iCAD, Inc.
Q4 2015 Earnings Call Transcript

Published: 2 Mar 2016

[Operator:]

Good day, ladies and gentlemen and thank you for standing by. Welcome to the iCAD Fourth Quarter 2015 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the meeting over to Zack Kubow. Please go ahead, sir.

[Zack Kubow:]

Thank you, operator and good afternoon. This is Zack Kubow with The Ruth Group. Joining me from iCAD are Ken Ferry, Chief Executive Officer and Kevin Burns, President and Chief Financial Officer. Today, after the market closed, iCAD announced financial results for the three and nine-month periods ended September 30, 2015. 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, 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, October 29, 2015. 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 would 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 like to open the call with some comments on our fourth quarter and full year 2015 results and will 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 will be back to review our key initiatives for 2016 and then we will open the call for questions. Total revenue was $7.6 million in the fourth quarter and $41.6 million for the year. The results in both periods reflect positive momentum in our breast IORT and cancer detection businesses offset by a decline in our skin electronic brachytherapy business related to ongoing reimbursement uncertainty in the U.S. Therapy highlights include breast IORT where system placements grew nicely during the year driven by strong international progress and substantially increased worldwide procedure volume. While our skin electronic brachytherapy business was negatively impacted in the fourth quarter and full year by reimbursement uncertainty we continued to be very confident of the market opportunity as a result of growing favorable clinical data on patient outcomes, lower occurrence rates, excellent cosmetic results and overall patient satisfaction with this non surgical pain free alternative to most surgery. In our cancer detection business, we saw a strong growth in upgrades to PowerLook our next generation mammography platform for 2D and 3D software and iReveal breast density assessment software. This momentum was partially offset by a recent decline in MRI software sales due to the changing business model with our commercial partner, Invivo. More on this topic in Kevin’s remarks. So all in all solid progress and some headwinds in 2015, however we are very optimistic of the growth potential both of therapy cancer detection businesses beginning in Q2 to Q3 timeframe of 2016. More of this in a moment, but first Kevin will provide a financial review for the quarter and the full year. Kevin.

[Kevin Burns:]

