ICAD Inc (ICAD) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen.

And welcome to the Q2 2013 iCAD Earnings Conference Call.

My name is Alex, and I will be your operator today.

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

We'll conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

And now I would now like to hand the call over to Anne Marie Fields, LHA.

Go ahead please, ma'am.

Thank you, Alex.

Good morning.

This is Anne Marie Fields with LHA.

Thank you all for participating in today's call.

Joining me from iCAD are Ken Ferry, Chief Executive Officer; and Kevin Burns, Executive Vice President, Finance and Chief Financial Officer.

Following the market close yesterday, iCAD announced financial results for the second quarter ended June 30th, 2013.

If you have not received this news release or if you would like to be added to the company's distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Curran.

Before we begin, 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 filings with the Securities and Exchange Commission, including, without limitation, the company's Forms 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 content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, July 30th, 2013.

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

So with that said, I would like to turn the call over to Ken Ferry.

Ken?

Thanks, Anne Marie.

Good morning, everyone, and thank you for joining us.

Overall, we're quite pleased with our financial results for the second quarter of 2013 and when you compared the first half results to the same period of 2012, it is obvious that we are executing successfully with our strategy to be a leading solutions provider to the oncology segment of healthcare.

Therapy products continue to perform extremely well with revenue more than doubling in the quarter and for the first half of the year when compared to the same period of 2012.

This positive momentum demonstrates the growing adoption of the Xoft Axxent Electronic Brachytherapy System to treat certain early stage breast cancers and skin cancers.

We remain very enthusiastic about the potential for continued strong growth with the Xoft system as we execute during the early adoption phase in both the breast and skin cancer segments.

Cancer Detection business results were slightly weaker than anticipated, however, we are pleased to see the significant growth in subscription base prior to service revenue, a strong indication that our strategic shift to generate increased recurring revenue from our substantial installed base is gaining traction.

So, for now let me turn the call over to Kevin Burns, who will provide you with more financial details on the quarter.

After Kevin's remarks, I will provide a brief business update and then we'll open up the call for your questions.

Kevin?

Thank you, Ken, and good morning, everyone.

As Ken mentioned, we are very pleased to report our second quarter financial performance.

It was another quarter of solid financial results, our fourth consecutive quarter of double digit revenue growth and adjusted EBITDA profitability.

We look forward to continuing this performance in the back half of 2013.

As many of you know, we report by the two main oncology areas in which we operate, specifically Cancer Detection and Therapy.

Our Cancer Detection revenue includes all of our image analysis and workflow products including mammography, MRI and CT CAD platform as well as service revenue from these product lines.

Our cancer therapy revenue encompasses electronic brachytherapy related applicators and service and source agreement.

Now, let's move on to a review of our revenue for the quarter.

Total revenue for the second quarter was $7.7 million, an increase of 30% from the second quarter of 2012, driven by a 161% increase in our Therapy revenue offset by a 14% decline in Cancer Detection revenue.

We are pleased that product revenue increased 27% and service and supply revenue increased 34%, demonstrating the progress and potential in both categories.

For the first six months of 2013, total revenues increased 27%to $15.6 million driven by a 106% increase in Therapy revenue partially offset by a 4% decline in Cancer Detection revenue.

Cancer Detection revenue for the quarter was $3.8 million down 14% from $4.4 million one year ago.

In the second quarter, we experienced growth in our subscription based product and service revenue which was offset primarily by weaker new international product sales.

Overall, service revenue increased 24% and product revenue declined by 39%.

For the first half of 2013, Cancer Detection revenue was down 4% to $8.4 million from $8.8 million in the first half of 2012, again driven by decline in product revenue.

As Ken noted, Therapy revenue continue to post strong growth increasing 161% to $3.9 million from the second quarter of 2012; product sales which include controllers, applicators and other accessories increased 237% to $2.9 million.

In the second quarter, we sold 11 controllers and 205 balloon applicators, up from four controllers and 160 balloon applicators one year ago.

Our Therapy, service and source revenue continues to grow and increased 61% year-over-year to over $1 million.

This growth reflects a larger customer base as well as an increase in the number of minutes customers are purchasing under source usage agreement due to higher procedure volume particularly in the treatment of skin cancer.

For the first six months, Therapy revenue increased 106% to $7.2 million with sales of controllers increasing to 20 from the 10 in the first half of 2012.In addition, we sold 380 balloon applicators in the first six months of 2013, versus 286 in the same period last year.

