Misonix, Inc.
Q4 2015 Earnings Call Transcript

Published: 20 Aug 2015

[Operator:]

Good afternoon, and welcome to the Misonix, Incorporated Fourth Quarter and Fiscal Year 2015 Financial Results Conference Call. All participants will be in listen-only-mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom of Lytham Partners. Please go ahead sir.

[Robert Bloom:]

Thank you Denise, and thank you all for joining us to review the financial results of Misonix for the fourth quarter and fiscal year 2015, which ended June 30, 2015. As the conference call operator indicated, my name is Robert Bloom of Lytham Partners. We are the Investor Relations consulting firm for Misonix. With us on the call representing the company are Michael McManus, President and Chief Executive Officer; and Richard Zaremba, Senior Vice President and Chief Financial Officer. At the conclusion of today’s prepared remarks we will open the call for a question-and-answer session. If anyone participating on today’s call does not have a full text copy of the release you can access it from the company’s website at www.misonix.com or numerous financial websites. Before we begin with prepared remarks we submit for the record the following statements. Statements made by the management team of Misonix Incorporated during the course of this conference call, that are not historical facts, are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will and other statements of expectation identify these forward-looking statements. Investors are cautioned that forward-looking statements made during the course of this conference call are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from the statements made. The company disclaims any obligation to update forward-looking statements. Risk factors include but are not limited to factors discussed in the company's annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. With that said, let me turn the call over to Michael McManus, President and Chief Executive Officer of Misonix. Mike?

[Michael A. McManus:]

Thank you, Robert and welcome to those of you on the call. You've seen the results we've released for the fourth quarter and year-end fiscal year 2015. We're very pleased with the results in all areas. Sales for the year were up 30%. We saw good growth in the United Statements and in international markets. In international markets where we sell to distributors we saw growth in both units and in pricing which was very positive. International sales were over $11 million versus $9 million in the previous year. As you know one key to our growth comes from recurring revenue from systems’ disposable sales which grew to 58% of total revenue from 52% last year. This is a clear indication of not only more systems in place but more usage of those systems. There were 83 BoneScalpel system units consigned in United States, compared to 59 systems consigned during fiscal 2014, while BoneScalpel disposable revenue increase 60% to $7.7 million. Worldwide SonaStar sales increased to $7.2 million from $6.3 million, as you can see, very good growth. During the year we increased our marketing efforts with new product marketing information throughout the world on ads for SonicOne, a disciplined presence at trade shows with prominent supporting doctors doing hands-on workshops. We again participated at the IMS meeting in Asia where more 75 surgeons attended the workshops. In a few weeks we'll using the same discipline model at the EUROSPINE Show in Copenhagen. As you know we were involved recently in the American Burn Association meeting, where a presentation on the SonicOne and the treatment of burns was a highlight. We're excited now about rolling out the SonicOne in not only the chronic wound market, but to the very critical burn market as well. Our entire team is operating on all cylinders with the sales force deeper and more experienced, a newly promoted Vice President of Sales and a new Vice President of Marketing, all reporting to a recently promoted Senior Vice President of Sales and Marketing, Scott Ludecker. We continue to develop line extensions for our products with the disciplined collecting of data on surgeons' needs that are clearly identified and then having our professional team of engineers develop solutions to those identified needs. I'm pleased with how this effort is progressing and you will see results rolling out throughout the year. During this year we also invested in upgrading and improving our IT systems with a larger part of them managed professionally off-site. This enables us to focus on the reports and metrics we need to run the business. And in cloud service allows us to slice and dice the customer universe to identify high value, high volume targets that are passed to the field for follow up. This capability will make our sales efforts more efficiently targeted and more profitable in the coming year. During the year we also increased our participation with the largest EPOs [ph] to help drive sales and hospital acceptance. Fiscal 2015 was a very solid year. We made progress across the entire board. We are increasing the acceptance and market share for our products but we've got lot more to do. We have the right people in place internally and externally in terms of key leaders in our fields of practice that are committed supporters. We have a strong financial foundation as well as cash and equivalents of more than $9 million. Most importantly we have the commitment, the energy, the focus to continue to grow across the Board in a way that will continue to increase shareholder value. Let me turn the call over to Rich now for comments and then we'll take your questions. Rich?

