the actual timeline is dependent entirely on the ACR and CMS.

This would open up the clinical use to more than 80 million Americans eligible for screening for colorectal cancer.

Today, unfortunately, we believe that up to 50% of the population over 50 has not had a colonoscopy.

In addition to CTC, we are actively investigating additional CAD solutions on the CT and MR platforms as well.

Now I'd like to take a moment to talk further about some additional growth strategies.

In addition to building out our cat offering beyond mammography to colon and other potential areas, we are looking for opportunities to provide broader solutions targeted at the radiology market.

These solutions could be in the areas of workflow, image data management, and diagnostic and therapeutic intervention, to name just a few areas under consideration.

We have successfully built out our management team during the past 18 months and have had exceptional sales and marketing efforts, talented people whose skill sets and expertise certainly can leverage into new areas.

Over time, our goal is to transition iCAD to a company that provides a portfolio of solutions to the radiology and health care market.

In order to be in position to strengthen our competitive position and move nimbly onto potential acquisitions, last quarter, we filed a $75 million shelf offering with the SEC.

This was strictly a strategic initiative.

It was not intended for use in funding operations as our strong financial momentum demonstrates our ability to fund operations moving forward.

We began this process of filing the shelf registration when our stock price was around $4.00.

Given the direction it has moved in the last two quarters, in spite of great progress, we have slowed this endeavor down and will continue to proceed cautiously until our share price is more reflective of our financial performance.

We will continue to provide updates to the strategy on future conference calls as things develop.

With that review of the business I am going to turn things over to Darlene that will give you some color on our financial performance in greater detail.

Thank you, Ken, and good morning, everyone.

We were especially pleased with the Company's strong fourth quarter and full year financial performance, and we are delighted to share this with you in greater detail today.

Let me begin by providing a few highlights of the fourth quarter and full year of 2007 which include record fourth quarter revenue of $8.1 million, which is up 26% over the fourth quarter of 2006.

Record full year revenue of $26.6 million which is up 35% over the full year 2006.

Record full year digital revenue of $16.4 million, a 60% increase for the year and a 42% increase for the quarter comparatively.

Record international revenue of $2.7 million, a 160% increase for the year from $1.0 million in 2006.

Continued strong growth margins of 80.5% and 80.2% for the fourth quarter and year, respectively.

The first profitable quarter since Q1 of '05 with net income of $525,000 or $0.01 per entity share for the fourth quarter and positive cash flow for the last two consecutive quarters.

During the fourth quarter, we recorded record revenue of $8.1 million which, as I mentioned, was a 26% increase over the $6.4 million in revenue reported during the fourth quarter of 2006.

Importantly, the fourth quarter of 2007 marked the Company's first profitable quarter since Q1 of '05.

During the fourth quarter we posted a net income of $525,000 or $0.01 per diluted share including stock-based compensation expense of $378,000 compared with a net loss, including stock-based compensation expense of $567,000 [of] $1.4 million or $0.04 per share in the fourth quarter of 2006.

This growth in sales was led by our Digital CAD products which for the quarter increased 42% to $5.0 million from $3.5 million in Q4 of last year.

This substantial revenue increase underscores CAD's growing acceptance as a standard of care for digital mammography.

Our film-based product revenue for the quarter increased by 4.4% to $2.2 million from $2.1 million last year.

As Ken mentioned, while this is an established product line we continue to experience strong demand for our TotalLook MammoAdvantage product.

Revenue from our TotalLook product in the fourth quarter increased almost 100% over the prior year fourth quarter.

Our fourth quarter service and supply revenue also increased by 10% to $896,000, up from $815,000 in last year's fourth quarter.

Gross margins for the fourth quarter remained very strong increasing by 1.3% to 80.5% from 79.2% in the prior year's fourth quarter.

We are also pleased to report that with a 26% increase in revenue this quarter we decreased our quarterly operating expenses by 8% to $5.9 million compared with last year's fourth quarter operating expenses of $6.4 million, demonstrating our ability to scale revenue while controlling our operating expenses.

As Ken mentioned earlier, 2007 was a very strong year for iCAD with a 35% increase in total revenue to $26.6 million as compared to $19.7 million in total revenue recorded in 2006.

Additionally, we met our previously communicated revenue guidance for the full year of $26 million to $27 million.

The net loss for the full year of 2007 including stock-based compensation expense of $1.2 million was $1.5 million or a loss of $0.04 per share.

