IRadimed Corp (IRMD) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the IRADIMED Corporation fourth-quarter 2016 financial results conference call. (Operator Instructions) As a reminder, this conference call is being recorded today, February 6, 2017, and contains time-sensitive information that is accurate only as of today.

Earlier today, IRADIMED released financial results for the fourth 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 on 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 present opening comments; then Brent Johnson, IRADIMED's Executive Vice President of Worldwide Sales and Marketing, will discuss the customer orders; and finally, 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 contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on 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 those forward-looking statements due to a number of risk factors.

For a description of the relevant risk 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 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, you may begin.

Thank you and good morning. Earlier today we reported fourth-quarter revenue of $6 million as compared to $8.8 million for the fourth quarter last year. We also reported GAAP diluted earnings per share of $0.10 compared to $0.19 for the fourth quarter last year and non-GAAP diluted earnings per share of $0.11 as compared to $0.22 for Q4 last year.

While revenue was slightly below our pre-announcement and both GAAP and non-GAAP earnings are higher than our guidance, we still are disappointed in these results, as I have shared with you before. Consider, however, as stated previously, interest in our MR IV pump systems remains strong. It is the conversion of this interest into customer purchase orders that remains difficult.

To address this issue, we conducted a complete review of our sales process and techniques in the second half of 2016. We learned much through this review and have taken steps to enhance our sales strategy and better develop our sales team so that we can return to appreciable revenue growth with our MR IV pumps. Brent Johnson will have more to say about this with additional color around the impact of the events that we have benefited from over the past three years.

On other fronts, we have had some very positive news regarding our 510(k) clearance for the IV pump and the first shipments of our MRI compatible patient vital signs monitors. On December 19, we announced that we had received FDA 510 clearance for our MRidium 3860+ MR IV pump system including dose rate error reduction system software feature.

This is a tremendous resource relief and allows us to refocus on our MR patient monitor 510(k), taking steps to ensure its successful US launch and furthering the development of other new products from our pipeline.

The warning letter, however, remains in place. At this point, though, we have provided FDA with all of the information and documentation that they have requested with, however, continued working through the final steps associated with the re-mailing of a safety alert instruction card originally issued to customers during 2012 related to our IV tubing set, which was also part of the warning letter follow-up inspection conducted in July.

We do not have an estimate of what the FDA's next steps might be or when they will close the letter, however, we do not feel that having an open warning letter is impacting business. We also believe that IRADIMED will not be negatively impacted by FDA's next steps to close the letter.

The second piece of positive news was an announcement of the first shipments of our MRI compatible patient vital signs monitor to international customers late in December. These shipments marked a milestone in the Company's history.

For US 510(k) clearance, we continue to work with FDA and respond to their questions and information request made just prior to fourth quarter. We anticipate submitting our full response to their additional information letter in the next several weeks and continue planning the launch sales of the MR monitor in the US during third quarter of 2017.

Our goal is to move away from the single product offering and diversify our revenue streams with additional MR compatible products. The international launch of our MR monitor, its planned US launch during Q3, and our existing new product pipeline are all progress towards achieving that goal.

With that goal in mind, I think it is worth reviewing the MR IV pump addressable market once again. We still believe that there is an opportunity for an additional 18,000 pump systems to be sold into the global market. Assuming an average 20% annual increase in unit sales growth, it would take approximately eight to nine years to achieve full penetration of this market and, at that point in time, approximately 3,000 IV pump systems would be sold annually.

Using our current annual ASP of $30,500, and including expected sales of IV sets and services, revenue from this business could eclipse $120 million.

Before turning the call over to Brent, I would like to review our financial guidance for the first quarter and full-year 2017. For the first quarter, we expect revenue of $5.2 million to $5.3 million, GAAP diluted earnings per share of minus $0.01 to minus $0.02 and non-GAAP diluted earnings per share of $0.00 to $0.01. For the full-year, we expect revenue of $23.9 million to $24.3 million, with GAAP diluted earnings per share of $0.78 and non-GAAP diluted earnings per share of $0.14 to $0.18.

