IRadimed Corp (IRMD) 2016 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the IRadimed Corporation third-quarter 2016 financial results conference call. (Operator Instructions). As a reminder, this conference call is being recorded today, October 28, 2016 and contains time-sensitive information that is accurate only as of today.

Earlier today, IRadimed released financial results for the third quarter 2016. A copy of this press release announcing the Company's earnings is available under the heading news on their website at IRadimed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8-K. A copy of the Form 8-K can be found at SEC.gov.

This call is being broadcast live over the Internet on the Company's website at IRadimed.com and a replay of the call will be available on the website for the next 90 days.

The agenda for today's call will be as follows. Roger Susi, President and Chief Executive Officer of IRadimed, will represent opening comments. Then Chris Scott, IRadimed's Chief Financial Officer, will summarize the Company's financial results before opening the call up to questions.

Some of the information to be furnished in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on the future performance, results, plans and events and include the Company's expected results for 2016. IRadimed reminds you that future results may differ materially from these forward-looking statements due to a number of risk factors. For a description of the relevant risks and uncertainties that may affect the Company's business, please see the risk factors section of the Company's most recent reports filed with the Securities and Exchange Commission, which may be obtained for free from the SEC's website at SEC.gov. I would now like to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi.

Thank you, operator and good morning, everyone. Earlier today, we reported Q3 2016 revenue of $7.7 million compared to $8.2 million for the third quarter last year. We also reported GAAP diluted earnings per share of $0.13 as compared to $0.15 for Q3 of last year and non-GAAP diluted earnings of $0.14 per share compared to $0.19 for the third quarter last year.

As you recall, on October 4, we highlighted that we are experiencing a lengthening sales cycle, which we attribute to a sales strategy focus that we began implementing last fall. I'd like to summarize this sales approach discussed in detail during our previous announcement. The sales strategy centers around our sales team calling upon various critical care departments within hospitals we prospect in addition to calling on those radiology and anesthesiology departments that we historically focused on selling into.

The objective of this strategy is to expand the overall market by selling more pumps to each hospital and driving demand from departments who own many of those patients transported to MR on any given day. We believe that being successful at this approach will result in selling more pumps per MR scanner, increasing the overall size of the market.

One of the factors that we believe is causing our sales cycle to lengthen is that these critical care departments have never before been approached to purchase an MR-compatible IV pump and therefore, such a purchase is not currently a budgeted item. This situation is not unlike when we first introduced our device to radiology and anesthesia more than 10 years ago.

A second factor that we believe is also pushing the sales cycle stems from the very interest that we are generating from multiple departments within each hospital. Field reports regarding the interest in our pumps by the various critical care departments are positive and we see this in our tracking of sales opportunities and in the quoting details. Quoting details show us that multiple departments are interested in our pumps by including multiple pumps on many quotes; thus increasing the dollar values being quoted.

So not only are we working with departments having no pre-existing budget for the MR IV pump, but we must also pull together a greater number of decision-makers who must collectively move to secure more funds. We remain committed to this strategy and believe that these additional call points are necessary to drive growth.

To that end, we continue to work with our sales team on techniques that have previously proven successful creating a sense of urgency inside the hospitals and growing momentum that we created in the early stages of the sales cycle.

Now I'd like to provide a regulatory update and the status of the IV pump 510(k). As you may recall, during our second-quarter update, we discussed receiving a response from FDA on our appeal and were requested to revise certain messages to pump displays and then to review our implementation with the staff. After several attempts and delays to meet with FDA staff, we have recently had positive communications with the agency regarding their request and they have agreed to our proposed modifications.

We have made the necessary changes to the software and are running our revalidation procedures now. We anticipate submitting our full response to the FDA next month. Once FDA has reviewed the submission, we will work with them on the process of fielding the new software to our customers to ensure each pump is brought up to the current version of software as cleared by FDA.

Related to patient vital signs monitor 510(k), we previously announced the receipt of an additional information letter from FDA and we are continuing to work on addressing each of their points and still expect to submit our response in January. Based upon this timing, we expect to have sales of the patient monitor in the US during third quarter of 2017.

