iCAD, Inc.
Q2 2016 Earnings Call Transcript

Published: 28 Jul 2016

[Operator:]

Good day, ladies and gentlemen. And welcome to the iCAD Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the call to Mr. Zack Kubow. You may begin.

[Zack Kubow:]

Thank you, operator and good afternoon everyone. Thank you for participating in today’s call. Joining me from iCAD are Ken Ferry, Chief Executive Officer; and Kevin Burns, President and Chief Financial Officer. After the market closed today, iCAD announced financial results for the three and six-month period ended June 30, 2016. Before we begin, I would like to caution that comments made during this conference call by management that contains forward-looking statements that involve risks and uncertainties regarding the operations and future results of iCAD. I encourage you to review the company’s filings with the Securities and Exchange Commission, including without limitation the company’s Form 10-Q and 10-K which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, July 27, 2016. iCAD undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, I’d like to turn the call over to Ken Ferry. Ken?

[Ken Ferry:]

Thanks, Zack. Good afternoon, everyone and thank you for joining us today. I’ll begin with a few comments on our second quarter results and the key updates for our business that position for improved growth beginning in the second half of 2016. I’ll then turn the call over to Kevin Burns, our President and Chief Financial Officer, for a detailed review of our financial results. Following Kevin’s remarks, I’ll be back with a more detailed business update and to review our key initiatives for 2016 and then we’ll open up the line for questions. The second quarter was in-line with our expectations showing solid improvement from the first quarter, this include positive progress in key areas of the business that position us well for increased growth in the second half of the year. In cancer therapy, we’ve been very pleased with our progress with restarting Dermatology, eBx customers in the number of sites that have committed to begin treating again is ahead of our plan. In addition, we’re building a very strong new customer funnel. As we continue to execute on this large market opportunity, we expect to begin to see a meaningful impact on revenues starting in the fourth quarter, given that it typically takes two to three months to get our practice [ph] back up in treating patients. For IORT, the global procedure volume continues to grow nicely and we’re planning to enter several new international geographies the next 6 to 12 months to further expand our addressable market. In cancer detection, we’re on track for FDA approval of our 3D tomosynthesis software in the third quarter which we expect will be a significant growth driver for our software business. I’ll provide more detail on these and other items in a moment. But now I’m going to turn the call over to Kevin Burns for more detailed review of the second quarter financial results. Kevin?

[Kevin Burns:]