Now I will turn the call over to Brent for a deeper discussion of customer orders.

Thank you, Roger. As Roger just mentioned, we performed a complete review of our sales strategy during the second half of 2016 and, resulting from this review, we implemented a number of enhancements that we feel will result in increased multi-pump orders.

We recently held our national sales meeting here in Orlando where I was able to take all the lessons learned through that review, organize the information and present a formalized sales strategy to the sales team that is aimed at converting interest in our pump into confirmed purchase orders.

As we have discussed before, the sales process today is much different than what we experienced over the past three years, during the time our former competitor was leaving the market. A successful sales process today requires different techniques and skills.

During the national sales meeting, we discussed this new strategy in detail, provided evidence of what it takes to close on a more complicated sale involving multiple people from multiple departments, and armed the sales team with the tools and knowledge needed to execute on these techniques. We feel confident in the team's ability to implement this strategy and are ready to make further enhancements, if needed.

In recent public announcements, we have quantified the amount of revenue that came from backlog, allowing for an analysis of revenue from turns. One issue with this analysis is that a portion of the turns revenue still came from our sales to former competitor customers as these customers converted to our MRI compatible IV pump.

I have analyzed the composition of our 2016 customer orders and estimate that orders from customers of our former competitor have dramatically decreased throughout the year, a trend that first appeared in 2015, and declining from approximately 17% of orders during Q1 to approximately 1% of orders during Q4.

We view this decline as highly positive and as an indication that we are moving beyond the business of addressing those conversion customers and are now penetrating the market of first-time adopters more deeply. First-time adopter customers represented the majority of our orders in 2016 followed closely by orders from our current installed base of hospitals, which we see as a healthy mix. This trend, coupled with our comprehensive sales strategy, bodes well for sustained revenue growth.

We are excited about the anticipated Q3 release of the MRI compatible patient monitor in the US market and encouraged by the interest and the orders we are currently seeing in the international market. We estimate that the current worldwide market for MRI compatible patient monitors is approximately $100 million per year based on the current one-monitor-per-MRI-scanner ratio.

After adjusting for nominal annual market growth, and our belief that by employing the same multi-departmental strategy as with our MRI IV pump, and leveraging our unique offering as the only small, portable MRI compatible monitor, we can expand the market beyond the 1-to-1 ratio and grow the overall market to approximately $200 million annually, and we expect to take a significant portion of that increased market size.

Now Chris will provide a summary of our financial results.

Thank you. 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 fourth-quarter revenue of $6 million compared to $8.8 million for the fourth quarter last year. Revenue from domestic sales was approximately $5.1 million or 85% of total revenue for the current quarter compared to approximately $7.6 million or 87% of total revenue for the same quarter in 2015.

Revenue from international sales was approximately $0.9 million or 15% of total revenue for the current quarter compared to approximately $1.2 million or 13% of total revenue for the 2015 quarter.

International revenue for the fourth quarter of 2016 included approximately $100,000 related to the first shipments of our new MRI compatible patient vital signs monitor. Revenue from devices was approximately $4.3 million or 72% of total revenue for the current quarter compared to approximately $7.2 million or 82% of total revenue for the same period last year. Again, approximately $100,000 of device revenue came from sales of our MRI patient monitor.

Revenue from IV sets and service was approximately $1.7 million or 28% of total revenue for the current quarter compared to approximately $1.6 million or 18% of total revenue for the same period last year.

As of December 31, 2016, backlog was approximately $1.6 million and we expect that backlog throughout 2017 will approximate this amount. We've recognized revenue on 128 IV pumps this quarter compared to 271 pumps in the fourth quarter last year.

Our average selling price for the 2016 quarter was approximately $32,600 compared to approximately $26,700 for the 2015 quarter. The increase in ASP is the result of a favorable sales mix as our sales team has been successful at selling more accessories and options with each pump sale.

Gross margin was 78.2% for the current quarter and 83% for the 2015 quarter. The decrease in gross margin percent was the result of unfavorable inventory adjustments due to lower production output, anticipated expenses with fielding new software package for IV pumps resulting from the 510(k) clearance, and higher international sales as a percent of total revenue than in the 2015 quarter.