Before turning the call over to Chris, I would like to review our financial guidance for the fourth quarter. For the fourth quarter of 2016, we expect revenue of $6.5 million to $6.7 million; GAAP diluted earnings per share of $0.03 to $0.04; and non-GAAP diluted earnings per share of $0.04 to $0.06. We are leaving our full-year revenue guidance unchanged at $32.9 million to $33.2 million and adjusting our full-year earnings guidance to reflect our third-quarter results. We now expect GAAP diluted earnings per share of $0.54 to $0.55 and non-GAAP diluted earnings per share of $0.63 to $0.65. Now I'd like to turn the call over to Chris for a summary of our financial results.

Thank you, Roger. Today, I will be discussing our financial results on a GAAP basis, as well as on a non-GAAP basis. Our non-GAAP operating results exclude stock-based compensation expense and the related tax effects. Our free cash flow measure is cash flow from operations less cash used for purchases of property and equipment. We believe the presentation of these non-GAAP measures, along with our GAAP financial statements, can be helpful in providing a more thorough analysis of our ongoing financial performance. You can find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today's press release.

As Roger stated, we reported third-quarter revenue of $7.7 million compared to $8.2 million for the third quarter last year. Approximately $3.4 million of Q3 2016 revenue came from backlog while approximately $2.4 million of Q3 2015 revenue came from backlog. Revenue from domestic sales was approximately $6.9 million, or 90% of total revenue for the current quarter, compared to approximately $7.7 million, or 94% of total revenue for the same quarter in 2015.

Revenue from devices was approximately $6 million, or 78% of total revenue for the current quarter, compared to approximately $6.9 million, or 84% of total revenue for the same period last year. Revenue from IV sets and services was approximately $1.7 million or 22% of total revenue for the current quarter compared to approximately $1.3 million or 16% of total revenue for the same period last year.

We recognized revenue on 184 IV pumps this quarter compared to 248 pumps in the third quarter last year. Our average selling price for the 2016 quarter was approximately $32,000 compared to $27,600 for the 2015 quarter. Gross margin was 81.7% for the 2016 quarter and 80.6% for the 2015 quarter. The increase in ASP and gross margin percent was the result of a favorable sales mix as customers purchase more accessories with each pump order than in the comparative period. This was partially offset by higher international sales in the current quarter compared to the prior-year quarter.

Operating expenses for the third quarter of 2016 were $3.7 million, or 47.9% of revenue, compared to $3.4 million or 41.5% of revenue in the prior-year quarter. This increase primarily relates to higher salaries and benefits as the number of employees has increased and higher corporate franchise tax expense. These increases were partially offset by lower stock compensation expense, lower medical device excise tax expense and lower research and development costs related to the capitalization of certain software development costs.

At the end of the third quarter 2016, we had 78 employees compared to 64 at the end of the same period last year. Our effective tax rate for the current quarter was 39.7% compared to 42.9% for the 2015 quarter. The lower effective tax rate is primarily due to a reduction in our income before provision for income taxes during the third quarter of 2016 and higher research and development tax credits partially offset by lower domestic production activities deductions.

On a GAAP basis, net income for the current quarter was $0.13 per diluted share compared to $0.15 per diluted share in the 2015 period. On a non-GAAP basis, net income was $0.14 per diluted share for the third quarter 2016 compared to $0.19 for the prior-year quarter. Weighted average diluted shares outstanding decreased by approximately 515,000 shares compared to the 2015 quarter.

For the nine months ended September 30, 2016, cash provided by operations was $7.2 million compared to $5.1 million for the 2015 period. Our free cash flow, a non-GAAP measure, was $3.3 million for the three months ended September 30, 2016 as we had higher net cash inflows for certain operating assets and liabilities partially offset by higher CapEx related to tooling in anticipation of the patient monitor production runs. As of September 30, 2016, we had $23.8 million of cash and investments. And with that, I will turn the call over for questions.