[Richard Zaremba:]

Thank you, Mike. Revenue for the three months ended June 30, 2015 was $6.7 million, a 21% increase when compared to revenues of $5.6 million for the same period in 2014. BoneScalpel revenues increased 48% to $3.7 million. SonicOne revenues increased 99% to $985,000. Operating expenses for the three months ended June 30, 2015 increased by approximately $1 million from that from the same period in fiscal 2014 primarily due to commissions on higher revenues, the hiring of clinical application specialists and our marketing and IT consultants. The company reported net income for the three months ended June 30, 2015 of $3.8 million or $0.46 earnings per diluted share, which included the $2.9 million reversal of our valuation allowance against its differed tax assets as compared to $1.4 million or $0.18 per diluted share for the same period in fiscal 2014. Revenue for the 12 months ended June 30, 2015 were $22.2 million, a 30% increase when compared to $17.1 million for the same period in fiscal 2014. BoneScalpel revenues were up 44% to $11.1 million, SonaStar revenues were up 14% to $7.2 million and SonicOne revenues were up 47% to $3.3 million. The company reported net income of $5.6 million or $0.69 earnings per diluted share for the 12 months ended June 30, 2015, which again included the $2.9 million reversal of our valuation allowance against its deferred tax assets compared to net income of $1.4 million, or $0.19 earnings per share, for the same period in fiscal 2014. The company’s cash position as of June 30, 2015 was $9.6 million; day sales outstanding is 73 days; inventory turnover is 1.7 times and the company has no long-term debt. The company’s backlog of unfilled orders as of June 30, 2015 was 33,000, most orders are shipped when received. I would like to turn it back to Mike.

[Michael A. McManus:]

Operator, we would be happy to take questions now if you have some.

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions]. And our first question will come from Paul Nouri of Nobel Equity Fund. Please go ahead.

[Paul Nouri:]

Hey guys. I know you are on a pretty good growth trajectory here, but general and administrative expenses seem to be climbing at a pretty good clip along with -- are there any one time items or can we expect that to moderate at all or should that stay around where it is now?

[Richard Zaremba:]

I think unfortunately the variable is our stock-based compensation as stock options are valued under the Black–Scholes method. As the stock price goes up the volatility increases and therefore the -- basically the cost has increased. It’s all non-cash but that’s a fairly significant piece of it, and the commissions which is cash as well as our depreciation as we consign units out, that depreciation expense hits our P&L, again non-cash.

[Paul Nouri:]

Okay, thank you.

[Operator:]

The next question will come from Scott Billeadeau of Walrus Partners. Please go ahead.

[Scott Billeadeau:]

Hi guys. Good quarter. I am wondering if you could flesh out, just in terms of the sales force and the go-to-market strategy, how -- do you have the guys you need, how many more are coming, how many are kind of at maturization, how many are still have to get up the curve, maybe you could give us a little info on what that looks like?

[Michael A. McManus:]

As far as the sales force is concerned?

[Scott Billeadeau:]

Yes.