Operating expenses for the fourth quarter 2016 were $3.2 million or 53.1% of revenue compared to $3.9 million or 44.9% of revenue in the prior year quarter. On a dollar basis, the decrease in operating expenses relates to lower stock compensation expense as certain awards were modified during 2016 resulting in mark-to-market treatment, lower R&D expense as certain internally developed software costs were capitalized for GAAP purposes, and lower payroll due to lower bonuses and lower medical device excise tax expense.

Our effective tax rate for the current quarter was 24.7% compared to 27.5% for the 2015 quarter. The lower effective tax rate is primarily due to lower-than-anticipated income before the provision for income taxes. On a GAAP basis, net income for the current quarter was $0.10 per diluted share compared to $0.19 per diluted share in the 2015 period.

On a non-GAAP basis, net income was $0.11 per diluted share for the fourth quarter 2016 compared to $0.22 for the fourth quarter 2015. For the full-year 2016, cash provided by operations was $9.4 million compared to $7.6 million for the 2015 period, as we had higher net cash inflows from deferred revenue and certain operating assets and liabilities, partially offset by lower net income.

Our free cash flow, a non-GAAP measure, was $2 million for the fourth quarter 2016 compared to $2.5 million for the 2015 quarter. As of December 31, 2016, we had $25.7 million of cash and investments.

With that, I will now turn the call back over for questions. Kevin?

(Operator Instructions) Larry Solow, CJS Securities.

Hi, good morning. I was wondering if you guys, or maybe Brent, can maybe not go right into specific details, but maybe share a little bit of color on some of the change or some of the new initiatives on the sales process side of it; anything would be great.

Yes, sure. Let me just kind of recap a little bit here. As Roger discussed, we have got a tremendous amount of interest in this device, in our MRI compatible IV pump, and we continue to see that from customers, but the problem is just translating that into a purchase order.

And, as we were saying, the business has changed a lot over the last couple of years and what we did is we really tried to analyze where -- from this process of turning this interest into a purchase order -- what do we need to do better? And one of the things that we found is that we really need -- needed to do additional work on breaking down the current practices so that the current practice isn't good enough, if that makes sense.

As we have talked about, everybody has got a way of working around a pump, they are either using long lines and stringing a conventional pump from outside the MRI, or they are just not taking patients down to MRI and they are making diagnoses without MRI on patients that are critical patients that can't come off meds.

So we really dug into that and that's one of the things we concentrated on was giving the sales managers tools and support information not only for them, but to arm customers' efforts to get -- to help them get dollars from administration on this. So, in other words, make the problem a big enough problem so that it gets -- it can't be overlooked or it can be re-prioritized.

So that is where a lot of our work came at the meeting, is again giving them tools to do that. Additionally, what we really found was that we needed work on making sure that we had identified the right person to really lead this effort within the institution, because -- we have talked a lot about this. This is a radiology product, right? But we are going to the ICU; we are going to these critical care departments; we are going to the ED department, the emergency department.

We are concentrating on these folks because these folks are really the drivers. These folks own the patient. These are the -- this is where we are going to find that passionate ally that is going to help us get the deal through the institution.

So, additionally, we really focused on helping the salespeople to identify the right mobilizer or the right customer within the organization to help sell the deal internally in the hospital and to really -- again, once again, arm that customer with the information that they need to get that done.

So, in other words, what we really did is we distilled the program down to a step-by-step approach, I mean down to call scripts with the guys, better focus -- what we call SBAR justification -- situation, background, analysis, recommendation. We really standardized our tools better so that our salespeople can more easily follow them.

We have got some outstanding salespeople out there and some people that have taken to this approach quicker and have helped to make this strategy, but what we are trying to do is we are trying to institutionalize that now with our other salespeople, giving them better support materials, better focus materials to help them get the job done. Go ahead.

And I assume some of these materials include probably -- I don't know what kind of economic -- obviously, there is economic benefit, but I don't if you have -- if you can share data with them on the savings or -- I don't know how that -- but I do assume at the end of the day, it's obviously qualitative better care, but better care usually also means savings to the hospital, right?

