NuVasive Inc (NUVA) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the NuVasive Conference Call, to review its results for the 4th Quarter and Full-Year Ended December 31st 2005. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in the question-and-answer session. At that time, if you have a question, please press *1 on your touchtone phone. As a reminder, this conference is being recorded.

I would now like to turn the call over to Nick Laudico from the Ruth Group. Thank you. Mr. Laudico, you may begin.

Thank you, Operator. Welcome to the NuVasive 4th Quarter and Full-Year Earnings Conference Call. NuVasive’s senior management joining us on the call today will be Alex Lukianov – Chairman and Chief Executive Officer, Kevin O'Boyle – Executive Vice President and Chief Financial Officer.

This conference call may contain statements that are not a description of historical facts. These are forward-looking statements that involve risks, uncertainties, assumptions and other factors which – if they do not materialize or prove correct – could cause NuVasive’s results to differ, materially from historical results, or those expressed or implied by such forward-looking statements. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to, the risk that NuVasive’s revenue projections may turn out to be incorrect because of unanticipated difficulty in selling NuVasive’s products, the uncertain process of seeking regulatory approval or clearance for NuVasive’s products or devices – such as the NeoDisk – including risks that such a process could be significantly delayed. The possibility that the FDA may require significant changes to NuVasive’s products or clinical studies, the risks that products may not perform as intended – and therefore not achieve commercial success, the risk that competitors may develop superior products or may have a greater market position – enabling more-successful commercialization, the risk that additional clinical data may call into question the benefits of NuVasive products, patients and surgeons and other risks and uncertainties more fully described in NuVasive’s press releases, periodic filings with the Securities & Exchange Commission. NuVasive’s public filings with the Securities & Exchange Commission are available at www.SEC.gov. NuVasive assumes no obligation to update any forward-looking statement to recent events or circumstances arising after the date on which it was made.

With that, I would like to turn the call over to Alexis Lukianov.

Thanks, Nick. And thank you to everyone for joining us this afternoon for our 4th quarter call.

2005 was a very successful year for NuVasive. We made substantial progress on a number of key strategic initiatives that we feel will prove valuable to the long-term growth of our Company.

We achieved robust growth in surgeons trained on our MAS platform, substantially broadened our product suite, moved our sales force closer toward exclusivity, and met our goals for products and development.

As a follow-up to 2005, we were successful in raising $142 million in a secondary public offering in February. Before outlining each of these initiatives, let me take a moment to briefly review our strong financial performance for the 4th quarter and full year.

Revenue for the 4th quarter was 18.6 million – representing an increase of 57% from the same quarter, last year. This brings total revenues for 2005 to 61.8 million – in line with our stated full-year guidance range of 61-62 million.

Our gross margin for the quarter remains strong, at 82.3%. Gross margin for the year was 79.9%. Our Chief Financial Officer, Kevin O'Boyle, will discuss the financials and key performance indicators in more detail, following my remarks.

I will now take a few minutes to outline our progress on a number of important strategic initiatives, which we believe will serve as the foundation for NuVasive’s continued long-term growth.

First and foremost, I will address our transition toward sales force exclusivity. As we outlined to you last year, our goal is to achieve near-exclusivity through the creation of a hybrid sales force of area business managers – ABMs – and exclusive distributors.

Our senior management team has spent considerable time and energy in 2005, to ensure the success of this important initiative. At the end of 2005, 60% of principals selling our products were ABMs or exclusive distributors – ahead of our stated guidance of 50%. Today, this figure is 70% -- and we expect it to be 90% by the end of the 2nd quarter.

These new ABMs and exclusive distributors are ramping up their sales efforts in focus on the NuVasive product line. We expect the full benefits of this initiative will be realized over the 2nd half of 2006, and more-significantly, in early 2007. The costs associated with this transition will continue through the 3rd quarter. And Kevin will provide more detail on its impact to our expense line in his financial review.

We made considerable progress in 2005 in broadening and enhancing our product suite. We launched a total of 9 new products – 7 across each of our 3 MAS categories – NeuroVision, MaXcess and Specialized Implants – and 2 new products in Classic Fusion.

Our focus is on continued innovation, so that we obsolete our own products, and increase the distance between us and our competitors, in advancing our comprehensive platform that we believe is at the forefront of minimally-disruptive spine surgery technology. This broad product platform addresses varying preferences related to a spine surgeon’s needs. Our goal with MAS and Classic Fusion is to remain ahead of the competitive curve – offering a tremendous advantage to our sales force, and engaging surgeon-use of our products.

