ICAD Inc (ICAD) 0 Q0 法說會逐字稿

Very good day, ladies and gentlemen thank you all for joining, and welcome to the iCAD First Quarter 2012 Earnings Conference Call.

My name is Lisa and I will be your coordinator today.

At this time, all participant lines are in a listen-only mode and we will 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 without further ado, I'd like to turn the call over to your host Mrs.

Anne Marie Fields of LHA.

Please go ahead.

Thank you.

Thank you, Lisa.

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 2012 first quarter.

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 past and future 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 8, 2012.

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'd like to turn the call over to Ken Ferry.

Ken?

Thanks, Ann Marie.

Good morning everyone and thank you for joining us.

Our strategic plan continues to focus on driving growth in our therapy business with significant emphasis on breast IORT and transitioning our CAD business to more of a traditional software business model in order to provide more value to and increase revenue from our large-customer installed base.

During the first quarter, we made solid progress on this plan.

Although we saw a decline in the Cancer Detection business, it was somewhat offset by a strong growth in the Therapy business.

The Therapy business grew slightly more than 50% compared with last year's first quarter of nearly 25% sequentially.

In addition, during the quarter we lowered our operating cost and strengthened our balance sheet.

I'm going to turn the call over to Kevin now so he can provide you with more detailed financial review of the quarter and after that, I will come back and provide a more detailed business update.

Kevin?

Thank you, Ken, and good morning everyone.

As Ken mentioned, top line results for the first quarter of 2012 were mixed.

However, looking forward, we do expect to continue to build on the momentum in the breast IORT market while working to capitalize on our transition to a recurring revenue model as our US installed base of over 3,000 CAD systems represent a sizable market opportunity.

As noted in our Q1 press release, we are refining the way we report revenues to better reflect the two main oncology businesses we operate in, namely, Cancer Detection and Therapy.

We believe that this revenue breakout simplifies our reporting and provides a better barometer of how each area is performing.

This is especially true of our Xoft therapy business which we continue to expect will be a major growth driver for us going forward.

Therapy revenue will include sales from our Xoft Axxent Electronic Brachytherapy Systems as well as sales of accessories, services and source contract.

Our core cancer detection revenue encompasses all of our image analysis and workflow products throughout our digital mammography MRI and CT CAD platforms, as well as service and supply revenue from these products.

So let's move on to a discussion of our financial results for the first quarter of 2012 noting that all comparisons are with the first quarter of 2011, unless otherwise specified.

Total revenue for the first quarter of 2012 was $6.3 million, down $1 million or 14% from $7.3 million in the prior-year quarter.

This decrease was largely due to a decline in our Cancer Detection business offset by growth in our Therapy business.

Cancer Detection revenue for the quarter was $4.3 million, down $1.7 million or 28% from $6 million a year ago.

This decrease was primarily due to decline in sales of our digital mammography products as a result of the loss of market share by our OEM partners in digital mammography.

Our Cancer Detection services supply revenue was relatively flat at $1.7 million as we begin to shift our focus of this segment to a software-based license and annual service fee structure.

We expect to grow this segment in the next few quarters and Ken will discuss these initiatives with you shortly.

Therapy revenue was especially strong this quarter, increasing 51% to $2 million from $1.3 million a year ago.

Product sales, which includes controller's applicators and other accessories increased 56% from $935,000 in the first quarter of 2011 to approximately $1.5 million in the first quarter of 2012.

In the first quarter of 2012 we sold six controllers and 125 balloon applicators compared to two controllers and 35 balloon applicators in the first quarter of 2011.

Our service and source revenue also continued to increase and grew 39% year-over-year to $542,000 in the first quarter of 2012.

In addition to the strong year-over-year growth, revenue from the Therapy platform grew 25% sequentially from $1.6 million in the fourth quarter of 2011.

Overall, product revenue for the first quarter was $4.1 million, a 22% decrease from the $5.2 million in product revenue in Q1 2011.

Service and supply revenue for the quarter increased 6% to $2.3 million from $2.1 million last year.

