ICAD Inc (ICAD) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2014 iCad Incorporated Earnings Conference Call.

My name is Chris and I'll be your operator for today.

(Operator Instructions).

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

I would now like to turn the conference over to your host for today, Ms. Anne Marie Fields with LHA.

Please proceed.

Thank you.

Good afternoon.

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 of Finance and Chief Financial Officer.

Earlier this afternoon, iCAD announced financial results for the first quarter ended March 31st, 2014.

If you have not received this news release or if you'd 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'd 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, May 6, 2014.

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 afternoon, everyone and thanks for joining us.

We're pleased today to report another quarter of strong financial results.

This is our seventh consecutive quarter of delivering year over year growth in revenues and positive EBITDA.

This solid performance can be attributed to the continued strong demand for our Therapy products as well as from continued growth and recurring revenue from our Cancer Detection products.

In addition, we significantly expand in our balance sheet in the quarter with an underwritten public offering of common stock today at approximately 28 million to our balance sheet.

Over time, we expect to use some of the proceeds to further accelerate market adoption in both the Therapy and Cancer Detection product areas.

We also recently announced the termination of the revenue-sharing component of our debt facility with Deerfield.

This actually removes the most costly component of our debt facility and significantly reduces our cash interest expense going forward.

So all in all, another strong quarter comparatively where we continue to achieve considerable growth and recurring revenue while significantly strengthening our balance sheet with the addition of the 28 million from the public offering of the common stock.

So now let me turn things over to Kevin Burns for detailed review of our financial after which I'll make some additional comments on the business before opening up the call to your questions.

Kevin?

Thank you, Ken and good afternoon, everyone.

As Ken mentioned, 2014 has gotten off to a strong start with another quarter of solid revenue growth and positive adjusted EBITDA.

Our investments in growth and market adoption are paying off.

We've strengthened our balance sheet with strategic offering that gives us a stronger foundation from which to expand the business.

In addition, it provided us the flexibility to buyout the most expensive portion of our debt facility at favorable terms which will significantly lower our cash interest expense moving forward.

So with momentum and key corporate growth areas, we look forward to continuing to grow revenue, focus investment and market adoption while driving towards positive free cash flow.

I believe iCAD is in the strongest financial position as it has been in quite some time.

Now let me move on to our quarterly financial performance.

Let me remind you how we report revenue which is by the two main oncology areas in which we operate specifically Cancer Detection and Therapy.

Our Cancer Detection revenue includes all our image analyses and workflow products including mammography, MRI and CT CAD platforms as well as service and supplies revenue.

Our Therapy revenue includes the Xoft Axxent Brachytherapy System, related accessories, supplies, services, and source agreements.

Effective this quarter, we have a request sales of balloon applicators and supply so that they are now included in therapy service and supply revenue and we've also moved associated expenses to cost of service and supply revenue.

Turning to a review of our revenue, total revenue for the first quarter increased 7.4% to $8.5 million, up from $7.9 million in the first quarter of 2013.

This was driven by 32% increase in our Therapy revenue, offset by 10% decline in Cancer Detection revenue.

In the first quarter, our Therapy business generated $12.3 million revenue with product revenue relatively flat to $2.1 million and service and supply revenue increasing 95% at $2.2 million.

The growth in our recurring service and supply revenue reflect increased sales of balloon applicators combined with the growing install base and associated service and source revenue.

If you add the future recurring revenue associated with systems that are not yet in clinical use, our total annualized recurring revenue run rate is approximately $10 million per year.

On a side note, we had a very healthy margin in our Therapy service business and almost 70% that has been and it's expected to continue to improve over time.

Total revenue for our Cancer Detection business in the first quarter was 4.2 million, a decline of 10% compared with last year's first quarter.

Product sales in the first quarter were $2.1 million, down 23% from last year.

The decrease was driven primarily by continued weakness in the 2D and analog markets as well as domestically and outside of the U.S. This was partially offset by continued momentum in our MRI CAD product sales.

Our subscription-based product and service revenue grew 7% to $2.1 million which continued to reflect our shift to leveraging the install base with new products and service agreement.

Moving forward, we expect this recurring revenue to grow and remain an important contributor for our Detection business.

In summary, we saw growth in the Therapy side of the business and we continue to increase the service component of our Cancer Detection business.

Looking forward on an annualized basis our recurring revenue run rate is approximately $18.5 million from both sides of the business and we will continue to focus on driving additional recurring revenue.