Thank you, Ken and good afternoon everyone. As Ken mentioned, our fourth quarter financials reflect continued positive results in the center of key areas of our business including mammography, breast density products and services in our cancer detection business combined with continued breast IORT adoption in our therapy business. However, this was offset by the reimbursement uncertainty in our [Indiscernible] business. Accordingly, during the quarter, we continued to carefully manage our expenses while still investing in important future growth drivers such as our tomosynthesis reader study and a development of enhancements for our skin electronic brachytherapy solution. As a result, we are entering 2016 in a position to show return to growth particularly in the second half of the year when we expect our breast [Indiscernible] solution in the U.S. potentially to have greater clarity on skin reimbursement and plan to release our soft system enhancements for the skin market. Turning now to our financial results, for the fourth quarter total revenue decreased 42.2% to $7.6 million and for the full year total revenue decreased 5.4% to $41.6 million. In our therapy business, fourth quarter revenue decreased 61.1% to $3.3 million. Therapy product revenue decreased to $461,000 in the fourth quarter reflecting the sales [Indiscernible] systems. This includes a two breast IORT units, one in the U.S and one international, the one skin placement in the U.S. From an IORT balloon perspective, 2015 sales volume was up 43% to 1,338 balloons with the U.S. market up 4% to 910 balloons and the international market up significantly from 58 balloons sales in total last year to 428 balloons for 2015. Therapy services and supply revenues decreased to $2.9 million in the fourth quarter in line with our expectations for slight sequential from the third quarter revenue of $3.1 million. The $2.9 million of service revenue is primarily related to our skin brachytherapy business. It can be broken down into approximately $1 million coming from our subscription based non-melanoma skin cancer customers and $1.9 million coming from service and source agreements as a result of customers who have directly purchased our therapy system. Moving on to cancer detection, total revenue in the fourth quarter was $4.3 million, a 7.8% decrease compared to the fourth quarter of 2014, reflecting the anticipated decline of our MRI-CAD revenue as a result of Invivo exercising their rights to paid-up license during the third quarter. Sequentially from the third quarter, our MRI revenues declined to approximately $500,000 in the fourth quarter from $1.3 million in the third quarter. We are in strategic discussions with Invivo regarding the MRI business which we anticipate could be finalized during the second quarter and can potentially result in a sale of the MRI business. Going forward, we expect minimal revenue related to the MRI-CAD product sales equivalent to the amortization of the $2 million license fee we received in August which we will be recognized ratably over the life of the contract through July of 2017. As a result, this will continue to impact our year-over-year comparisons during the first half of 2016. Cancer detection product sales of $2.2 million in the quarter decreased 12% reflecting strong results from the PowerLook upgrades and breast density sales offset by the previously mentioned lower MRI-CAD product sales. From a unit perspective we sold 504 PowerLook upgrades into our install base in 2015 compared to 190 upgrades in 2014 more than doubling the number of upgrades year-over-year. We believe this strong growth is the result of customers preparing for the adoption of 3D Tomo and the software tools that support their workflow, which reside on the parallel platform. In addition, we filled 113 breast density licenses in 2015 up from 40 licenses in 2014, almost tripling the volume of breast density sales. As previously discussed in July, we launched iReveal, our breast density module integrated with the PowerLook platform which will continue to be a growth driver over the next few years. Cancer detection service revenue was $2.1 million in the quarter, an increase of 8% sequentially; this reflects positive momentum for service revenue driven by the growing number of PowerLook systems under service agreement, both from an OEM and direct standpoint as well as additional service revenue driven from an Invivo. Going forward, we expect service revenue to continue to grow driven by PowerLook breast density and our strategy to better capture service agreement for new service revenue related to our tomo and Breast Density solution. Moving on to the rest of the P&L, gross margin in the fourth quarter of 2015 was 69.5% compared to 70.6% in the fourth quarter of 2014, a 110 basis points decline on a year-over-year basis. The decrease in gross margin and dollars in both periods was driven primarily by the lower contribution of service and subscription revenue in quarter as while as the lower MRI and can control its sales. DNA categorized as a cost of revenue in the fourth quarter was $286,000, a decrease from $584,000 in the fourth quarter of 2014 reflecting the impairment charge in the second quarter. Although we made significant expense reductions in the early part of 2015 we currently have the capacity to support a quarterly revenue rate north of $10 million per quarter with minimal additional investment, and as a result we expect margin expansion particularly in the second half of the year as we realized revenues from our Tomo Solutions combined with incremental skin solutions revenue. Operating expenses in the fourth quarter of 2015 we $7.6 million down from $8.8 million in the fourth quarter of 2014 and slightly below what we communicated on our prior earnings call of $8 million in the fourth quarter. Operating expenses were elevated sequentially from the third quarter of 2015, operating expenses of $7.2 million driven by $600,000 investment in our tomo reader study, additional marketing events such as ASTRO and RFNA, as well as the vast skin EBX technology enhancements that Ken highlighted earlier. Looking to the first half of 2016 we anticipate that we’ll be in a quarterly operating expense range of $6.8 to $7.2 million per quarter. This is in line with our previous expectations of $6.8 million to $7 million, although this update includes our acquisitions of the VuCOMP Cancer Detection portfolio and related personnel in early January. In addition, this does not reflect any potential incremental investments we’ve made based on the reimbursement clarity for skin therapy. Looking at our profit metrics, non-GAAP adjusted for the fourth quarter was a loss of $1.1 million compared to non-GAAP adjusted EBITDA of $2.5 million or 18.7% of revenue in the fourth quarter of last year. For the full year non-GAAP adjusted EBITDA was $3.9 million or 9.4% of revenue compared to $6.4 million or 14.5% of revenue in 2014. Looking at the balance sheet, we ended 2015 with $15.3 million in cash compared to $17.5 million at the end of the third quarter, reflecting a use of $2.3 million in the quarter. This was approximately $300,000 higher than what we communicated on the prior call and which driven primarily by timing on receivable. In 2015, we used $1.9 million in cash from operation. In 2016, we expect to be cash flow positive with a moderate use of cash in the first half of the year offset by a cash flow positive business in the second half of the year. Given the transition to a new dedicated skin code on January 1st and the continued lack of reimbursement data, they currently remained fiscal for us to measure the impact on our business and to provide revenue guidance at this time. We are optimistic that we can resume financial guidance later in 2016 as our revenue catalyst begins to provide a solid and growing revenue stream. I would now like to turn the call back to Ken to discuss key milestones in market opportunities for 2016 and beyond. Ken?