Now, turning to the rest of the P&L; gross profit for the first quarter of 2012 was $4.4 million, or 69.8% of revenue as compared to a gross profit of $5.1 million or 69.9% of revenue for the first quarter of 2011.

Although revenue decreased by approximately $1 million over the prior year period and the mix of our revenue changed from Cancer Detection to Therapy, we were able to maintain a gross margin of approximately 70% through manufacturing and service expense controls.

Although our gross margin percent will vary based on mix and volume on a quarter-to-quarter basis, we do believe that a low-to-mid 70% gross margin is indicative of the type of gross margin we will generate in 2012.

Regarding operating expenses, as previously reported, we implemented a number of cost-saving initiatives throughout 2011 that continue to positively impact our P&L.

For the first quarter of 2012, we reduced operating expenses by 31% from the first quarter of 2011 to $6.5 million in Q1 2012.

Over the last few quarters we have reduced operating expenses from a run rate of approximately $9.6 million in the first half of 2011 to approximately $6.5 million over the last two quarters.

Though our expenses have declined dramatically, we do continue to invest for revenue growth through a variety of initiatives that Ken will discuss and do believe this level of quarterly spend of approximately $6.5 million per quarter is appropriate for the next few quarters.

Moving on to our profit metrics; our loss from operations decreased 51% to $2 million from a loss of $4.2 million in the year-ago quarter.

Adjusted EBITDA, as defined in our press release, was a loss of $990,000 for the first quarter of 2012 compared with a loss of $2.3 million in the prior year quarter and a loss of $1.2 million in the fourth quarter of 2012.

Given my prior comments related to our gross margin percent and future level of operating expenses, we believe a revenue level between $7.5 to $8 million will result in EBITDA breakeven or slightly positive.

Further down the P&L, we recorded a $599,000 gain related to warrants in the first quarter of 2012.

As you may recall, we issued 2,250,000 warrants earlier this year as part of our financing arrangement with Deerfield.

At the end of each quarter, we report any changes in the fair value of the warrant to the P&L.

Primarily due to the decline in our share price, we recorded the $599,000 gain and also have an outstanding warrant liability on the balance sheet for $400,000.

In addition, net interest for the quarter was approximately $800,000 of which $496,000 is cash interest payable to Deerfield.

The majority of the balance represents amortization of financing costs and settlement obligations.

On an EPS basis our non-GAAP adjusted net loss for the first quarter was a loss of $0.5 per share compared with an adjusted net loss of $0.6 per share for the first quarter of 2011.

Moving on to the balance sheet, as I mentioned earlier, we strengthened our balance sheet in early January with the issuance of a $15 million senior secured note to Deerfield Management.

As a result, we ended the first quarter with $15 million in cash, up from $4.6 million at the end of 2011.

For the first quarter, we used approximately $3.9 million of cash to fund operations.

During this period, we had a number of factors that drove a higher use of cash including sales that were heavily weighted towards the last month of the quarter, resulting in a sequential growth in DSOs from 55 to 64 days, annual consensus payments that were made in Q1, settlement obligations totaling $500,000 and a payroll that hit on the last day of the quarter.

Again, these factors resulted in a higher than normal cash use and we do expect our cash use to decrease substantially in the second quarter and throughout 2012.

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

Ken?

Thanks, Kevin.

Let me begin with the discussion, with the review of our cancer detection products and specifically Mammography CAD.

In the U.S.

market today, approximately 85% of the market screening systems are digital technology, the remaining 1800 or so that are still using film are transitioning more slowly in part because their screening volumes are lower making the investment in digital technology a more challenging one from an economic standpoint.

For the first quarter, MQSA statistics showed a 13% decline in new system placements versus last year.

The weaker demand combined with recent market share declines from our OEM partners negatively impacted our performance in the quarter.

To address this dynamic, we are focusing on a number of programs to improve performance.

First, we will introduce a major new product platform in early Q3.

This new platform will be available for new customers.

However, we will put particular emphasis on selling this as an upgrade to our installed base of approximately 32,050 US customers.

Today, only 25% or so of these customers are under an iCAD service agreement which leaves an additional 2,500 to target the new product to.