Looking at the rest of P&L, gross profit to the first quarter of (2013) increased $5.9 million or 69.6% of revenue from 5.6 million or 71.2% of revenue for the first quarter of 2013.

Our total product gross margin for the first quarter was 71.5% which is down from an average of 73.7% for fiscal year 2013.

The decline in product margin percent was driven by the higher mix of Therapy product revenues compared to Cancer Detection product revenue.

From a services margin standpoint, we continue to see services margin expansion from an average of 71.3% in 2013 to 73.4% in the first quarter.

Overall, we may experience pressure in the short term on our product margin as Therapy revenues become a larger component of our overall revenue.

However, ongoing services margin expansion will result in total overall margin improvement with quarterly fluctuations.

Throughout 2014, we believe gross margins will be in the low 70% range and growing to the mid 70% range in the back half of 2015.

Total operating expenses for the first quarter of 2014 increased to $6.4 million from $6 million for the same period in 2013.

We continue to make investment for growth that include regional IORT and skin seminars, clinical trials, sales team expansion, medical trade shows and the incremental product development.

As we discussed during our last call, we continue to see a majority of our skin business concentrated in the western region of the United States.

This represents a very large market opportunity and is anchored by California which has one of the highest rates to skin cancer.

However, we want to continue to expand our skin market opportunity and as a result, we are aggressively pursuing investment outside of this region.

Our initiatives are focused on developing key regional opinion leaders, generating claims data and working with our partners to support their expansion programs all in an effort for broader reimbursement and market coverage.

In addition, we had developed programs focused on the breast market that are procedure or subscription based as opposed to significant apparent capital.

These investments will continue to be reflected on an increasing operating expense level throughout the year.

Turning now to our profit metrics, adjusted EBITDA was $447,000 for the first quarter of 2014 compared with $592,000 in the first quarter of last year.

From a percentage standpoint, this was 5.2% of revenue in the first quarter and in line 5.6% of revenue for fiscal year 2013.

Again, we will continue to invest it appropriately to drive additional growth while balancing this with a goal toward longer term EBITDA expansion.

Looking at other income and expense items during the first quarter, we reported a $1.1 million gain due to the change in the fair value of warrants that we issued as part of our financing arrangement.

Interest expense in the first quarter was $817,000 of which $582,000 with cash payable related to financing and capital lease obligations.

The balance of $235,000 represented non-cash amortization of financing cost and settlement obligations.

On a per share basis, our non-GAAP adjusted net loss for the first quarter of 2014 was $0.12 per share compared to 11 cents per share last year.

Moving on to the balance sheet, we ended the quarter with $38.4 million in cash and cash equivalent.

This compares to $11.9 million as of December 31st, 2013.

On March 17th, we completed an underwritten public offering at 2.76 million shares of common stock at $11 per share.

Proceeds from the offering were approximately 28.2 million after deducting underwriting discounts and offering expenses.

During the first quarter, we used $1.7 million in cash excluding the proceeds from the offering.

As you know from a quarterly standpoint, the first quarters typically are low point for cash on an annual basis.

So the period ending March 31st, we have larger than normal commission of performance payout due to the strong financial performance in 2013.

In addition, we had small decrease in deferred revenue as we have moved towards agreement in payment terms for some of our larger customers to quarterly from annual.

As a result of these factors, we used more cash than anticipated in the first quarter.

In addition, we got sequential decrease in our DSO to approximately 82 days from 84 days in the fourth quarter.

Before I hand the call back to Ken, I would like to summarize the termination of our revenue-sharing component of our debt facility.

As you know, we have an outstanding $15 million debt facility with Deerfield.

There were two components to this facility.

The first is the $15 million note payable with 5.75% interest rate on the outstanding principle.

This has an annual cash cost to iCAD of $862,000.

The second was a revenue-sharing agreement under which we paid on average 3.5% of revenue to Deerfield.

In 2013, we paid Deerfield approximately $1.3 million under the revenues-sharing agreement which was an effective rate of approximately 9% on the outstanding $15 million.

After a review of the facility, we decided it was an appropriate time to terminate the revenue-sharing component.

As a result, we paid $4.1 million to Deerfield and had no further revenue-sharing loyalty payment.

In addition, Deerfield exercised their warrant which provided us approximately $1.6 million of cash.

The negative impact from these two transactions was a cash use of $2.5 million.

With a March ending cash balance of $38.4 million plus the net cash impact of $2.5 million from the Deerfield transactions, this leaves us with $35.9 million of cash and $15 million of debt in a 5.75% interest rate.