Thank you, Ken and good afternoon everyone. We had an encouraging second quarter that was in-line with our expectations and significantly improved from the first quarter. We’re gaining momentum in several key areas of the business ahead of a catalyst bridged second half of the year. On the expense side, we continue to closely manage our investments in order to preserve cash while beginning to increase our investment in strategic long-term initiatives. We remain comfortable with our cash position which could be further strengthened if we complete the sale of our MRI CAD business in the third quarter. I’ll now provide an overview of our second quarter 2016 financial results. For the first quarter, total revenue decreased 33.9% year-over-year but increased 22% sequentially to $7.4 million. The year-over-year decline was driven by reimbursement uncertainty in our skin eBx business and the anticipated decline of our MRI CAD revenue as a result of EnVivo exercising their rates to a paid-up license. The sequential improvement was driven by our core mammography business, which rebounded after a soft first quarter performance and stronger therapy product sales. In addition, we have made nice progress in restarting skin eBx customer site and attracting new customers now that there is reimbursement clarity in regions where we have historically had a strong Dermatology install base. With respect to the skin market, we believe we are in an excellent position for sequential growth for skin eBx as we continue activating and ramping up sites in the back half of 2016. In our therapy business, second quarter revenue was $2.5 million. Therapy product revenue increased sequentially from $227,000 in the first quarter to $630,000 in the second quarter reflecting a sale of Xoft Axxent Systems including three breast IORT units and one skin eBx unit. For the first half of 2016, IORT balloon sale volume was up 34% to 821 balloons with the U.S. market up 30% from 421 in the first half of 2015 to 549 in the first half of 2016. Internationally, balloon volume increased 42% from 192 in the first half of last year to 272 in the first half of 2016. Therapy service and supply revenue was relatively flat sequentially at $1.8 million in our second quarter, it can be broken down to approximately $400,000 coming from our subscription-based and non-melanoma skin cancer customers, and $1.4 million coming from service and source agreements as a result of customers who have purchased their system directly. In terms of the specific metrics related to restarting our skin eBx customer sites, I will now provide an update on the initial data we provided last quarter. In the second quarter, we signed agreements with 18 sites, which includes a combination of solution customers as well as customers who previously purchased our controller and have entered into a new service and source agreement with us. As a result, we ended the quarter with approximately 35 skin sites and a majority of these sites were live as of June 30, with the balance going live throughout the third quarter. Our Q2 skin service revenue was approximately $800,000. As we look forward in the Dermatology market, we expect to enter 2017 with north of 100 sites under agreement, again, the majority of these would be live by year-end but some would begin to generate revenue in the first quarter of 2017. Based on the mix of capital versus solutions, we believe each site should generate an average of $100,000 of revenue - of recurring revenue per year. As a result, we believe we will be entering 2017 with skin recurring revenues greater than $2.5 million per quarter or three times our run rate in the second quarter. We’re pleased with the commercial progress and pipeline growth and continue to look to expand sales coverage as we enter the back half of 2016 which we believe will further accelerate momentum in 2017. Moving on to cancer detection, total revenue in the second quarter was $4.9 million, a 1.2% decrease compared to the second quarter of 2015. The decrease is primarily due to the impact of EnVivo exercising their rates to paid-up license on our MRI CAD products in August of 2015. We continue to only realize the revenue related to the amortization of $2 million license fee which we are recognizing ratably over the life of the contract through July 2017. Excluding the impact of our paid-up license with EnVivo our core mammography business was up 17% year-over-year representing the strength of our OEM partners and direct business. We continue to explore the sale of the MRI CAD solutions and believe a sale could potentially be finalized during the third quarter of 2016. Cancer detection product sales of $2.8 million in the second quarter decreased 5.7% compared to the second quarter of 2015. As previously discussed, the decrease is primarily due to the decline of MRI CAD product sales but was offset by strong growth in our core mammography products. Cancer detection service revenue was $2.1 million in the quarter, an increase of 5.5% year-over-year and flat sequentially. Moving on to the rest of the P&L, gross margin in the second quarter of 2016 was 77.4% compared to 70.7% in the second quarter of 2015. Second quarter 2016 gross margin was positively impacted by $330,000 medical device excise tax refund which was accounted for in cost of revenue. Excluding the impact of the refund, normalized gross margin for the second quarter of 2016 was 72.9%, an increase of 220 basis points from the second quarter of 2015 and a 360 basis points improvement sequentially. The increase in gross margin percent is primarily a result of the strength in our core cancer detection business as well as stronger therapy revenue sequentially. Operating expenses in the second quarter of 2016 were $7.2 million, in-line with our expectations and down from $8.3 million when excluding the second quarter 2015 non-cash impairment charge related to our therapy business. Looking to the third quarter of 2016, we expect quarterly operating expenses in the range of $7.4 million to $7.9 million per quarter with the increase being driven by additional clinical studies combined with commercial investments focused on entering new Dermatology markets and adding additional commercial resource resources in established regions. Looking at our profit metrics, non-GAAP adjusted EBITDA for the second quarter was a loss of $313,000 as compared to non-GAAP adjusted EBITDA income of $1.6 million last year. Sequentially EBITDA improved over $1.1 million from the first quarter of 2016. With respect to the balance sheet, we ended the second quarter with $11.5 million in cash compared to $12.9 million at the end of the first quarter. During the second quarter of 2016, we used $1.4 million including $1 million in cash from operations. We expect to end the year with cash in the range of $11 million to $13 million with the lower end of the range up from $10 million that was communicated on our last call. In terms of looking forward, since we’re still waiting for FDA’s approval of our 3D tomo-solution and as it’s still early in the process of reactivating customer sites, we believe it is premature to provide guidance. We are more optimistic that we can resume financial guidance as we enter 2017. However, we would like to reiterate a few key points as you consider the potential of our business going forward. First of all, in therapy, we ended the quarter with approximately 35 skin sites and believe we will have 100 sites under agreement by the end of the year. When these sites are live, it will generate over $10 million of recurring revenue per year. Next in cancer detection, we anticipate a significant impact from our 3D tomo-software in the fourth quarter, given the ongoing commercial ramp in Europe and the pending FDA approval. For gross margins, as previously communicated, we believe that our skin eBx gross margin can approach 70% of our time and our cancer detection margins will continue to be in the mid-80% range. Finally, from an EBITDA standpoint, we expect to be EBITDA positive no later than the fourth quarter of 2016 even though we continue to make investments to further accelerate revenue growth in late 2016 and going into 2017. I would now like to turn the call back over to Ken. Ken?

