ClearPoint Neuro, Inc. (CLPT) Q2 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the MRI Interventions Incorporated Second Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today Frank Grillo, Chief Executive Officer. Mr. Grillo the floor is your sir.

Thank you, Good afternoon, everyone, and thank you for joining us for our 2015 Q2 earnings call. On behalf of the management team and employees of MRI Interventions, we appreciate your interest in our company. And for those of you who are shareholders thank you for your support. We’re honored to be working for you in building this great company and we’re proud of the care patients are receiving as a result of the continued adoption of our products and technology. With me for today’s call is Harold Hurwitz, our CFO; As most of you know, we transition the corporate functions from our Memphis, Tennessee office to our Irvine, California Headquarters. As part of this transition, Hal joined us at the end of Q1 as VP of Finance and completed the planned transition to CFO in May. To open this call let me start by saying we’re very pleased with the progress we are making. While our revenues came in a little late this quarter due to late shipments and the capital order that came in a few days after the end of Q2 we continue to see encouraging progress in market place adoption of our technology. Let me turn the call over to Hal for review of our first quarter in six months financial results and then I will provide further contacts regarding our progress. Hal

Thanks Frank, before we begin, however, I want to point out that the comments made on this call may include statements so forward-looking within the meaning of securities loss. These forward-looking statements may include with our limitation, statements related to anticipated industry trend, the company’s plans, prospects, and strategies both preliminary and projected and management expectations believes, estimate, or projection regarding future results of our operation. Actual results could defer materially. We undertake no obligation to revise forward looking statements in light of new information of our future events. For more information please refer to the risk factors discussed in our form 10-K for the year ended December 31, 2014, and the form 10-Q for the quarter ended March 31, 2015, both of which have been filed with the SEC as well as form 10-Q for the quarter ended June 30, 2015, that we will be filing with the SEC in August 2015. Our filings can be obtained from the SEC or by visiting our website at www.mriinterventions.com. Now let’s cover the three months period ended June 30, 2015. Revenues were $826,000 for the three months ended June 30, 2015 and $1.02 million for the same period in 2014. A decrease of $363,000 or 31% attributable primarily to periodic fluctuation in sales of our ClearPoint-system reusable products. ClearPoint reusable product sales for the three months ended June 30, 2015, were $93,000 compare to $389,000 of such sales over the same period 2014. Representing a decrease of $296,000 or 76%. Sales of our reusable products, which consists primarily of computer hardware and software bearing sales prices that are appreciably higher than those of disposable product historically half fluctuated from quarter to quarter. ClearPoint disposable product sales for the three month ended June 30, 2015 was $654,000 compare with $760,000 for the same period in 2014 representing a decrease of $106,000 or 14%. This decrease was due primarily to adverse weather conditions on June 30 2015 that prevented delivery of our products with an aggregate sales value of approximately $80,000. The customers who require FOV destination delivery terms. Accordingly we were precluded by US generally accepted accounting principles from recognizing revenue on this shipment in the quarter ended June 30, 2015. Gross margin on product revenues was 51% for both three month period ended June 30, 2015 and 2014. Research and development cost were $427,000 for the three months ended June 30, 2015 compare to $898,000 for the same period last year a decrease of $471,000 or 52% approximately $181,000 of the decrease related to reduction and spending on our ClearTrace development program and $72,000 related to reduction in sponsor research. Commencer with these decreases material and supplies decrease $87,000 and compensation decrease $27,000 during the three months ended June 30, 2015 as compared with the corresponding period in 2014. Selling general and administrative expenses were $2.2 million for the three months ended June 30, 2015 compared with $1.9 million for the same period last year an increase of $258,000 or 13%. The increase was primarily attributable to increases in compensation and related expenses resulting from growth in our commercial team. In closing our Memphis, Tennessee office in May 2015, we did not retain any of our seven Memphis employees including three executives whose termination of employment triggered in modification in the terms of stock options previously granted to them. As a result of these modifications of option terms as required by U.S. GAAP we revalued such options and recorded related one-time restructuring costs of $493,000. During the three month ended just 30, 2015, we recorded a loss of $186,000 and during the three-month end of June 30, 2014, a gain of $876,000 from changes in the fair value of derivative liabilities associated with certain warrants we issues in equity private placement transaction. Now lets turn our attention to six months end of June 30, 2015. Revenues were $1.8 million for the six month ended June 30, 2015, and $2 million for the same period in 2014, a decrease of $175,000 or 9% attributable primarily to periodic fluctuations and sales of our ClearPoint system reusable products. ClearPoint reusable products sales for the six months ended June 30, 2015 were $262,000 compared with $481,000 for the same period in 2014 representing a decrease of $219,000 or 46%. As I previously mentioned sales of our reusable products consists primarily of computer hardware and software during sales prices are appreciably higher than those for disposable products and have historically fluctuated from period to period. ClearPoint disposable product sales for the six months ended June 30, 2015, were $1.4 million compared with $1.2 million for the same period in 2014 representing an increase of $192,000 or 15%. This increase is due primarily to the use of ClearPoint disposal products in the greater number of procedures during the six months ended June 30, 2015, relative to the same period in 2014. Gross margin on product revenues of the six months ended June 30, 2015, was 57% compared to gross margin of 51% for the corresponding period in 2014. The improvement in gross margin is primarily attributable to a more favorable product mix in the 2015. Period relative to the same period in 2014. Research and development costs were $954,000 for the six months ended June 30, 2015, compared to $1.7 million for the same period in 2014, a decrease of $762, 000 or 44%. Approximately $361,000 of the decrease related to a reduction in spending on our ClearTrace development program. And $139,000 related to reductions in sponsored research. Comments with these decrease materials and supplies decrease $79,000 and compensation decrease $20,000 during the six months ended June 30, 2015 as compared with the same period in 2014. Selling, general and administrative expenses were $4.5 million for the six months ended June 30, 2015 compared with $3.7 million for the same period last year, an increase of $746,000 or 20%. The increase was primarily attributable to an increase during the six-month ended June 30, 2015, in cash compensation costs approximately $39,000 a portion of which was associated with overlapping executives in terms of employment so as to provide for a coordinated transition of duties during the period in which we have previously discussed consolidated our business functions into our Irvine, California Headquarters and closed our executives offices in Memphis, Tennessee. Also contributing to the increase was an increase in share base compensation of $284, 000. In connection with a consolidation of our offices and the termination of our Memphis base employees and executives restricting charges of $1.3 million including $493, 000 in non-cash charges related to the modification of options terms I mentioned earlier were recorded during the six months end of June 30, 2015. During the six months ended June 30, 2015, we recorded a loss of $969, 000 and during the six-month ended June 30, 2014, we recorded a gain of $1.4 million in each case resulting from changes in the fair value of derivative liabilities associated with certain warrants we issues in equity private placement transactions. With that I will now turn the call back to Frank.