The new product will have a new hardware architecture, additional features to assist radiologists with diagnosing and workflow and be scalable to add third-party capability and additional new functionality as it becomes available.

We believe the incremental opportunity from this targeted 2,500 or so system installed base to be in the $20 million range annually.

Second, we are launching an annual licensing product.

This new product will be available to new customers that are now transitioning from film to digital technology, as well as the digital installed base not using CAD today.

With this annual license program, we focused on lower volume sites that have found a significant initial capital investment in CAD difficult.

Also in the future, we will offer new software enhancements as part of an annual license upgrade or support agreements.

We are confident that these programs will gain considerable new business as they gain traction with new customers or from our considerable customer installed base today.

Moving on to the MRI product line, MRI software revenues were stronger in Q1 versus Q4 of 2011, however, they were weaker comparably with Q1 of last year which was particularly strong.

We continue to invest in innovation and education around prostate MRI and then we see continued interest in this area by radiologists and neurologists.

And additionally, we've launched an annual licensing program to this market as well.

This should help us particularly with the accounts that are not doing sufficient prostate procedure volume yet to justify an upfront capital investment.

Shifting to CT Colon CAD.

We're pleased to see progress in the quarter both commercially and from a reimbursement status.

On the commercial side, Vital Images, a partner in the advanced visualization space, sold their first eight licenses to their substantial installed base.

We're encouraged that they are seeing growing interest in demand for adding CAD to their colon visualization package domestically and internationally, particularly in Europe.

On a reimbursement front, the long awaited publication of the results of the Medicare-eligible patients that were part of the original 2,600-patient ACRIN study was recently released to the public.

The reevaluation paper is entitled -- is titled the National CT Colonography Trial, Assessment of Accuracy in Participants 65 Years of Age and Older, authored by C.

Daniel Johnson, MD of the Mayo Clinic, Scottsdale.

As you may recall, each patient in this study received optical and virtual colonoscopy.

And the summary concluded that there is no significant difference between the sensitivity and specificity of CTC in participants younger than 65 years when compared to those participants aged 65 and older.

This result has increased momentum towards Medicare reimbursement.

To this end, a new bill was introduced in the House of Representatives in March by Congressman, Ralph Hall of Texas.

Since then the bill has gained considerable support in the house with nine additional cosponsors being added.

In addition, Senators Jim Inhofe and Ben Nelson are cosponsoring this bill in the Senate.

The favorable ACRIN Medicare population results combined with the growing momentum around reimbursement is creating considerable interest from potential OEM partners and customers as they prepare for anticipated increased procedure volumes in the near future.

So having summarized the status of our cancer detection business, now I'll turn to the therapy business.

As noted, the therapy business was quite strong in the quarter growing 50% compared with last year's first quarter, and approximately 25% sequentially.

This growth demonstrates that we are gaining attraction with adoption as evidenced by new system sales and that we're gaining physician acceptance as demonstrated by increases in procedure-driven consumables.

Each year in the U.S.

there were approximately a 110,000 women diagnosed with early stage breast cancer who meet the clinical criteria for IORT as an alternative to conventional six weeks of external beam radiation therapy.

There are three key components that will drive the continued adoption of this potentially lifesaving treatment.

These include -- one, the growing body of positive clinical data; two, the ongoing acceptance of IORT at breast health centers of excellence and oncology centers of excellence; and three, equitable reimbursement.

Building a growing body of positive clinical data in support of the use of IORT versus external beam radiation therapy is a key to position adoption and payer reimbursement.

One example, the TARGIT-A study, a landmark study published in the Lancet in June of 2010, demonstrated that a single-dose of radiotherapy delivered at the time of surgery should be considered as an alternative to six to seven weeks of external beam therapy.

In this study approximately 1,100 patients received IORT post lumpectomy, while another 1,100 received six to seven weeks of external beam radiation therapy post lumpectomy.

At four plus years of mean follow-up, cancer reoccurrence was comparable.

This published data gives physicians important long-term data needed to support the adoption of IORT.