We believe the offering and our subsequent buyout of the revenue sharing portion of our debt facility significantly strengthened our balance sheet and puts us in a much stronger position to mainly select strategic investment and key areas of our business to drive growth and market adoption.

In addition, a strong balance sheet puts us in a better position with respect to potential acquisitions and licensing arrangements.

We continue to be pleased with our financial and operating performance.

We're making progress to advance in many areas of our business and now have an improved financial foundation from which to build on the momentum we have achieved.

We're confident that 2014 will be another exciting year of growth for iCAD.

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

Ken?

Thanks, Kevin.

As our financial performance illustrates, 2014 is off to a good start.

We have multiple initiatives under way to capitalize on the momentum in the Therapy business and to leverage incremental business from a customer based in Cancer Detection with numbers nearly 4,000 systems growing.

So let me just start with the discussion of our Therapy products.

Our Therapy business continues to gain momentum driven largely by the growing demand for the use of the Axxent Electronic Brachytherapy System for the treatment of non-melanoma skin cancer.

We're very pleased to report that this year's first quarter, skin system placements grew 50% over last year's first quarter.

And we recently announced that more than 4,000 non-melanoma skin cancer patients have been successfully treated using the Xoft system.

As a recap, the Xoft system offers a painless non-surgical option for the treatment of non-melanoma skin cancers.

Typically, at least this is treated for four to five minutes twice per week for four weeks with excellent clinical and cosmetic outcomes.

The current standard of care by comparison is most surgery which while clinically effective can often be associated with scarring particularly on cosmetically sensitive areas such as the nose, ears, and face.

And I just mentioned, thousands of patients have benefited from this non-surgical option.

In addition, we continue to be encouraged by the growing body of clinical data supporting the use of the Xoft system as an option to treat non-melanoma skin cancer.

Significant clinical data has been presented at recent prestigious medical conferences highlighting the demonstrated success of eBx.

At the American Academy of Dermatology Annual Meeting in March, Dr. Ajay Bhatnagar presented clinical outcomes data on 187 patients and 275 non-melanoma skin cancer lesions treated with the Xoft system showing zero recurrences with excellent cosmetic outcomes up to three years post-treatment.

Also at the American Society of Brachytherapy Annual Meeting in May, Dr. Stephen Doggett presented the results of his study on 364 patients with 561 lesions treated with the Xoft system.

Patients were treated with eight fractions of eBx with excellent clinical and cosmetic outcomes with up to 19 months post-treatment follow-up.

Of the more than 3 million cases of non-melanoma skin cancer that I treated in the U.S. per year, we estimate the addressable market for the Xoft system to be approximately 1 million cases.

This continues to represent a very large market opportunity for the use of the Xoft system as we continue to invest in targeted initiatives that we'll increase awareness and drive clinical adoption.

Studies such as these, just reference, provide important clinical evidence to drive adoption among other physicians and are necessary for supporting favorable and more widespread reimbursement.

For skin cancer treatment, there are currently 19 states with positive Medicare payment policies and we have an active strategy in the way to expand a reimbursement coverage to the 31 states that have either a silent or negative policy.

Strong support of clinical data such as these studies are key to expanding coverage nationally.

We recently have strong presence at the American Academy of Dermatology Annual Meeting highlighted by the presentation of Dr. Bhatnagar's data.

They came away from highly encourage about the growing interest in the Xoft system for the treatment of non-melanoma skin cancer.

They also validated the need to continue to expand our efforts with regard to the physician awareness and education.

So to this sense, we will continue to invest in expanding our sales and marketing efforts which really could have variety of activities to reach and influence our target audience of dermatologists and radiation oncologists.

An example being our physician seminars led by radiation oncologists in collaboration with dermatologists that educate other physicians on how to incorporate Xoft into their practices.

We will continue to expand these programs regionally as reimbursement grows.

We also continue to participate in important medical meetings that bring together relevant specialist.

For example, our team was at the Mohs College Annual Meeting that was held in Phoenix last week.

So in summary, we expect the combination of more positive clinical data along with the enhanced awareness and education at the physician specialty level.

We'll accelerate market adoption to the Xoft system for the treatment of non-melanoma skin cancer.

Shifting topics to the Xoft system for the treatment of early stage breast cancer.

There's a continued growth in procedure volume with the first quarter balloon applicator unit growth of 17% compared with last year's first quarter.

We're pleased with this continued growing procedure volumes which demonstrates that the sites are having once the programs are up and running and treating patients.

That said, we are continuing the investments in targeted programs, increase awareness and educate physicians on the benefit of offering IORT to their patients that fit the clinical criteria.