In addition to internal product development, we executed 3 strategic technology acquisitions during 2005 that we believe will advance our product portfolio, and help build more business with spine surgeons. In June, we acquired a dynamic cervical plate –Smart Plate Radiant CLP – which has positively impacted our Classic Fusion line of products.

In August, we acquired Dynamic Stabilization Technology from Riverbend Design LLC, including the ExtenSure Device – which allows decompression and fusion. This product was initially rolled out in select markets in 2005, which will continue as a limited release through to the national launch in Q3/Q4.

The third acquisition we made in 2005 was a suite of embroidery technology, for use in surgical applications. This acquisition included NeoDisk – a nucleus-like replacement device under development.

Our comprehensive product offering is driving increased share of current surgeon business through vertical product integration. Surgeons who have been trained on MAS learn about our latest innovations, and increasingly incorporate them into their practice.

At the close of the year, vertically-integrated hospitals – or those using at least one product from each MAS category – grew from 25% in Q3 to 29% in Q4. We are pleased with this increase in penetration, as well as the clear opportunity it presents for future growth.

We continue to focus on training spine surgeons on our MAS platform. We trained 113 surgeons during the quarter, for a total of 422 in 2005 – more than double the number of surgeons trained in 2004.

Our state of the art cadaver operating theatre, combined with our 24/7 marquis surgeon-visit program, have been major contributors to this success. The surgeons we trained during 2005 were a combination of surgeons new to MAS, as well as current MAS users who returned for education on our latest products.

The acceptance of our MAS platform and our culture of responding to customer needs with absolute responsiveness, which we call "moving at cheetah speed," has generated excitement in the industry about NuVasive, allowing us to continue to attract top talent in all areas of the Company, and to work with many top-level surgeons.

Now, for a brief update on our development projects requiring clinical trials.

In June, we filed an IDE with the FDA for our CerPass Cervical TDR Device. CerPass incorporates a ceramic-on-ceramic design that we believe increases durability, and eliminates wear [inaudible] problems, and will afford simple surgical placement.

In October, we filed an IDE for our NeoDisk Cervical Nucleus-like Replacement Device. We believe NeoDisk affords NuVasive the opportunity to be first in the US market with a nucleus-like device, designed to preserve motion in the cervical region. It is very simple to implant in the cervical spine, and could fill the gap between pre-surgical treatment and TDR or spine fusion.

We anticipate receiving an IDE for both NeoDisk and CerPass by the 2nd half of 2006. We anticipate filing an additional IDE in 2006 for a lateral lumbar TDR device. This device would be applied via our proprietary XLIF approach, which we believe addresses some of the concerns associated with anterior TDR devices, such as working through the abdomen and revision issues.

Let me now turn the call over to Kevin O'Boyle for comments on the numbers.

Thank you, Alex.

Our revenue for the 4th quarter 2005 of 18.6 million was a 57% increase over Q4 2004, and a 23% increase over Q3 2005. The 18.6 million in revenues for Q4 '05 is comprised of 14.8 million in maximum-access surgery or MAS, and the balance was Classic Fusion. The corresponding revenue contribution percentage was 80% MAS versus 20% Classic Fusion. For the full year, 2005 MAS revenue was 79% versus 21% for Classic Fusion.

The Q4 '05 mix is in line with our guidance range of 75-80% MAS. Our Q4 '05 MAS revenue increase over Q3 '05 is attributable to Q4 traditionally being our strongest quarter of the year, and the launch of products we introduced at the North American Spine Society Meeting.

Our gross margin for the 4th quarter was 82.3, and 79.9 for the year. The 4th quarter margin was higher, due to resolution of sales tax-related issues.

Our Q4 2005 net loss was 4.2 million – for a loss-per-share of $0.17 on a GAAP basis. On a non-GAAP basis, the loss-per-share, which excludes stock-based compensation expense and acquisition-related charges, was 3.4 million, or $0.14 per share.

Operating expenses for Q4 '05 totaled 19.7 million. These expenses included additional sales and marketing costs associated with the Company’s transition to an exclusive sales force. The investment associated with this initiative will continue for the first 3 quarters in 2006. Then we will begin to see the synergy of these costs in the 4th quarter of 2006.

For research and development, the costs are related to products and development for release in 2006, and our total disk replacement motion preservation initiatives.