[Michael A. McManus:]

Right, so our sales force is primarily made up of independent distributors around the country, but we do have a very powerful and experienced now team of regional managers and what we call clinical application specialists and we have a group in the -- what we call the surgical side which is for the BoneScalpel and the SonaStar. And then on the wound care side it’s a group of people that in the last year we added some clinical application specialists and this year we’ll add a couple more because the important thing here for us is twofold, as I look at it. One is to continue to educate doctors on the use of our systems and to give them an opportunity to do evaluations and then to be with them for a number of procedures to make sure that they, as they say, get it. But then the second part of it is to go back and to make sure that the doctors that we trained last year are comfortable in using the system and we use the metrics there of number of users of per month and as we watch that and we see an area, where say a doctor is just not growing as fast as some of the others it represents the need for us to go back in and make the doctor more comfortable, maybe train them on the ability to use, say a BoneScalpel in a different procedure so the volumes can increase. And at the same time introduce another surgeon in the hospital to the use of the system. So the answer to your question is we will add a few more clinical apps people because they do the last part of that equation. They're the ones that go in and make sure that the doctors are trained at the time of the sale and also doctors that were previously sold to [ph]. We've got experienced regional managers now. And I don't think we'll be adding to that in the near future. I think we've got the bases covered and we've got good people in place.

[Scott Billeadeau:]

Great, and yeah I guess I was trying to get a sense for the scalability and it seems like that the one thing that we continue to add and get those guys more efficient to be able to scale that. The follow-up or -- and maybe talk about just few in the upfront training. I think you said you have trained quite a few docs here recently. And what's the plan on there to continue to bring docs and do groups like that and what's the strategy going forward?

[Michael A. McManus:]

Well, one of the nice things about the data, people talk about big data and there is more and more data available every day. And right now, there is a lot of data that you can get with regard to surgeon practices and so among other things there is Medicare data, one of the good things that our government does, I guess is its collects the data. And that allows you to know with great visibility who are the doctors that are being paid through high volume surgeries that where the BoneScalpel could be utilized. And that gives us an opportunity to target well. And so when we have good people and better targeting capability they know where the high volume opportunities are. And then we track how they do and visiting those doctors, you have to teach a doctor in the case of the BoneScalpel or in the case of the SonicOne to do something that they weren't doing before. And it takes a little bit more training but we haven't really found very many doctors if any who don't understand the benefit of safety, quality of the cut, the reduction in blood loss the kinds of things that make doctors want to use, in this case the BoneScalpel. And then you have to go through the approval by the hospital, these value added committees. But when you have more experience of that you're little bit better at it. When your products are better known they're more easily accepted. When you're with more GPOs the hospitals are more accepting. So all of this tends to accelerate as you get better at it, but the ability to target enables us to focus more on the high-quality targets and that's where the profitability is going to come from. So the quality of the sales force, the quality of the clinical app specialist and better data and having other doctors out there that are willing to raise their hand and talk about the difference that our systems have made in their practice and to their patients help us move through this whole process faster and better.

[Scott Billeadeau:]

Great, and just one last question, you did, I think you had mentioned some IT systems for kind of sales operation and are inning one, or whereabouts are we in terms of reaping some of the benefits of that?

[Michael A. McManus:]

Well we're just, this will be the first year that we've really had the benefit of a totally separate sales management system. And it's the combination of the system but then the quality of the data. And when you put the two of them together it's a very, very powerful addition to what we can do in the field. And we're excited about of the prospect of that because the combination of those two things are going to help us to find the most profitable targets to help build our business.

[Scott Billeadeau:]

Great, thanks so much. I will go.

[Michael A. McManus:]

You bet, good to talk to you.

[Operator:]

[Operator Instructions]. The next question will come from Michael Kaufman of MK Investments. Please go ahead.

[Michael Kaufman:]

Hi Mike and Rich, great quarter, great activity variables. I guess to me having spent many years at Xerox, kind of a rental or consumable model is a great model for blowing out, profits long-term because you're really only dealing with the current placements. But then you have residuals going forward. I guess one of the interesting things would be if you have a model that talks about your net additions, or how many placements versus cancellation and then what's the trend growth over time to see how this revenue machine is growing and you had expect over time that the contribution margin from that will more than overwhelm the need for more sales and administrative resources because relatively you are really dealing with the new business generation. I'm wondering if you have any color on that and where do you see that moving over time?