And there is. I mean there is -- once again this is -- our main thing is a safety play here, right? And that is our main thrust, our main approach; it is not a cost savings, but cost savings is certainly a part of our approach and -- everything from an earlier diagnosis, getting a -- by some place that doesn't send patients down to the MRI to get diagnosed or to get a scan, may have a more difficult diagnosis with that patient, not get them out of the ICU as quick.

More days in the ICU means more losses to the hospital, now because, again, they are only getting X amount of dollars for that procedure whether the customer -- whether the patient is in the ICU for 10 days or two days. So there is many parts of it that does include that and we certainly bring that to bear as well. We have got a better ICU-focused brochure now that we just introduced that is really helping the guys.

The other thing I wanted to point out too is -- remember, we have got a young sales team here, too. I mean young -- when I say young in experience; 10 out of our 18 sales managers have less than one year of experience and that ranges from a month of experience to 11 months of experience, of course, but we still have a sales team that is fairly young in tenure and we expect to get a lot of sales productivity growth during the year, just from these folks getting more and more time under their belt selling here at IRADIMED.

And do you expect -- I guess there has been some turnover on the salesforce, do you expect to, outside of maybe a little more turnover -- hard to predict that -- but to increase that salesforce during 2017 or kind of keep it at a constant rate?

We are looking at doing some more expansions in the second half of the year when the patient monitor comes online.

Okay. And then just last question, I don't know, just maybe anecdotally even. I know it is clearly much more of a missionary sale now that you have gotten most of the [med cap] replacements. I think one of the issues you guys are coming up against also was that when hospitals are interested, oftentimes departments outside of the MRI suite didn't have it approved in their budget.

Obviously, we are only a month into the new year, but -- and I'm not saying we're going to see orders increase -- but have you heard -- spoke with customers or anything where they can actually tell you that at least the MRI compatible pump is now in the budget or any thoughts to that?

Yes, and we are tracking that very closely. We've -- I have had all of our sales managers breakout opportunities that we call multi-pump opportunities and quantify it -- we haven't quantified that with a dollar volume; that puts us at least at two pumps and above, but we are looking at those sales very, very closely. We have got the fiscal years identified with all those customers and we are watching that closely.

And, yes, we have had some things come through budget and some things approved and we expect that that will become more and more commonplace as we move on into the future, beginning this quarter and quarters to follow.

Great. Okay, great. Thanks a lot.

Sure.

Chris Lewis, ROTH Capital Partners.

Hey, guys. Thanks for taking the questions. Appreciate the commentary; very helpful. Brent, maybe you could just quantify the turnover you have seen maybe here over the past quarter or two and your expectations or plans for potentially further salesforce churn in the near-term in order to improve the productivity and kind of turnover some of those less productive reps that aren't taking as productive of hold to the new sales strategy as some of the other ones?

Yes, sure, Chris. Remember too, when I talk about the composition of the sales team, we have got expansions built into that. We have got a couple of sales management promotions because I promoted two salespeople to area director positions.

So the fact that we have got 10 new salespeople, a smaller part of that is because of turnover. But we have had some turnover and, what I would say to that is, again, as we have kind of talked about, the sale has changed a lot. It really has gone from being a radiology call point to a lot more focused in other areas.

Obviously, radiology is still a call point, we go to radiology every day, but the focus is outside there; the focus is on these critical care departments. The focus is on these other departments and, frankly, we had some salespeople that were more radiology focused salespeople and that is where they were comfortable, that is where they enjoyed calling and, again, they have made the decision to move on.

And we've -- in those areas we've rehired with salespeople that we think are going to be more effective at making that multi-departmental call and I would say that everybody that we have got on the sales team is on board with this strategy and is out there actively employing it at this point.

Again, like we said, we had a meeting 10 days ago, so I had everybody in 10 days ago, and really feel like we have got the team out there to do this; we need a little bit more seasoning with some of them because, like I said, we have got a young team, but again, I think we've got the right people in place, Chris.

