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Edited Transcript of CASM earnings conference call or presentation 14-Mar-18 2:00pm GMT

Q4 2017 CAS Medical Systems Inc Earnings Call

Branford Mar 15, 2018 (Thomson StreetEvents) -- Edited Transcript of CAS Medical Systems Inc earnings conference call or presentation Wednesday, March 14, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffery A. Baird

CAS Medical Systems, Inc. - CFO and Secretary

* Jody Cain

Lippert/Heilshorn & Associates, Inc. - SVP of IR

* Thomas M. Patton

CAS Medical Systems, Inc. - CEO, President and Director

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Conference Call Participants

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* Brian W. Marckx

Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst

* Larry Haimovitch

Haimovitch Medical Technology Consultants - President

* Matthew Gregory Hewitt

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Hello and welcome to CAS Medical's Q4 2017 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, March 14, 2018.

I would like to turn the conference over to Ms. Jody Cain, please go ahead.

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Jody Cain, Lippert/Heilshorn & Associates, Inc. - SVP of IR [2]

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This is Jody Cain with LHA. Thank you all for participating in today's call. Joining me this morning from CAS Medical Systems are Tom Patton, President and Chief Executive Officer; and Jeff Baird, the company's Chief Financial Officer. Earlier this morning CASMED issued financial results for the 2017 fourth quarter and full year. If you have not received this news release or you would like to be added to the company's distribution list, please call LHA in New York at (212) 838-3777 and speak with Carolyn Curran.

Before we begin, I'd like to remind you that to the extent management's comments represent forward-looking statements, I refer you to the risks and cautionary factors contained in today's press release as well as in the company's most recent SEC filings. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live call, March 14, 2018. Except as required by law, CASMED undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

With that, I'd like to turn the call over to Tom Patton. Tom?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [3]

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Thank you, Jody. Good morning, everybody, and thanks for joining us on today's call. I'm pleased to report a very strong finish to 2017, with Q4 and full year financial results in line with the preliminary numbers we announced in January. Among the highlights total FORE-SIGHT oximetry sales for the fourth quarter were up 12% over the prior year, driven by an 18% increase in U.S. FORE-SIGHT sales. We shipped a record 110 FORE-SIGHT monitors in the fourth quarter, 80 of those monitors [and turrets] were shipped to customers in the United States, which is an all-time record for our company. It's gratifying to see the return to double-digit growth in the U.S. market fueled by terrific sales execution of our commercial organization, including the increased productivity of our domestic sales force as they gain experience in tenure and start to close the pipeline activity.

You may recall that we completed a substantial upgrade to our U.S. sales organization over the last 2 years. Since 2016, the U.S. sales force has been completely revamped with all but one of our independent sales agencies converted to direct reps. And with 13 of the 16 U.S. field territories now staffed with the new highly professional sales reps. 5 of our current reps were hired in 2016, 6 were hired in '17 and 2 were hired in 2018. So 13 of our territories are staffed by reps that are relatively new to us. In addition, sales support personnel, including regional managers, clinical support, sales operations were also upgraded to better leverage that direct sale effort. This wholesale transition of the sales function created significant but temporary disruptions in the field, some geographies were uncovered for periods of time, and our data shows that new reps do not become fully productive until 3 or 4 quarters after being hired. They need this time to learn the company's product and call points, build relationships with current customers and work their way through what is often a 9- to 12-month sale cycle. This disruption and the reset of our sales activities had the combined effect of stalling our growth in early 2017. However, the impact of our new sales management began to show as we move through 2017. Personnel improved, sales training and development got better, processes were perfected and greater discipline enforced. Account targeting became more robust and meaningful. And with all of that, our sales execution improved, disruptions were reduced, productivity increased, new account generation jumped and revenue improvements followed off a Q2 2017 low. As we pointed out in last quarter's call, we were optimistic about our prospects for domestic growth due to our sales organization's efforts in building healthy pipeline, but with improved results in Q3. So I'm pleased to report the conversion of pipeline opportunities in the fourth quarter led to the acquisition of a record 22 new account addresses with a majority being taken from competitors. We placed a record 80 monitors and our domestic sales growth was 18% over the prior year.