Now, turning to the rest of the P&L, gross profit for the second quarter of 2013 was $5.2 million or 67.7% of revenue which compares with a gross profit of $4.2 million or 70.3% of revenue for the second quarter of 2012.

In the second quarter, our gross margin percentage was impacted by higher cost of revenue related to billable engineering work for our MRI product, a mix change as well as medicinal therapy manufacturing investments.

We do expect our gross margin percentage to rebound in the back half of 2013 to the low 70% range.

For the first six months of 2013, gross margin was $10.9 million or 69.5% of revenue compared to $8.6 million or 70% revenue for the first six months of 2012.

Please note that in 2013, we are recording the medical device tax as a cost of revenue and this has impacted our gross margin percentage by 117 basis points.

Total operating expenses for the second quarter of 2013 declined to $5.7 million from $6.1 million for the same period in 2012, primarily due to ongoing cost control measures and some movement of expense between operating and cost of revenue as previously discussed.

Although, expenses have been reduced significantly, we continue to invest in our growth strategy including clinical trials, therapy sales team expansion, reimbursement as well as product investment in both CAD and therapy segments.

In the third and fourth quarters, we'll also make some additional investment in regional and national marketing programs.

Overall, we expect quarterly operating expenses in the low $6 million range over the next two quarters.

Moving on to our profit metrics, adjusted EBITDA was a profit of $434,000 for the second quarter of 2013, an improvement of $1.3 million compared to the adjusted EBITDA loss of $916,000 in Q2 of 2012.

Adjusted EBITDA for the first six months of 2013 was $1 million compared to a loss of $1.9 million for the first six months of 2012.

This is our fourth consecutive quarter of adjusted EBITDA profitability and a nearly $3 million improvement over the first half of last year.

Turning now to other income and expense, during the second quarter, we've recorded a $571,000 expense due to the change in the fair value of warrants that we issued in January of 2012 as part of our financing arrangement.

On a quarterly basis, we marked the warrants to market and as our share price increases or decreases we take a corresponding charge or credit.

In addition, net interest expense in the quarter was $828,000 of which $543,000 is cash payable related to the financing arrangement.

And the balance of $285,000 represents non-cash amortization of financing cost and settlement obligations.

On a per share basis, our non-GAAP adjusted net loss for the second quarter was $0.12 per share, compared to a non-GAAP adjusted net loss of $0.25 per share for the second quarter of 2012.

Year to date our non-GAAP adjusted net loss per share was $0.23 compared to non-GAAP adjusted net loss per share of $0.51 for the same period in 2012, an improvement of $0.28 per share driven by both higher revenues and lower operating expenses.

Moving now to the balance sheet.

We ended the quarter with $12.9 million in cash and cash equivalents, compared to $12.6 million at the end of the first quarter and $13.9 million as of December 31, 2012.

In the second quarter of 2013, we generated positive net cash flow of $239,000, and cash from operations was $448,000.

Net cash used for the first six months of 2013 was $1 million.

Our financial and operating performance remains solid.

We are pleased with our progress and expect to build on this foundation in order to continue to drive top line revenue growth and moving forward to generate increased cash flow and earnings.

With that financial overview, let me now turn the call back to Ken.

Ken?

Thanks Kevin.

Let me start with some comments on our Therapy products and then I'll provide an update on Cancer Detection products.

Our strategy to drive adoption of the Xoft Axxent Electronic Brachytherapy System continues to be successful as evidenced by a sharp increase in revenue compared with the same period in 2012.

We're seeing growing interest and utilization of the Axxent Electronic Brachytherapy System in the treatment of certain breast and skin cancer throughout our expanding customer base.

The skin cancer market has accelerated significantly over the past year.

This is primarily because the clinical and cosmetic outcomes have been (technical difficulty) cancer combined with growing favorable reimbursement.

In the US, approximately 2 million patients per year undergo some type of treatment for either basal or squamous cell skin cancers.

Today, radiation use is growing but is only used in approximately 1% to 2% of this population.

We believe the addressable US market for the Xoft technology to be approximately 700,000 patients annually.

And to demonstrate our progress our systems treated approximately 1,400 skin cases in the first half of 2013 a nearly tenfold increase from the approximately 150 cases in the first half of 2012, an impressive growth rate with a significant addressable market available to us.