As with the treatment of skin cancer, we continue to invest in awareness and educational programs in breast IORT.

We hosted an education symposium at the Miami Breast Cancer Conference which is one of the premier medical meetings for breast cancer surgeons and our symposium resulted in considerable interest in growing sales activity.

Last week, we exhibit at the American Society of Breast Surgeons in Las Vegas and followed the event by participating at the American College of Radiology National Conference on Breast Cancer in Phoenix.

As you can see, we are reaching all specialists who diagnose and treat breast cancer patients.

Importantly, our participation in these meetings allows us to interface directly with physicians to communicate the benefits of offering breast IORT to their patients.

And this year, we will continue to promote best practice sharing from a number of IORT sites to establish successful and growing programs in that area.

Patient enrollment in our multi-center clinical trial evaluating the safety, efficacy and cosmetic outcomes using the Xoft system to treat early stage of breast cancer continues to go well.

We remain on track to have approximately 5000 patients enrolled by the end of this quarter and expect to report the interim data from this prospective study some time in 2015.

Again, post-marketing studies such as this enhance awareness of breast IORT and support an increasing adoption.

As I mentioned, we are early on the adoption curve for the Therapy business with significant opportunities ahead involving non-melanoma skin cancer and early stage breast cancer.

We expect to see continued strong growth from this business throughout the balance of 2014.

Turning that to our Cancer Detection business, we continue to make solid progress on our plan to leverage the considerable market opportunity adherent in our install base which is considerable to product upgrades and service contracts while preparing for the longer term growth from the industry shift to tomosynthesis or 3D mammography from the current 2D digital mammography technology.

The current revenue in our Detection business continued to show sold gains in Q1 as we increase sales of upgrades and new service agreements to our substantial install base.

This category should continue to generate increasing as our next generation mammo product PowerLook is gaining traction as a replacement for the prior generation product or in conjunction with adding breast density capability.

MRI sales through our partnership with Invivo with the strongest to date relieved by growing progress with the use of MRI in prostate cancer detection.

There is significant market opportunity for expanded use of these technologies as their superior diagnostic capabilities become more widely accepted for prostate cancer diagnosis and treatment planning.

The progress in MRI was offset by weaker international revenue and declining analog sales.

We do expect digital mammo CAD revenues to be relatively flat in 2014 and could pick up in early to mid 2015 as we launch our first mammo workflow tools for the interpretation of tomo or 3D mammo images.

So we remain very excited about the future with the market's expected conversion from 2D digital to 3D digital mammography and look forward to offering a sweet of workflow tools for the interpretation of 3D images.

This opportunity should be considerable as we liken it to the analog to first generation digital market conversion which afforded us considerable growth over a number of years as our CAD tools were sold nearly one to one basis with the new 2D machines.

So in closing, our strategy remains steadfast, continue to focus on market adoption that will drive strong growth in the Therapy business through a range of targeted initiatives while getting the Cancer Detection business back to a higher growth load to the introduction of 3D mammo interpretation tools.

So with that, operator, I'd like to open up the line for calls.

All right.

So ladies and gentlemen, if you do have a question, please press star followed by one on your phone.

If your question has been answered or you like to withdraw your question, go ahead and press star followed by two.

Again, if you'd like to ask a question, go ahead and press star followed by one to begin.

Ken or Kevin, maybe you'd like to make a comment or two kind of while we wait for some questions to formulate.

And I actually stand correctly, it does look we are -- it does look like we have question coming in from the line of Brian Marckx with Zacks Investment Researc.

Please proceed.

Hi, guys.

Congratulations on the quarter.

Ken, did I hear you right about the tomo product that you expect that to launch now in 2015?

I think Brian the way we're looking at it is probably international release could be as soon as late in Q4 of this year.

I think as we look at a range for the United States, it's probably summer in that Q1 to Q2 range next year.

It's going to largely be driven by the FDA clearance process.

So our timeframe really hasn't changed.

What has probably occurred is that we've been able to make the progress we need on the international front and understand the implications from a regulatory standpoint to be confident with the late '14 early '15 launch.

I think in the United States it's still a bit early relative to the clearest definition of the regulatory path and so we're probably a little bit more cautious.

But I would say in our next quarter's call I should have a better handle and more clarity on where we see the U.S. timing.

Okay.

Great.

Relative to the Therapy business, the product Xoft instrument sales was I guess relatively soft in Q1 but services and supplies were extremely strong.

Can you talk about what you're seeing as far as demand goes and what does those numbers reflect in terms of demand?