(Operator Instructions). Chris Lewis, ROTH Capital Partners.

Good morning. Thanks for taking the questions. Just (inaudible) on new bookings and new bookings trends. Obviously, Roger, you mentioned in your prepared remarks that new bookings have continued along with recent trends. Fourth-quarter has historically been your best booking quarter, I believe. So I was hoping you could just elaborate on what you are seeing in terms of the new booking orders, new trends of bookings so far this quarter versus third quarter. Thanks.

Yes, so we were just discussing that. So when you compare it to the first month of last quarter, we are doing quite a bit better on the one hand, but that wasn't too hard to do because the first quarter of last year was in the middle of the summer and one of the weakest points to measure from. So it's not too hard to do better than that. But we are just now approaching the last week of the first month of the quarter and early this month, we did put in some -- we highlighted the urgency to the salesforce and we did put in a few, let's say, motivational spiffs to help things along and so far, it appears to be doing that. This month is running way ahead of the first month that we would have had last quarter. But I will let Brent maybe speak to that just a little bit as well. He's our VP of Sales and Marketing.

To echo what Roger said, we are seeing stronger bookings this quarter. Q4 is typically in the -- and not just for us, but the capital cycle in the hospital is typically -- seems to be the strongest quarter for most companies. So again, running at our expectations and we expect to see a stronger quarter this quarter and October is starting off well.

All right. That's good to hear. If I back out just the backlog sales and the disposable services component from third-quarter total revenues, you get in that $2.5 million to $3 million range in terms of new pump sales during the third quarter. Understand that was softer than you expected. I guess first, two parts. First, is that math the reasonable way to think about it? And then, second, I know you are not ready to give 2017 guidance, but any color you can provide on just general expectations about the growth rate for that underlying pump business, excluding backlog and disposable services going forward would help. Thanks.

Chris, I think your math seems to make sense, taking total revenue, backing out the change in sales and then taking out (inaudible) and service to try and get to the -- what a truer pump sales number is. That all seems to make sense with how we are looking at things in here. Brent, do you have any thoughts about 2017 and where that might lead us, growth rates in bookings and how folks should think about 2017?

Sure. Again, as we've been talking about this critical care strategy that we've been employing, we are in an area right now where we don't have a lot of budgets. We are having to go out and get special funds, contingency funds and it's tough to get these orders. Now, rolling into next year, we are going to be in a lot more budgets. This is the groundwork that we've been doing this year and next year, we are going to show up in the budget. Now, we still need to make sure we float to the top of the budget and we stay high on the priority list and that all comes back to follow-up and that's what we've really been driving home with you guys is how to continue, once we get that initial interest and excitement, we pull those meetings together, we get people putting it in their budget. Now it's all about follow-up, follow-up, follow-up to make sure that we remain there.

But, again, really, again, seeing the positive signs there. The new business that we are putting into the prospect bank, the quotes that are going out to customers, all that shows positive -- a lot of positive signs for 2017 and, again, I believe we are going to deliver much stronger sales.

All right. And just a follow-up to that. The critical care department budgets, do most of those turn at the end of the calendar year, meaning should we expect a bump in terms of the inclusion of your products in those new budgets as they roll out into 2017?

Chris, I think that 12/31, end of the calendar year, is the end of a fiscal year for many institutions and it's the most popular, but there is still, again, other institutions out there that have end of March, end of June, end of September dates. So you see a lot of that out there. But I would say a large majority is the end of the calendar year. So, yes, I think at the beginning of January we are going to start to see some more of that.

Okay. Thanks, guys. I will hop back in queue.

Larry Solow, CJS Securities.

Great, thanks. Certainly you guys have identified the longer approval cycles and longer selling cycles and it seems like the key issue there, or, in many cases, it's not in their actual budget, which would I guess imply that hopefully as fiscal years turn, some of these at least get into their budget, but are there other issues you are facing that's extending the sales cycle and might there be issues in getting the hospital to put it in the budget so fast? Might it take a while before that happens too?