[Ken Ferry:]

Thanks Kevin. Starting with cancer detection, our existing business is stable, growing, high margin and profitable. We anticipate continued strong growth from PowerLook upgrades and iReveal breast density software sales in 2016 with the expectation of accelerated growth and the launch breast tomosynthesis cancer detection and workflow software. The launch will occur this week at the European Congress of Radiology in Vienna and hopefully in early Q3 of this year in the United States. Regarding tomosynthesis software we’ve now completed two significant reader studies, one in Europe and one in the U.S. where we successfully achieve the endpoint that had established. We are very excited to be the first company to launch tomo cancer detection software to large and growing market of 3D tomosynthesis users. In addition to 3D detection software for tomosynthesis we plan to launch breast density solutions for tomosynthesis images by midyear. This launch will considerably increase our 3D breast imagining workflow value proposition and expand the size of our addressable market. We also had aggressive marketing plan to drive adoption and patient awareness of breast density screening. There is already legislation passed in 24 stage requiring physicians to notify patients of their breast density, and we have planned campaigns and educational webinars in key state supporting compliance with new legislation. We also have new partnerships with leading advocacy groups and are launching patient education materials. We remained well-positioned to begin to see revenues from our 3D solutions in Q2 or Q3 of this year. As a reminder, we estimate our tomo and breast density software represents greater than $200 million opportunity over the coming years in our installed based loan with another $30 million in annual recurring service revenue potential. We’re also investing in long-term growth initiatives in our cancer detection business including the evaluation of potential new markets beyond mammography and breast health. In support of this effort in January we acquired VuCOMP remaining cancer detection portfolio, which includes an extensive library of related clinical data and with important implications on future cancer detection research and patterns, as well as key personnel and their existing customer base. These resources will contribute in future R&D projects in our cancer detection business. Turning now to cancer therapy, we anticipate 2016 will include continued growth in our breast IORT business with the potential for improving results and our skin eBx business sending clarity of reimbursement coverage over the course of the year. I’ll begin with an update on the current reimbursement landscape for the treatment of non-melanoma skin cancer in the U.S. On January 1st, the new CPT 3 code for skin electronic breaking therapy went into effect as anticipated. Ahead of the implementation of this new code, we had communications with all eight of the regional Medicare Administrative Contractors or MACs which allowed us to present the growing volume of clinical data in support of skin electronic brachytherapy into -- and the working cost associated with delivering radiation therapy. Speaking to the status of provider reimbursement a number of health sites have treated patients since the first of the year with considerable number of claims and process. And while we are aware of several completed claims that provide adequate reimbursement to get additional customers treating again, we simply do not have evidence from enough claims data as of today to determine an established viable reimbursement pattern. We expect further clarity on this in the next 30 to 90 days as additional plans are judificated [ph]. So these claims generate viable reimbursements for providers due to significant number of customers who have planned to begin treating patients in the matter of days or week. As the latest clarity we’ve made good progress to improve the efficiency of our overall treatment delivery model for dermatology practices. We are preparing to introduce several new features for the soft skin system and software at the American Academy of Dermatology or AAD meeting later this week. Compromised of a new Wi-Fi enabled system and enhanced Accent Hub cloud software, this new streamline module for advanced radiation or smart improves flexibility, efficiency and security of eBx treatment to enable clinicians to reduce the number of steps for each procedure allowing for patient treatments each day. We’ll be highlighting this software at our booth at AAD with stimulated treatment especially to show the simply more efficient workflow. Additionally, we will introduce an enhancement to electronic radiation source that will significant extend its useable life. Together, we anticipate these new enhancements to improve the efficiency of XOFT Skin system for our customers by up to 40%. This is importantly proven that supports our existing customers in improved business model to offer new customers. As we look forward we will continue to enhance the system with improved deficiency for end users skin customers. We’re excited about the streamline model for our skin eBx business and continue to believe it will make strong contributions to our growth longer term. Our comprehensive product roadmap also includes the continued development of clinical data to support broader adoption and in a longer term a CPT 1 code for skin electronic brachytherapy. Recently a pre-reviewed study was completed by