I know some of this can be kind of lumpy particular in the services and supplies.

How much is that sort of lumpiness and how much of that is kind of the, you know, more fundamental demand I guess?

Right.

Yes.

I guess I'll start Brian by making a few comments on system placement.

We sold one more system in the first quarter than we did in the first quarter of last year.

So we did have modestly increase in system sales.

We also did have an increase of 50% in skin sales.

So obviously, the dropbox slightly was in breast IORT sales.

But that was also after we sold 14 systems in the fourth quarter of last year.

So when you look at that combination of the fourth quarter and the first quarter, you could easily see two-quarter run rate of around 50 systems having sold 44 last year.

So we certainly anticipate strong new system sales over last year.

With that said, what you're seeing is a significant increase in procedure volumes related to the skin market.

And when you do that, the amount of source usage, x-ray source usage is pretty considerable and those customers are typically as they're very rapidly buying these very large source agreements some up in the range of around 100K.

So I think what you're seeing is this growing number of sites and you're also seeing growing number of procedures on those sites simultaneously which is really driven considerable amount of increase, again, in source revenue.

Secondarily to that, you're seeing an increase in service contract revenue because a lot of the system that we sold over the last couple of years now move from warranty to service so we started to see some very, very strong growth in service contract revenue.

And then obviously on the balloon applicator side, we had a strong increase.

We actually had 21% more applicators sold in the first quarter versus the first quarter of last year.

And our average selling price continues to be favorable for those.

So a lot of factors have gone into the recurring revenue growth in Therapy.

It all stems from two fundamental things.

One is increasing the number of systems install and increasing the volume of patients that are being treated on those systems which to us is vertical encouraging in indicating successful programs that are under way and continuing to build even additional momentum because so many of these systems have plenty of capability left in them.

We felt very good about the quarter.

New system placements were good.

Recurring revenue was substantially better and we feel well positioned to have a strong year goal in terms new system sales as well as our recurring type areas that I just mentioned.

Is it conceivable that you can do kind of $2 million per quarter run rate through the remainder of 2014 on the service system and supplies Therapy business?

Hi, Brian.

It's Kevin.

So as you know, we ended the quarter with 2.2 and the way we think about that number is it's going to be added to spread so we do believe meaning it's going to be growing from there.

That is revenue from our existing customer based.

There is about 10 to 12 customers who are -- that we sold systems to who are not yet active and clinically treating.

That will add to our $2.2 million run rate.

In addition, we're going to be adding new customers throughout the course of the year.

So at this point, this 2.2 is really a base and again we'll add existing customers as they come onboard from the source revenue standpoint and as we sell new systems, it's going to continue to grow.

So we expect this to grow very nicely substantially going forward.

So 2.2 should be kind of a low-end number, Okay.

That's a really, really good number.

Okay.

Good.

One other comment on that, Brian, is as we move forward, the way you want to think about the system placement and the recurring revenue addition is every system typically generates about $100,000 of recurring revenue and the mix is slightly different between skin and the breast market.

But on average, each new system placement, that is going to get additional recurring revenue that's going to be added to our run rate.

Okay.

That's really good news.

You alluded to -- on the cash balance, you have a pretty sizeable cash balance at this point and you alluded to in your prepared comments that you may be looking at acquisitions or kind of other opportunities.

Is there more that you can talk about that maybe you have -- that you're already looking at or that you're considering at this point?

I guess, well, what I would answer, Brian, is to say when you're in a large market obviously in the early stage, you're trying to see the market and you're also trying to anticipate growth opportunities that are very insular and very complimentary, very synergistic to that core market.

So I just say philosophically the way we look at the business is we want to provide a lot more than just a block that delivers therapy.

So that could be a range of software capabilities and services that are beyond the services that we offer today to our sites that all have these varying degrees of needs.

So I think we're looking, you know, in a I guess open-minded fashion in how over time we can increase our solution offering, if you will, to the skin market in particular and try to get over our growth from other areas that are very natural relative to the workflow as well as the services that need to be provided.

So we're taking a look at the category.

I wouldn't say we have completed the evaluation.

We're in a kind of real-time assessment mode.

But clearly, we're committed to the market.

We want to add more to offer in that market.

So things like software and services are probably high in our list from an investigation standpoint.

Okay.

Okay.

That's all I have.

Thank you very much.

Thanks, Brian.

All right.

So it looks like you have another question coming in from the line of Bill Bonello with Craig-Hallum.

Please proceed.

Thanks, guys.