Alright thank you Harold good summary of the numbers there. So as I stated earlier we are pleased with the progress we are making the position our company for further growth. Revenue came at 826 in the second quarter a year, which was a little lower than anticipated. We had shipping delays due to storms in the midwest at very end of the quarter as well as capital sale that we expected in Q2, but actually landed in the first couple of days of Q3. Taking these into account we would have been over a million again this quarter and higher than Q1 of this year. Disposable sales were down somewhat compared to Q2 although I would have assigned this more to stocking levels and the late shipments I have mentioned than any long term change in the use of our product. We had one capital sale in the first quarter and two additional new accounts sign up to evaluate ClearPoint. Including these newest accounts we now have 39 US accounts with ClearPoint this number is net of four sites where we ended the evaluation that were exceeding 90 days without a capital purchase and in particular I do have a goal of ensuing that our sites are active in using our technology. Regardless strong interest from additional new customers continues and we expect Q3 to be a stronger quarter for us in terms of evaluations, capital sales, and growth in our overall revenue. All right let me update you on procedure progress, which procedures continue to go very well this quarter. Our mix is about two-thirds DBS and with a quarter of our procedures now for laser ablation with biopsy and drug delivery taking up the rest of the numbers. This is the highest proportion of laser ablation procedures we have seen. Our value proposition in laser is strong based upon the accuracy and real time visualization of the placement of the laser fiber that is possible with our ClearPoint system. In addition, by enabling the entire procedure to be done in the MRI suite, which therefore eliminates transporting of patients through the hospital hallways from the operating room to the MRI suite with an open hole in his or her head we believe ClearPoint is the ideal neuro navigation system for laser ablation. In DBS our procedures are going very smoothly and word is getting out about this technique. A great article was released in the press in the Northern New Jersey regarding the use of ClearPoint for electrode placement for DBS. The article describes the patient's remarkable experience in regaining of his life style. We believe that without ClearPoint the procedure might have been too traumatic for this patient while with it he was able to undergo the procedure and receive benefits of DBS. Dr. Asmi and Dr. Gupta who are featured in the article are great champions for our technology and improve patient experience it enables. This is the type of story we hear repeatedly and it clearly shows the value of ClearPoint. In drug delivery we saw very interesting paper published in the journal of neurosurgery this quarter by Dr. Russ Longer chair of neurological surgery at Ohio State. In the paper Dr. Longer analyzed the technique and accuracy of placing drug delivery catheters in three different patients. Encouragingly the paper stated “realtime IMRI based targeting and monitoring of infusion cannula placement profusion of granule regions. The key words here are selected profusion that is a good description for delivering the right dose of drug to the right target in the brain. We view this paper as further validation of our value proposition in drug delivery, additional validation of our ability to reach some milli metric targets in the brain and we are encouraged by the growing number of publications regarding use of our technology “in drug delivery and in a variety of other procedures as well. During this quarter we’ve one of our two biggest trade shows of the year, the American Association for Neurologic Surgeons we supported several events of this meeting the highlight of which was a the one show we cosponsored with two other companies focused on intraoperative guidance and laser ablation. Over a 100 people heard lectures regarding the use of real-time MRI for a variety of neurological procedures. This quarter in Q3 in September we will attend the Congress of Neurological Surgeons and co-host to similar sessions with Medtronic entitled the Emergence of Real-time Imaging in neurosurgery. Our MRI guided navigation and laser ablation are increasing minimally invasive surgical options. We are looking forward to reviewing our technology and value proposition at this session and we expect an even stronger turn out. To support our cases we are expanding our commercial team by having added two clinical specialist in Q2 and another one coming on board next week. As I have stated before our clinical specialist remain almost every case and are deeply knowledgeable in the use of our products. We will continue to add to the commercial team as our procedures grow and ensure each one of them has appropriate training. On the cost side of the business, we have done a lot in the last two quarters. We have completed the consolidation of our Memphis facility into Irvine, California. This is a major focus to our cost reduction efforts. All of the charges and payment associated with the consolidation are now behind us and I expect our net cash burn will be significantly reduced in the next quarter and continue to decline from there. So in summary we are pleased with the progress we made this quarter on focusing on our near term opportunities and preparing the company for future growth in the neurological surgery space. We saw a several strong publications regarding our technology as well as several inspiring patient stories in the popular press. We are wide sizing our cost profile with added few key new members to our team, customer interest continues to build and the adoption of our products and technology continues. We are changing our neurosurgeries done. Where it is done and in some instances what can be done. We’re confident of the benefits our technology brings to patient care, we’re committed to bringing these benefits to more and more hospitals, surgeons, and patients and the market place is responding with growing interest and use of our products. With that I would like to open the call for any questions. Thank you.