This represents a bottom-line improvement of $5.1 million or $0.14 per share as compared with the net loss for 2006 of $6.6 million or $0.18 per share which also included stock-based compensation expense of $1.3 million.

Increased sales in 2007 were led by digital CAD revenue which grew 60% to $16.4 million from $10.3 million in 2006.

Full year revenues for our film-based products advanced 4% to $6.8 million from $6.5 million in 2006.

Full year revenue from our TotalLook product which is included in our film-based product revenue increased 187% over the prior year.

Our full year service and supply revenue increased 17% to $3.4 million from $2.9 million reported in '06.

International sales for 2007 were also strong at $2.7 million, increasing almost 160% over 2006 international revenue of $1 million, attributable to increased traction in Europe with Siemens and GE and focused global downstream marketing initiatives in both Europe and Japan.

We also made positive progress on gross margins in '07 increasing full year gross margins by 2% to 80.2% from 78.2% in 2006.

Importantly, on approximately 35% total revenue growth in 2007, we realized only a 3% increase in operating expenses to $22.5 million compared with $21.9 million in 2006.

Operating expenses averaged $5.6 million per quarter during 2007 and we were within the $5.3 million to $5.7 million range previously provided as guidance.

Again this demonstrates our ability to grow revenue while effectively managing our operating expenses.

Consequently, our bottom-line continued to show strong improvement throughout 2007 with a reduction of $5.1 million in net loss to $1.5 million or $0.04 per share down from a net loss of $6.6 million or $0.18 per share for fiscal year 2006.

Product backlog which excludes service and supplied backlog was approximately $1.7 million at December 31st, '07 as compared to $2.6 million on the corresponding date in 2006 and $1.7 million at September 30, 2007.

Backlog as of any particular period should not be relied upon as indicative of the Company's net revenues for any future period as approximately 75% of the Company's product is booked and shipped within the same quarter.

As of December 31st, 2007, our headcount included 101 full-time, part-time and co-op employees.

This is an increase in headcount of 7 from 94 employees as of December 31st of '06.

This headcount increase is primarily in the area of sales and marketing hires.

We are especially proud of the progress we have made in strengthening our balance sheet.

We are pleased to share that we were cash flow positive for both the third quarter and fourth quarter of 2007.

Our cash balance at December 31st, '07 of $4.3 million shows a nearly 20% increase from the $3.6 million cash balance as of December 31st, 2006 and a 27% increase from the $3.4 million balance as of June 30th, 2007.

We continued to improve all other balance sheet metrics during 2007 with inventory reductions of 41% to $1.8 million from $3.0 million at year-end 2006 and an Accounts Payable reduction of 21% to $2 million from $2.6 million the previous year-end and Accounts Receivable of $6.5 million, an increase of 76% from $3.7 million reported at year-end '06.

Now I would like to move on to our introduction of financial guidance for the first six months of 2008.

As stated in our press release, we have introduced financial guidance for the first six months of 2008.

We expect total revenue for the first six months of this year to be in the range of $15 million to $16 million.

As for Ken's earlier review of our position with regard to Fuji in the U.S., this guidance includes revenue from the sale of our SecondLook Digital and TotalLook product to Fuji in the U.S.

beginning early in Q2.

We expect to realize gross margins consistent with fiscal 2007 and anticipate operating expenses to be between $5.6 million and $5.9 million per quarter for the first two quarters of 2008.

This slight increase in operating expenses to a large degree reflects the cost of clinical trials on our colon CAD products.

With that overview, Operator, we are ready to take questions.

(OPERATOR INSTRUCTIONS) Stephen Dunn with Dawson James Securities.

It's [John Putnam] for Steve today.

I was wondering was there a change in the way you recognized the revenue from GE in the quarter?

And what kind of impact did that have on revenue for the quarter?

No, there's been no change in revenue recognition policies at all.

And the same all year.

Can you tell me what your international sales were this quarter?

This past quarter?

Yes, I'm sorry.

Let me grab that.

Hang on.

592K?

That sounds about right, yes.

It was $592K.

Thanks very much.

That's all I have.

Thanks and great quarter.

Jonathan Block with SunTrust Robinson Humphrey.

Good morning.

First question, can you just estimate for us what you believe the total backlog is at Fuji?

And then I know you mentioned you have shipments beginning in 2Q, but maybe out of that total backlog, what your estimating goes out the door in 2Q?