We are now waiting publication of the five-year follow-up data that hopefully will continue to show continued parity with external beam radiation therapy for the treatment of early stage breast cancer.

This should further support the adoption of IORT in this clinical setting.

In addition, iCAD recently launched a post-market study to assess the safety and efficacy of the Xoft System when used for IORT at the time of lumpectomy for early stage breast cancer.

This study is a prospective multi-centric trial with historical control.

It will enroll up to 1,000 patients at as many as 50 study sites across the US and Europe.

Study subjects will be followed for 10 years after treatment to determine the safety and efficacy of IORT with the Xoft System and interim data will be collected on an annual basis.

A historical comparison will be made to external beam radiation therapy as well.

The study will also assess cosmetic outcomes in quality of life for subjects treated with Xoft IORT versus external beam therapy.

We believe the results of this study will build up on and further validate existing data showing IORT to be as safe and effective as external beam radiation therapy, positioning the Xoft System as a treatment alternative that may be delivered conveniently while improving a patient's quality of life.

Adoption by Breast Health Centers of Excellence and Oncology Centers of Excellence continues to be an important part of our strategy to grow IORT sales.

These centers are models that other health systems look to for leading edge technology in treatment plans.

Importantly, they create competition among health systems in those geographies each of which is competing for health care dollars particularly in cancer care, which is an important profit center for most hospitals.

We continue to make progress with these efforts as evidenced by two recent news releases announcing the availability of the Xoft IORT at Pink Lotus Breast Center in Beverly Hills and Breastlink Medical Group in Orange, California.

This adoption is increasingly being supported by leading breast surgeons who want to offer their patients treatment options and improved care.

Society meetings such as the American Society of Breast Surgeons significantly enhanced visibility for IORT.

Last week, we showcased the Xoft System at that prestigious conference and I'm happy to report we're very encouraged by the strong positive feedback we received.

In addition, we're showcasing the Xoft System at ESTRO this week in Barcelona.

Participation in such shows results in growing sales funnels among medical professionals and hospital administrators.

We expect this growing interest to translate into increased sales volume over time.

Reimbursement priority will be a key driver for widespread support of the technology.

As we reported in our last conference call following receipt of CPT codes in last year's fourth quarter, CMS set appropriate reimbursement rates for the treatment and planning code for IORT, but bundled reimbursement for the procedure as part of the breast surgery code.

We are in the process of trying to rectify the situation and continue to work closely with CMS with our lobbyist and with congressional assistance to obtain equitable reimbursement for the therapy deliverable.

We are hopeful that this will be clarified in the CMS 2013 Proposed Rule, which will be issued in July of 2012.

While Q4 results were adversely affected by some confusion around this reimbursement, we're very pleased to see that this was not the case this past quarter as we saw significant growth in both unit sales and procedures and are receiving growing interest from physicians in hospitals wanting to offer us potentially lifesaving therapy as an alternative to external beam radiation therapy in the treatment of early stage breast cancers.

So in closing my opening comments, 2012 was an important year for execution of our key product programs in therapy and cancer detection.

We're driving adoption of IORT and believe the year is off to a strong start.

We've changed the focus of our cancer detection business to more of a software service model with high-margin recurring revenue and expect us to provide a substantial opportunity in the coming years.

We remain committed to containing costs and believe the combination of growing revenue and disciplined expense management will build shareholder value over time as we achieve our goals to be a leading edge solutions provider in the oncology market with targeted technologies throughout the continuum of the cancer care cycle.

With that operator, we are ready to take questions.

Certainly, thank you very much.

(Operator Instructions) Our first question is from Jeb Terry of Aberdeen Investment Management.

Please go ahead.

Good morning Ken and Kevin.

Good morning.

Ken, could you talk about the -- how your results pipeline is growing -- I'm quite encouraged by your volume in Q1 notwithstanding your reimbursement questions.

How many -- I mean how big was the conference last week and then how do you look at things going forward?

And then I have a couple other follow-ups.

Sure.

In terms of the funnel activity, it's really a multi-pronged approach Jeb.

What I would say is that we are emphasizing as many conferences as possible and the priority is really to focus on oncology, breast surgeons in particular as well as radiation oncology.