Our general and administrative expenses included incremental costs reflecting information technology infrastructure improvements, Sarbanes-Oxley and personnel costs.

Our key performance indicators, or KPIs for Q4 2005 are as follows. Number of surgeons trained – 113 for the quarter, 422 for the year. Revenue contribution – 80/20. Exclusivity percentage – 60. And percent of vertically integrated hospitals – 29%.

As of December 31st 2005, we had 19.5 million in cash, cash equivalents and short-term investments. Our operating cash burn was 6.2 million for Q4 '05 – which reflects the development of our next-generation MAS products. Our cash burn is defined as, "Cash used for operating activities, plus additions to fixed assets." Days Sales Outstanding – or DSOs – were 58 days in Q4 '05.

I will now provide guidance for 2006. Although it is our policy to give only annual guidance, to establish a common point of reference to begin the year, we are also providing guidance for the 1st quarter of 2006.

For the full-year 2006, we have the following forward-looking information. We are reiterating our previously stated goal of breakeven – excluding stock-based compensation and acquisition-related charges in the 4th quarter of 2005. We anticipate revenue to be in the range of 85-90 million. For the 1st quarter, the Company expect revenues to be in the range of 18.5 to 19 million. Beginning with our 1st quarter '06 release, we’ll be reporting revenues in one line, as we launch a number of new products across both MAS and Classic Fusion. We feel this total revenue line best represents the overall growth of the NuVasive business.

Gross margin should approximate the 80% level we achieved for 2005, with the potential to reach 81% in Q4. Photo operating expenses – including the impact of FAS123R – are expected to be in the range of 112-114 million. FAS123R costs for the year are expected to be 12-13 million.

Going forward, we’ll be consolidating the reporting of sales, marketing, and general and administrative expenses into one line. Total operating expenses also includes an anticipated payment of 10.5 million to Pearsalls, Ltd, as in-process research and development related to completion of a key milestone for the NeoDisk.

Research and development costs, including approximately 1.8 million in stock-based compensation, will be in the range of 19 to 20 million. First quarter R&D expenses should be in the $4.8 to 5 million – including stock-based compensation of approximately 500,000.

This expense trend should be consistent in the first 3 quaretrs of the year, as products are developed for launch at NAS in late Q3 – then, trend down in Q4, from our non-GAAP level, by approximately 10%.

The expected range for SG&A expenses, including stock-based compensation of 10.5 million, is 82-83 million for the year. Q1 is in the range of 21-21.5 million, with stock-based compensation of 2.6 million. The remaining quarter should trend between 20 and 21 million, with Q3 being at the high end of the range, because of our participation at the North American Spine Society Meeting.

Interest income will increase to 4 million for the year. The 1st quarter should approximate 500,000. Our weighted average shares outstanding should approximate 33.5 million, to 34 million, by year-end. The 1st quarter weighted average should be about 30 million. Our share count after our secondary offering equates to 33 million.

Our key performance indicators for the year-end 2006 are as follows. Number of surgeons trained – 400. Consistent with 2005 levels. Revenue contribution – although we're not going to continue with the key performance indicator, going forward… Just as a reference point… should be in line with our 2005 levels of 7921.

Exclusivity – approximately 90% by the end of Q2 2006. And percent of vertically integrated hospitals, by year-end, to be 35-38%.

I would now like to turn the call back over to Alex for closing commentary.

Thanks, Kevin. To summarize, we are extremely pleased with our success during 2005, as it relates to bringing innovative products to market, and making significant progress on our strategic initiatives. Our focus has now turned to 2006, when we plan to raise the bar once again, with substantial enhancements – predominantly to our MAS platform, designed in-concert with top clinicians.

Our planned 2006 product pipeline is as follows. 1 – lateral lumbar fusion plate – providing surgeons with the ability to perform a complete 360 degree spinal fusion, through our proprietary XLIF procedure via the same incision. 2 – Our NeuroVision platform will be expanded, with motor-evoked potential MEP monitoring, to enable surgeons to employ new proprietary nerve monitoring when treating a broader range of spinal pathology in the cervical and thoracic regions of the spine. 3 – MaXcess 3 will provide new retraction features, while still incorporating neuro monitoring through NeuroVision, and also entail new single-use enhancements. 4 – Dynamic Spherics DBR – our percutaneous pedicle screw system – will be expanded, with Dynamic Stabilization Technology. Making the pedicle screw system dynamic may reduce potential adjacent disk deterioration that sometimes occurs post-fusion.