From the standpoint of Fuji, first I'd start with Fuji signaled at the RS&A to investors and to their colleagues that they would have about 300 systems installed by the end of December.

So with a go forward run rate of another 75 to 100 a quarter which is what they signaled, we would obviously assume that as we get to the end of March, they are sitting with about 400 systems installed plus or minus.

And then again, that ongoing demand continues.

We went out to our field and in conjunction with the Fuji field did a pass in early January.

So this data is probably about two months old.

We basically asked the question which customers will buy immediately and which customers have funds they could use immediately versus which customers would probably budget for this, once they know it's available.

So it is a bit of a moving target, but what is very encouraging is that we found about 90 customers out of this, say, 300 that are installed that had verified -- and this is 90 customers.

Some of them have multiple sites so the actual number of sites is north of 100 -- that had money already budgeted in their hands and were ready to place immediate orders.

So we were very, very encouraged with that.

Also what we found was that in most of these settings, almost half, they had put in multiple CR machines.

And what we are finding through Fuji's data is that 80% of their installations are dedicated [Mammo].

So this notion that their product is being used only in the community or rural environments on occasion is not really true.

And because they were putting the systems into such substantial volume environments, we actually found that on an average about let's just say, these 100 or so sites, about 40% had multiple installations which means we would be selling servers and licenses.

So it is a pretty attractive environment when you go to do an installation.

So with all that said, we are hoping to be in the insulation mode by early April and we will take a cautious approach initially and when I say that, it is because a lot of the installations involve PACs systems and what we are finding with our experience with Fuji is that there's more complexity to installing CAD with PACs systems attached than stand alone.

So we want to make certain that we really get the installations right.

The several that we have done on the international front have gone very, very well.

We have two systems installed with Fuji in Singapore and we have obviously beta sites as well.

But you know we are going to try to ramp it slowly.

Maybe something on the order of five or six installations a week in the first month, increasing that steadily each month after that.

I think that if we are getting the initial traction in early April, it is obviously going to have a significant impact on our revenues for the second quarter.

And by probably month 2 of our installation experience or maybe a four to six weeks out we should be close to what I would call a high capacity to really installed based on the demand.

And that will be a pretty exciting position to be in, given that we have been working at this for greater than 20 months and are finally seeing some very encouraging feedback from the FDA as we try to bring this to closure over the next several weeks.

Perfect and then I guess just the next step with Fuji, you mentioned you are hearing some positive feedback from the FDA.

Ken, is there any more information that they are requesting or is it basically in a mode now where they have -- they have what they need and they are pretty much just in review mode?

Basically we have been going back and forth since our meeting on December 3rd with the Director of the Office of [Device] Evaluation and her role is that she is above the CAD branch.

And her role is to basically rule on these appeal situations as an important part of her responsibility.

We've had a very direct dialogue with her directly, not with the branch, since December 3rd with our meeting.

The dialogue has been very constructive.

She has asked us for a lot of information over the last several months, but she has told us and she has told us via email that she is going to approve our device.

We are in a position where we have to make certain deliverables that are satisfactory to her first.

What would happen is that we would need to get a labeling agreement in place and then the written decision will be finalized as well as the approval order.

So, basically, we are working on labeling.

We submitted to the FDA a little over three weeks ago our proposal on labeling.

We got a marked-up copy back from them this Monday and we owe them another response by next Wednesday, March 12th.

Nothing in the edits that they put together are concerning to us.

We think we can find some common ground.

Then it is really a function of whether that draft is the final one and if it is, how long does it take to get all the signatures on the document and get to a final approval?

So nothing is over until it's over or official until you have the document in hand.

We take the FDA process very, very seriously.

We are not trying in any way to get out ahead of it, but we think based on the direct feedback we have received that this is going to end up favorable, and that sometime in the second quarter, maybe as early as April 1st, we would be approved and in a shipping position.

Had we not had such very specific feedback, we would certainly not be adding this sort of context to our guidance.

Great.

Very helpful.

Maybe a couple of more if I may?

On the international front, the traction there is clearly increasing.

What is getting the ball rolling over there?

I know you had a management change that seems to have helped.

But is there just a general sentiment among some of the [FFDM] guys that CAD is necessary?

Even under a double rating protocol has there been new clinical studies that are getting in front of some of the customers?

We would just love to hear your thoughts there.