And from a timing perspective, I guess, in the press release you talked about improvements expected in the next quarter and then kind of the full assessment over the next two to three quarters. So maybe you can talk about how we should expect these strategies kind of layering in from a timing perspective and when that really translates into improved growth in the turns business over the course of this year?

Yes, I think, as we said, I think we are going to start seeing that -- some results from that immediately, but as you were alluding to, this is a process. This is something that it takes time for the team to learn when it is employed. These deals take time with customers.

Again, you go in, you get the interest from the customer, then you get routed to radiology and typically, in a lot of these situations, radiology looks at it and goes -- why is this coming out of my budget? I don't -- we don't need an MRI compatible IV pump -- and then you are back upstairs working on the mobilizers, the people that you have engaged with that are forward thinking and can see it.

It is a process. I mean it really is a multi-month process to get one of these sales to go down. And, like I said, we are involved in a lot of these deals now and we have got a lot of these in process and, obviously, they are going to happen this week and throughout the year.

So I can't quantify exactly what you are going to see other than the fact that we have given some guidance as to what we expect to see during the year on MRI IV pumps and I think that should be the guide.

And what does the guidance assume in terms of monitor sales in 2017?

About 10% of our 2017 revenue will come from monitors.

Okay, and the heavy majority of that will be in the US?

Well, a bulk -- yes, a large portion of that will come from US sales. A little bit in the third quarter and then it grows in the fourth quarter, yes.

Yes, revenue-wise, the domestic sale is a higher amount of dollars per unit and the domestic market is much more mature for patient monitoring as it is for pumps as well. So, yes, the numbers are higher in the US.

Okay, great. And then maybe you could talk a little bit -- I know we are still a quarter or two away from the launch of the monitor here in the US -- but as we think about your transition from a single product offering to having multiple products in the sales bag, what is your strategy in terms of adding that product into the sales bag and, specifically, to ensure that the salesforce focus doesn't stray from the pump business itself?

Yes, I will let Brent do that one.

That is a great question, Chris. And already we have taken steps like that with this year's compensation program with the salespeople; the salespeople are incented more heavily on the IV pump sales. We don't feel like we are going to have any problem getting our salespeople to embrace a new product to a new market like the MRI compatible patient monitor. And we have, like I said, taken steps appropriately there.

We would also have a launch meeting on the MRI compatible patient monitors as soon as we see that we are going to have FDA clearance and we can begin the marketing activities of that product.

And you talked about that market being about $100 million today annually and the potential for your product to grow that to almost double that to $200 million per year represents a pretty significant opportunity for you here over the longer term.

So I guess maybe you can kind of walk us through what kind of supports that potential doubling of the market as your product gains accelerated adoption?

Sure. I mean the way we look at it, there is nominal growth in that market. Right, Chris? There is a 5%, 6%, 7%, whatever you want to use, mid-level digit growth for MRIs going -- being installed into the US and there is that kind of a level of growth in that business.

So part of that increase going from $100 million to $200 million would be just the nominal growth that we see in that marketplace, but a significant part would be, again, the -- bringing the same type of strategy to the business as we do with the IV pumps and showing why it would be advantageous for critical care areas to have their own patient monitor and transport down on that patient monitor being, again, a transportable MRI patient monitor rather than going down and making the switch down in the MRI area.

So we feel we have got some real value there and real benefit there to the customer, and since we are the only ones with a portable product, we think we are going to get the lion's share of that -- well, all that market until someone else -- if someone else comes out with a portable MRI patient monitor.

Okay, that is helpful. And then, Chris, maybe a question for you. In terms of the first quarter and 2017 guidance, can you walk us through your assumptions for gross margins and how we should expect those to trend throughout 2017?

Sure. In the fourth quarter I am modeling about 65%, 66% gross margins and that does grow throughout the year as we anticipate higher output from -- just from IV pumps -- but also bringing monitor online.

So for the full year, I anticipate about 70%, 72% gross margins for the full-year number, so we will be growing from 65%, 66% in the first quarter up to that 70% to 72% range for the full-year period.