5 – our instruments for PLIF, TLIF, XLIF, and ALIF procedures will be refined, to maintain our best-of-class position. 6 – Gradient cervical plate line extensions will offer surgeons both dynamic and fixed-plate options for cervical fusion procedures. 7 – a current version of ExtenSure Dynamic Stabilization System will undergo a full launch, with multiple implant choices. And lastly – 8 – current extensions for a proprietary lateral, as well as lumbar procedures.

Most of these products are scheduled for release at or just-following NAS, which is at the end of Q3. The new gradient cervical plate and [current] lumbar implants are scheduled for launch in the 1st half of 2006.

We believe that our strong current product portfolio – coupled with new 2006 products – an exclusive sales force – and our culture of absolute responsiveness – will translate into revenues of 87-90 million this year, with gross margins of 80%, and allow us to continue our robust growth in the years to come.

With that, we would be pleased to answer any of your questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. One moment, please, while we poll for questions.

Our first question comes from Mr. David Lewis, with Thomas Weisel Partners. Mr. Lewis, please state your question.

Good afternoon, guys. A couple quick questions, here. I guess the first – just focusing on this 29% hospital verticalization metric. I wonder – is there a percent of the physicians that you're focusing on at a given hospital that needs to be triggered for you to count that hospital as truly verticalized? If you could give me some more granularity about what that 29% actually means.

Yes, David. Kevin. The vertical integration statistic… Our base of data here at NuVasive, since we build a hospital, is hospital-specific. So when we look at that statistic, if a hospital is using a product in each of our 3 major categories within our maximum-access surgery suite of products, we call that hospital vertically integrated. So by the end of 2005, 29% of those hospitals used a product in each of the categories.

And Kevin, that 35% number that was quoted… is that for the end of '06, or by the 2nd quarter?

Yes. That is a key performance indicator for the end of '06.

So, what should we assume? That maybe a new focus heading on 2006 would be getting deeper in those verticalized hospitals? As opposed to broader?

Yes. This is Alex. That’s exactly the whole plan, from a sales and marketing perspective, of what we're trying to accomplish.

Okay. Perfect. And then looking at the ExtenSure product, Alex. In terms of… Maybe I missed it, but the timeline around non-allograft materials for that product? Has that been updated?

Yes. That’s going to be full-launch Q3-Q4 timeframe. Right around NAS, essentially. That’s about the mid-point, there. And so what we’ll be doing is ramping up with limited release over the course of 2006.

Okay. And in terms of the size of the market. We've been using kind of 700,000 lamenectomies, 400,000 stenosis patients a year. Are those metrics that are close? Or could you give us a sense of what you're thinking about, in terms of market size, for that product?

It’s really hard to say what’s going to be the addressable market. Because, as you know, it’s a brand new product for that arena. So I think our best guess at this point in time is that it’s probably about 200,000. It’s certainly a much larger market opportunity. But we think 200,000 is a reasonable, addressable market in the relatively near-term.

Okay. That should be really helpful. Then the last question and I’ll jump back in line. Is there any reason to believe that the move toward exclusivity or the move toward indirect to somewhat more direct would change the exisdting ratio of ortho and neuro, as a mix of your existing doctors? And where would you say that mix is, now?

It would not change that mix. We don’t track that. But my guess is that it’s going to be approximately 75% ortho and about 25% neuro.

Great. Thank you very much.

Thank you.

Our next question comes from Mr. Steve Lichtman, with Banc of America Securities. Mr. Lichtman, please state your question.

Thanks. Hi, guys.

Just in terms of 2006 – relative to ExtenSure. How much contribution are you including for that product line in your guidance?

It’s very small.

Is that to be conservative? Or is that because of the function of the rollout?

It’s to be conservative. I think that we believe this to be a very new product opportunity. So our position has been to continue in the limited release, beginning with allograft, as you're aware. Scale it up toward [Corinth]. But we want to make sure that there's a good experience on the part of a small group of surgeons, first, before we move toward national release. So we don’t see any real reason for us to be getting ahead of that, with regard to our revenue estimates for this year.

So you wouldn’t want to roll out a full launch with allograft. You want to do that when you get with [Corinth].

That’s correct. And that would be later in the year. So it’s going to be closer to the 4th quarter.

Okay. Can you give us an example in terms of the move to exclusivity, how that’s impacted any particular region, in terms of sales growth? Is there any example, so far?