I have a little trouble with the buzzing in (inaudible)

So just a question on the utilization, just a follow-up what you were just talking about.

You mentioned that maybe there's 10 to 12, you know, units out there that aren't really being used.

Beyond that, what kind of ramp in utilization are you seeing over time at existing customers?

In other words, are you seeing that, you know, ones they get going or they getting going at sort of full production or do they tend to use it with more patients as time goes by?

Hi, Bill.

It's Kevin.

Just to be clear on those 10 to 12 that are out not being utilized, those are just systems that are in a normal course of getting onboard and customers are getting enough speed.

They're putting their customers or patients in a cue to be treated and they're getting...

Right.

...

state regulation, so nothing, you know, noteworthy there.

I just want to make sure you understood that.

And the second is, you know, we're seeing a whole range of uptake.

We are seeing majority of our customers are 75, if not, greater percent growing their patient volume month by month.

Typically, what we're seeing them start out is between four to six patients per month, that's sort of their -- what we consider an onboarding rate to get comfortable with the system and the patient treatment.

And then they're going to be growing on a month to month basis after that and it largely depends on each state.

Our highest utilization spreads are treating upwards of 25 customers per month, 25 patients per month, excuse me.

So they're growing from four to six patients per month upwards the 25 to 30 patients per month and that's on the higher end.

Okay.

And do you think -- I mean, is that the kind of target you think a lot of the practices could get at or is that just because those happen to be a very large practices and don't think of that as sort of a target utilization?

You know, I think, you know, each practice is unique and it depends on the size of the practice and location and they may have a most urgent there as well.

So I think every situation at this point is unique.

And again, we're still in the early stages as you know, right?

We only have about 60 systems out there treating at this point in the skin market.

So our data and our uptake numbers are, you know, we're still - we're still learning about the market as we go.

Sure.

Absolutely.

And then just can you touch briefly on kind of the placements and maybe looking out forward.

I know you were the number of -- and you mentioned it -- to a number of different trade shows in the first quarter, a couple on the breast side and a big one on the dermatology side, but those tend to be catalyst or replacements and could we actually see sort of an uptick in controller placements as we look at the second quarter or are there down there?

I think it's mix, Bill.

I think you've got situations where some of the customers there are well down the patch of making a decision and they come in to you to validate or ask additional questions as part of their final process.

You have others that are coming in or where the technology you would like to adapt in their practice and, you know, are in the process of making a decision in that regard over some period of time either individually or with their partners.

And then you're introducing it to a lot of people that really don't have a lot of knowledge.

You know, these early stages clearly, skin as an example, the Academy of Dermatology meeting, this was brand new information to a lot of dermatologists.

And to some, it was, you know, faintly aware and I know radiation has been used many, many years using different technology platforms and so forth to treat patients so you get a really wide range.

So I think there is some short-term benefit but the benefit, to be truthful, is more median and long term at this meetings and I look at them as probably making more of a contribution to awareness and education right now.

But these certainly are deals that will happen as a result and they will happen this year, so we'll see some incremental business as a result of our presence.

But I would say that, you know, given some of the sale cycles for capital can be longer.

A lot of the business also is some that will take time to develop.

So it's well worth our efforts to be there because we're accomplishing a lot.

You know, in a mature business, it's in a standard of care environment.

All you're looking at is how many lease did you get out of your trade show exhibit and how's that compared to last year, right?

In our case, we're trying to educate, create awareness, create visibility so that at some point in the next, let's say, six to 12 months, there's this big snowball effect.

And so, it's a much broader goal, a lot more to do given the, you know, level of adoption we're at today.

Okay.

And then just a follow-up on that, thinking of your efforts to penetrate in the other geographic markets in the last quarter, having mentioned the majority of cases coming from a handful of states, are you - are you present in the other states where there's positive reimbursement decisions?

Are you actively out making sales efforts or are your partners actively out doing that or is that - is that essentially territory that has yet to be touched by you?

You know, it's a probably a mixture.

You know, obviously, of 19 states positive policy and probably three or four states generating the majority of your actual business today.

So, you know, given the size of our company to be, you know, feet on the ground in 15 states knocking on doors is not probably not realistic at the moment.

But we've done a lot electronically, a lot in these larger medical conferences to reach people that are in those states and we are trying to call directly on some of the large practices that we know that would be great candidates.

And so we're in all of those states in some fashion.

Now, some with feet on the ground and electronic communication and follow-up from the medical meetings and some, you know, some combination or lack thereof of those initiatives.

So we're definitely there.