So as of today, all 16 territories are fully staffed, and with 12 of our 16 territories served by reps who have been with us for at least 12 months, we are experiencing continued sales momentum as we enter 2018. Also aiding our efforts are the hospital system initiatives we commenced in 2017, which have enhanced our ability to both retain customers and win new accounts despite our competitors' efforts to discount or bundle products. This competitive pressure has become the new normal for our business, but we've been very successful in capitalizing on clinician preferences for the accuracy of FORE-SIGHT oximetry.

The success of these initiatives -- excuse me, included a dual-source contract with one of the largest and most prestigious hospital systems on the West Coast. As discussed in our last call, this contract became effective during the fourth quarter. The contract was awarded following a thorough multihospital evaluation in which we featured the superiority of our FORE-SIGHT technology.

In the fourth quarter, we sold monitors and sensors to 6 member hospitals in that system, representing the primary locations of a majority of their cardiac procedures. Also in the fourth quarter, we were selected by a major university system in the Midwest after a head-to-head evaluation in a whole house conversion, where we gained the business in all departments in the hospital that used tissue oximetry.

We filled about 3 quarters of this order in the fourth quarter, and the rest in the current quarter, and the hospital is now completing the monitor installations. And we expect that institution to grow to be a top account for us.

The superiority of the FORE-SIGHT technologies are our most significant competitive advantage. Over the past 12 months, when we engaged in a competitive clinical evaluation, we ultimately gained the business more than 70% of the time. Overall, when we win these accounts, it's a combination of taking market share from competitors and expanding the market. In fact, in 2017, competitive conversions accounted for about 45% of our monitors placed and the rest were instances where we were expanding the market for cerebral oximetry by gaining new hospital customers to the category or increasing the number of monitors in our current accounts.

So overall, we have been generally successful in taking accounts from competitors and expanding the market. We have also been satisfied with our ability to beat back attempts of competitors to take accounts away from us. Perhaps even more satisfying, we have 1 business back in a few instances where the conversion to a lesser technology had mainly been driven by administration personnel, but clinician dissatisfaction ultimately grows so loud that the FORE-SIGHT product was called back in.

And finally, as to our international business, sales were down slightly for the quarter over prior year, mostly owing to lower sales to our China distributor. However, we continue to make extraordinary progress in penetrating the market with our distributor in Japan, and our distributors in Northern Europe continue to be bright spots. With these comments, I'd like to tall -- turn the call over to Jeff Baird. Jeff?

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Jeffery A. Baird, CAS Medical Systems, Inc. - CFO and Secretary [4]

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Thanks, Tom. Good morning, everyone. Please note that following the sale of our non-invasive blood pressure monitoring assets, we have reclassified financial results from this product line to discontinued operations for all periods reported.

Now to our financial results. Net sales from continuing operations for the fourth quarter of 2017 increased 11% to $5.1 million. Total FORE-SIGHT oximetry sales were up 12% to $5 million, and total FORE-SIGHT sensor sales increased 7% to $4.3 million. Recurring disposable sensor sales represented 84% of total sales from continuing operations.

Domestic FORE-SIGHT sales for the fourth quarter of 2017 increased 18% to $4.3 million, as Tom noted. This included an 8% increase in U.S. FORE-SIGHT sensor sales to $3.8 million. Sales of monitors and accessories increased significantly over the prior year quarter reflecting higher monitor volumes as well as a substantially higher mix of units sold rather than placed at customer facilities.

International FORE-SIGHT sales for the fourth quarter were $698,000, down 14% from the fourth quarter of 2016, reflecting both lower pricing in numbers of monitors sold, particularly to a significant Asian distributor.

International sales of disposable sensors rose 4% over the prior year quarter. We shipped a net total of 110 monitors worldwide in the fourth quarter of 2017. As Tom mentioned, we shipped a record 80 monitors in the U.S. during the quarter, raising our domestic installed base to 1,318 units, up 18% over the prior year. Gross profit margin for the fourth quarter of 2017 was 53.8% compared with 60% a year ago. Product mix associated with lower worldwide monitor pricing, together with some manufacturing variances were responsible for the decline. While lower monitor selling prices in the U.S. unfavorably affected gross profit margins, the results are consistent with the company's disciplined sales strategy to sell monitors more often in the U.S. at more competitive prices, and at margins that are consequently lower than our disposable sensors. This has the beneficial effect of increasing cash flow, but lowering margins. Therefore, while the gross profit margin was comparatively unfavorable, the impact on the company's working capital was quite positive.