I think we've been paying that piper already as far as long to get it in the budget. We started to see, as I said, these multi-pump orders from multi-departments we started to pursue over a year ago and that's been an ever-increasing percentage of what we have in our prospect bank and in our quoting bank. So we've been in that now for quite a while and obviously, some of it is coming out the other end already and has been coming out the other end, but not at the level that they are going in and not at the level that anyone appreciates to get the business showing some real revenue growth. So we've been in that a long time. Maybe the question is how long do we need to be in there.

I guess the question is -- it sounds like you definitely expect some inflection point. If your quotations are up 2 to 3 times, it sounds like an inflection point will come, it's just, I guess, a matter of when, right?

Clearly we feel that. Yes, and I think also it's been pretty clear from what I said earlier in the month at our last call, we probably fell on our sword a little bit in this gap in between generating interest and generating people that want quotes and recognizing the difficulty, if you will, of taking more players through the process to get more dollars budgeted.

Right. Okay. Just to follow up on Chris' question. Obviously, doing the math, it looks like about $2.5 million in sales or so this quarter -- maybe a little more -- of actual sales and then about $4 million next quarter, plus the disposables. And this full year looks like you are going to do about $14 million plus the disposables, which would total about $20 million in true sales. So would you be happy with a $25 million total revenue number next year? Without blessing that as guidance, that's pretty good growth, right?

In the pump?

Just on the pump side. Obviously, the monitor is the wildcard.

Well, I think what we are saying is that, for this year, if there really is $13 million of backlog in this year's revenue, that tells us that our business was at $20 million. So to go from $20 million to $25 million, you are looking at 25% growth without -- that's just the pump business without the monitor.

Right. That's an aggressive number. So it's probably somewhere in that -- but you do expect growth off that $20 million. Is that a fair statement?

We expect the growth off of the $20 million, yes.

Absolutely, yes.

So the $25 million is too high? I'm just trying to put higher perimeters in than -- okay. Just a couple more questions. The average price, $32,000. Obviously, I think it started the year at like $30,000. I know your mix is better, more the US now, but your mix outside the US has never been that high, right? And then some of the higher disposables are helping I guess a little bit, but is there anything else in there? Are you guys pricing higher on the pump itself, or are they getting more bells and whistles, or anything else that's driving up a pretty considerable price increase?

There's been modest changes in pricing over the year. When I am referring to the sales mix, we have more customers today that are buying more of the accessories, which is I think what I referred to in the comments. So we talk about the geographical sales mix with international and domestic and what percentages of total revenue they make up, but it's more of -- we are selling more of these accessories and that's, I think -- the sales team is really going out there and focusing on pushing these customers into buying the accessories that we think they need.

Got you. (multiple speakers) Okay. Gross margin actually held up surprisingly pretty well even with a little bit of a decline in sales. Do you expect that to continue or is that just a lag effect and you will see a little bit of a slippage going forward with lower sales?

Yes, I anticipate margins will be somewhere in the mid-70%s in the fourth quarter. We just have fewer units absorbing for the most part the same amount of overhead, so we do expect some decreasing gross margins in the fourth quarter and going forward.

Okay. And then, obviously, you've added quite a few new bodies to your salesforce. I don't know if you can share an update on where you stand today on that. I think it was 18 if I'm not mistaken, or 19 and then your thoughts as you look out into 2017? Clearly a little bit lower revenue base, but you are a growing business, so I would expect in the long run you would like to grow your salesforce some more. So any thoughts to that?

Yes, in the long run, we will, but I think we messaged a few weeks ago that 2018 is where we are going to flatten out now and we're going to -- any changes, any increases from 2018 will be dependent upon how the business is looking and the launch of the patient monitors. I think we are done expanding the sales team for this year until we start to see those other signs of the business coming through.

Got it. Okay. Great. Thank you very much.

(Operator Instructions). Larry Haimovitch, HMTC.