[Michael A. McManus:]

In general I'd have to agree with what you said and we are seeing a growth in obviously disposable revenue, and as I said the transfer now of our IT system to its real core of base [ph] management to a third party enables us to create more data generation and reports and metrics internally and in the cloud, offer this new system to be able to create the kinds of models that you are talking about, and we will have that hopefully in the near future. But in general there are two things that I look at; one is our ability to continue to gain acceptance from new customers, the high value, high volumes surgeons that in for example that have heard about, want to learn about and eventually commit to the use of the BoneScalpel is one driver and they are getting upto speed quickly and generating more volume in their practice as new customers is important to us. The second metric that's important is to make sure that the base is continuing to grow in their usage as well, and that's driven by a couple of things. One is by the doctor that you trained a year ago becoming more comfortable in using the BoneScalpel more often in a variety of procedures in his practice. But in addition to that if he is doing that typically the guy down the hall will say hey, what are you doing? and there is an opportunity to bring a different doctor on to the system. So you've got multiple doctors on one system and then hopefully that generates into two systems in a hospital with multiple doctors and as you watch that over time, the key to it is to make sure that if a doctor isn't generating growth in his practice we need to go back in and make him comfortable with the cut, make him comfortable with what he is doing and make him comfortable in his intellectual curiosity or professional curiosity in moving into the use of it in more procedure than we trained him for because he intuitively can feel that it's safe and effective. And once they start seeing that they move on and the volume of the use of BoneScalpel increases. So yes, we should be able to develop a model to help us historically relate to that, but we'll never have a model that we want to share that will project the future. Although we'd like to have it internally.

[Michael Kaufman:]

I guess classically it's almost like the equivalent of sales engineers people that will go in because a lot of thing is placing the units and the question is how do you ramp these people's use of the unit once it's already there and paid for?

[Michael A. McManus:]

Yeah, those are the two things. Getting it in and then making sure that the users are comfortable and growing their use. And so far that appears to be working well. But we have to stay on top of it. It's important. It's one of those details that you can't forget. It's focus. You have to focus.

[Michael Kaufman:]

At the last conference call you were comfortable that the normal growth of the business which is -- sounds very exciting as [indiscernible] offsets the loss of the Covidien royalties down the road, are you still comfortable with that?

[Michael A. McManus:]

I think that our present growth, if you take our present growth and we project the same growth out in to the future, I think just running the math you come to the conclusion that we would replace the Covidien business within the period of time we have left between now and October of 2016.

[Michael Kaufman:]

Well, good luck. It's a great quarter and I am sure you guys will make it happen.

[Michael A. McManus:]

Thank you so much. Thank you for the questions.

[Operator:]

The next question will come from Walter Ramsley of Walrus Partners. Please go ahead.

[Walter C. Ramsley:]

Oh, thank you. Congratulations, good quarter. Got a couple of, I guess you would call them housekeeping questions. The company reversed the deferred tax provision, was that the entire amount or is there still some more that you might add to that in the future?

[Richard Zaremba:]

That’s basically the entire amount that we could.

[Walter C. Ramsley:]

Okay. And now that you have done that you are going to have to report a tax rate when you start reporting the quarterly results in the future. What do you estimate that tax rate will be?

[Richard Zaremba:]

I think it’s going to be about 35% which is our normal tax rate.

[Walter C. Ramsley:]

Okay that’s good. The foreign sales during the quarter, do you have a number for how much they were impaired due to the currency effect.

[Michael A. McManus:]

They are not, we get paid in dollars.

[Walter C. Ramsley:]

Okay. You mentioned, I think early in the prepared remarks that you are able to counteract the natural pressure that the currency created by improving your prices, was that correct?

[Michael A. McManus:]

They either in some cases been flat but in most cases we’ve been able to raise them a bit and I think that’s more a function of the fact that in foreign markets the best surgeons appreciate quality and benefit and once they’ve realized that they can -- the reimbursement systems allow for them to be able to afford our products and remember we sell our products to distributors who then sell them into the hospitals. So we are increasing our prices to the distributors who then are able to pass it on into their own country customers.