Operating expenses for the fourth quarter of 2017 decreased 6% to $4 million, reflecting a 9% decrease in SG&A and a 9% increase in R&D spending. Our operating loss declined to $1.2 million in the fourth quarter from $1.5 million in the prior year period. Net loss applicable to common stockholders was $1.9 million or $0.07 per share for the fourth quarters of both 2017 and 2016.

Turning now to full year 2017 financial results. Net sales from continuing operations for 2017 increased less than 1% to $18.8 million. Total FORE-SIGHT sales of $18.1 million were equivalent to 2016 sales. Both worldwide and U.S. FORE-SIGHT disposable sensor sales increased 3% over the prior year. International sensor sales rose 1% over the prior year. Gross profit margin for 2017 was 54.7% compared with 56.2% in 2016. The decrease was largely related to lower international FORE-SIGHT selling prices, partially offset by manufacturing and service operational efficiencies. Operating expenses for 2017 decreased about $200,000 or 1% to $16.6 million. The operating loss for 2017 was $6.4 million, largely unchanged from $6.3 million for 2016. Income from discontinued operations for 2017 reflects a gain of $4.4 million from the sale of the company's non-invasive blood pressure product line assets in July of '17. $1.7 million of income tax expense associated with this product line was entirely offset by an income tax benefit incurred against continuing operations. The company does not expect to pay income taxes for 2017.

The net loss applicable to common stockholders for 2017 was $3.9 million or $0.14 per common share, compared to a loss of $0.17 per common share for 2016. As of December 31, 2017, we had cash and available borrowings under our undrawn line of credit of $7.5 million. Our ending cash balance was $5.7 million and we had availability on our line of credit of $1.8 million. Therefore, we're pleased to report we consumed only $635,000 during the fourth quarter. This was a result of strong operating performance and careful management of our balance sheet. As highlighted in our last call, we expect gross profit margins to increase 300 to 400 basis points as we move through 2018 due to substantial sensor cost reductions we have secured. In February of 2018, we began to take receipt of those lower cost FORE-SIGHT sensors.

Also in February of '18, we began paying the principal on our bank term loan as scheduled. However, we have recently begun the process of modifying or replacing our term debt in order to extend the period for interest-only payments until such time that we achieve positive cash flows. With the modification of our debt, with significant decreases in our cost of goods that will flow through our income statement, with increased sales and flat operating expenses, we expect to be EBITDA positive by the fourth quarter of this year, and at cash flow break even after interest expense by mid-2019.

With that, I will turn the call back to Tom.

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [5]

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Thank you, Jeff. It's highly gratifying that our growth strategy is working. We are hiring high-quality reps, managing them and the sales process well, and letting them do what they do best, bringing the high accuracy results from our FORE-SIGHT oximetry to anesthesiologists and empowering them to improve patient outcomes. We are carefully targeting and taking accounts from our competitors. We are expanding the market for cerebral and tissue oximetry by gaining new customers who have not used cerebral oximetry in the past, and we continue to push tissue oximetry into new and adjacent markets.

This strategy has been working and despite our pause in our growth in early 2017, our 5-year total FORE-SIGHT compounded average growth rate is 18% on the strength of a 5-year CAGR of 21% in the U.S. We also continue to look forward. In that regard, we are developing the next generation of FORE-SIGHT technology into an OEM format to be able to partner with third-party monitoring companies to expand access to the technology. Consistent with that effort, in January of 2018 we submitted a 510(k) to the FDA for our new FORE-SIGHT OEM module. The OEM module permits the use of FORE-SIGHT oximetry on a third-party monitor with our tissue oximetry value simply displayed on the screen of that monitor. By partnering with these third-party monitoring companies, we can open a whole new sales channel and leverage their selling resources to more quickly expand the market for tissue oximetry and gain share. Currently, we are far along in a co-development project with our first partner and on track to file for FDA clearance of our first OEM module combination product before the end of 2018.

Finally, I'm proud to announce that earlier this year, we achieved a major milestone with the manufacture and sale of our 1 millionth FORE-SIGHT sensor, which suggests that we've had the privilege of monitoring over 500,000 patients since the launch of FORE-SIGHT product, empowering thousands of clinicians to improve the care to their patients.