Good afternoon, gentleman, or good morning, sorry. So I'm a little confused at this point and the confusion is this. As I understand it, most of the backlog has been chewed up and shipped. You've shifted your whole selling process over the last several months to encompass bigger parts of the hospital where you are going to be getting larger orders. And I understand that; that's all very clear.

But, Roger, you said just a couple minutes ago that it looks like October has been a very, very good month and you mentioned something about motivating the salesforce. I am not surprised that it's working, but I'm surprised that it's working so quickly. Maybe it's something that's been going on historically and you've been able to do something with the sales reps, but I would think that that shift and that momentum in that newer area of the business would take a little longer to get going versus the historical business. So that's my question, or that's my confusion. I hope you understand my confusion.

Sure, Larry. No, let me go over that again. So I think the first thing I said is maybe it's not -- I mentioned what we did as far as motivating the salesforce and offering some spiffs, but I think first I said it wasn't too hard to beat on the comparative basis first month of last quarter to the first month of this quarter because that was -- that's really more or less -- that's a cakewalk to compare to. This is our fourth quarter. More business just conventionally comes in in the fourth quarter. People are back from holidays.

So on the other hand, I don't want to say that we've been all that smart or accurate with what we did to motivate the salesforce and offer some incentive to our customers, but I hope you can appreciate that we are probably also a bit fortunate just with the timing.

Okay. All right. That helps a little bit. I joined the call just a tad late. I don't know if you provided any update on the FDA status situation with the monitor. Did you provide that? If you did, I can take it off-line. If you didn't maybe you could give us a quick update.

I think I covered it pretty well. It's quite simple. Yes, the long and the short of it is is that we are doing as we said a month ago, no real change in that effort. We will get that response in in January and we hope to be cleared and certainly selling or seeing revenue from the monitor in the domestic market in the third quarter.

Okay. And then maybe one follow-up question to that, Roger and maybe Brent can address this. When the monitor gets FDA approved, and God willing it will be approved hopefully first few months of next year, at that point, your salesmen will have a new toy, a wonderful product. I've seen the product; it looks wonderful and it looks like it's going to be very, very competitive. And so will the salesmen get distracted with a new toy, a new product, which salesmen typically do, something that should be fairly easy to sell because it's got such better features and benefits and maybe take their eye off the ball a little bit in what they are doing now in trying to get multiple orders via critical care and other parts of the hospital? Have you thought that through at all, Brent? I'm just wondering what thoughts you might have on that.

Sure, Larry. Yes, that's a great point. Remember though that that call point for the monitor does not take us out of our current call pattern. We do continue to call on radiology. We do continue to call on anesthesiology, which are the two biggest drivers for the monitor purchased in a hospital. So these are continuing call points. This is not like we are making a major shift to talk to these folks. It's part of our daily call point.

So, as you said, yes, anytime a salesperson gets a new product in a new area, it's very enticing and it's attractive for them to work on and that's where myself and my two area directors that I have in the field and our comp program for next year needs to focus them in the right direction and focus them on continuing to maintain the high activity levels with critical care. That comes down to sales management and that's what we will be doing.

Okay. And then just one more follow-up if I could. Chris, do you have any -- in your budgeting for 2017, do you have any assumption of monitor sales that's in the budget?

I won't be budgeting or forecasting any monitor sales until the third quarter of next year.

Okay. So we shouldn't expect anything in the first half, but beginning of second half, you --.

In the US, that is. There will be international sales beginning this quarter; fourth quarter is what we are pushing for. But, again, those will be (technical difficulty) lower prices and representing -- not representative of a typical margin pattern and things like that. First and second quarters, yes, we will be pushing the monitor internationally and I will at that point build in some what I think will probably be some pretty nominal monitor sales.

Okay. Great. Thank you, Chris.

Chris Lewis, ROTH Capital Partners.

Thanks for taking the follow-up. Just a couple on the pump reapproval likelihood. So I think you said you are expecting to submit your response next month. Any sense of how long it's expected to take for the FDA to finally sign off on that new approval for the pump? Roger, in your prepared remarks, you talked about going back to the customers and updating their products in line with the new clearance. What does that process entail and are you going to need to update or replace devices in the field, or how should we think about that?