Dr. Nicholas Flores from Arizona Dermatology highlighting the safety and factors of electronic brachytherapy in treating patients with non [ph] operable lesions primarily in sensitive areas such as the nose, near the eyes and on the ears. The study demonstrated positive results for 502 patients in the study. Importantly these patients were not candidate for most surgery and treatment with electronic brachytherapy was deemed to be the best available option. We -- anticipate this data will be presented at the upcoming industry events in the next two quarters. To-date, there are active studies following 1800 patients and over 2500 legions with the recurrence rate of under 1%. We’re also making progress with our initiative to secure a level one CPT code for electronic brachytherapy for skin. In November, we initiated a retrospective trial of patients that had completed the skin treatment. This clinical trial protocol allow us to utilize data from patients that completed treatment up to three years ago. Significant and reducing the time to go over trial and reach the required follow-up periods for patients. Based on current plans and time lines, we anticipate that we may have sufficient three-year follow-up data from historical patients with trial by the end of this year. Assuming the results track with the commercial experience to-date, this will put us in a position to submit this data to CMS in March of 2017 and apply for CPT 1 code. Turning on to IORT, we had good momentum in 2015 on two fronts, raising awareness of procedure among patients and providers and driving strong adoption in patient volume particularly in international markets. We currently have 24 active international centers across the UK, Germany, Portugal, Spain, Taiwan and Canada treating. In 2016 we expect our strong international momentum to continue, the procedure growth among the existing user and additional system placement in existing markets. 2015 we also laid the ground work for further international markets with addition of four new countries Bulgaria, Russia, Iran and Australia. We also improved our distributor coverage in Mexico, Austria, Switzerland and Scandinavia increasing our opportunities for new system placement. In 2016 we are targeting into several new markets for IORT, China, India, Saudi Arabia and Egypt, further expanding our long term opportunity. In the United States, we continue to successfully secure consumer and trade publication coverage by IORT highlighted by being featured in popular sciences, 2015 invested what’s new awards issue [ph] which reaches more than 20 million readers. In addition, in the past weeks alone, several new stories that we heard across the country, a local broadcast, highlighting Soft IORT users and their patients and positioning the technology as breakthrough in breast cancer treatment. They are also experienced to be a steady flow of clinical data and KOL presentation at Medical Meetings highlighting the benefits of IORT, most recently the T from whole breast center in Newport Beach California presented data at the University of Florida multi-disciplinary Symposium on breast disease highlighting data on Xoft breast IORT from over 700 patients treated at this center. This is a largest single facility IORT series in United States; the presentation was awarded the first place 2016 Breast Journal award. Here are few of the key highlights from the study. IORT allows patients who do not complete six to seven weeks of whole breast radiation to consider breast conserving therapy rather that mastectomy. The recurrence rates at 20 months average follow-up was only 1.7% or 12 patients out of the 700. For Astra’s suitable patients the recurrence was actually zero percent. We continue to have a robust schedule of additional IORT data presentations in publication’s planned for 2016 along with our planned activity at Medical Society meetings throughout the year. Last year we focused in our cancer therapy business in 2016 as our initial work in developing new applicators to address additional cancer types [Indiscernible] system. In 2015, we introduced our new cervical applicator, our first multichannel applicator and completed the market assessment of new application for electronic brachytherapy to play a strong clinical role. Among the areas we continue to investigate include prostate cancer where we anticipate conducting a feasibility study in 2016. Before we open the call for questions, I’d like to reiterate our top priorities of 2016. First, in cancer detection, successfully launch our breast tomosynthesis software that also continuing to drive adoption of PowerLook upgrades and the adoption of our breast density software. Second, in therapy we introduced our enhancements to Xoft skin system and work with peers and medical professionals to establish the appropriate reimbursement level associated with the new skin treatment codes and rebuild momentum in this business. Third, also in therapy continue to drive international momentum for IORT and fourth it continue to invest in clinical studies to build the long term data required in support of the use of the use of Xoft system for the treatment of breast and skin cancer. And finally, to continually manage our cost in investments carefully. So we look forward to updating you on our progress with these goals at upcoming conferences, meetings and on our first quarter conference call. And with that, we’d like to open up the call. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Bill Bonello from Craig-Hallum.