I think that Europe is really catching on to full field digital mammography in general; and in part because of the screening programs and a lot of the major countries are becoming more well established.

So the volume of exams is growing.

The European market, in my healthcare experience, has always been keen on anything that enhances workflow.

Any sort of IT solution or device that really helps to optimize workflow and there is obviously a growing private healthcare sector as well, where reimbursement and so forth under certain circumstances does apply.

So basically we are seeing a conversion, as we do in the States, to digital mammography.

We are seeing a strong interest in CAD.

I can't say that there is a lot of studies specific to CAD versus double read, but the demand for CAD is increasing.

What we are finding is that GE, our largest partner, has really put tremendous amount of effort along with our own sales manager, based in Paris, on the market together.

I think that as we work in the United States to transition GE customers away from the Hologic RTO product -- and we had great success immediately -- it took a little bit longer to do that in Europe because we as a company were not as well-established.

We have now well established ourselves in Europe.

We are at the European Congress of Radiology this week with a large presence for the second year in a row.

We have meetings with all of our partners there.

And so the market is growing.

GE is aggressively promoting our product.

The adoption rate for our product on GE is very high.

We are also seeing some nice traction with Siemens in Europe and we are seeing really good traction now in Japan with GE, as well.

So the international growth is also in Asia and Japan.

Last year we got approval in late Q2 in Japan with GE, really didn't start to see any order traction until the middle of the third quarter and we actually shipped 11 systems in 2007 into Japan with GE.

So all of that combined has given us some very nice momentum.

And some of the new partners that we have are going to give us more traction in Europe.

As an example, Philips.

Philips is a very large imaging company.

They are launching -- in the second quarter, we believe, and in the third quarter -- CR and DR solutions in Europe and given their footprint in the imaging space, particularly in Europe, that could be a big opportunity for growth for us.

We are obviously working with other companies such as Agfa.

We intend to introduce a CR Mammo CAD solution for Agfa, either late this quarter or early Q2.

And also we are working with Sectra, another Scandinavian partner, to have a product available for them in that same time frame as Agfa.

So we think we will have solid solutions for both DR and CR in Europe with companies that have a strong footprint and are based in Europe.

That, along with the traction that we think will continue in Japan, all bodes well for really sustaining good solid international growth.

Great.

Last one.

Darlene, specific for you, on the gross margin side, can you give us any granularity on the split between digital and film?

I know you said maybe relatively flattish in '08, but looking out where do you think we can ultimately get to?

I think as we move forward and we continue to increase our digital revenue, digital products have a slightly higher gross margin than our analog products primarily because the analog products have a little bit more of a hardware component.

So I think going forward, we will see some positive improvement on the gross margin line -- again, particularly as we begin to increase that digital number.

Matthew Scalo with Canaccord Adams.

Very nice quarter.

I wanted to get some more clarification on the number of installations, Ken, that you talked about being -- starting up slowly and ramping up; and then your comment about Fuji placing roughly about 75 systems a quarter.

That 75 systems is without CAD, correct?

So their experience had always been hampered by not having a system with CAD on it in the marketplace.

Is that correct?

Yes.

They basically signaled that their range is anywhere from 75 to 100 systems per quarter, new systems being sold.

We've estimated, we won't know this for certain until we get some experience, but we are estimating about an 80% attachment rate for CAD, which I think is reasonable because in the DR space, it is probably 95%.

So you might see that it actually grows to 95, but we are kind of modeling 80% attachment rate out of the box.

And there's probably 400 installed systems all without CAD today.

Then there's on a go-forward basis this 75 to 100 per quarter of new systems and they are all specific to the United States.

This is a U.S.

program.

So that 75 to 100 rate would not increase with this approval?

Is that what you're -- ?

I hope it would.

I know that we've heard from a number of customers and salespeople that one of the hindrances in selling their form of digital mammography has been the lack of CAD.

It has been a competitive problem for them in the market.

So I would hope this would increase their traction in terms of their sales of total units.

We will have to wait and see, but I would hope that at a minimum it gets them to the upper range of 100 units a quarter and it might go north of that, in light of the success they've had.

What was encouraging is the comment I made earlier which is, 80% of their installations are dedicated to Mammo.

So the notion that this is for the occasional mammogram in a community hospital or a small radiology practice is not necessarily accurate.

So we are encouraged that, when you get into these higher volume environments, CAD becomes that much more essential to detection and workflow.