Sure. Good question. So I pushed them a bit when we had that call with them last Monday. At the end of the call, once they had agreed -- it was a very short call; took eight minutes or something -- that they simply agreed that what we sent them is photographs of how the screens will look, it's okay. But I pushed them a little bit on what the process would be then once we handed it back into them early next month and tried to get a feel for how long. So they basically gave me the canned response that there may be some administrative things to be followed up on and what we take that to mean is they will want to discuss how do we deliver this new software to the existing base.

We've had some discussion, of course, with them in prior months, prior discussions even as much as a year ago, that some in the FDA would want us to distribute it out to all the existing customers. That's a recall of sorts to update the software, though we don't actually get anything back here. We simply send out a little SD memory card with the new software. The users plug it in and it updates in the field. It could vary from that administrative detail, in other words that they hinted at on the call last week, to maybe we just make it an ongoing change and we cut it in ongoing.

Here internally frankly we would sort of prefer to actually do an update for all the units in the field and distribute this. Now, whether we call it just simply a field software update or we call it a recall, that's what they will guide us to. Either one, we behave the same essentially; costs the same and is performed in the same fashion by sending out this memory. So does that answer your question?

Yes. That's helpful. Thanks.

Just to add to that, Roger mentioned the cost of fielding this new software -- these are things that we've already started to accrue for and adjust each period, so you shouldn't expect a big pop once we go through this.

Okay. Yes, that was my next question. On the warning letter outstanding related I guess to the recent facility inspection, can you just give us to an update there on what are your latest expectations and timing?

Yes, I should have included that earlier. Sorry. Thanks for reminding me. Yes, we have that going on also simultaneously with doing the V&V, the validation of the software change to the pump and submitting that in the next 10 days, two weeks or so, early November. We also want to submit our final responses to the open issues from that inspection we had back in July. And that's being prepared and closed out also right now, so we anticipate getting that to them in the early part of November as well. So once we have that, that more or less closes the loop from our side on the issues from that warning letter follow-up inspection that we had in July. So then it's a matter of waiting and seeing what the FDA's next step is and there's just no way to predict that. That could take -- that typically takes a few months.

Understood. Just one more for me. Chris, maybe a question for you. If I look at the fourth-quarter guidance, implies a non-GAAP operating margin in the mid-teens if my math is correct. You've been running obviously in the high 30%s, low-40%s range here over the past year or two. Obviously, going forward, the revenue outlook has some unfavorable impact along with maybe gross margin. So as we think about op margin going forward into 2017, any commentary you can provide where we should expect op margin to trend into 2017? Thanks.

I think from an OpEx side -- let me talk about it from that side first -- I think we will see just some natural decline in OpEx just because we are wrapping up a few things here. I would expect a reduced R&D expense as we get closer to wrapping up the monitor development, so the way that Roger has been able to scale the engineering department, I think there's some room there for a reduction in costs next year when compared to this year.

With lower sales figures, I would expect lower commissions to be paid out on the sales line. So I think there's some reduction in costs that we will see there. And then on the pump 510(k), we've been dealing with that for a couple of years now and running at higher expense rates than normal. So if we do get this thing wrapped up this year or early next year, or whatever that timing falls out to be, I would expect to see some natural decline in our regulatory costs associated with just dealing with the 510(k) and all the related outside testing and outside consulting that we've incurred over the past year or two.

So I think that there's some natural decline. I don't think that you will see dramatic decline. We could come in probably $0.5 million to $750,000 lower than the type of run rate that we are expecting this year, so those are, I guess, some high-level thoughts on what I'm thinking about next year.

All right. Thanks, guys.

Michael Potter, IRadimed.

Obviously, a lot of thorough questions on the call so far. I was hoping that you can give us a couple of examples of the successes you have had with the new marketing program where we are actually seeing orders of 8, 10 plus units coming from a hospital instead of the historic one, two, three units. Can you show us some examples why you are so confident that this new sales approach is working?