Okay. And then just final question for me. Cash balance continues to be strong and continues to build. Maybe, Roger, can you just provide an update on kind of where you are in terms of your priorities in terms of cash deployment and potential for -- any M&A you are seeing or another buyback or other cash deployment initiatives? Thanks.

Sure, Chris. Yes, well, both issues have been on the table in the past, as you know, and continue to be there. We have another thing that we are looking at as potential M&A -- thing here could come up throughout the latter part of 2017, but it is quite premature to talk about that in any detail.

But that is why we are keeping some powder dry. We fully expect to be able to get some sort of a bolt-on deal put together here that can go and fit in with the profile of our developing salesforce and directly contribute to sales in the MRI area, so that is the aim for the cash.

Any commentary on potential buyback?

Not at this point; we are sitting pat at this particular moment on that.

Okay. Thanks, guys.

Larry Haimovitch, HMTC.

Good morning, gentlemen. Lots of good questions have already been asked that I had in mind. I do want to explore a little more Chris's question with Brent about the fact that you have got another major product line coming on. I know, Brent, you addressed the question, but it does concern me quite a bit that the salesforce could easily be distracted when the new product comes on when you are still trying to get the old product to build even better momentum than you have. Could you just maybe say a few more words on that?

Sure, Larry. Again, we are really cognizant of that here and, as I discussed, I mean we have really made it much more advantageous commission-wise to the salespeople to go out and sell the IV pump as opposed to selling the patient monitor and to me that's -- in my years of history as a sales manager, that is the best way to motivate salespeople to do what you want them to do is to tie it to compensation.

So -- and also, we have again made it very clear in all our discussions with the salespeople. So as best as we can, we are going to continue to monitor that and we are going to push forward. The other thing that we are going to do is we are going to, as we talked about, continue to do -- expand territory and continue to add people so that we have a better size team to take on two products which, again, I think will help as well.

What do you think you will end the year at in terms of headcount in salesforce?

Yes, well, we are currently at 18 salespeople. We have got, as I said, two area directors that manage the day-to-day for those folks. We expect to go to 20 to 22 by the end of the year.

Okay. And where were you, say, six months ago? Have you built up to 18 from where you were a few months ago?

Yes, we added -- the four last expansions we added about six months ago.

Okay. So the average tenure of the salesforce, as you said, it's a pretty young salesforce, isn't it? Pretty inexperienced?

Yes, sir; it is an inexperienced tenure with IRADIMED. We hire very -- people that have exhibited a high amount of success and have a lot of experience in other industries and in other medical devices.

Okay. Chris, what do you think the cash flow will be for 2017, ballpark number?

I think we could get to $3 million to $4 million in cash flow from operations.

So that would put you at about probably around $20 million exiting 2017?

Yes, excluding the investments, yes.

Yes, I am just wondering then the investments are -- is that long-term securities or what is that exactly?

We treat them as short term and available for sale at any point in time.

So 17 plus the eight plus three to four, so that gets you to the high 20s. It just strikes me as much more cash than you really need to run the business. I'm assuming you would agree with that, that this is plenty of cash?

Back to Roger's comment, I think we are looking, we're out looking, and we need more time to get out there and look and, to the extent that we find something, then you are likely to see some of the use of cash go towards M&A.

If our efforts there are not successful, then the Board -- I'm confident the Board will revisit some type of distribution or buyback or something of that nature, some use of cash so that you don't see us so heavy on the cash side of the balance sheet.

Roger, how big is your appetite? What do you think would be comfortable in terms of an acquisition?

We don't want to go into debt, but if you are asking would we spend as much as we have, I would have to say we would probably be able to go that far, yes.

Okay. What are some of the general areas you would feel comfortable moving into?

Well, they would all involve something that fits in with the products that we sell now, meaning they would be MR devices of some sort, so probably -- I mean we wouldn't be going into the drug area or maybe contrast business or something like that, so -- we are in the device space and we are in the MR.

So if it is a device and it works in the MR, that's of interest to us, and we think that could bolt in and our salesforce could relatively easily add that to their bag and call points, somewhat equivalent, all that plus, plus, plus and that is the sort of product we would be looking for.