A key initiative for sustaining the growth is improved and broader reimbursement for skin procedures.

We're working a multifaceted plan which has made good progress in both regional and national payer level to date.

One of the clinical studies supporting this effort is the published study by Dr. Ajay Bhatnagar from the University of Pittsburgh in which he presented clinical outcome data on a 172 patients with 247 nonmelanoma skin cancer lesions treated with the electronic brachytherapy using our system.

The data presented demonstrated good cosmetic results, low toxicity and no reoccurrence at one year or more following treatment.

We've also recently launched two additional clinical studies focused on meeting the criteria to achieve broader national coverage for skin cancer treatment.

Shifting to breast IORT, we continue to see strong interest primarily driven by breast surgeons.

In May, at the American Society of Breast Surgery annual meeting in Chicago, we held an IORT symposium with well over 100 breast surgeons in attendance.

We will continue to invest in educational programs and other initiatives focused on improving reimbursement to sustain and improve growth in this segment.

We are planning a number of regional symposiums to drive adoption and increase utilization over the coming months.

In addition, we are focusing substantial reimbursement expertise on national and regional players to further improve the reimbursement for hospitals and physicians.

International markets offer a significant opportunity for the Axxent electronic brachytherapy technology.

We believe our platform with its mobility and isotope pre target radiation is an applicable in various cancer indications and represents a very attractive value proposition for a number of overseas markets.

This is especially true of large markets with breast cancer incidents is growing, and government providers are seeing treatments to provide improved care in a more effective fashion.

We've already executed three strategic overseas distribution agreements for the Xoft system, one with Chindex Medical in China, one with Medvio in Russia.

And fairly recently with Inter V Medical of Canada, these are large markets, there is increase in focus on breast cancer and investments in technology to diagnose and treatment.

So in summary, we've achieved very strong progress with the Therapy products, and we've significant potential to sustain this progress going forward.

Switching gears now let me switch to our Cancer Detection business.

We've made good progress over the 6 to 12 months transitioning our CAD business model to one focused on recurring revenue and new product innovation.

Our progress has been somewhat offset by the expected decline in new digital CAD sales and reduction in revenue generated from analog service agreements.

The real story is the growth of our service revenue which increased 24% compared with last year as we made progress penetrating our installed based subscription in new service agreements.

In addition, the Invivo and MRI partnership is gaining momentum and contributing more revenue to the CAD business.

We continue to focus on building this high margin business and expected to continue to show solid progress in the coming quarters.

As reported in May, our digital CAD sales were strong in the first quarter due to increasing demand from our OEM partners selling new FFEM system in customer older digital mammography system, following a strong first quarter, the second quarter was less robust as we experienced weaker product sales particularly in international markets.

The US Cancer Detection business performance however while softer in Q2, is actually slightly ahead of the first half in 2012 year-to-date.

Recently, we expanded our launched training partnership with FujiFilm through the FDA clearance of our next generation mammography CAD platform PowerLook Advanced Mammography Platform, with FujiFilm's family of Aspire HD Full Field Digital Mammography Systems.

This should help provide incremental revenues gains moving forward.

Future growth from our CAD product line is expected to come in the markets conversion from 2D digital to 3D digital mammography or thermo synthesis.

On this front, our collective work with our OEM partners on the development of family of workflow tools for the interpretation of thermo synthesis images continues to progress.

And if they have been workflow tools available for the interpretation of thermo images with our OEM partners sometimes in the first half of 2014.

Moving on to MRI products.

During the first quarter, we completed the transition of our commercial MRI business through our global partner Invivo.

We are providing Invivo with a software based rest and cascade module which is being sold to a new customer as well as an upgrade to the installed base.

We launched our first two next generation products for breast and prostate assessment with them in March.

We believe this partnership offers considerable potential for new customers, hence we upgrade to Invivo's large and installed base.

We are seeing solid momentum to date and anticipate a stronger second half as a products launched in March gain traction as well as when we rollout new products in the Q3, Q4 timeframe.

We see a number of initiatives coming together for our Cancer Detection business; we believe they will provide for a stronger momentum in the coming quarters.