[Bill Bonello:]

Good afternoon, guys. Hey a couple of follow up questions here. So just on the tomosynthesis product, can you tell us have you completed the U.S. clinical trial? Have you submitted the final module for the FDA and do you sort of when might you anticipate publication of any trial related data?

[Ken Ferry:]

Sure, so Bill currently we are pending CE Mark and we expect to see CE Mark this month, could be any day. And that would be obviously for the OUS [ph] portion of the business. We are really excited that we are introducing this software at the European Congress Radiology in Vienna literally tomorrow and we think it’s going to have just great exposure and great success there. That’s obviously a very, very large Radiology meeting. As it relates to reader studies, what gives us great confidence with this product is that we completed a European reader study sometime ago where we had six readers 80 cases, so you had essentially 480 reads on the international front to test the product. We then did complete to your question on the U.S. sometime ago a study by which 20 readers read 240 cases and that obviously mathematically is 4,800 reads. So when you talk about testing a product we have had a total of 26 expert radiologists read 320 cases which equals over 5000 reads with this product. And that’s quite a testing paradigm to say the least. We are extremely pleased and extremely confident that the results were bad. To your final point regarding the FDA, we believe in this month of March, we will submit the final module of our PMA that largely is dependent on the final data clinching from the reader study which we have completed. But the preliminary results are encouraging and we are hopeful that by the July timeframe this will be an approved product in the United States and certainly this month we anticipate orders and shipments over U.S.

[Bill Bonello:]

And is there a point at which you will be able to speak to the outcomes of those reader studies I think the end point was probably reducing the read time without comprising rates of detection, is there a point where that information will become public? When will that get public, I guess that’s what I am asking.

[Ken Ferry:]

No, that’s something in the next several months we should be able to communicate. We have to just finalize the data crunching from the United States study. But what I would say at this point though is that what we have seen which is so important towards our end point is a meaningful reduction in reading time. And when you talk to radiologists regarding the biggest challenge with reading tomo cases, it’s the amount of time it takes. It’s the amount of eye fatigue, distraction and things that occur in reading such a data incensed study. And we achieved significant reduction in reading time without comprising detection accuracy which we think is a significant contribution and further keep in mind these 26 radiologists were using this tool for the first time. So think about a radiologist and practice that looks at 50 to 75 exam a week, and have the benefit of using this tool for 6 to 12 months to get the considerable amount of time reduction that we achieved with radiologists that essentially were trained and were using the tool the same day was considerable and we think that’s the minimum that we can achieve in term of increased productivity and work flow. So we are excited about it, and as we start to work on next version of this product, we believe we can make major contributions even beyond what we already have. What we already have we believe will be very successful in the market.

[Bill Bonello:]

Okay, so that’s helpful. Thank you. And then can you talk a little bit about what were kind of how is the product going to get promoted, what will GE be doing, what will your responsibility be, how do we think about the product actually being sold?