[Walter C. Ramsley:]

Okay, that sounds good. So have you begun to see any increase in resistance to the pricing or is that…?

[Michael A. McManus:]

Yeah, absolutely. I mean it’s difficult and you have to understand I think the case that the customer, whether it’s a distributor or doctor making -- particularly in places like South America but now more recently, certainly in Asia and other places around the world. I mean there is an awful lot of pressure not only in terms of the increase in the value of the dollar but in some of the local problems and regional issues and whether China is spending more or less in their country and supporting their business, the macro and micro economic effects of the prices that we see around the world are very difficult for people to deal with, but we’ve been fortunate in that doctors want to have quality products from the United States and more and more doctors are recognizing the value of our systems and the benefits that they provide to their practice and to their patients.

[Walter C. Ramsley:]

Okay. Now if that kind of resistance continues due to the currency or even just general economic conditions, has the acceptance rate, the adoption rate in the United States begun to reach an inflection point in your view where that growth could accelerate even faster than it’s been up till now?

[Michael A. McManus:]

Well, it certainly -- I guess it depends upon the definition of inflection point. I mean we’re clearly we’re growing very well but off of still a small base, and so the thing that we need to do every day is to focus on gaining market share and acceptance in the United States and our market penetration has to continue. And so we need to accelerate the growth. The good thing that helps us accelerate the growth is not only the quality and acceptance of the product but the things that the market and other surgeons are saying about it. And so we continue to collect testimony statements, participation by prominent surgeons and key opinion leaders in the workshops that we do in the United States, because there is nothing better than teaching a doctor to use a system when the teaching comes from somebody that they respect and know as a key opinion leader. And we've been fortunate to be able to start generating that kind of participation. The other thing that's extremely helpful is referrals from prominent users and whether that referral is to their peers or even to people that are -- that they trained years ago that are now surgeons in their own right around the country, that are hearing from the doctor that taught them about a new device that he couldn't have trained them on but he would have, if he could because it's changed his practice and it's made, in the case of the BoneScalpel his surgery safer and more effective and beneficial for his patients and saving time and saving, in some cases his ability to practice for a couple of years because he's not wearing his hands out as much. So there is a lot of benefit and as all of that grows it accelerates our ability because we've got more support around this and people have heard about it. We're not trying to convince people to be the first time users. There is already an accepted base of high quality hospitals and surgeons that give people recognition that this is credible and that they ought to be willing to accept it equally.

[Walter C. Ramsley:]

So are there any obstacles that have arisen in the United States to prevent you from just continuing to roll.

[Michael A. McManus:]

No, there is always competition. And the competition are bigger guys. And they've got products that doctors have been using historically and anytime that you have a new medical device you're asking some of the best surgeons in the country that have been practicing for more than 20 years to change the way they practice. And that's just the way innovation works. And so you have to you have a credible case. And you have to make it well and you have to have the kind of professional sales force and supporting development people and research people that can help people with our quality products. And then you've got the medical system in the United States with these value added committees which slowed us down more at the beginning over the last couple of years, but as you develop more evidence, both from using doctors and key opinion leaders and from clinical evidence, then your case is better made to these value assessment or value added committees. And the process can go a little bit faster. But there are hurdles in the road, there is no question about it. But we've got talented people and we've got great products and great innovation and success in the minds of the users. And that's the most important thing. So we just have to continue to push.

[Walter C. Ramsley:]

If you don’t mind, can I a question or two about the other products, the SonaStar. I mean it had a pretty good year, up 14% I mean is that kind of beginning to plateau you think, or is there like another growth spurt in that product line's future?