In closing, we are excited about our sales execution, the increasing productivity of our sales organization, the robust pipeline of new business opportunities, the success of our hospital system strategy, the progress in our OEM development, and the competitive advantages of our FORE-SIGHT technology. Revenue is growing again, our operations are efficient and our path to cash flow breakeven is clear. The great sales momentum we saw in Q4 also has continued into the first quarter of this year. As such, we are increasingly confident we can meet or even perhaps exceed the 2018 revenue guidance we provided in our January press release, which is that U.S. FORE-SIGHT sales increases will be in the low teen percentages, driven by mid-teens percentage growth in U.S. sensor sales and a slight sales decline in international sales resulting in low double-digit revenue growth overall for 2018.

With that overview, we're willing to -- we're ready to take questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [2]

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While we're waiting for the first question, I just wanted to mention that we are presenting at the LD Micro Conference on June 5 in Los Angeles. We'll also be webcasting a presentation. Okay, we're ready for the first call -- our first question, sorry?

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Operator [3]

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Your first question is from Matt Hewitt with Craig-Hallum Capital Group.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Handful of questions. First, you're having great success on the competitive front from competitive conversions and I'm wondering, is there 1, 2, 3 items in particular that are differentiating FORE-SIGHT from the competition, and how do you maintain that leadership?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [5]

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Yes, I think that probably the primary technology advantage or distinguishing feature that we have is that the product has an extraordinary level of accuracy. And we believe that, that level of accuracy really makes a difference in the confidence that the clinician can have in both understanding what the oxygenation values of the tissue, of the body, of the brain are. And with confidence, either intervene to try and improve those numbers or not intervening, if in fact, they are sufficiently viable. So that tends to be and has been a real competitive advantage. I think increasingly, our sales force is now turning into a competitive advantage. These people are highly professional. We're doing a terrific job of training them, they understand the technology in a consultative way. And this is all we sell. And so when somebody's looking for a cerebral oximetry expert, I think that they can rely increasingly on our own sales force. So I think those are the 2 main advantages we have in taking competitive business.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Okay. And then, you've previously mentioned that your IDN and GPO initiatives are proving effective. What percentage of your business today is coming from those groups? And where do you see that going here in '18 and maybe over the next few years?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [7]

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Actually, I don't know that we've accumulated that data in total. The number of IDNs or GPOs who have contracted the category continues to be rather small. In terms of IDN contracts, though, I would probably, and this is a rough guess, that we're probably 50% contracted and maybe 50% uncontracted, but that's a rough guess. We should be able to get that for you, Matt. And where is it going? I think it'll just continue to increase.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [8]

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Okay. And then, shifting gears a little bit to the OEM 510(k). Can you walk us through the -- so later this year, it sounds like you would have the first partnered product, if you will. How should we be thinking about that from a strategy? And more importantly, how should that start to factor into revenues, is that contract exclusive or will you be looking for additional contracts? Some more color along those lines would be helpful.

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [9]

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So we're -- although the co-development program is underway, the agreement behind it is still being negotiated. I mean, we don't think there is any impediments to it, but we just haven't finalized it, and when we do, we'll be able to announce it. From a strategic standpoint, we think this is a material expansion of our access and our leverage in our -- in field selling. Fundamentally, we believe that the market for cerebral oximetry and tissue oximetry, and with FORE-SIGHT in particular, is not -- is limited only by our scale and reach. And so increasing our scale and reach through third parties I think can have a material impact on our business. We are thinking that by late 2018, we'd have this combination product with the FDA, which means that we would expect revenue probably beginning in early '18 -- excuse me, early '19 and then continuing and building throughout the year. The partners that we're talking to have a scale that is a multiple of ours. And we think that really has a significant leverage effect in our ability to put more monitors, more technology into more hospitals, more ORs and even begin to move into the ICU.