[Ken Ferry:]

Thanks Kevin. I’ll now provide some additional detail on the second quarter’s significant developments starting with cancer detection. We had a strong quarter and a solid first half in our core mammography products and service business. As Kevin indicated, this was driven by product sales growth from our OEM partners and from our direct sales with PowerLook 2D, mammo-software and iReveal breast density software. We’re pleased with this overall performance, and remain well positioned to grow this segment of our business at a much higher rate when our 3D tomo-software is available particularly in the United States. At the end of the quarter, we shipped our first international orders of our 3D tomo-software in Europe. We’re continuing to work in close coordination with GE on commercial activities there and expect to gain additional momentum throughout the rest of the year from building sales activity and as we develop reference sites in key European countries. In the U.S. we remain on track to receive FDA approval of our 3D tomo-software in the third quarter. We’ve had very constructive interaction with the FDA throughout the entire PMA regulatory process and have thoroughly responded to all of their questions on our submission. We’re also on track with the development of our next generation version of the 3D software which is focused on further reducing radiologist reading time and increasing detection accuracy of the software. The goal for this next-gen product is for the radiologist to be so confident of our performance that they will only feel the need to extensively review exams identified as abnormal by the software. This would dramatically change the current reading paradigm for radiologist, saving a considerable reading time and improving their productivity while also saving cost for the healthcare system. We’re also positioning the next-gen version to be available for use with all tomosynthesis exams regardless of the tomo-system manufacturer. We’re working aggressively to complete the development and testing for this next generation software, we could introduce it in Europe by the end of 2016 or early 2017 and in the United States as early as mid-2017 depending on the timing of regulatory approval. On a related note, we’re also making good progress with the development of iReveal 3D breast density software that will be integrated with our 3D tomosynthesis software to further enhance the 3D interpretive workflow. There continues to be strong interest in iReveal software particularly in the 28 states where it is mandated that a breast density assessment, we provided to patients at the time of their mammogram. We expect this new 3D version will be available in the U.S. sometime late in Q3 or early in Q4 of this year further strengthening our 3D product offering. Outside of mammography during the quarter, we announced our support for the U.S. Preventive Services Task Force recommendation for colorectal cancer screening that includes the use of computed tomography colonography or virtual colonoscopy. While it might take some time before we know the impact of the task force recommendations on CT colonography procedure volume, it is a positive development for several reasons. First, our viral [ph] CAD product was the first FDA cleared CAD technology for CT Colonography this supported by a rigorous reader study that demonstrated it achieves significant improvement in power protection. This puts us in a strong position through the proceeding volume increase in more practices adopt CT colonography. And secondly Affordable Care Act requires private insurers to fully cover all task force recognized colorectal cancer screening exams for adults aged 50 to 75. This includes screening with CT colonography technology removing a reimbursement barrier for the procedure. Turning now to our cancer therapy business, we delivered a sequential improvement in skin eBx revenue in the second quarter and believe we are now on [indiscernible] reimbursement uncertainty over the last year or so. We’re pleased that reimbursement data under the new CPT 3 code supports a viable skin business for iCAD and for our customers. Over the coming quarters, we believe that our skin business will continue to gain significant momentum and again deliver meaningful revenue growth for the therapy business. On the clinical front, we made on track to have sufficient three-year follow-up data from our skin electronic braking therapy clinical trials by the end of this year, which would put us in a position to submit this data to CMS in June 2017 and apply for a CPT 1 code. This is a major strategic objective for the company as a CPT 1 code was secure non-melanoma skin cancer eBx reimbursement at a national level further expanding our addressable market. To provide an example of the magnitude of the skin opportunity, there are over 7,000 dermatology practices in the country with three or more dermatologists. If all used our subscription based business model to treat 10 patients per month at current average reimbursement levels, we would generate over $1 billion in annual revenue, obviously a significant opportunity for our company. Turning now to IORT, we continue to make good progress adding new treatment sites and increasing procedure volume. At the end of Q2 we had 58 sites treating overall including 26 international sites and growing. Our disposable applicator volume has grown 761 units in 2013 to an estimated 1,750 in 2016. As Kevin indicated, year-to-date we’re up 34% at unit volume versus the first half of 2015 with more sites coming on-board in the second half of the year. To continue our momentum in the United States, one of our initiatives to drive adoption of breast IORT is focused on expanding the clinical data in support of the procedure. We’re very close to completing enrollment in the 1,000 patient expert study comparing to Xoft IORT treatment to traditional external being radiation therapy. This is a landmark study for the Xoft System in breast IORT following patients for 10 years after treatment to evaluate the long-term safety and efficacy of breast IORT with the Xoft System. In the fall, we anticipate that the first significant data presentation from the expert study will be presented at the ASTRO meeting providing another important clinical data point for our technology as we work to drive further adoption in the United States. In addition and in response to the Affordable Care Act, we’re conducting economic analysis study comparing IORT to whole breast radiation. We’re hopeful that the study will demonstrate a significant cost savings when IORT is utilized for the appropriate patient versus whole breast radiation while achieving a similar clinical outcome. Outside of this activity, we’re also focused on securing regulatory approval for the Xoft System in several other countries. We’re currently treating at 26 U.S. sites and over the next 6 to 12 months we anticipate, we could secure regulatory approval in the following markets