[Michael A. McManus:]

Yeah, so that's a great question because the SonaStar really is a classic case of the two different markets. In the United States the market for the SonaStar is really a replacement market, mean everybody has a neural aspirator. And so the market is made up of [indiscernible] and Stryker and Misonix and we're each trying to take away share from the other in terms of replacement products. The greater growth for us has been outside the United States where the market is still developing and they use in the both neural aspiration but also in aspirators for more general surgery including liver transplants. And that's a growing market outside of the United States and that's the market where we have developed a new product that's responsive to the higher vacuum, higher aspiration demands, greater sensitivity in some cases for a liver surgery. And so that's a rapidly growing potential for us. And so we think the market will grow outside of the United States and at the same time we'll get a continuing growth in our share of the replacement business inside the United States.

[Walter C. Ramsley:]

Okay. And SonicOne, I mean that had the highest percentage growth of all of them, does that kind of keep happening or I mean are thing flat [ph] at this point?

[Michael A. McManus:]

That's really going to be exciting. I think a lot of our shareholders, even the ones that have been call -- following us closely are going to be surprised by what I think can be significant growth in the SonicOne market in the United States, because of the benefit that we're seeing in terms of the use of the product in very large hospital systems and in terms of things like diabetic and chronic venous ulcers and things like that. But also now with some of the research that we've done and the results that we've seen and papers written with regard to the application in the burn market, where the reimbursement is even more clear and the acceptance maybe faster because the patients are critical. And that better alternative I think will be accepted quickly. And again we have very good targeting capabilities for high volume hospitals that we can penetrate with a product that has got good research behind it and very good cohort KOLs that will be helping us.

[Walter C. Ramsley:]

Yeah nice.

[Michael A. McManus:]

So I'm excited about the potential growth of the SonicOne.

[Walter C. Ramsley:]

And just one last one, I guess the manufacturing, is there any potential there to reduce your cost and improve your margins or have you pretty much reached the end of the line there?

[Michael A. McManus:]

We haven't reached the end of the line. We look at it every year and we're reducing costs on a regular basis. And we're not only reducing costs by better designs and changing in designs where we can. But we're also reducing costs and our ability to negotiate better because of volume with our vendors to get better prices as well. So I think we'll continue to see value there added at the same time.

[Walter C. Ramsley:]

Sounds great. Congratulations.

[Michael A. McManus:]

Thank you.

[Operator:]

The next question will come from Robert Smith, a private investor. Please go ahead

[Unidentified Analyst:]

Nice quarter gentlemen I appreciate your efforts. I have a couple of questions, and the first one is about manufacturing. I'm assuming that just about all the products are manufactured there at Long Island and is there any question of this growth being fast enough to create any volume problems? In other words what percentage of our -- of your capacity are you using there in manufacturing? And also China, you mentioned China and that was one of my thoughts about how are we doing and what do we look like in China?

[Michael A. McManus:]

So on the manufacturing side, we don't manufacture ourselves. We basically assemble here. So we bring in component parts and they're not all made on Long Island. They're made in different parts of the country, where we can find the best vendors and good pricing. And then we assemble things like hand pieces and consoles here and every thing's shipped out of here. But we have additional capacity here to expand. So as we grow and we look out for couple of years we have the ability to handle that we believe here on Long Island. And we'll continue to do so. And the vendors that we have, have the ability to keep up with the growth. We've picked them not only on the basis of what they could do for us now, but their ability to grow with us as well. So I think that will continue to operate well. With regard to China we have a distributor in China and we sell the SonaStar in China and we sell the BoneScalpel in China. And China is a very big growing market for us. We don't make product in China because among other things people that have been making product in China have found that the cost that they thought were so low to begin with are now higher as Chinese costs go up as well. But China's got a lot of issues as we know. We don't expect right now for there to be a change in the sales of our products or the growth of our products in China. As a matter of fact we look forward to continued growth in both the BoneScalpel and the SonaStar and the acceptance of those products in the Chinese market. There is a lot of room to grow in China and we think we have a good distributor.

[Unidentified Analyst:]

Can I get an idea of the size of the market for all these products it’s -- how big is it?