Thank you, sir. We’ll now be conducting a question-and-answer session. [Operator Instructions] The first question we have comes from Tracy Marshbanks of First Analysis. Please go ahead.

Good afternoon, guys and thanks for taking the questions.

Hi Tracy.

Hi, first question is really more on the business particularly on sales and marketing. Obviously it’s in general a tough market and you have new technology. If you look at where you have come from, whether you’re in the process of building where do you see your key gaps to be addressed going forward in both the capital and the disposable sales. Is it clinical data, is it economic data, where do you see something that would help you couple of things that would help you materially.

Well Tracy it’s a big question. Certainly in clinical and economic data, we can always use more, however, there is a fair amount of clinical data in clinical papers on our technology out there now. As navigation system where people really look for is our ability to accurately hit a target and that data is fairly well published at this point. If I look at where we are we are small company pushing into a new procedural area. So I think it is really just getting passed, really just crossing the chasm of adoption here. I always think about adoption really starts to accelerate when you hit back 10% market share kind of place and that’s where you start to see the real hockey stick in the curve. I would say now we are not yet at that 10%, but we are getting close. The buzz, the talk about our technology when I go to trade shows, the understanding of it by variety of surgeons is very solid and I think we have done a good job of marketing surgeons. I think the next challenge for is probably reaching out to the neurologists. As they are the referring physician for these procedures and would not really target them for education and understanding of our technology and the patient benefits that enables. So if I would look at one distinct area I think that would be one distinct area we need to do more working. It is a new procedure area so continuing to educate accounts on use of the MRI, allocating time from the MRI suite continues to be a challenge in certain accounts, those areas I believe will overcome over time, but we do just need the time to get there.

Okay. And I think a fairly directly related question to some of the items you hit on assessor opportunity to increase utilization at the sites where already add in some sense you have already got them to the point of a buying a system and doing a procedures so you know ramping up utilization is a bit different battle and you don’t knee to worry about your 10% market share you need to worry about that individual site. And it seems like it’s relatively low utilization so could you talk about what might be an appropriate level of utilization and how you get the patients in your neurologist focus could be on those obviously.