So those conferences that are very important to breast surgeons and radiation oncologists, we are very present, have a large booth presence as appropriate and really try to have the opportunity to interact with as many customers as possible.

So that's one of the pipeline initiatives.

We've also used inside sales to try target breast surgeons to really create high quality sales calls for our sales team to discuss the technology as well.

So we've really worked that out.

And we have a strong direct sales team in the United States that has really worked to really develop a number of follow up leads as a result of the conferences within in-person meetings and so, all of that is building.

What we are finding interesting is what we would describe internally as a kind of a hub-and-spoke program.

And what that essentially means is you go to a major city and you get a important customer to adopt the technology, what you find is that their competitors down the street then grow an interest.

And we've now actually started to see in several major hubs, once the initial system goes in, within a quarter or two we've actually seen additional business from new customers in that major city.

The other thing we're doing is, we have several sites that are now treating patients in Europe, in Germany and Portugal and in Spain.

And basically we're trying to build reference centers in Europe that will also attract customers based on having a direct sales person there as well working closely with the sites.

So there is a number of activities I've just described that are all building the funnel out.

And if you just kind of look out where we are compared to last year, we essentially sold 13 systems all of last year and put five systems in on some sort of a rental or procedure-based model.

We're really excited that we essentially sold six systems outright in the first quarter, as I think Kevin mentioned, this year and that the procedure volume is literally about 3.5 times in balloons what it was in the first quarter of last year.

As we look at Q2, we're even more enthused that we should have a stronger quarter than we had in Q1 and it's not outside the realm of possibility that we will have sold as many systems at the end of the first half as we sold all of last year.

So clearly, we're seeing a larger funnel.

Obviously, that larger funnel is coming from a variety of sources, but ultimately we feel pretty strongly that the ability to more than double the number of systems that we sold in 2011 is possible.

And we'll see at the end of Q2 if this momentum continues.

But at this point in time, we're fairly confident it should and that should result in increased controller sales, increased consumable sales which is really the business model we've been pursuing in the year-plus since we made the acquisition.

So we're kind of I guess cautiously optimistic at this momentum.

Keep in mind also that in July we should hear from CMS on the preliminary reimbursement for January of 2013.

We felt that last year that a favorable announcement on reimbursement would really move business stronger in the second half of last year as customers prepare for reimbursement for the treatment delivery for the radiation oncologist particularly.

That didn't happen last year.

But we're darn encouraged that we've seen such good strong momentum in spite of that obstacle this year and so with the momentum we have in Q2 and with hopefully a much more appropriate reimbursement in July, it should bode for an even stronger second half than the first half that we fell competitively is going to be very, very strong versus the first half of 2011.

So I hope that answers your question and if you others feel free to go on.

Absolutely.

That's very encouraging.

And I notice with the Breastlink announcement, their part of the chain of imaging centers.

Does that suggest that there will be multiple sites opportunity with RadNet?

Yes, sure is.

I think obviously we're starting with one site.

We've agreed on a business model with them as a partnering opportunity and we'll see how that goes.

I think there is keen interest in the number of their other sites, but obviously we need to get the first site up and running and successful and that should lead to more opportunities with other sites within their network.

And regarding the digital mammo OEM loss of share, do you think -- has it stabilized?

Or where is -- that was a bit of a surprise.

Yes, it's a bit of a surprise to us as well.

I mean essentially as I think I can look at the MQSA data, we're down to about 1,800 systems out there that are film still in the process, at some pace of going digital.

And what I think really has occurred to a great degree is that that profile of customers in what they can afford to buy is very different than some of the earlier adopters that do much higher volumes.

And to be blunt, we feel Hologic has done a better job recently in reaching those customers and has allowed them to gain some additional share particularly in the last two quarters when compared to both GE and Siemens, and particularly GE.

The encouraging thing is that we believe GE and Siemens particularly now fully understand the profile of this more rural lower volume sites market and both have got targeted programs now going to try to go after that business in a much more aggressive manner.