So, in closing, our strategy remains steadfast, continue to accelerate growth in the therapy business, focusing our breast and skin cancer indications, continue to make progress with our recurring revenues strategy for the Cancer Detection business while adding new innovation to the development of software workflow tool for the interpretation of thermo synthesis images of the breast, and lastly continue our discipline on expense management so that we continue to build shareholder value over time.

And now operator, we're prepared to take questions.

(Operator Instructions).

Our first question comes from the line of Brian Marckx from Zacks Investment Research.

Good morning guys and congratulation on the revenue growth.

Can you specify how much the international Cancer Detection revenue fell, internationally?

Basically, we'd had an extremely strong first quarter Brian in the $0.5 million range in total revenue and that drops about almost $400,000 in Q2.

So when you kind of look at our top line performance in CAD in the fourth quarter, the first quarter and then now the second quarter, you can attribute the majority of the shortfall if you will compared to those other quarters to the international revenues.

We basically have had as you would expect the decline in the new placement of CAD system but that has been very much offset by this significant momentum of recurring revenue in the installed base with upgrades and you know annual agreements and increased service business.

So we've kind of seen some stability and slight growth actually in the US business for CAD year-to-date while the international business has been softer.

I think we feel pretty solid though but it is little bit cyclical and we believe that the third quarter, the international business will pick back up and be much stronger.

Okay.

Relative to the therapy business, have you begun to sell the cervical applicator?

We've done what would I describe is a very controlled soft launch with the applicator and so we're still in what I would describe as beta settings in clinical environments with the applicator and we've not had what I would describe as a broad commercial release at this point.

We would hope to have that probably in the fall timeframe but we wanted to ensure that at a clinical use model level, it is able to achieve everything we expect, so we're still in that process and probably in the fall of this year would have a broad commercial release.

Is it fair to say that you would expect a meaningful contribution from the cervical applicators towards the end of the year?

I think we will certainly see some sales Brian but you know as we think about let's say the second half of the year, I would anticipate that the combination of our focus on skin market which is very, very strong and the growing momentum we are seeing in the breast IORT market are going to be responsible along with all the build of recurring revenue in that space for the majority of our progress; I wouldn't probably look at cervical as a major contributor but certainly nice to have and I think over time our view with that it is allows us to have a full set of GYN applicators for the treatments we are indicated for, and in the bit longer term in the international market in particular this is going to become a very popular product.

The Axxent sales -- the system sales have been at a pretty nice run rate, do you guys have a sort of goal of number of systems placed by the end of the year?

That's a good question.

We had pretty significant increase year-on-year in '11 and '12 obviously finishing the year with 30 systems in '12 versus I believe 13 in '11, we've now had 20 systems sold in the first half of 2013.

So we would like to think we could achieve a greater than 20 number in the second half and when you combine that with the first half and it's pretty solid growth.

So, I can't really put a number on it but what I would say is we expect selling more systems in the second half than the first half, and when you add that together that would obviously say -- that number would be north of 40 systems this year versus 30 last year, but the exact number isn't something we're able to indicate today.

Okay, perfect, thanks guys

(Operator: Instructions).

Our next question comes from Jeb Terry: from Aberdeen Investment Management.

Good morning, Ken, Kevin.

Good morning.

So it looks like the deferred revenue and your 24% growth in service and supply and Cancer Detection that's your recurring revenue plan is seems to be progressing quite well.

Is there potential for some acceleration in that as we look forward and it's kind of where do you feel that stands as a penetration in your installed base and where it might be going (inaudible)?

Hi, Jeb, this is Kevin.

So, we are still I would say in the early stages of penetration in the Cancer Detection business from a recurring revenue standpoint, so our recurring revenue run rate at the end of the second - the first half of 2013 is about $8 million per year and that's up from about run rate of $7 million a year ago.

With that said, we are just starting to get penetration and additional contracts flowing with our GE, one of our larger partners, has a significant installed base and that's started to flow towards the end of June.

And our sales team has now been out in the market about 6 to 9 months actively selling our service and platinum agreement which will add to our recurring revenue over time, so we expect that to continue to grow, it takes a little bit of time for $8000 contracts to add up but it's starting to be a meaningful number to the growth going forward.

From the Xoft standpoint, as you can see in some of the numbers that we talked about, our recurring revenues has grown tremendously year-over-year, half-over-half that's up by about 47% and two major components to that the service business, the (inaudible) is up about 43% and that's just indicative of the growing installed base, and the other component is the source agreement, this is the number of minutes that our customers buy to deliver radiation therapy, and that's growing 74% half-over-half, so both businesses, the Cancer Detection and Therapy business are growing nicely and we believe have a long way go as well.