[Operator:]

[Operator Instructions]. And our first question comes from the line of Bill Bonello with Craig-Hallum. Your line is now open.

[Bill Bonello:]

Hi, good afternoon guys. It sounds like things are going great, that’s much more update than we’ve had in long time, so congratulations. Couple of follow-up questions. You’re talking about the potential of $100,000 per customer for the skin business. So, lot of that is being the level for subscription customers but maybe being a little bit lower than that for capital customers that turn back on. Can you just kind of elaborate? Are most of the new customers going to be subscription or the capital customers also kind of hit that $100,000 level? How do we kind of think about that?

[Kevin Burns:]

Right. So, Bill, as we’ve previously communicated, I think our capital revenue per socket is going to continue to be in that $60,000 to $70,000 range. We view, what we’ve seen over the last 60 days is, in the solutions market, as customers having higher volumes than we had originally anticipated. So what we’re starting to realize is that those sockets will probably generate anywhere from $125,000 to $150,000 per year. When you do a lot of math in terms of a mix, what we’re trying to get to, what is the blended per socket rate and that’s where we came up with $100,000. That’s the blend of the capital of the solutions ASPs.

[Bill Bonello:]

Yes, that’s super helpful. And just to be sure solutions, is what I might have called in the past, subscription or something? It is the same?

[Kevin Burns:]

That’s correct.

[Bill Bonello:]

Okay. And just any color you can provide at all, it looks like first of all if my math is right, it looks like you added or had 10 clients more by the end of this quarter than last quarter. Were those all clients that had previously been working with you? Just any color on whether they had been capital clients or they’ve been the solutions clients or if they were big customers, just any additional color you can give us?