Sure, sure, the neurologist focus is definitely one of those. One thing I would point out is that laser ablation opportunity really particularly for ablation of hippocampus, which is frequently the side of the elliptical seizures the initiation of those seizures that is a very interesting opportunity for us where our value proposition is strong and very often it’s the same surgeon or a very close partner of the surgeon who brought into our technology for DBS. So that is a great application for we can increase utilization and that is happening as we speak. Ablation for tumors is also an interesting opportunity and virtually any sight that it’s doing the sterotactic work for DBS will also have neurologic oncology surgeons on staff that is a different doctor though. So for us that’s a great opportunity for utilization although it’s probably the next ring out from the bulls eye. In terms of what does a good site look like, we've a couple of sites that are well note of 10 procedures a quarter now. And that’s where I’d like to see everybody get to. Part of the effort of cleaning up some of the old what I’d refer to is strong sites by removing some of the equipment is to make sure that the utilization numbers you guys do just through calculation of procedures per sight are accurate and reflective of the business. We still have a couple sites out there that I am looking at to they seem very interested, but have not yet started doing cases so we’re always going to be a little lagging on what we just sold versus what comes through in utilization because it takes a little while to ramp a site. So I think there is lot of opportunity for us. I’d also say even within what is probably our core procedure area of DBS more dots are finding that as word gets out about the procedure more and more patient requested. So within DBS there is a great opportunity, laser ablation for treatment of epileptic seizures is a great opportunity and then the next one out is that laser for tumors. Drug delivery and biopsy also represent upside to us, but they are probably smaller overall.

Could you return just quickly to the system side then I had some more financial statement questions, but I heard you talk about having two more evaluations signed up. How many systems are currently setting under evaluation and how do you assess your pipeline even further up in evaluation sites, if you look at that?

Yes. It’s a good question, unfortunately, I don’t have that number right in front of me Tracy and we got to get that out to you some other time. In terms of pipeline, pipeline begins with evaluation sites and we have several that are in discussions right now for this quarter and I am feeling pretty good about those and the sales cycle here typically starts with an evaluation to initial cases while into capital purchase. We're not batting 100% on those and I don’t know that I would ever expect about 100% on those, but I do feel like our batting percentage is definitely coming up. So the pipeline continues to grow.

So final area, just if I look this is going to be a combined cash, cash burn, and balance sheet question and if I look at your first half burn obviously it was fairly healthy relative to cash on the balance sheet. You talked about it coming down, can you build a little more quantitative and also you have some notes payable now up in current if you take a look just o the liability side of the balance sheet. Sort of walk-me through what you’re what plan might be.

Sure the cash burn has been high over the last two quarters because of the restructuring. We have had a couple of other charges in there. You do have to look at the cash statement versus the GAAP statements really get a feel for where it’s at. I really do feel like our cash burn will come a way down this quarter. It's hard for me to give you a number because it’s very dependent on a revenue number and I am not prepared yet to give revenue guidance because we are still a little volatile on that side. But I do see that coming down a great deal. We do have a notes payable coming up second quarter next year and so we are beginning discussions with the holder of that note to reestablish where we go with it and I am confident we will be able to make some progress there. So those are the kinds of things that we’re thinking about right now.

Okay. Thanks very much for taking the questions. I appreciate it.

Thanks Tracy.

Next we have Raymond Parello of Pendulum Capital Market.

Hi, how are you doing? Quick question on the target site. So you have 39 current sites right now. What is the target market in the U.S. and what others areas are you coping at in terms of going into overseas?

Great question. So besides available in United States our targets are typically academic medical centers and very large community hospitals that do currently do stereotactic neurosurgery. We estimate there is 400 to 600 of those in United States so I’d say that’s is the kind of the universe of target for us and most of those if not all of them have a functional neurosurgeon that’s a neurosurgeon specializes in movement disorders on staff. So that might bring the number down a little bit to say 80% of those. So those are really like in the bulls eye targets. Now as we expand into areas like laser ablation for tumor or biopsy or drug delivery that could probably open that number up a little bit more. You still want to be working with someone who has done sterotactic guidance to have the experience that does appropriate for MRI ClearPoint guidance. As far as international the changes in U.S. that question we’ve had some very strong increase this quarter from a couple of hospitals in Europe. One of which in particular is very interested in becoming the weeding site in drug delivery in Europe and we’re hoping a comment on that on the next call, but its probably premature to go into in more debt. So Europe my attitude towards Europe so far has been that Europe tends to be -- a medical device business in Europe tends to be an investment but for it is a profitable business and we are conscious of our cash situation in managing our cash flows so we are not leaping into Europe with the investment required and kind we are lying on a strong pole from interested parties, which would had a couple of this quarter one of which I do think will finally pull us over. So I’m excited about that. We’ve also had some increase from Asia as well also in area where I consider to be an investment before it’s a profitable business and we will evaluate those in the same way.