And, hence, hopefully the attachment rate would even be higher than 80%.

Right and I'm just trying to figure out the -- do you hire just a group of 50 to 100 consultants out there to begin the installation -- not only of the existing installed base, but also kind of an accelerating ramp in per quarter installations from Fuji?

Yes, we basically have our own core team which will be doing a very number of the installations and we have a service partner company that is national that has over 100 service engineers and they are doing work for us today.

So they do installation and training work for us today and they've all been trained on the Fuji product.

The installation for Fuji is near identical to what we do with our other full field digital mammography vendors, so the learning curve if you will, given that these people have experience working on GE or Siemens equipment is not going to be that big of a deal.

And they will be able to give us all the resources we need.

So we want to take a more methodical approach early to make certain we get it right, and we have satisfied customers.

And we don't think that that is going to take more than maybe four or five weeks of installations.

So we will work this thing quickly, but what we are encouraged by is if we can get going by the beginning of Q2, we think that over the course of 2008, we can address the pent-up demand and we can catch up to all of the ongoing new demand that is created each quarter.

Had we not had a chance to get started till the third quarter, that would be more difficult to do.

So we think that we have got a good plan.

We will move, sliding around to address the customers that are urgent.

We have got a number of customers that are very anxious to get started in hopes that obviously we keep everybody satisfied and those that can wait, we will certainly try to do that.

Fuji has signaled that they would like to take on the responsibility of installation and training, but certainly not in 2008.

So it is something that we are working on and would be happy to transition to them probably in the 2009 timeframe.

We've started discussions on that.

Interesting.

Is that the key reason why you haven't offered full year 2008 guidance?

And just offer first-half or -- ?

We started our guidance kind of slowly last year because we had a pretty challenging turnaround situation on our hands and a new management team and a lot of different market dynamics going.

Just a lot of moving parts and I think what we had wanted to do is to be very, very credible and kind of leading with what we felt we really could deliver on.

So our guidance began with operating expenses per quarter and I think after we got a quarter or two under our belt and demonstrated we could deliver within the range, had a better handle on revenue, we put revenue out for the second half of '07.

I think that for now, at least, we feel doing this at a half level is still the most appropriate way for us to deliver to the extent that we can.

With that said, the fact that Fuji has been a moving part as well has made it really challenging to do guidance and I think that we had initially been told that we would have had this wrapped up before the panel meeting, which was held this week in Washington, and that might have made it easier for us to do something on a quarter on quarter basis.

The fact that it did not get wrapped up before the panel meeting, largely because they had to avert a lot of resources to prepare for the panel meeting, we decided to continue with our current guidance.

Once we get Fuji approved, and once we get through a full quarter, we will reassess whether we would move the goalpost, if you will, to quarterly versus one half at a time.

The last two questions, as far as GE is concerned, were the majority of units domestic this quarter versus OUS?

You had some commentary about Japan in there.

Then lastly, as far as GE's manufacturing update, any acceleration in the timeliness there?

Yes, GE's performance was probably more skewed towards the United States.

I actually think in Q3 they had a much stronger international quarter versus the U.S.

What was exciting about GE in the fourth quarter was it was the first quarter in the United States that they exceeded their shipment plan.

So one of the reasons of course that our numbers were as high as they were for the total revenue was that GE had record shipments and exceeded their internal goal for the fourth quarter.

In the first three quarters, we found them coming close to their goal, but was a little short each quarter.

Not by too many, they really exceeded their performance nicely in Q4.

Didn't have quite as strong a Q4 internationally with us as they did Q3, but as you know, the CAD attachment rate being so high in United States we would much rather have them here on the side of domestic shipments because of the higher CAD attachment rate.

In terms of the '08 plan, they have solid double-digit unit growth for the year in their forecast.

They are skewing a higher percentage of the growth towards the United States market, which is encouraging.

It is a challenge for them because they are still somewhat capacity constrained and they have historically done about 40% of their business outside of the United States.

Their new factory as we understand it will be online either at the end of this calendar year or the first quarter of '09.

So I think we will see solid growth with GE this year.

It may be more dynamic in '09 as they have capacity to fully address what as we understand it is a nine or ten month backlog right now.

Jon Hickman with [MDB Capital Group].

Just a couple of questions.

Darlene, could you tell us what the depreciation was for the quarter?

Yes, it's not a big number because this is not a very capital-intensive company.