Sure.

Specific hospital example?

It could be any example you'd like.

Yes, again, we've had numerous situations where we have been successful as we were talking about before with getting through an emergency fund purchase, let's say, so that begin typically where that has worked is, number one, a large institution because to drive sales of five plus pumps is typically a larger size institution, something 300 to 500 beds at least and what we've done is we've basically done exactly what we talked about and that is getting to the critical care departments, pulling together a group of decision-makers, which include critical care, radiology, sometimes biomedical engineering, many times the pharmacy department because we are talking about infusing medications and getting that team together and providing them with the written input that we've gotten during the individual meetings at the hospital and putting that together.

We usually do that in what we call a SBAR, situation background analysis and recommendation, something that hospitals are very used to using and it speaks to their vernacular, and putting that altogether and getting that group of decision-makers together and then finding the -- what typically has been happening is they are finding general funds in the hospital. It's not coming from any one budget because, as we said, there are no budgets for purchases of this size and again, when you are talking about five pumps, especially at the increased average that we've got now, we are talking about sales of close to $200,000.

So it has worked in a number of situations successfully and again, that's what gives us confidence and that's why we are so bullish on next year because this is even without budgets, having this kind of success. Now, when we do again get these sorted out into the normal budgetary cycle of the hospital, this should become a lot easier and instead of having a handful of examples, we should have a whole lot more.

Okay. And as you mentioned, this new sales strategy has been ongoing for about a year now. We are now entering most hospitals' budgetary cycle Q4 and Q1. So I'm assuming the expectations are very high at this point that we are going to really see a rampup in orders?

You've got that right. We definitely do.

Yes, and as we talked about, again, the majority of fiscal budgets are December, January. They do happen throughout the year though in other quarters, but, yes, we definitely expect to see some pickup and, as we've discussed through the call, expect higher revenues.

And these orders now are, from the example that you gave, five pumps is a $200,000 approximate order and I'm assuming there are probably many that are significantly larger than that, especially for much larger group hospitals or -- if you will?

Sure. We have some that are higher than that, but again typically when you are going into a hospital and you've got -- let's say you've got one magnet or two magnets, a sale of five pumps is still really more than 2X what our average has been in the past, so that's still again a pretty significant increase. And that's a good size order. We've done lots of business -- we have a customer out there we've done $2 million worth of business with, but again that's a lot of orders and that's not typically one enterprise order that takes place through an IDM. That's a lot of individual orders coming from individual hospitals within those integrated delivery networks.

Got it. Okay. Chris, a question for you. You've done a great job managing the cash flow of the Company this year and it seems to be we are right on target for the free cash flow generation. Should we assume that Q4 will continue that trend of being free cash flow positive?

Absolutely it will be free cash flow positive, although not at the level that I was anticipating earlier in the year. I think in the past I told everybody I was shooting for $10 million cash from operations this year. I think we could probably be closer to $8 million, $8.5 million for the full year when factoring what the fourth quarter looks like.

Okay.

But, yes, we will be cash flow positive next quarter.

All right. Terrific. All right, guys. Thank you and keep working away.

Larry Haimovitch, HMTC.

Earlier this year, you guys did a pretty large share buyback. The stock is back down again. You do have pretty good size cash balances. Any thoughts on that, Roger?

Well, we've kicked it around. I guess, in our minds, we didn't seem to move the needle much when we did the buyback we did earlier in the year and so we are not in a big hurry to consider that until 2017.

Okay. Fair enough. Thanks.

I'm showing no further questions.

Okay, thank you, operator. I'd like to say again that we remain committed to our sales strategy and believe that it is the correct approach to increasing our sales growth. And thank you all for participating in today's call. We welcome the great questions and comments and Chris and I look forward to reporting -- and Brent as well -- look forward to reporting back to you again in February.

Thank you. This concludes the call. Please disconnect.