[Ken Ferry:]

Yes, well, we have actually added 18 new customer sites in the quarter ago. We dropped a few small customers throughout the course of the quarter which were sort of expected terminations. So we added 18 new customer sites in the quarter. And I’d say these are larger customers historically. They’re pretty evenly split between customers who had purchased the system previously so they were resigning service and source agreements. And the other half were our solutions or subscription customers and what we provide a lot of the services. So, sort of a mixed bag of opportunities, and I’d say it was also geographically diverse across the U.S. So, we’re seeing nice pick-up and we’re seeing a continued development of our pipeline. We’re engaging our legacy customers, those customers that stopped treating about a year ago. And we’ve narrowed that list down and we think we can probably get about two thirds of them back by the end of the year. And then we’re also developing our new pipeline by adding some more commercial people to the team as long as we move forward.

[Bill Bonello:]

Okay, great. And then, I hate to even bring this up on a positive day like this. But just there had been a change I think in coverage decision from Novitas which I think is probably immaterial in of itself. But do you have any sort of update on where they stand and more importantly any risk of that should have carrying over to other intermediaries?

[Ken Ferry:]

Well, Bill, yes, as you mentioned Novitas really was not included in our total let’s call it prior install base of north of 130 systems. So it really hasn’t had an impact on our historic business. But certainly there is a large potential there particularly with the State of Texas going forward. And we were all surprised when they communicated that they were going to go from silent to negative coverage. But there is obviously a communication process, there is a timeline for getting feedback from clinical users and industry and keeping your leaders and so forth. And so we just completed our response about two weeks ago. And there is this window about 45 days where they now go through reviewing all those responses and evaluate essentially what they get for feedback to make a final determination. So, we’re hopeful that this would go back to being silent. There was some evidence of reimbursement for skin there. We again haven’t done very little business there but certainly see that as an attractive addressable market for the future. So, we’re hopeful in the next 30 or 45 days that this outcome is favorable but to be determined.

[Bill Bonello:]

Okay. And then in terms of the more important regions, are you continuing to see sort of a tight band of consistent reimbursement?

[Ken Ferry:]

We are. It’s pretty much in the range of what we had anticipated. I think some of the improvements made to the smart system have really helped us enormously so that we’ve taken a significant amount of cost out of our delivery system for the subscription customer. And that has helped us to really bolster our margins in light of the fact that the reimbursement has been reduced. So, we’re seeing very consistent reimbursement across primarily the CGS and Iridium [ph]. So, we’re positive in terms of what we’re seeing. With our customer base, they needed time obviously we’re here now in July finally seeing the tractions. And it was really because they needed to see some number of months in the pattern reimbursement. So, ultimately at the end of the day, we feel good about the business but that said we all know it’s in the CPT 3 world. So things can happen and that’s why in my comments earlier I talked about the significant progress we’re making on our CPT 1 code application because we have something that is effective as this is clinically, we want to get to the CPT 1 realm as quickly as you can so you can get pervasive coverage and payment and not have the volatility that you have in the free world. And I think that since we will have all of the data collected by year-end from our study, we’re very well positioned to be smiting something in mid-2017 to the AMA and CMS.

[Bill Bonello:]

Great. And then if I can just one last question; you probably touched on this a little bit Ken in your prepared remarks. But just interesting, it seems like you’re feeling fairly confident around the timing of tomo approval and the fact that you will get approval. Is that based on sort of the interaction you’re having with the FDA, is it based on just sort of normal timelines and what gives you confidence that you could see approval in Q3?

[Ken Ferry:]

I think it’s really the whole process Bill with the FDA. We’ve had a very collaborative process from the beginning, really getting them evolved and helping us to design the reader studies and the primary and secondary end-points so that when we started to do all of that study work, it wasn’t done at a vacuum, it was done really in a collaborative sense. And we really understood what their expectations were. We feel very confident that the results of our study and there is an awful lot of data obviously from these studies has met easily quite frankly the primary and secondary end-points that we were required to achieve. So I think that’s probably the basis for our confidence. We did receive a letter from the FDA about a month or little longer ago with a list of questions. I can’t say you’re never certain if it’s the final list of questions. But they gave us a list of things that we needed to respond to. We felt very, very good about our responses. Those had been in front of the FDA now for about a week and half. So, all-in-all we think the process is going extremely well. So that’s what gives us the confidence. And I’ve said some time now that the results of the reader study helped enormously versus trying to make assumptions or connect the dots with other studies and so forth as you might be doing in the more of the 510-K environment. So, you never know until they provide you with clearance. But I think we feel confident that we’ve got a really strong product here. It’s been very, very well tested. And the dialog with the FDA has been extremely constructive. So we’re still confident that we’re on track for approval this quarter.