In terms of 400 plus sites in the U.S. what is your goal as a company to achieve on year-over-year basis of those site, but especially this year and next year where do you think you can get to that sales force what is the goal for sales.

Yes. You’re kind of stepping into the room asking for some specific guidance, which we are just not prepared to do right now. So do I think we can double our installed base within the next two years absolutely? I can go out on a let them say that but getting more specific in granular in that I am just not comfortable doing that quite yet as we managed the volatility of the business. The interest in the buzz around our technology continues to grow and I feel like we are cusp of crossing this adoption chasm, but we’re not there quite yet. So I’m going to hold off on more specifics there.

Okay. Thanks.

The next question we have comes from Mark Abrams a private investor.

Hi, how are you doing?

Good. Thank you for calling in.

Yes. I have a couple of questions that restarted on actually where do see what did be the revenue before you can get the breakeven>

It’s also one that jumps in the guidance and let me introduce some perspective there. I have been very conscious for the fixed cost profile of the company and we have taken a lot of steps in the last two quarter to manage down our fixed costs. Then we have variable costs, which are mostly tied to production of product and sales force compensation. As I look at thinks I would say typical medical device company similar to ours with the disposable product in the 70% range and heavy clinical support and gets a breakeven in the $20 million to $30 million range. I believe that we have done a good enough job to manage down our fixed costs that we can hit that breakeven before that at a lower level demand. I don’t have a specific number modeled out, but I feel like we got production capacity to ramp up without a lot of additional costs. I have got a clinical in sales team that can ramp up significantly where only on occasion would I have to add folks to that group mostly on the clinical support side and so that would increase fix costs a little bit at a time. But I think we can leverage quite a bit out of where we are right now and we’ve reduced our fixed cost a lot in the last couple of quarter. So I think we are in well positioned to get there.

If you partnered up with large medical device company that has better insight of the somebody hospital or have better structures to penetrate in these hospital is that something that would possibly puts you in a better position.

Well a couple of things there, first of all I don’t want partner with somebody who is a capital equipment sales force. They tend not to support procedures and we are really a procedure company. So when you start thinking about whether often we purchased the big iron companies out there that it is selling imaging equipment I am not sure that’s actually a great approach. I don’t know that basic core procedures as well. Now if you look at other procedure based companies I actually think that is a possibility for us at some point, but I will be the first to admit we’re probably going to have to get a little bit bigger, but for they becoming interested in that partnership as well. And I’ll tell you as I look at our commercial team, our commercial team us the word company that have a better commercial team our commercial team is getting really good particularly the folks who are in procedures everyday. And every proud of the work that they have done in the last couple of quarter and expect that, that’s really going to bear fruit for us in the next few quarters and next few years. So to answer your question yes I do think about those kind of partnerships, but I am not sure the timing is quite there yet.

And the other thing you mentioned you’re pretty happy with doing 10 procedures a quarter and installation I mean that doesn’t seem like a what it is because people are scared to dome or what is supposed the actual market I mean how many procedure actually could be done if people really accept it?

Yes, keeping in mind the procedures we are in are you think about DBS placement there is probably I don’t know 5 or 6000 of those in United States each year probably double that when you add in international. Laser ablation is early in its adoption, although I am very confident in the ramp there. Biopsies and drug delivery, for use of our technology the biopsies that are applicable is not huge. Drug delivery of course is the wild card and we have talked about that many times it could be huge but probably not in the next year or two. So you have to keep in mind that we are dealing with brain surgery and the types of brain surgery that are not huge procedure numbers, but are pretty decent and high revenue per procedure and very well reimbursed. So if I think about the site doing every site doing ten a quarter it would be arranged would have some doing five, would have some doing 15 or 20 we had a couple in that range right now and I think it’s a very good goal. We’re always going to as we build sites the utilization will always lag a little bit due to brain in sites. It takes a site a little while to ramp up once they get going. So there is a lot of dynamics to those utilization numbers and as I said I also want to clean up a few older sites that would startled and never got off the ground in the first place.

So if you do an average of 40 sites -- 40 procedures per site approximately that’s like a 160 a year, is that times a $7,000 number or…

Yes. Our procedure numbers these days are in that range, it’s interesting. Our procedure numbers -- our pricing is between 5,000 and 10,000 per procedure depending on whether they use one or two of our kits. So as I go through it, to just throw some numbers out there, if we got to a 100 sites doing even 50 procedures a year that would be 5,000 procedures times are ASP you start to see some revenue numbers that build pretty rapidly.