Would you consider a distribution deal as opposed to an outright acquisition?

Well, we've thought about them, but the margin in doing such things for the -- the margins are not easy to make into anything very interesting when you do that. So it is a trade-off. If it ends up costing you a lot of selling time, and the margins aren't so great, well that doesn't sound good; if it was a very little impact to selling time, but we could get paid something, well yes, but I haven't -- we haven't seen anything like that. We haven't seen anything like that.

Okay, guys. Thank you.

Peter Rabover, Artko Capital.

Hey, yes, so most of my questions have been answered, but I wanted to go back to an earlier one. Maybe you guys can go into more detail about the return on investment for your products? What the salespeople -- I know you have talked about safety, but I mean, have you guys actually run an analysis that your salespeople present to the customers or anything like that of that sort?

Well, these SBARs that Brent, I will let Brent fill you in on that, but the technique that we try to use is based upon finding the particular drivers within a hospital, the particular situation, and we help them analyze that and come up with value for the exact, specific facility and that's a key. There is not a one-size-sort-of-fits-all.

Having said that, we do have maybe a dozen of these typical situations that come up, but the details of them are all a bit different. And, of course, the mission is to find those levers and make sure that the value that our product can bring in each facility is highlighted.

And there are -- again, there are different parts of that, I mean we -- as far as the ROI (technical difficulty). But -- so I talked about one of them was diagnosis of patient so that they could -- you could quickly diagnose them, quickly cure them. Obviously, the ACA, or what will become of the ACA, is very focused on that. It's focused on outcomes and our product can really help with the outcome.

Everything from outcomes to patient satisfaction because they are out quicker, and they are not in an ICU as long, to other factors. On the long line, when people are using long lines in the MR area, they are using a conventional pump; there is lots of -- there is tubes -- there is the cost of the medication that's in the tubing.

Once they're done with that case, they've got 30 feet of tubing with medication in it; they throw that away, right? They don't reuse that. So you have got medication cost. You've got infection cost, because there's -- when you are stringing together lines of IV tubing and running that on the floor of a (technical difficulty), there is a higher rate of infection risk, so there's -- and there's dollars costs tied to all those things.

So the ROI is there and we do talk about it. It is a soft ROI, though, as opposed to a hard ROI. It is not -- we're not -- it's not based on a reimbursement of $200 so that if you do five of these cases, you do $200 each, you will make $1000 a day, it will pay for itself in two months. We don't have that kind of an ROI. We don't have that kind of analysis.

But certainly these factors do play into the sale and the SBARs, as Roger was alluding to, and we do detail out some of those costs and some of those savings.

Okay. And what -- is that the same for the monitor as well or do you think you will have a harder ROI on the monitor?

No, monitors are also a safety sale, but it's being an existing market with budgets that are rolling through all the time, well then it becomes a competitive argument there. Saving money over one product over the other just because they are in budgets and this business rolls along, it has been rolling along for over 30 years.

So again, though, if -- when you are looking for a hard ROI on why you buy a monitor, that doesn't really exist. You just don't find those every day.

Great. Okay, and then I guess I -- not to put you on the spot, but maybe I will reverse the previous caller's question. Does it make sense for you guys to be a public company? I mean would it be better if your Company and the products were part of a larger salesforce somewhere else?

I would love to answer that one. The IV pump sale require, as we talked about, requires a lot of intensive work and is a difficult sales process. I think if we took these products and we put it into a larger salesforce, they would get lost and they would not have the focus that you have when you control a sales team of -- in this case -- 18 individuals; it's a smaller force, but they do our pioneering work, which is difficult work, and we pay them well for it when they do it well, but I could tell you that I don't believe that would be a successful strategy.

Okay, thank you. Thanks for the color. I appreciate it. That is all I have for now. Thanks.

I am not showing any further questions at this time. I would like to turn the conference back over to our host.

Thank you all for participating on today's call. We look forward to reporting back to you again in the first quarter with the results of that Q1. So again, thanks.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.