There's a lot. I would say that, generally speaking, what we're seeing is just a lot more pull-through in those areas. For example, also, if you look at it purely from a regional standpoint, we've had very little – and, in fact, poor sales coverage in the Northeast. Now the Northeast is just about entirely covered. I think we just have one market left, which is being filled here, shortly. So that’s going to be a huge change. We've already started to see some sales coming out of that region that previously we had next to none.

If you take a look at our first distributor that was able to go exclusive with us some time ago, their sales ramped up very dramatically. They were doing in the neighborhood of about $75,000 a month. That number’s increased to closing out the year at about $900,000. So, we've seen that happen also, now, in Los Angeles – where we started to go. It was around the middle of the year. Then from there, same thing in Chicago, which was in the 4th quarter. So there's a number of markets that we've now been able to impact positively. So we expect our sales force to continue with that sort of ramp, as we move into '06.

And as you sort of lay out your guidance for '06, how aggressive – in terms of the contribution of the exclusive sales force – how aggressive are your estimates, in terms of what you build into the model? Do you keep it conservative, in terms of what you anticipate this ramp to be? Can you talk about what the impact is going to be in 2006?

Well, most of the sales will be coming from the exclusive sales reps – just because of the degree of penetration that we have. But I think what your question has to do with is areas in which we're transitioning. In those transitional areas, we have some cross-coverage. But just to be clear, what happens is that our reps are out there, first. Then typically, what we're getting is additional coverage from the exiting distributor, for example. So if anything, there's going to be overlap in coverage. Do you follow what I mean?

Yes.

Great.

Then in terms of the cervical disks – anticipating the approvals for both? Or by the second half?

That’s what we expect. As you know, we filed CerPass, first. So we anticipate getting through the FDA approval process for the IDE. Both of them in the 2nd half of '06.

And with the clinical trial starting up shortly thereafter?

Yes.

And Kevin, the impact of the sales tax-related issue in the gross margin – how much was that, in the quarter?

It’s probably about 100-150 basis points. Somewhere in that range.

But you feel comfortable, at least, at 80% for 2006?

No question. And then in the 4th quarter, we should be hitting the 81% pretty consistently, at that time. So 4th quarter – 81.

Okay. Great. Thanks, guys.

Yes. You're welcome.

Our next question comes from Mr. Ben Andrew, with William Blair. Mr. Andrew, please state your question.

Good afternoon. Just wanted to check in on a couple things. First – surgeons' usage of product after training. Alex, could you characterize how that’s rolling out now versus maybe a year ago? After you bring people through the lab?

Sure. That number was in the range, before, of 50% -- or even a little bit less – just depending upon the particular market. What we're starting to see now with exclusivity, is those particular markets are hitting at about 75%, in terms of a surgeon using more or any of our products, if they're a brand new customer. So we're really starting to see the positive impact of that.

As you work through the surgeon group, have you really hit kind of the high-producers? Or how would you characterize the mix of people you've got today, already trained, versus what you may train this year and next year?

I think we have a lot of upside. I mean if you take a look… We certainly have some key academic centers involved with us in Chicago and St. Louis and San Diego and Miami and Los Angeles, and so forth. But there are still quite a few centers that we'd look to have come onboard with us in 2006 and 2007.

Additionally, a lot of work is being done in community hospitals. So it’s a relatively broad penetration that we're looking for, when it comes to our upside.

Then as you do shift to the exclusive sales force, what sort of impact – on a dollar basis – do you think that can have per rep, relative to the old days? Is that being driven by a rep cross-selling the entire line versus maybe cherry-picking in certain cases?

Well, what we're looking for – from a revenue perspective – what we're looking for is for each rep is to be able to sell no less than $1 million and have upside to $2 million. So that’s really what we're doing. And getting the kind of income that really allows us to attract the top producers for those reps. That’s really the primary focus of where we've got the sales force going.

Okay. And then finally, I guess, maybe characterize for us the '06 guidance. I mean the high end of the range is below where we're at. Is this just you being conservative, as you look at '06? Or is this your best cut on where the year’s going to come out?

We think it’s where we need to be. We think it’s very robust growth, in relation to how we closed 2005. We think it’s consistent with the ramp-up with our sales force. So we're very pleased with that level of growth for 2006.

Okay. Thank you.

You're welcome.

Once again, ladies and gentlemen, if you'd like to ask a question, please press *1 on your telephone keypad.

Our next question comes from Lynn Pieper with [Afilion Capital]. Ms. Piper, please proceed with your question.