And refresh my memory, GE's installed base, it's I guess Ken I think your total (inaudible) installed base is something like 3500 or units, is that -

I mean our installed base is over 4000 systems; if you look at that domestically it's probably close to the 3000 and GE probably represents about 65% of that, plus or minus, and the nice thing about the GE relationship is it's really broadening so one of things Kevin mentioned briefly in his comments was that we have a new service relationship with GE and basically the way the relationships works in summary is that when a service agreement expires, it is a GE service agreement for our products.

They are now sub contracting to us to provide service on the renewed contract, and so this is all new business coming our way based on a call it a sub contracting model versus a exclusive support model where GE would own the service end-to-end, and so that's pretty exciting I think in the June timeframe they gave a something on the order of 20 or 30 new service contracts for expiring agreement for our technology.

So that's going to be real catalyst for us to get incremental business, and then obviously as products come off warranty GE being our largest partner we have this model in place, where we will be pick up service on the front end if you will, of course warranty for new sales as well, so we're really encouraged by that.

The other thing I would say Jeb relative to recurring revenue in CAD is the new PowerLook Platform is essentially a new architecture, is a new product, it has additional features around metrics of the breast in conjunction with the option to add breast density and it is tomo ready if you will when we add capabilities.

So as we are out there with our hindsight sales and our direct sales efforts into the CAD and installed base, we now have a very compelling value proposition for customers to upgrade from our existing product which in some cases has been in customer side since 2006, so we have kind of a multifaceted efforts to get the recurring revenue growing in the CAD space, the GE relationship is a important component, but our direct efforts into that large and installed base with our other partners as well whether it be Siemens or Fuji or others, also is gaining traction.

So you add all these tools together and what I would say is the ability to grow the recurring revenue which we report through the service line is pretty considerable because I think the penetration that we already use a broad brush is probably 25% to 30% of the installed base.

So that means obviously more than two thirds of it is still available over time to us with a newer value proposition.

So we are pretty encouraged with that and then obviously it's not strictly an installed base game for CAD.

We are excited about the market acceptance thus far with Hologic's Tomo synthesis system, GE as you may know launched their new system in Europe in the last several weeks.

They anticipate launching in United States towards the end of this calendar year or early next year.

And we're working on a set of workflow tools that would support the interpretation of tomo images.

So, we are looking at both an installed base growth play combined with a new innovation play as this whole market will shift over time from 2D to 3D mammography, so when you look at the margin you can get on that business, when you look at the OEM sales model, we think the CAD business which is already a high margin business adds significant opportunity for growth.

The last comment I would make in overall about CAD is MRI.

Our relationship with Invivo is growing; it has taken time to launch a brand new platform of brand new generation which we literally did about 90 days ago with them.

And now we are seeing each month each quarter more demand for licenses from us through their direct selling particularly in the United States.

We have a major release coming with Invivo in the third quarter around the prostate biopsy capability, and they have a revolutionary new system around what we would call a thrust fusion mechanism for doing prostate assessment in biopsy coming later in the year which they believe will also increase demand for our prostate software.

So that's relationship is really just getting to started to grow, we think it's going to deliver meaningful revenue through the engineering agreement we have in conjunction with the royalty agreements on licenses.

Over the second half of the year and well into next year.

So, lot of different moving parts which we believe will reinvigorate the top line of the business at a very nice margin, without us having to increase our expenses in significantly.

Now the one year we may increase expense net business might be the development of thermo synthesis where we want to have a software tools set into the market as soon as possible, invest in appropriate resource level to accelerate that development so that we would have coordinated implementation with GE products roadmap.

So lot of things going on and it's really balance between more focused on recurring revenue which was I think your original question, combined with some pretty exciting innovation, and I think innovation both in terms of synthesis and with MRI with Invivo, so I think our CAD business is poised for a much stronger performance over the next 12 to 18 months.

That's very interesting and the Fuji approval, was that's beyond going back in a number - a couple of years ago when Fuji got approval for the CR, I recall there was potential migrate into the Fuji installed base and their upgrade cycle, is that also some -certain stands here.