So in our conversations with GE, after having had a very strong third quarter of last year and weaker Q4 and Q1 of this year, they feel that by the third quarter of this year they should be in a substantially stronger business position because of this focus.

Siemens has been more proactive in focusing this kind of rural hospital market.

So we've seen that dynamic affect business.

The other one which we really didn't talk about in the scripted comments is Fuji.

Fuji received approval for their new full-field digital mammography machine and they are very aggressively pursuing business with that product.

We do not have CAD available for it.

So essentially we will be into the FDA hopefully this quarter and we're hopeful we will have a FDA clearance by sometime in the third quarter for CAD with Fuji.

But essentially the CR digital market, which we have done very well with Fuji, has dropped significantly as they focus their efforts on their new digital system and the downside for us in the short term is we do not have CAD approval for that system.

We have the same phenomenon with Philips with their new low-dose mammography which is at the approves through the acquisition of Sectra.

We should be into the FDA with a product with Philips, Sectra this quarter.

And again, they are out there selling without CAD at the moment.

So we'll have some pent up we hope with Fuji and with Phillips, and at the same time we think we will see stronger more aggressive business coming from GE and Siemens in both this and the third quarter in particular.

So we think the business will improve over the next several quarters.

And then what we are ultimately doing as a result of that phenomenon is introducing a major new product platform to the mammography installed base and to new customers as well in early Q3, we're hoping in early July if we have this new platform in the marketplace.

And so, really what we're trying to do is to offer them to either these new customers that are volume sites, the ability to essentially purchase an annual license, so that the upfront expense is not going to be anyway near what it would be if they had to buy a system.

That allowed us to get obviously recurring revenue on an annual basis from these customers along with our current service business and then it allows us to market this new product into an installed base and of the -- as we mentioned 3,250 customers in the US that have our product, only about 700 or 750 have an ongoing service agreement with us.

So there is about 2,500 customers that essentially bought our product in the last five years that we essentially do very little to know business with.

So as I talked about in my remarks, we think that the 2,500 or so customers were not doing active business with to any degree could be as much as a $20 million opportunity annually as they adopt the new product and then buy a follow-on support agreement from us for that product post warranty.

So putting a tremendous amount of emphasis because at the end of the day, if you're down to 1,800 sites that have to go digital over time, and if you think about it Hologic may see two-thirds of those that leaves only about 600 or 700 sites for us and our partners to go after unless we have a significant market share shift.

So clearly, if you then take those sites and add about 2,500 installed base sites that are using a product that's been in the market since 2006, our business is shifting such that the installed base opportunity is significantly bigger than the new system's opportunity.

And that's really where our emphasis is going to be with our telesales efforts both in-house and third-party, combined with using our direct sales force on well-qualified customers to go in and to sell the benefits of our new product which also has a very good solid product roadmap over time attached to it as well.

So we're -- in a transition, a couple of difficult quarters, but we definitely see light at the end of the tunnel in terms of a much, much higher potential addressable market between the new sales with new business models combined with what we can do in our installed base.

That's really encouraging and real pleased to see the number of procedures apparently go up dramatically for Xoft as well.

So I'll let someone else ask a question.

I may come back.

Thank you.

Thank you.

Thank you for your questions.

Our next question is from the line of Jared Cohen of JM Cohen & Co.

Please go ahead.

Thank you.

Yes.

Just two questions.

One, you didn't specifically talk about where you are with your CT CAD product in terms of outlook you didn't really talk much about it?

Sure.

The CT product obviously is approved and as I did make some comments in the opening remarks, we're seeing some very positive movement as it relates to Medicare reimbursement.

This large ACRIN study which was done several years ago and published had 2,600 patients that essentially got optical and virtual colonoscopy and there was comparison obviously of the accuracy of polyp detection using the two methodologies and they were deemed to be equivalent.

The big rub with that study, though, was that it was not called out if you will for the Medicare subset of patients of the 2,600.

It has literally taken several years for that information to finally be analyzed.

It was published back in the February, March timeframe and there were actually were 500 patients of the 2,600 that fit the 65 years and older category.