Right. That’s $35 million north.

Right. Right. What is right now a very low volumes on material and labor days its anyway 70%.

Plus margin product so.

You can imagine if that starts to get pretty lubricative.

That will be great. I know you cannot go out and give guidance or anything like that, but is that doable in five years.

Without going out on a limb FB sheet wise, I actually get doable on that timeframe.

Yes, because you could make some these may go out of money at those numbers. Okay.

And as I said earlier I think, I forget who I answer the call whether its Raymond, Mark, or Tracy I think we would get breakeven long before that point.

So right now if you are doing 40 -- if you’re doing an average of 40 procedures per hospital that’s show an $80,000 to $208,000 or so why aren’t your revenues up around $10 million now with 39 hospitals.

We do have a few sites that are at much lower volumes and are still what I would think as dabblers, still getting means to the technology and talking about goals that is definitely in the realm of our goals we have a few sites that are up in that range and we also have a few sites that are dabblers and a lot of sites in between. So that’s our task is to grow that utilization per account no question.

Just one last question and I will let you go. Is some of the push back the amount of money cause to buy a unit or so could possibly put units in and give me a good deal it takes some five years to pay it out or some like that just to get the product on the move.

I would say that our capital pricing is not our biggest hurdle. We’re will to do flexible deals like that, we have had one or two come forward to discuss that, but the realm of hospital capital equipment our numbers is not that big. I would say that it’s more -- understanding that it’s a brand new way of doing a procedure that involves multiple departments in the hospital just takes a little bit of I guess for sales rep it’s just kind of a complex sales cycle, because you have to talk to a lot of different entities within a hospital and that once they get on board the capital is not the biggest challenge for us. As I said earlier on the call our pipeline starts with our evaluation program where we do put the equipment in for free. Now what I am adamant about with our team is if we put in for free lets get it used and if it’s not going to be used lets pull it out and I’ll tell you that’s different than a lot of small hardware companies. If you go in a hospital and ask to go in the back hallways, you’ll see a lot of dead equipment out there and I am not eager to add ours to it.

No, no I think you are smart as far as that goes. But I think its very trouble utilizing investments you guys have an unbelievably fantastic product and you just for some reason it’s taking forever, forgetting get people to get on a band leg and its just fantastic product.

I appreciate your perspective and agree with you, I think it’s an excellent product, but I also would like to point out to people its not just a product we are selling a new way of doing the procedure and that just makes the sales cycle a little bit complex. The product works great. Our cases are going very well and I am very happy about how our cases have been proceeding and progressing very nicely. Its more the complexity of selling across multiple departments of a hospital in changing the way, changing the para diamond how these are done that just takes a little time in the sales cycle.

And how about -- better PR do anything for you.

Given the stage we are right now I feel like we have built a very good awareness among neurosurgeons we are really starting to see them come on board. I think the next avenue to pursue is the neurologist who tends to see the patient and makes the referral for surgery and that’s in audience, I think we need to get better PR going. As far as direct patient I think right now at our stage and our share and knowledge of neurologist of our technology it’s probably a little bit early. Now when it happens for free like this article we had in North New Jersey, I love it and I think it will help that side a lot, but if I am going to choose where to spend the dollar on that kind of effort its probably on the neurologist is our next hit.

Thank you very much for your time, I appreciate it.

Yes thanks for the questions.

Next we have a follow-up from Raymond Parello of Pendulum Capital Market.

What would it take to procedure wise to get to become expanded of care for these procedures.

Well are not there yet, I’ll be the first to admit and I think that’s unfortunate. I’d say that most people are going to say that when you are above 50% your extended good care in our market I think would be lower than that, but the stereotactic procedure and again I have to carry out everything I saw it depends on the procedure you’re talking about. Electrodes for DBS there has been 14 years of history of doing that placement stereotactically so that’s a hard area to displace the standard of care and takes its place. We’re working on it, I believe we will get there, but it’s going to take some time.

Forget the standard of care it’s a game changer for our company.

Absolutely and if I look at laser ablation where that’s early there is a not a history of doing that procedure and I’ll tell you a lot of accounts are finding this start in OR and then move to the MR it would be very awkward and then we have a much better shot getting the standard of care there early and becoming creating the standard rather than displacing the standard.