Yeah, there is no question that the bulk of the system of CR system which remember we are all upgrades to an existing gantry, happen in probably the '07 to '09 timeframe, that's when the majority of that installed base occurred.

But the cameras or gantries are much older in many cases since they didn't put a new gantry in that '07 to '09 timeframe.

So now coming out with this Aspire HD product with CAD in 2013 really represents a considerable upgrade opportunity in Fuji installed base, and I think we try to work much more closing now that we have FDA on an upgrade plan combined with providing CAD for the new product, and what I would also say in general is that all of the companies in digital mammography are now offering upgrade packages to their customers.

Whether it's old detector replaced by a newer version has better performance, whether it's a new detector relative to one that's older that has liability issues, whether it's the mammo workstation we need to add additional module to optimize workflow detection and diagnosis.

We are seeing a lot of emphasis by all of our bigger partners on providing upgrade packages to the installed base, and we are working very, very feverishly to be part of that whole upgrade cycle such that we can offer our new PowerLook product to those customers either in a traditional server based architecture life we've traditionally done today or as a software only module into these mammo workstation which offer a range of tools.

So, the upgrade is beginning, it's not and an all nothing phenomenon from 2D to 3D which is the natural way of market evolves, and we're starting to see a lot of common interest in providing more value to this upgrade cycle as we continue to work very focused on tools for thermo synthesis segment which clearly is gaining traction and will probably over the next four to five years become the predominant new generation technology in the mammo screening space.

So given all that it would seem and perhaps your Cancer Detection business could recover the decline in their curve 2013 to 2012 to kind of get back to where it was and then add to it as you said you are going through this upgrade cycle, across all the OEM.

Yeah, I mean if you look at our first half performance in a CAD business, we are down 4% and if you take all the international piece we are just directly slightly ahead and its fractionally but we are actually ahead in the US which as we know represent 90% of the business.

So the business in the US is technically ahead of last year, the decline in Q2 in particularly in the international segment which is extremely weak really is the largest contributor to why the overall business is not quite slightly ahead of last year.

And we expect the international to be stronger this quarter, it's a bit cyclical but the early indications are that it will be definitely a stronger quarter on the international front.

And we also expect stronger performance in the United States after the CAD business, so we certainly expect in the third quarter to have a much better quarter in CAD than we did in Q2, so obviously as you review Q2, I think the good news is the very, very strong progress in therapy in all fronts, new systems and growing procedure volumes, growing recurring revenues, slight disappointment was that the CAD business wasn't stronger, but we anticipated it will be stronger in the third quarter, and we also anticipating that the Therapy business will be stronger in Q3 versus Q2.So, we are cautiously optimistic about a solid stronger second half and we did report we think a very, very good first half.

Great, I'll get back in the queue, let's someone else ask questions, thanks.

(Operator Instructions).

Our next question comes again from Jeb Terry:, go ahead please.

Well, we talked about growth -that's terrific sequential growth that you have and I see that's your - Kevin you mentioned that you are making some investment in sales and marketing in the next few quarters, is that going to be related to the Xoft business or can you just perhaps address the opportunities for that kind of sequential growth as you looked out in the back half of this year and 2014.

Sure Jeb so there is a couple of areas that we are investing in the Therapy business.

The first and we've already started that in the first half is our sales organization, at the end of last year our commercial organization sales people across the world was at about 7 people, we've added few folks in the US, we've added some in the international, so at the end of June this increased actually about 10 people, and opportunistically as market develop we will add 2 additional sales people perhaps US going forward.

That's one area we continue to invest in our clinical trials, we are investing more in skin clinical trial as we move forward.

It's interesting to note and just from a market standpoint a new specific number of sales that we've had from controller's standpoint on the year-over-year basis, the skin market is really growing exponentially.

So in the first half of 2012 of the 10 systems we sold, only one of those was into the skin market as the primary indication.

In the first half of 2013, we actually increased that to 14 sales.

So that skin market has grown dramatically.

In addition to breast market has doubled, we sold three systems in the first half of '12 and that's gone up to six or some in the first half of 2013.

So we are investing in both the skin and the breast market, not only just from the direct sales standpoint but we also have what we call corporate operators in the skin market, who are working with dermatologist, radiation, oncologist and medical fraternity to develop business model to go and deliver our technology to patients with the Pedal squamous cell cancer, so a lot of investments and in additional to that we are also investing from a marketing standpoint to spread the word we will be doing regional symposium.