[Ken Ferry:]

Well I think it’s a joint effort between the two companies. Obviously GE will see this as a major workflow feature inside their workstation. It will be featured if you will as a major component of their next release which is also anticipated for CE Mark in March and obviously in the summer time frame in the United States. So they will clearly be positioning this as a very powerful workflow tool. We obviously have our own positioning which is that we have gone from a 2D workflow tools to 3D workflow tools and in the 3D world we have lot more to offer. We’ve got the PowerLook upgrade, we have breast density, assessment software, we also will add 3D capability to the density software. So we will be very aggressive in positioning this as a powerful suite of 3D workflow tools coming from iCAD and what we expect realistically is that this will be GE focus but in the next year or so we will have a feature release that we believe we can have for the rest of the market relative to the tomo systems. And so, there is a real evolution over the next say 12 to 15 months with this product that we are pretty excited about and our focus also will be collaborated with GE, but we believe they have somewhere in the range of about 600 systems between OUS and U.S. installations that essentially are tomo sites that are not using a tool of this nature. So we are going to put a lot of effort collaboratively with GE. We’ve talked with them about our go-to-market plan over U.S. we’ve kind of got a country by country approach where they would do the lead in the selling or we’ve actually put a resource into Europe, a dedicated clinical support research that’s a expert on tomoynthesis, software to cloud [ph] and support the GE team, so we can get after this big market opportunity. As we get to the United States, it will be a collaborative effort really as it is today and two day we have a direct sales force of experts that will be out there very actively supporting their counter parts while we do all the typical things around the medical meetings and the trade shows that accompany them, the ability to do advertising and so forth because at the end of the day we feel confident that we are the first company that has developed Tomo CAD software, the first company to provide it, the first one to go through extensive reader studies and the first one that is engaging in the PMA process in the United States and that’s not attributable accomplishment, something that we think is a foundation for significant growth over the coming years.

[Bill Bonello:]

Great. And then just one last thing if I can. On the skin side, you mentioned that you’ve had some doctors that have been paid at levels that would be sufficient for a viable business. Have there been other physicians who have been paid at rates that would not be viable?

[Ken Ferry:]

We have -- we believe something on the order of about 1500 patient treatments that are now in process, that’s a pretty considerable number. Unfortunately though the number of evidence of payments have been probably in the 20 to 30 range. In those instances we have not seen anything that would not be viable, what we’ve seen is a solid reimbursement that we think will allow providers to offer this important treatment option. We think it is sufficient that those that have been waiting to see what the reimbursement looks like to get back up in treaty. With that said, I think that they as we want to see more data points that would support the level of evidence that we have today. So we are encouraged, but we are being cautious until we really have significant data points that would really give everyone the confidence that it’s time to really ramp up treatment options in the sites, particularly that have been waiting, that were doing considerable volumes prior to the change in Noridian.

[Bill Bonello:]

Great. And no increase in claims denied there’s not -- I know there was some change in Noridian coverage decision or I believe there was the way and I was just curious if there’s been any change in I know most of these are just pending but you are not seeing claims being denied?

[Ken Ferry:]

The only time we’ve seen claims denied is when they have not been submitted properly. And there have been examples, and it’ very typical with the new code. There’s learning curve built on a provider as well on the payor side with new codes. And so that has happened and there’s been work done to resubmit seeing the glaring the stake if you will that may have or interpretation going honestly from the payor side, that needed pre submission, this is not unusual but like I said we got ways to go, we said another 30 to 90 days before there will be sufficient data points but the early returns so to speak are a bit encouraging but we will not really make any judgement so to speak until we have a lot of data points.

[Bill Bonello:]

Okay, thank you so much for putting up with all those questions.

[Ken Ferry:]

Sure.

[Operator:]

[Operator Instructions] Our next question comes from the line of Brian Marckx from Zacks Investment.