It just takes time, you know.

We're also realistic about it's taken us roughly a couple of years to develop the western coast market.

But I think the other states, while you may not see, let's say, in some of the Midwest states the levels of skin cancer you might see in the West Coast, in California as an example, there are great markets to participate in.

So we expect to start seeing sales from a number of states probably as soon as this quarter indicating the opportunity in these other states that where we have more recently received the positive news on reimbursement.

But we're touching them all.

We're going after all the large practices.

Our partners are very present in those states as our direct sales people.

But we're just beginning the sales process for a lot of the customers outside of the, say, the western region.

So it will take some time but we definitely are very active in all states that have a positive payment policy.

Okay.

Very helpful.

And then just a last question, I know there's been some discussion of the use of IORT, you know, on the breast cancer side as a bump prior to some additional external beam treatment.

I'm just curious if you can comment on that at all if that's something you're seeing any traction with yet and whether you think that might be something that would help boost the adoption of sales on the breast side.

Yes, I mean, I think if you look historically, it boost prior to giving a full regimen of full breast radiation has been very common for many years.

The main point being, though, that probably not using electronic brachytherapy, right, but using radio invasive therapies.

So it's been fairly common and there's a number of studies that been published showing the benefits of boosting the patient at the time, if you will, the lumpectomy and then having follow-up or doing it, you know, superficially post lumpectomy.

Where we look at it as an opportunity is there's about 110,000 about 40,000 of the newly diagnosed patients that fit the clinical criteria for monotherapy which is just IORT.

You then add 80,000 or 90,000 patients to that population if you use it as a boost and then use it in conjunction the whole breast radiation.

So you might actually get to, you know, being able to treat close to, say, 200,000 patients as opposed to, say, 100,000 or 110,000.

You have to establish the proper clinical criteria.

Obviously having some sort of study data which would help to titrate the dosing relative to how much you'd given a boost versus how much the follow on whole breast therapy would be, you know, would it be the full five or six weeks, would it be shorter regimen, you know, depending on what you're trying to accomplish.

And so they really are not studies yet using electronic brachiotherapy as a boost but there are other similar technologies which we can drop from as well as expert panels that have the experience in that area.

So we're very much investigating how we could establish a clinical protocol where our technology could be used as a boost in conjunction with whole breast.

If we're able to get that done successfully in the next, let's say the next year or so, it could expand our addressable market by a significant number where instead of roughly 100,000 patients, we may be closer to 200,000 patients per year in the domestic market that could be candidates.

But we need to work through the proper establishment of a protocol, what the treatment combine, if you will, between IORT and whole breast outpatient would be.

And then we need to be able to follow those patients in some sort of study so that overtime, we could make, frankly, recommendations based on outcomes and recurrence rates.

So it's a longer term opportunity but one that we're very interested in.

Okay.

Great.

Thank you very much.

Okay.

All right.

So it looks like you have another question coming from the line of Jeb Terry with Aberdeen Investment Management.

Good afternoon, Ken, Kevin.

Hi, Jeb.

Kevin, I think you mentioned something -- apologize, I had some distraction, I was late on the call -- but did you say something a plan to charge on a per procedure basis?

So one of the - one of the things that we're exploring and we have a few proposals out to some larger academic institutions is actually in order to help them bring on board an IORT system.

You know, we're looking at different pricing models and one of those is that per procedure or a subscription type model.

So we believe by offering some of these in selected situations, it will increase adoption and utilization in the breast market.

In the breast market.

Okay.

Okay.

And a question on the skin business.

I know, in the past, there were some interest on multisite dermatology practices possibly radiation or oncology practices, is that still the case that you're seeing some traction and in sales in multisite customers and are there multisite customers that are coming back and kind of building out their footprint, if you will?

And if so, you know, might there be some visibility into future consult placements with existing multisite players?

We did -- we have quite a few large dermatology groups with five, 10, even 15 facilities.

Some of them have expressed interest in expanding systems to all of their, to all of their facilities, right?

And right now they may have one or two or three systems they may be sharing them across in centers so we definitely believe that there's significant opportunity just in our existing customer base alone.

You know, I think we probably have four or five large groups that are there in the process of -- you know, proving the technology and then willing to have a plan to roll it out over the six to 12 months.

But, you know, I don't think we're going to be sharing any additional detail in terms of some places around that.

But it's a great opportunity for us getting into these larger derm groups where they've proven in one center and then everybody else wants to bring it onboard in the other facilities.

Right.

Okay.