We did our first one I believe in the second quarter in Chicago, that was led by Dr. (inaudible) from Hogg Memorial and then we had about 100 breast surgeons in attendance learning about what melanoma and also learning about our technology as well.

So we are really investing in a therapy business, but we're also doing it prudently moving forward.

The other thing I would add to that Jeb is reimbursement.

We have significantly increased our focus on reimbursement and part of reason is there is growing quality of data to study that really supports the use of our technology.

So Dr. Bhatnagar study that I mentioned in my opening comments in a very powerful tool to work with players whether it be national or regionally relative to reimbursement for skin cancer treatment.

And so we are reporting a laser focus on reimbursement because it has such an impact on the business.

We are also doing it in breast IORTs base, the good news is we've received over the last couple of years, a couple of CPTP one code for treatment planning and treatment delivery but obviously the adoption, the payment is never a perfect science day one.

So we're putting a lot of effort, using a lot of key opinion leaders as well as the evidence of the studies that exist to really improve reimbursement because it does have a lot to do with market adoption.

So, reimbursement is a big investment area, and last one I comment I just to extend a little bit on Kevin said is clinical studies.

We've initiated several new skin studies with the expectations that in a reasonable period of time we will have CPTP one code for multi-fraction skin treatment.

We are doing good with our experimental code on a regional basis at the moment, but we want to support that further by having really, really solid studies that are endorsed by ASTRO and the other governing bodies, American Medical Associations so forth so that we can go to CMS and try to get this coverage on a more consistent national basis.

And it's well worth our while, in the skin market we see 700,000 patients in a year that are eligible for the treatment in the United States.

While we're excited as competed by the breast market that's about a 100,000 patients a year.

So, this is a seven fold bigger market opportunity, now nearly the barriers clinically or economically that would you see in the breast space.

So, we are investing very significantly in those spaces and last part I mentioned about these regional symposiums is we are really beating up numbers because education is critical to the growth of that business as well.

So, you can really see this may be three front approach where we have to step up our investment efforts to really get the return and that's really where I would say the increase expenses and modestly in the CAD business they relates to thermo synthesis ensuring we have a timely product plan in that space as well.

So relative to skin I mean do you have a growth in skin, I am assuming that has spread over a number of locations, can we assume that some extension of that rate as we are looking at 2014?

If you look at the numbers that we talked about doing something like 1400 cases which probably reflects- I don't know may be slightly less than a 1000 patients in the first half, so you are talking about the 1000 patients if you not ball over the park and you treated 2000 patients in the second half, that would be 3000 patients of 7000 patients addressable market.

So that's 7% penetration.

So, I would like to think this momentum will continue as the penetration rate for the eligible population is still in the low single digit.

So, we will clearly invest as we need to ensure that the radiation, oncology and the dermatology communities, really understand the benefits of our technology.

And in that space today, we have not just the benefit of our seven direct people as Kevin mentioned, but we have some strategic partners that are exclusively focused on providing services in that space whether it be radiation oncology service or dermatology service, large practices and so forth.

So we are getting much stronger reach into that market to both our own direct efforts but also through a number of partners that are focused on that as a significant business opportunities.

So we obviously want to be great presence at the right meetings and have the right messaging and so forth into that space, but I think there are significant amount of focus on it right now given the considerable addressable market that's out there with relatively low penetration but very high growth rate.

And so at the end -- relative to that imbursement question and have you made progress with some of the regional max, seen that some media and getting some approvals there.

Yeah, we absolutely have.

I don't have the map in front of me but the contracts between the various max to do change hands at different times.

We have one that - that just skip my recall August 1, that is going from a silent to positive policy which will provide us broader reimbursement in the West Coast and in parts of the Midwest where least up until now the coverage had been silent, so we definitely see the potential growing relative to increase in the overall state's population that's covered by the media, so that's a positive step without any question

So that's very encouraging.

I look forward to it and congratulation on -

Great, thank you.

We have no further questions in the queue at this time.

Now, I would like to hand the call back to Ken Ferry for closing remarks.

I would like to thank everybody for your interest in iCAD and listening in today.

We are very excited about our future.

We believe we've demonstrated really for the last four quarters, very, very strong and improving performance.

And we certainly look forward to updating you on future quarters as the time is appropriate into the future.

So, thanks very much everyone, and have a good day.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.