[Michael A. McManus:]

Well, you are talking about China?

[Unidentified Analyst:]

I'm sorry I am talking about the whole country and China and all those, all of…

[Michael A. McManus:]

Well we’re basically in three markets. And the first market that we are in if you just want to say is the spine market, which is where we are concentrating now but eventually we’ll have the ability to go and to create new maxillofacial small bone and other markets without having to significantly change our systems. So if you just look at the spine market its -- worldwide it’s about a $700 million business. If you just look at the areas of the spine that we are in, so take out the things like bolts and screws and all, and that’s the size of that opportunity. The SonaStar is a smaller opportunity in the United States but outside the United States when you include liver surgery it’s a multi hundred million dollar market opportunity and if you look at the SonicOne and the wound care market we’re just in the United States. So even though the worldwide market is huge and will be an opportunity for us eventually going forward, if we just look at the market size in the United States for products that are debriding wounds which is basically the segment that we are in, in the operating room, that market's about a $320 million market. So it would suggest to you that we’ve got some room to grow but also some great opportunities.

[Unidentified Analyst:]

Thank you. Appreciate.

[Michael A. McManus:]

You bet.

[Operator:]

The next question will be follow up from Scott Billeadeau of Walrus Partners. Please go ahead.

[Scott Billeadeau:]

Hi guys. Just a quick follow-up. I was wondering if you could -- I know you had a $1 million of royalty revenue and maybe just discuss where is that and what’s the kind of -- can we expect to see that going forward or growing from here?

[Michael A. McManus:]

So Walrus Partners' ganging up on us here, there are two of you?

[Scott Billeadeau:]

Yeah, we are…

[Michael A. McManus:]

Come on, I thought…

[Scott Billeadeau:]

He is doing the right hand, I am doing the left hand.

[Michael A. McManus:]

Yeah, I am watching that. I want you to know. Okay you have this -- so good question, so we’ve got about $1 million a quarter in terms of royalty revenue on a license with Covidien that is now own by Medtronic. And that’s a license on a patented technology and the patent expires in October of 2016. So those royalties will terminate at that date.

[Scott Billeadeau:]

Okay, good enough. That was my follow-up, thanks.

[Michael A. McManus:]

You bet.

[Operator:]

And we have another follow-up question from Michael Kaufman of MK Investments. Please go ahead.

[Michael Kaufman:]

Yeah, one last question guys. We used to have an analyst covering us when we were very small and tiny and untested and now that we are starting to ramp, I guess that analyst has left where he was. Are we working to try to get some coverage for the company to tell the story from a third party, where do we stand on that?

[Michael A. McManus:]

Well, Michael, thank you for the question. We were working to get analysts cover us even when we were small. So we still do it. The analyst that you are talking about is a wonderful guy by the name Joe Mundo who was at Sidoti, and Sidoti I think will be covering us. It will be a different analyst but we’ll wait and see that. They are making that change there themselves. In the meantime we do regularly talk with people who have the capability of covering us and have been following the story for a time and I am hopeful that now that we are bigger they will start to recognize that we are a company of the size that they should be covering. And so I am hopeful that you will see more people covering Misonix but we’ll just keep trying.

[Michael Kaufman:]

All right, thanks very much and good luck.

[Michael A. McManus:]

Thank you so much.

[Operator:]

And ladies and gentlemen that will conclude our question-and-answer session. I would like to turn the conference back over to Michael McManus for his closing remarks.

[Michael A. McManus:]

Thank you very much and thank all of you for the questions. I really appreciate it even if they are two coming from the Walrus. We are really excited. I think you can tell about the continued consistent progress and we look forward to continuing to grow your company. And we always look forward to talking with you and if you have some questions after this call don’t hesitate to call us directly. We’re always happy to talk with you about what we are doing and if you have suggestions for improvement we are always willing to listen. So thank you again for your participation and be well and have a good evening. Thank you, operator.

[Operator:]

Thank you, sir. Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.