I guess that was back the original first I heard earlier how much explore did you need hospital wise have the ability to get the standard of care. What’s the reach? If you have six patients of the laser ablation was about 6,000 procedure and only about 6,000 procedures I mean so how many hospitals we need to get into to actually have the ability to become based on the amount of procedure you can do in those facilities standard of care that would be out of goal I guess of hospital as well if you get that distinct level.

Yes. I agree it would be that goal, I mean like most procedure areas this is a probably a 70:30 market so as you can get into the top 30% or 40% of those accounts and really get going in those, which in those of course are primarily targets, I think we have a great shot at it.

All right guys. Thanks so much.

Thank you.

Next we have Rodney Bauer of Halin Capital. Please go ahead.

Frank, how are you.

Good Rodney. Great to hear from you. Thanks for calling.

Thanks for the update. I got several things, I’ll try not to ask all the questions I would like to right now, but with flat 6,000 DBS procedures that are done in the 400 to 600 hospital of sterotactic capability right. That’s still strengthening, as I think probably a very low number and that has to do with the fact that a lot of people don’t want to have to be kept awake and go through that. So as far as the issue here that the growth of that has been so slow that has not given you something to move into this got a help or growth rate because the major product after it is just really not doing as well as it should.

Yes let me give a little bit of perspective there. DBS is a great technology. The surgery itself if it’s done stereotactically and the patient is awake it is scary surgery and when you go on to YouTube and type in placement of a head frame prior to neurosurgery you will see some videos that will frankly freak you out. With our technology you don’t have to go through those steps. Now even Medtronic the major manufacturer, currently the monopolist manufacturer in United States for DBS will say that two-thirds of patients who are eligible for that surgery don’t do it because they are concerned about the surgery itself not the outcomes, but the actual surgery. So I believe that we can definitely help grow that market. If I look at laser that’s a market that it is a early in that therapy. It’s only in the last couple of years people have started doing that therapy for particularly for epilepsy but their early data is very good, it’s very encouraging, but it’s still early. The ramp rate there, however, is quite rapid off much smaller day. So if I look at those two areas in particular I feel like we can help grow the DBS market, we continue to do some training and collaborative marketing efforts with Medtronic in that space. We see St. Jude coming into that space shortly. They do have a U.S. Clearance now for products and expect to see them on the market by the end of the year and we’re building in laser as well working with both of laser ablation companies Medtronic and Monteris for use of our technology as a choice of navigation for the doctor. So those markets have a lot of promise for them particularly with our kind of navigation.

So the basic DBS core builds what you say the growth rate is then there and already you’re actually taking market share is I just want to know whether your smaller or much smaller but are you gaining market share on the DBS.

I think Medtronic pulls high single digit growth in the DBS in the market in the U.S. these days, so 8,9, and 10% and are we taking market share, yes we’re definitely taking market share there, but let stay its we are taking small to begin with.

Got you. Let me ask you this question long term long process getting the issues with marketing and sales and all that getting people sign up what has been the external claims that have caused this industry to have borrow some capital hospitals don’t have enough money not big enough to understand on something like this, boards on these high sales don’t really get it they want to take the only thing to do just sees other things that regulatory issues. I am how your are running into regulatory issues were some stay as you can’t put this thing in because it does not meet the guidance lines we have for new styles procedures. Can you give us just a kind of 20,000 of deal and all add it and is that improving any are you seeing people saying they just have to bring those on there because what to deliver can you give us state of the union on that.

Sure, to start with as I said earlier I don’t think our capital pricing and getting front of a hospital, CFO, CEO, or board is really our biggest challenge. I think our biggest challenge is the complexity of how many decision maker there are in the sales process. So everything starts with the neurosurgeon, typically the neurosurgeon is a big stand of what we want to do. That has to go to radiology because they control the MRI. Nursing will get involved, staffing, infection control, hospital administration so it’s a just a lot of different touch points for us sales reps and we are getting better and better at learning how to navigate that complexity, that’s what slow down the sales cycles. But as also when we get it done you now got buying from a proxy organization and it sticks. I don’t think there a lot of regulatory issues with had one or two sites that are not sure about whether they are ready to do procedures in the MR and then we are seeing the growth of intraoperative MRIs. And very often the way hospitals are approaching at they are intentionally taking a diagnostic MRI positioning next two if not connected to an operating room So they could shuttle the patient back and forth just between the two rooms through some sliding doors that is a fantastic environment for us its exactly what we are eager to see more of we are hearing more and more hospitals do that. My final point is you say is anybody just standing up saying we have to have this, well that’s really the strongest pole for our technology right now. I would say is in children’s hospital. They are very conscious the patient experience. They think a lot about insuring they don’t traumatize the patient from a surgery itself. Frankly they tend to be fairly well funded, which is an added benefit, but those stations when you start talking about awake neurosurgery that’s a nonstarter in a pediatric environment. And so we have seen some very nice pole from that environment both for the primary application there tends to be dystonia, which is relatively small surgical market at a very own where our value proposition really stands out clearly.