[Bill Bonello:]

Great. Thanks for putting up with all those questions.

[Ken Ferry:]

Sure.

[Operator:]

[Operator Instructions]. And our next question comes from the line of Brian Marckx with Zacks Investment Research. Your line is now open.

[Brian Marckx:]

Hi guys. Wondering in terms of the traction that you’re expecting skin cancer business, is that mostly the traction you expect in the subscription model or is that also in the sales model as well, the outright sales?

[Ken Ferry:]

I think in the next couple of quarters Brian we do expect some traction in the capital model. But that will be more signing up our customers who previously purchased a product last year or the year before that. In terms of new capital sockets in the skin market, we believe that majority of our customers - new customers will be using the subscription model where they’re paying on a per procedure basis. So, over the next several quarters we’re definitely going to have resigns of legacy capital customers that will help drive recurring revenue. But going forward after that we think the majority of customers in the Dermatology space will opt for the subscription per patient model.

[Brian Marckx:]

Was there any I guess more clarity in terms of reimbursement with skin cancer over the last several months? And is that kind of I guess what’s driving your projections for the growth in the skin cancer sites coming back on board?

[Ken Ferry:]

Well, I think Brian, what we’ve done is, we’ve seen consistent reimbursement across very significant number of claims. And it’s obviously been in WPS and Iridium [ph] for the most part where we’ve had positive history in terms of payment. And we’ve said along that anything north of say $3,000 in total reimbursement the practice provides a viable economic model for the practice and for us. And we’re pleased that reimbursement we’ve been seeing is consistent and has been above that number. So, that gives us the confidence that provided that reimbursement continues, we are in a strong position to really ramp that business. And it’s really going to be a mixture of these legacy customers that had stopped treating there are still quite a few out there that we believe we can get back up and treating. But I think even more important there would be a lot more customers that we had that are new in our pipeline. And I think a lot of that has to do with either sites in Iridium or WPS that had looked at the technology and offering radiation in their derm practices maybe a year or 18 months ago. And now that we have a more settled out reimbursement environment are much more interested now in starting up a practice. So, it’s really the collection of all those initiatives that has given us this confidence that the momentum will continue. And then the other thing I would point to as always is really strong clinical data. We have really been able to communicate to our customers, the most effective patient selection criteria. And clearly I think if you combine that with the very strong clinical data, they’re really selecting the right patients for this therapy and it’s working out very, very well.

[Brian Marckx:]

Okay. In terms of the new, the next generation tomo-product, does that also require a reader study or CE mark and FDA clearance?

[Kevin Burns:]

It’s very likely. We’re trying to determine as we get through the development phase what sort of testing. And again, we’ll do this collaboratively with the FDA. You could certainly see this as a build upon the initial product and if our standalone testing would seem to be somewhat consistent, you could certainly consider trying to do something short of a reader study or smaller study. But we’re really not at the point yet Brian where we’ve been able to make that decision. We’re really trying to finish the development by really July/August timeframe. And then go into the internal testing phase which would give us a better calibration as to what our regulatory strategy is. But if we do need to do a reader study and it’s very possible, our hope would be via smaller, more of a subset compared to larger study we did initially on the product, something we could get done more quickly. And with that in mind, we did communicate that by let’s say, July/August/September of ‘17 would be a window where if all this goes well we could have a product in the U.S. that really would be available now for the entire market. The first product out as we mostly know is exclusive to GE. The next-gen product is going to be available for all manufacturers of tomo-equipment and our hope is to that would also include people like Hologic. And then including them really would open up a very large market for us to have our interpretive software sitting on these 3D tomo-machines. So, we’re really counting on this next-gen product in the next, whatever 6 to 12 or 14 months to really, really open up the overall addressable market to all of the companies out there with tomo-machines and give us a second catalyst for growth beyond the product and we designed initially just for GE.