Actually, if you take a look at the balance sheet, kind of figure it out for the year.

A few hundred thousand dollars maybe.

Okay and then could you comment on -- you gave a fairly extensive plan for your DT, the colonoscopy product coming up.

And you thought you might be able to file for approval by the fourth quarter of this year.

Is that what I heard?

Yes.

When do you anticipate the FDA to be -- I mean you waited almost two years for the Fuji product.

So what is going to happen with the CT product?

That's a really good question.

I was at the panel meeting this week in Washington where they spent two days talking about CAD and part of the reason, of course, is that all companies have been affected by -- let's say a new individual is doing the reviewing with different points of view on what's sort of testing.

A paradigm with the appropriate for different products under different circumstances.

So while the panel meeting didn't have any profound summary, it certainly identified in different circumstances when you are doing a new product versus a supplement or doing a PMA versus a 5 10-K, what is a reasonable amount of testing such that you follow the statute to the least burdensome approach?

So without anything being nailed down, what I would say is one of the reasons we have delayed our clinical trial on colon almost a year is because we've had ongoing dialogue with the FDA to define the trial protocol.

What we didn't want to do was get into another Fuji thing where we've got an application in and it just keeps getting rejected for all sorts of reasons that come up with each rejection letter.

So we have worked on a protocol with ACR Image Metrics and the medical director there, Dr.

Bruce Hillman basically was the Chairman of ACRIN for almost ten years.

So when you think about how you can convince the FDA of what the right protocol is and then go do the study to give yourself a good chance of getting an approval, I don't think we could have picked a better company and partner to work with.

Now what we're doing is we -- between now and the end of April -- are approaching the FDA to say here is the protocol we want to follow to do the trial which is a fairly substantial clinical trial under a 5 10-K.

It almost looks like a PMA, quite frankly.

We are showing them basically the size of the study cases, the number of normals and abnormals, how many radiologists we would like to have reading.

We are really going to work with them on our scoring methodology.

While they can't endorse your trial, they could certainly give us concrete feedback such that in the May timeframe when we go into the trial -- which we said was four to six months -- we should put ourselves in the best position possible so that when we filed a 5 10-K it should move quickly.

So what's that timeframe?

We are hoping by the beginning of Q4 we are in front of the FDA.

It is obviously going to be a 90-day versus the 180-day review cycle.

If we can get through this in a couple of rounds with them, it would be very nice that somewhere in the first quarter of '09 we would have an FDA approved product, but it is very hard to say.

Beyond the fact that we are doing much more preparation and much more proactive couldn't communication with them than we had done with Fiji.

We are also anticipating releasing this product in the fourth quarter outside of the United States, so we should see some traction we hope in Europe in the fourth quarter as we are building out our go-to-market strategy now for that particular market.

So we are kind of chasing a moving target like all of their companies.

Part of the reason for the panel meeting is the vent-up frustration of all of the companies trying to get products approved and we really hope that this work with Image Metrics and our proactive dialogue will give us a far better and far more quick outcome with our colon product than we had experienced, unfortunately, with Fiji.

Adrian Dawes with Hartwell.

Congratulations on a great fourth quarter.

As we think about margins on the Fiji sales, can you talk a little bit about how that will compare to some of the other distribution channels as we look out over the next 12 to 18 months?

Is there any reason why it should be different?

No, actually, it's quite consistent with what we have been experiencing with GE and Siemens and other partners.

So it will be pretty consistent going forward.

Great.

All my other questions have been answered.

The other thing I would add to that is unlike our relationship with GE and Siemens where they do insulation and training, we will get the benefit of both the good solid margin on product as well as we will be doing the installation work.

So we will get more revenue per insulation because we are on site doing the installation.

So some of our service personnel will also add to the overall margin of that combined product and installation.

So we are excited about Fuji and hopeful that we can get started soon.

Great.

[Joe Rudy] with [Saxony] Securities.

Congratulations on the quarter, the profitability and, Ken, congratulations on you and your team turning this Company around.

You guys have truly done a great job.

I have just a few questions, Ken, and first one, maybe you can clarify a little bit for me and forgive me if I mispronounce what I'm going to ask, but can you give me an idea of what is a stereoscopic mammography and how does that play a role into this market here?

You just stumped the band.

I don't have any real knowledge.

I've not heard the term.

I will certainly go Google it when the call is over and try to give you some perspective.