And the regulatory side of this thing how would you rate what’s going on there. How would talk about that.

Well I’m not really sure what your question is there. Do you mean with that regulatory approval for placement of electrodes. So I think we are fine there right now.

So maybe on the state level, in another words, do you have places that may be have this kind of process you that looks slow to come around to it or is that not an issues. Is that what you're saying on the issue to get your stuff approved?

For the most part, that’s not been a challenge for us yet. We have one or two sites where state regulators at the air flow and MRI suite wasn’t enough, things like that. We're conscious of it, but I would not say that’s a direct hurdle to our business for the most part.

Got you. That’s fine thank you.

Thanks for the questions Rodney.

[Operator Instructions] Well at this time we have no further questions. We will go ahead -- and actually it looks like we do have a question that comes from Jeb Terry of Aberdeen Investment Management.

Hi Frank, how’re you doing?

Hi Jeff, Great to hear from you.

Your comment about children’s hospital now that they have a great value proposition can you help us understand how large that opportunity might be and how many children hospitals are there now working with you. Can we think of this low hanging improve or is it something that of in the mix, but progressing nicely.

Probably somewhere in between, I mean it is progressing nicely and we have some particularly good stories. Accent stories lately for the use of technology with dystonia and also with epilepsy for ablation. So in terms of the number of children hospitals I think there is between a 100 and 150 in the United States that specialize in neurosurgical pediatrics I don’t know on top of my head if all of them have functional neurosurgical programs. So it's just that we got more and more increase some of the more impressive children hospitals were in Boston Children, Cincinnati, Texas Children, some of the biggest institutions out there Benioff in San Francisco so it continues to grow in interest and because of the strength of our value propositions I really feel like we will be able to make some nice progress there.

One of Rodney comments relate question are any issues with getting regional MAC approval or people getting pretty well straight forward reimbursement for procedures.

You know the reimbursement codes for virtually all of the procedures in which we are involved are fairly standard and in existence they don’t need special codes for the use of our technology its most DRG based and it just paid for whatever technology they choose to use out of the DRG. So I have not heard a lot of the prospect on the reimbursement. That is just not even something I have heard about this quarter.

And you mentioned that last several months you’ve had some adjustment in our sales and marketing team and you now feel that that are thinking to use a the term pretty good and responding relative to partnering with a larger company are there - can you give us account of as Rodney states they have notation on sales and marketing and because it has been a big obviously shift during the last six months and what mix six months would go.

Yes, so over the last couple of quarters we will continue to build the commercial team. We have five or six folks on the sales side and I think we are up to eight or so, on the clinical support side. The clinical support side is likely to grow faster just with procedure growth. We support our cases with the clinical specialist and as sales rep is more to get new accounts up and going and started and get through the purchasing process the team has really developed a lot in last six months. There is a lot to learn about utilizing MRI for these procedures and I have clinical support team in particular hast gotten very strong and as we move in a procedure areas in laser biopsy drug delivery they have really now got the base that they can do that pretty well. With a lot of couple new people on to that team in the last quarter or two and continue to grow it I think as you know with replace both our marketing people in the last year. And I don’t want to prior folks under the buzz a lot of that geographic driven so that would now got allowed here in Irvine, California integrate very well with the sales team and from my perspective really working well as a team commercializing the product with a head quarter still to see in Irvine and a sales focus obviously all over the country. So looking to just support them and train them better and better, we’re meeting with them every quarter now on a quarterly basis, which we are not doing before and leadership is stepping up as well. So I am feeling pretty good about that team right now and eager to expand it as we grow.

Okay. What’s the total headcount now from the company?

For the company I think it's around 33 or 34 around 35. Okay, 35 including a couple of part timers.

Okay perfect. Thanks very much look forward to back half of the year.

All right. Thanks Jeb.

We have no further questions. We’ll go ahead and conclude today’s conference call. I’ll hand the conference back over to Management for the closing remarks. Gentlemen?

Thank you, Mike. We appreciate everyone joining us this afternoon. We’re looking forward to the next couple of quarter in the adoption of our technology and feeling very good about the work we have done over the last two quarters to prepare for our future. Thanks again and we’ll join you next quarter.

And we thank you sir and the rest of the Management Team for your time today. The conference call has now concluded. At this time you may disconnect your lines. Thank you. Have a great day everyone.