[Brian Marckx:]

Okay. Great. Thanks guys.

[Ken Ferry:]

Sure.

[Kevin Burns:]

Thank you.

[Operator:]

And our next question comes from the line of Chris Potter with Northern Border Investments. Your line is now open.

[Chris Potter:]

Hi guys, can you elaborate on what the clarification on reimbursement that you’re seeing. Can you elaborate on what that means for the economics of your skin eBx customers? Are they making, are the economics as good as they were before or how do we think about that?

[Ken Ferry:]

Chris, I think the way I would probably approach it is, really to compare it to most surgery. And there is a wide range of “profit” if you will or margin is probably a better way to describe it because it’s not obviously including all of their in-practice expenses. But in average, they might be making anywhere from let’s say $500 to $2,000 on a most procedure just based on the severity and the amount of time that it takes to handle the patient. I mean, some of them are real quick and easy and others take hours and hours to do. So, I would say on average, that’s kind of the margin or the gross profit that the Derm would see. In the model we have, if the reimbursement is at least $3,000 or greater it has been they’re pretty much assured to see approximately $1,500 per patient in reimbursement. So, ultimately you get a number that’s in range of comparison with what they are provided for most surgeries. So that’s kind of how we look at it. The difference though here is, that when you put radiation into a dermatology practice, the radiation is being delivered by a radiation oncologist who is there on a per DM basis. So, really what you gain a benefit obviously, the dermatologist could be treating patients in one room while another specialist is providing radiation in another room, increasing the overall capacity to treat patients. So, a profit is somewhat comparable I guess I would say to most, that’s really the way we should look at it. With that said, they’re adding capacity so that they essentially had just overall for whatever disease they’re treating with patients. So that makes this really attractive. It also makes it very attractive for the Derms that have been referring out their skin cancer patients because not every practice has the most surgeon resident, quite a few of them do not. So, ultimately often they were referring patients out. So, beyond adding capacity to treat patients with radiation they’re also capturing more patients to stay in practice that fit the clinical criteria where radiation is a very logical option compared to surgery. So, it really, we look at it as win-win based on the current reimbursement level. And it’s just important that they select the proper patients for the radiation treatment versus most.

[Chris Potter:]

Okay. I guess I’m just not clear on what’s giving them the confidence to resign with you after the reimbursement issues last year? Are they being reimbursed under a new code or under the same code or was the scare over reimbursement exaggerated or overblown?

[Ken Ferry:]

Well, we did apply for new a code. And that code was implemented as of January 1, 2016. And the new code was a dedicated eBx skin code as opposed to the old code which was anything you delivered in a multi-fraction treatment and that included breast or GYN and skin. So, now we have the new code and each of the max, the Medicare regions all have the opportunity to take a look at that code and access whether they want to cover and pay for it. And so, now we are 6-7 months into that process and there have been hundreds and hundreds and hundreds of claims submitted for patients post treatment. And so we’ve seen quite an aggregation of reimbursement data and a very logical consistent pattern as well. So, as a result of that certainly we have a lot more confidence and so to the clinical providers. Most of those that are treating and have expanded our treatment are people that we’re treating for quite some time in our prior situation so they’re all familiar they know exactly what they want to accomplish, which patients they want to target. And we’ve said before in the CPT 3 world you do run the risk that a Mac can as already did in April of last year make a change in policy. And that’s why we’re aggressively investing in finishing our CPT 1 study this year. And in the reimbursement we’re seeing, it seems like reasonable and fair and less likely to be affected by a surprise. So, given that we use a subscription model, our customers can get back up and running without having to write a check for something north of $100,000 to buy a machine and that helps them with whatever potential downside risk that could occur down the road.

[Chris Potter:]

Okay, great. I understand. Thank you. Just two more quick questions if I may. What was the peak install base of Derm eBx sites prior to the reimbursement issue a year ago?

[Ken Ferry:]

We had probably about 135 sites that were actively treating. And obviously we’re pleased that the number is ramping fairly quickly given that other than a handful of our capital customers, pretty much all of our subscription customers had stopped treating at one point or another.