I mean today when you think about mammography, there's 2D which is done today in the digital world with the FFDM products and there's tomosynthesis, which will bring 3-D mammography to market.

There is growing use of MRI in breast imaging and clearly there's some other technologies as well.

People have talked about the ability to bring PET into the space.

But I'm not familiar with the technology you mentioned.

Okay.

Whenever you have time, nothing urgent, but it is a name that I've heard from a couple of different clients that are in the medical industry.

And I just want some clarification on exactly this technology and how it plays a role and how it may affect or not affect iCAD as well.

Can you also give me an idea of how much of the six-month guidance is dependent upon us getting the Fuji approval early in the second quarter versus in the latter part of the second quarter?

I would start off by saying we, with the agreement of our partners, don't disclose revenues by company, but what I would say is it's a reasonable amount of business.

We -- if we are shipping for a full quarter, it certainly could be 1 million, 1.5 million of business based on the pace that we do installations and that would probably be just a rough estimate.

With that said, we put a range out there, so what I would say is I wouldn't take the midpoint of that range and subtract the number I just gave you and assume that is the number we are going to do without it.

We think we will see some nice growth whether we have Fuji or not and I think we wanted to put guidance out that we are confident we can perform to.

Last question is just something general and this is something I've asked in the past and just want to see where you are at.

Can you give us a longer-term vision that you see for iCAD beyond colon?

Where do we go next?

I think we are certainly looking at all of the major cancer categories.

So when you look at the most frequent forms, obviously honestly breast cancer, colorectal, lung, prostate, those are the big ones.

And the ability to provide CAD products across what would be largely CT and MR platforms, we think, is a terrific opportunity and it is something we have in our sights.

So I think without question, we want to maximize the CAD opportunity, where we think they will be, large screening populations, where there's evidence that early detection really has a benefit and really try to use that value proposition and not stray into places in the CAD world that while they might be interesting are really way off in terms of producing revenue.

So just an example and not to say I'm an expert, but we aren't looking at using CAD for skin cancer detection or orthopedics and things, even though I know companies are.

We are trying to be pragmatic about where we think the core volume of incidence of cancer and cancer deaths occur and really tool our CAD strategy in a focused way.

With that said, we are in the radiology suite everyday and we see the opportunity whether it be workflow, whether it be diagnostic or procedure based to add additional products to our business and broaden our addressable markets.

At a minimum, the call point we have with 19 or 20 U.S.

sales reps is one we think our sales force can carry more products into that segment.

And so the organic plan is to move the CAD products through to a great degree to our own core competence and pattern recognition and algorithm technology.

In a broader context looking at this radiology suite, we would certainly look at an inorganic plan to achieve things over time in that space, but as I said in my opening comments, we are not happy with our stock price based on the performance we've delivered.

And we are not about to do any sort of a transaction in the $2.00 range.

We thought at $4.00 or so last summer when we were initiating the shelf registration, there were some interesting targets out there that did not pan out to be of interest to us and we are moving cautiously until our demonstrated performance and our stockprice are aligned.

And then over that period of time, we would hope to see some interesting things that we could take a serious look at.

But we at the moment feel very, very confident about our organic plan and the kind of progress we can make this year.

Should we get fortunate with the Fuji approval, soon, we can make dramatic progress with this Company in '08, similar or greater then what we did in 2007 and if that is what we accomplished in 2008 and something inorganic doesn't happen until the following year, or sometimes even further out, that's okay, too.

We want to do the right thing and I think the positive feelings we have is that our core business is strong, it's got a lot of growth associated with it with this penetration of digital mammography and with that kind of momentum giving us two to three years of high growth potential, we will work very diligently through in organic opportunities.

But we are not going to do anything reactive or highly dilutive.

Very good.

Congratulations again.

Thank you very much.

(OPERATOR INSTRUCTIONS).

As there are no more questions in queue, I will turn the call back to management for closing remarks.

In closing, we would like to thank all of you that are on the call today for your continued interest in iCAD and your support.

I would also like to thank all of our employees because without all of their hard work over the last year, we could not have accomplished what we did in 2007.

We believe it was really a profound turnaround and people worked awfully hard in this Company and we are very very thankful and very proud of you for doing that.

So we think we've got a bright future.

We are excited about our prospects, and we look forward to speaking with you again when we report our first quarter of 2008 results.

So thanks for listening.

Everyone have a great day.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a good day.