Hi. How are you?

Hi, Lynn.

Just really quickly on the gross margin. Is there a reason, as you work toward exclusivity and presumably higher verticalization of your accounts, that we won’t see the gross margin stay where it is, or go higher?

That’s potential, Lynn.

Do you want to give any guidance as to how high we could see it go over the next couple months?

Next couple months… You don’t want to use quarters any more, huh? You know, we guided to 81 at the end of the year, Lynn. I think as we've tracked NuVasive now over a number of quarters, we've had strong gross margins. And I think we have a chance of exceeding those.

But as we go out over the next couple quarters, we’ll look at that and then have the potential of increasing guidance. But we’ll wait ’til we get a couple more quarters under our belt.

Perfect. Thank you.

Thank you.

Our next question comes from Mr. Bob Hopkins, with Lehman Brothers. Mr. Hopkins, please state your question.

Thanks. I just have one question. I assume that in the transition over to the exclusive sales force – which looks like it’s gone very smoothly… But I assume just form experience, that along the way it might have been somewhat disruptive, or just a little bit disruptive, as you make that transition. Is there any way that you guys could guesstimate what your revenue numbers might have looked like in Q3 and Q4, had you not made this transition – which obviously is a good thing for the long-term… But is there a couple million dollars that would have materialized that did not, because of this transition? Or do you feel like you lost no revenues along the way?

I don’t think we lost any revenue, Bob. As you know, we had a tremendously strong 4th quarter. And that was right in the heat of battle, when it comes to the transition. So I think it’s just because of the way that we did it. We had a number of markets that were unattended. So moving into those, it’s certainly straightforward.

And then in the areas where we had transitioned from a distributor to either a direct sales force or to a new distributor, we had overlap provisions established. So that – as I mentioned in answering anther question – we would have, in a number of cases, 2 reps covering a territory. So we'd have the old still providing some coverage and then the new in there, taking over.

So I think we obviously also provided some additional overrides, with regard to commission in doing those transitions. I think that’s why we saw such a strong 4th quarter, and that’s why we feel comfortable with what we're going to do in the 1st quarter.

Okay. Thanks very much. I appreciate it.

Our next question comes from Mr. John Putnam with Stanford Group Company. Mr. Putnam, please state your question.

Thank you. Alex, I was wondering if you could elaborate a little bit on the changes that you're going to incorporate in NeuroVision, and also new features on the MaX 3, if you would.

Sure. With regard to NeuroVision, what we’ll be doing is putting forward MEP – Motor Evoked Potential – which really means monitoring of the entire spinal cord versus doing just EMG-based monitoring. So it’ll have both. What that allows us then to do is to move into the thoracic spine. So that’s the major innovation with regard to NeuroVision, as far as an additional application.

On MaXcess 3, what we're doing is coming up with some different ways of retracting tissue. So what we're trying to do is to offer a series of choices to the surgeon, in MaXcess 1 and 2 – as well as in MaXcess 3. Then MaXcess 3 keeps the same features as MaXcess 2 – which has NeuroVision built inside. So it’s monitoring from the blade. And we look to expand the scope of that monitoring with MaXcess 3, as well.

Okay. Thanks very much.

You're welcome.

Our next question comes from Vishal Saluja with Seligman. Mr. Saluja, please proceed with your question.

Hi. Thanks for taking my question. I have a couple of quick financial questions for Kevin. Kevin, can you just talk a little bit about what we should expect for cash burn for the year? And if you could give us a cash flow breakeven revenue level, that would be terrific. And then just talk a little bit about how we should think of acquisitions for '06 or as a supplement to R&D?

Yes. In terms of cash burn, we're probably looking in the $20-30 million range. Because that includes the 10.5 million in-process R&D payment that we expect to make on behalf of the NeoDisk.

As it relates to cash flow breakeven, that starts in 2007. That should be probably a quarter or two beyond the GAAP breakeven -- or non-GAAP breakeven, I should say – in Q4 of '06. So a couple quarters later is when cash flow breakeven should commence.

Great.

And in terms of acquisitions, we've said that if we were looking for other acquisitions, it'd be 510K-type acquisitions, and not PMA-type long, clinical trial acquisitions. So we'd look for things that would be near-term or creative.

Got it. Thanks a lot.

Yes.

Gentlemen, there are no further questions at this time. I would like to open the floor for management for any closing statements.

We just would like to thank everybody for joining us today, and appreciate it very much. Take care.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.