[Brian Marckx:]

Hey guys, Bill covered a few of my questions, but since we are on the top like of the skin reimbursement can, are the payments that you’ve seen to date and I know you always seen -- said you’ve seen 20 or so, is it kind of all over the place or are they at least somewhat consistent OUS.

[Ken Ferry:]

It is fairly consistent Brian and one of the challenges beyond just sheer volume is the geographies that they come from. And there are geographies that are obviously in a positive coverage and payment state that we still haven’t technically seen any payments from. So that is also why we are being cautious about this. We have not seen sampling on a wide distribution of the stakes that have crossed that pay; they have been so much concentrated. So, where we have seen these evidences of reimbursement they have been very consistent.

[Brian Marckx:]

Is there less ambiguity today relative to payment rates for skin than there was right after Noridian came out and said that they would not reimburse under the [Indiscernible] or that later was?

[Ken Ferry:]

I would say yes, and the reason I say that is after Noridian made the changes back in April which they really implemented in the June timeframe with 17999 substitutions for 0182T. They were payment quite frankly all over the map, there really was a wider range let’s say of payment and it seems that there has been a lot of thoughtful analysis done with the new code and with the clinical data that has been submitted and I would just interpret what we are seeing as a result of that effort. We’ve put a lot of clinical data together. We had KOLs reaching out and communicating with the MACs and to me the most encouraging thing I can say is we are now at a point where 1,800 patients and 2500 lesions have been followed in studies. And as of today, Brian we’ve had 18 recurrences which is seven tenths of one percent. And if there’s anything that will drive adoption is the fact that you’ve got a non surgical painless alternative to surgery and we are treating on average 75 year old Medicare patients. And so when you look at that clinical data it would be awful if quite frankly there wasn’t a mechanism to find a proper coverage and payment. So that provided it can from an economic standpoint afford to offer this non surgical alternative. And I think that when you combine that, with the fact that we are able to accelerate our CPT1 study and essentially have all of the patients together for the CT1 submission by maybe the first quarter of next year we are very encouraged along the right path. We will have some bumpy times; we look at the year 2016 as an opportunity with this continuum of clinical data to continue to approach the MACs. We don’t see this as a onetime January 1, one of opportunity and done, what we see is a methodical opportunity as new clinical data comes to bear to get our KLOS [ph] in front of them, to show this willingly positive data deserves coverage with reimbursement and we are hopeful that over the course of the year the math if you will continue to show more and more coverage in payment. This is not about wait till next January because this is not a CPT1 code where you kind of have an annual process and its’ all or nothing for January 1. This is a very fluid process and as we know it so well MACs could initiate or change coverage whenever they choose to.

[Brian Marckx:]

Okay. Great, Kevin on the MRI CAD number in Q4, can you repeat for me what the sequential drop was in the MRI?

[Kevin Burns:]

Yes, in the third quarter our MRI revenue in total was $1.3 million and that includes product and service revenue and that dropped to about $500,000 in the fourth quarter.

[Brian Marckx:]

Okay. Great. All right, I had a couple of margin, the product margin does that -- the product margin was relatively very strong in Q4, does that relate to the Invivo agreement ruling off?

[Ken Ferry:]

Yes the product margin was really driven by mix. We had lower controller sales which had lower gross margin and more of that business came from the cancer detection side. And you decline in this, so that’s what drove higher product margin. The decline in service margin as we had the transition service and agreement in place with Invivo that’s driven and it’s some incremental revenue but it is also lower margin on the service line. So that sort of drove a decline in this service margin.

[Brian Marckx:]

Okay. Can you kind of help us with how that kind of -- flushes out going into 2016 with Invivo not in the picture anymore?

[Ken Ferry:]

Yes, so Invivo we will continue to amortize the paid up license that they completed in the second and third quarter and it’s going to be about $300,000 in revenue. In addition to that, we will pack on some incremental transition services work that we are in discussions with them now. So the range its’ going to be between $300,000 to $500,000 per quarter after the next couple of quarters until we do anything from a strategic standpoint with them.

[Brian Marckx:]

What was the amortization in Q4, was that…

[Kevin Burns:]

It’s all about it. It was about $300,000 per quarter.