[Chris Potter:]

Okay. And lastly, do you disclose how many IORT breast treatments you do?

[Ken Ferry:]

Well, we do indirectly Chris because the applicator that delivers the treatment is disposable. So, when both Kevin and I talked about our disposable applicative growth you can pretty much correspond the applicator is one-to-one with procedure volumes is not reused. And I had said in my remarks, I don’t have them right in front of me but I think in 2013 we had sold about 760 applicators and that we were projecting this year to do about 1,750. So you can clearly see that the total number of procedures just from 2013 has probably gone up 2.5 times. And we also talked about the fact that what’s driving that significantly is the international portion. the international portion of that has grown dramatically. And it’s really contributing quite a bit to our overall procedure growth. There is just, in the international markets, quite honestly there is less barriers to adoption than in the United States. In the United States there are so many different choices for treating breast cancer, probably a much more of an emphasis on much longer term clinical occurrence, study data. In countries quite frankly outside the United States, often women are deprived the access to radiation. So, we have a different market environment and acceptance in adoption and have them much more quickly. So, we’re really seeing this year really nice growth in the United States. I think we said our first half procedure volume based on those balloons is up about 30%. Our international balloon sales were up in the north of 40%. And I think overall it went to about 34% growth. So, if you follow our comments on disposable applicators, you can pretty much map that one-to-one with the direction of our procedure volume on a global basis.

[Chris Potter:]

Great. Thank you. That’s it from me.

[Ken Ferry:]

Great. Thank you, Chris.

[Operator:]

[Operator Instructions]. And I’m showing no further questions at this time. I would now like to turn the call back over to Mr. Ferry for closing remarks.

[Ken Ferry:]

Thanks a lot operator. And thanks everyone for joining us today. We’re very excited with the progress that we made in the second quarter. In our cancer detection business, we continue to see very good progress with business coming from our existing install base in the 2D world as well as we see this really exciting progress as it relates to our 3D software. It is now available in Europe. We’re building up gradually to what we believe will be a very strong growth opportunity there both with the legacy install base of GE Systems and new systems they’re selling each quarter. We think our U.S. approval for our tomo-software is hopefully in the month of August. If we’re lucky, if that were to occur, we really see a very, very strong continuing growth in that business throughout the rest of the year. The United States market has adopted CAD if you will as a standard of care. We believe the value proposition while compelling globally will be extraordinary in the United States based on the size of the exam, the amount of time it takes to read them and the fact that we have done extensive testing of this product. So, we think the adoption rate here would be instantly happening with new sales and certainly in a fairly quick period of time with the legacy install base that GE has. So, we’re excited about seeing more accelerated growth in cancer detection, margin expansion that’s always been a cash flow positive business for us. And that will only contribute more to our financial success. In the therapy business, we’re really pleased to see both our skin business and our IORT businesses gaining traction simultaneously. We’ve made a lot of progress in skin after a rough year. Just a number of sites that Kevin referenced that are under agreement or now ramping up to treat is even more than we had expected we’d be able to accomplish at this point in time. The IORT business, we’re investing there in proper studies to really try to get global adoption including United States which is a large market. And as we do that we are gaining more sites I talked about the fact that we have 58 sites globally that are treating. We have four more in Bulgaria coming on board in the third quarter. We did sell several more systems in the United States in the second quarter. So that install base may grow to 60 or 65 systems treating in the third quarter and then hopefully we’d be north of 70 systems globally treating in fourth quarter. So, we’re getting good traction there too. So, I think we’re in good shape. We believe we can strengthen our balance sheet this quarter should we close the transaction on MRI business which we anticipate that we will. We should finish the quarter with a greater cash balance than we started. And then we should be in a strong position as we move into Q4 with even stronger top-line revenue with these growth factors really contributing considerably. So that we’ll be extremely well-positioned as we enter 2017. So, I want to thank everyone for your interest in iCAD and participating in the call. And we look forward to updating you at future conferences and meetings. Thanks everyone and have a good day.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone have a great day.