Jeb, I'd also add that, you know, we are still seeing demand from the radiation oncology groups and often, it's a combination of their marketing be serviced to the dermatologist and they're also, in some cases, marketing is serviced directly to the patients in their region.

So I definitely see two call points from a sales standpoint.

One, as Kevin mentioned, dermatology practices expanding.

We have a number of examples where they were sharing a machine, you know, between sites and now they've decided to buy incremental machines because they've reached sufficient volumes that they don't want to move them around.

And at the same time, we're seeing strong interest from radiation oncology wanting to put a system off and in their own facility where they treat a wider range of radiation cases and have a relationship either directly with the patient or with dermatologist that refer patients to them.

So we're really seeing both models.

I would say the system going in to the dermatology office, those are probably more common than in the radiation practice although I think, again, we're trying to really take advantage of both call points because you need both positions involve to have a successful treatment strategy.

Right.

So if a dermatologist comes in and says I'd like one and he's going to have to bring in -- he's got to have a radiation oncology partner, right, is that still the case?

Yes.

And that's where a lot of our service providers come from.

So when you hear the names DermEbx and ARS and Vantage and so forth, what you're realizing is that when the derm is really interested in kind of chose that direct interest, we have service providers that can bring that whole clinical paradigm together.

Okay.

And just curious, what's the headcount now for Xoft itself and could you give us a sense for kind of how the -- if your headcount is building -- going after those multiple states and then following up with these multisite actors, you know, I guess there's a service element associated with it as the more he comes off and of course you got to have, you know, some individuals dedicated to serving each of these sites to incur -- to encourage increased utilization and just provide ongoing great services and that type of thing.

We don't break it out by business area.

However, Jeb, we keep going the business by about 10 people over the last four months or so and all of that growth has been in the Xoft business.

Okay.

(Inaudible) service.

Right.

Okay.

And in terms of reimbursement outlook, if I understand that these situation, the proper to view that is that meaning that IORT reimbursement would be added to the more conventional reimbursement that a radiation oncology gets with whole breast radiation therapy (inaudible).

Is that the point of the addressable market increase?

Well, I think what we're seeing is it's really driven by clinical criteria, you know, size of consumer, you know, whether there's an invasive cancer versus not and so forth just as we have new criteria for monotherapy.

But I guess what I would envision happening is that radiation oncologists would get paid as they do today by delivering the IORT boost in the operating room and then they would also collect obviously their fees for the number of fractions delivered on outpatient basis.

So you could say that, yes, they would -- some get more reimbursement, our hospitals get more reimbursement depending on what side you're looking at, professional versus technical fees.

So that's certainly is in there which I think would alleviate one of the hurdles which is where radiation oncology looks at it all or nothing.

I do monotherapy with IORT or I do whole breast and clearly for the number of fractions treated in the whole breast, they get paid a lot more money.

So I think that provided we can prove this clinical paradigm is going to be very powerful and effective, you probably then remove one of the financial barriers to adoption which has been the receptiveness of radiation oncologist to make the effort to get up in the OR and scrub in coordinated fashion and deliver therapy and get paid around $500 for their effort versus the several thousand dollars they get for delivering a multi-fraction therapy in their center.

That was a great development.

Very good.

Well, congratulations on the 95% increase in therapy service and supply and apparently, yes, you got a runway for that to continue with the 10 to 12 sites that's getting up and the organic growth in the existing sites.

That sounds terrific.

Thanks a lot.

Congratulations.

Thanks, Jeb.

All right.

So it looks like we have no further question at this time so I'll go ahead and turn it back over to Ken Ferry for closing statements.

Thank you, operator.

Well, we're very pleased with our overall progress particularly as it relates to the Therapy business in the treatment of non-melanoma skin cancer.

We really had a number of quarters in a row of growing new system placements, significant increase in procedure volumes and recurring revenue.

We're also seeing nice progress on recurring revenue in our Cancer Detection business and we're working feverishly to have workflow tools available for the 3D or tomosynthesis mammography market as it develops further over the next years.

So I think our overall progress is strong.

We've shown some very good success against our strategy.

Our growth has been solid and we think with the yearly stage of adoption in the number of these markets and so we should be able to sustain this growth rate over a longer period of time and ultimately deliver more shareholder value.

So I'd like to thank everybody for your continued interest in iCAD and participating in today's call and we look forward to updating you again at the end of our second quarter on our Q2 results call.

So good day, everyone.

All right.

Ladies and gentlemen, that does conclude today's conference.

Thank you all for your participation.

You may now disconnect.

Everyone, have a great day.