[Brian Marckx:]

Okay, okay. All right. All right, great, thanks guys.

[Ken Ferry:]

Okay, great.

[Operator:]

Thank you. And that concludes our question and answer session for today. I would like to turn the conference back to Ken Ferry for any closing comments.

[Ken Ferry:]

Thanks, operator. And thank you everyone for joining us today. As I mentioned earlier, we had some real accomplishments and some headwinds in 2015, however as we entered 2016 particularly around midyear, we think the business traction should be very, very considerable. And when you think about where it comes from starting in cancer detection, as I mentioned earlier, we have essentially launched this week our tomosynthesis software internationally at the European Congress of Radiology. We are very encouraged by all of the testing we’ve done to the readers studies that we have an exciting product that’s really going to hit at what radiologist tell us the most, which is when they are reading these studies, it is an incredible amount of data to assimilate and having a tool that helps them do this accurately and more quickly and productively in a more organized fashion, could really make a meaningful contribution. And it’s a very large market opportunity given the number of tomo systems that are installed across the world and many more that will come over the next three to five years. Combine that with breast density where you’ve got 24 states that have enacted legislation and we have seen as Kevin pointed out a threefold increase in the number of licenses that we sold in 2015 versus 2014. That all adds up to $700 million of business opportunity in our installed base and we believe that that will accelerate over the next several years. So the cancer detection business had alas a very good growth catalyst and they are largely initially in our installed base. So we really have minus [ph] site to those customers and how to reach them and believe that the value proposition and the sales process should be fairly smooth. So pretty excited about that. In the therapy business, we’ve had some challenges with skin but as I pointed out one of the most important things you could do is invest in clinical studies that ensure the safety and efficacy of your product. And the fact that we do now have this 1800 patient and 2500 lesion following in the clinical studies and to at least have less than 1% recurrence really gives us lot of confidence that being in the skin therapy business for the long term is important, it’s a very, very large market opportunity one that we really believe we need to be in. The ability to then work through a steady in the next 12 to 15 months would allow us to submit for CPQ1 code should further cement the whole reimbursement dynamic as it relates to this effective therapy for the longer term it takes a lot of this choppiness out of that particular business. In breast IORT we are excited. We sold nearly twice as many systems -- almost twice as many systems in 2015 as we did in 2014. We’ve now got 24 sites internationally treating of just a significant increase we have over 30 sites in the United States that are actively treating and we just think about this from a procedure volume. If you go back to 2012 we basically sold about 650 applicators. In 2015, we sold double that. So, while our market penetration is still fairly low, in a three year period we essentially doubled the procedure volume in IORT. The study data is becoming very, very positive. Our own study, the expert study, we now have over 700 patients involved and at approximately one year of follow up we have one recurrence of 700 patients. We talked about the whole study, in that case you had 700 patients and had 22 months of lean follow up there were 1.7% recurrence. And then when you look at that study of 700 patients you look at those that were ASTRO suitable. ASTRO suitable means they had a more stringent protocol. Patients had to be at least 60 years of age. The tumor size couldn’t be bigger than 2 centimeters. There were 222 patients out of the 700. There were 50 ASTRO criteria in that 22 months not a single recurrence had happened. So when we look at the promising clinical data behind the IORT business and we look at the relative growth and procedure volume over the last three years, and the favorable news we are seeing in the press and so forth we are very, very encouraged for the longer term, that these businesses are very viable, they have very large markets and the foundation you need which is strong clinical evidence is growing every day. So we are very enthused about our business cancer detention as well as therapy we believe by midyear this evidence should be more clear as it relates to revenue and margin and EBITDA performance and we will stay laser focused from an execution standpoint to ensure that that happens. So thanks to everyone for following the company and enjoying the call today. And as I mentioned that are coming medical meetings and investor meetings and on our first quarter call we will continue to update you on our progress. Thank you very much and have a good day.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now log off and disconnect. Everyone have a good day.