And it was also deemed that all those 500 patients that the performance of virtual colonoscopy versus optical was comparable in sensitivity in finding polyps.

That information is extremely important because that is going to be and has been the catalyst that the American College of Radiology has been looking for, to go to CMS and ask for reimbursement of the CT scan specifically for virtual colonoscopy.

So that process is ongoing.

With that said, as I mentioned, is a billing progress that has literally 11 sponsoring co-sponsors in the House for reimbursement mandate and there's two senators as well that are supporting us.

So we're somewhat optimistic that somewhere between now and next spring we may see reimbursement for virtual colonoscopy in Medicare.

That will really proliferate reimbursement with the private payers to even greater degree and should increase procedure volume significantly.

So in the quarter, we did sell eight licenses with Vital Images who is our largest partner at the moment.

Because of this more visible momentum, some of the larger companies that offer CT and workstation technology in advanced digitalization space and much more interested in continuing a dialogue with us such that they may be able to also offer our CAD on their platform.

So we're optimistic they were finally seeing some traction.

We're finally seeing some business and we would expect that that should continue.

We're also seeing an interesting phenomena where in Europe there is a strong interest in virtual colonoscopy CAD and the majority of the Vital Images sales actually were in Europe.

So we're kind of excited that some of the reimbursement barriers may be going away in the United States.

We're also excited that some of the interesting Europe is picking up as well.

Okay.

And what about some of your opportunities in China for your mammography product?

I know you have approval there.

Are you seeing any sales in China so far or?

We have seen some sales -- our approval in China is with GE who is our larger partner.

So pretty much so goes the GE business in China so goes our CAD business.

It has been a, I call it a slow, but steady amount of business since the approval, not a significant amount.

One of the interesting things as far as I think that GE is looking to establish manufacturing for mammography equipment in China right now and looking to put more focus on that market.

So we're hopeful with that additional focus we'll see more business.

It's been modest to-date and we think the potential is pretty significant and if they do create manufacturing presence there, beyond the obvious local manufacturing benefits, we anticipate that could also add to the CAD demand.

Okay.

Thank you very much.

Okay.

Thanks

Thank you very much for you questions.

(Operator Instructions) Thank you.

Okay, we do have a question from the line of Brian Marckx, Zacks Investment Research.

Please go ahead.

Hi, guys.

I'm getting in late, so I apologize if you've already covered this.

Relative to the MD Anderson study, has there been any thing -- any kind of headwind that that's created for Axxent or can you just kind of talk about what you are hearing in the market relative to that study?

It's a good question, Brian, I think as it was an APBI study, as I understand it, we have not really heard any real significant feedback.

There is a very clear distinction of course between APBI and IORT and while we do offer both, the level of interest we've seen in IORT has been dramatically more than what we've seen in APBI.

Here, the other comments I would say on that study is that the patient population size was very substantial but the actual number of patients that -- it was compared to in the APBI category was very small.

So, there's been a lot criticism of that study that the actual number of APBI patients being 10-fold less of those that got conventional therapy makes that comparison little bit misleading and difficult to interrupt.

So, I guess, the net effect would be to say that's not impacted the interest in IORT.

And we found that quite a few customers are distinguishing between APBI and IORT.

The interest in IORT is sometimes from first time interested parties.

It's also those that look at APBI or doing APBI that actually see IORT as a much more attractive procedure would like shift their patients to a certain degree to IORT.

So, at this point, given the momentum we had in the quarter, which we believe is continuing into Q2 really have not seen an effect.

Okay.

All right.

Thank you guys.

Thanks for your question.

We have no further questions waiting.

I'd now like to turn the call over to Mr.

Ken Ferry for closing remarks.

Thank you.

Thanks, operator.

I would like to thank everyone for their questions today and for your continued interest in iCAD.

As we've said 2012 is a particularly important year of execution for the company.

We look forward to delivering on our strategic plan and trust you will continue to follow our progress.

We look forward to speaking with you again when we report our second quarter results later in the year.

Have a great day.

And thanks for the call.

Thank you very much ladies and gentlemen.

That concludes today's conference call.

You may now disconnect your lines.

Have a good day.