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Operator [10]

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And your next question is from by Brian Marckx with Zacks Investment Research.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [11]

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Tom, can you talk about the 25% to 30% of the time when a potential customer does do a head-to-head evaluation of FORE-SIGHT versus a competing technology, what is the say top 1 or 2 or 3 reasons that the customer would not go with FORE-SIGHT and would go with the competing technology instead?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [12]

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Yes, I'd say, probably the #1 reason is often times a process and a contract, where an evaluation occurred and ultimately the hospital determined that they actually had a binding contract with a competitor. So in many respects, I think that's a process failure and hopefully, those instances are becoming less and less routine. So we're not wasting our time, that we're -- we're confirming that they are both willing and able to convert the technology early on in the process. And I think the second is probably just inertia. Making sure that you've got a clinical champion that can drive the change and through the administration in an effective manner. There are occasions where perhaps the clinicians are interested, but not so interested that they want to really invest the [political] capital and the time and effort to move it through the system. So I think those are probably the 2 biggest reasons. But from a clinical standpoint, I think it is the rare instance where the clinicians say something other than, "Hey, you guys clearly have the best product."

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [13]

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And then, in terms of pricing, can you kind of frame that for us in terms of the context of that decision making? So the same -- sort of the same question, but in context of pricing.

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [14]

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Yes, price is always an issue, of course. And if -- our competitors are increasingly competing on price, but there've been instances, there was one instance recently where we won the business at a 50% pricing premium to our competitors. And I think, ultimately, we think that, that technology difference really resonates with the clinicians in the hospital and the way they can use that technology. But overall, we had generally projected that our ASP would fall about 2% to 3% a year. And that's a historic trend that we've seen, it's held up in this year, last year and the year before. So we don't see a gross acceleration of our -- of pricing reductions.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [15]

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Okay. Tom, from your insight, do your competitors use generally the same revenue model that you do? It's mostly -- I guess kind of most of the revenue models on the revenue in the margin is on the consumables or is it that they use something different that is potentially a competitive advantage? That's not the right term, but different just to try to have a leg up, whatever that might be?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [16]

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No, I think they're relatively similar business models. As a matter of fact, I think that -- and Jeff mentioned, our specific strategy is to sell monitors more often to our customers, I think many of the customers actually prefer that. It makes their accounting significantly easier. And -- but most of the margin that we get on the transaction ultimately is when we convince them to use the sensors on a daily basis.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [17]

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Okay. And then can you talk about reimbursement and what you have seen in terms of capital budgets, hospital capital budgets, potential customer capital budgets. Anything that's changed that is relevant to CAS Medical in your business that may be a benefit or maybe a headwind?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [18]

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No, we haven't seen that. Money is always tight in hospitals and they're going to allocate capital budgets to the products that improve their care the most. But we have not seen any kind of material impact on changes or access to capital. I mean, look, we're a relatively small company without a macro impact on the industry, but we have actually seen more products being sold, and at least as it relates to our little niche here, the capital cycle seems to be accelerating. It's not a detriment to our selling efforts at this point.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [19]

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Okay. And then, Jeff, you mentioned the expectation of some margin improvement related to lower cost sensors. Is this a new sensor or is it just manufactured at a -- the same sensor just manufactured at a lower cost?

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Jeffery A. Baird, CAS Medical Systems, Inc. - CFO and Secretary [20]

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Yes. It's actually a redesigned sensor that is manufactured at the same location that the previous design was manufactured at. So part of it is a design change, but a substantial part of it is the fact that we've entered into a large purchase order with the manufacturer. And so by able to -- we were able to get a volume discount based on making that commitment. So it is a substantial reduction in the elite sensor cost. We are beginning to realize that cost reduction now -- it was effective in February. It's a little bit of a step function, but as we move through the second quarter, by the third and fourth quarter, we will feel the full effect of the cost reduction. And so we're confident that we can look to 3 -- likely 400 basis point reduction in our cost or improvement in our gross profit.

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [21]

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Brian, it's a -- it's the same type of sensor, same function, really designed for manufacturability. It's an effort that we have been pursuing for a while, we continue to step down the cost of our sensors as design has improved and the volumes have improved. And this is simply another step in that process, and actually a material one for us and our ability to get to cash flow breakeven that we're very proud of. And as Jeff mentioned, this isn't contingent. The first of those lower cost sensors are actually being received and sold now. So we expect that to just flow through our income statement over the coming quarters.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [22]

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Okay. And then my last one was on the guidance to hit cash flow positive less interest expense. What revenue level do you expect you would need to meet that?

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Jeffery A. Baird, CAS Medical Systems, Inc. - CFO and Secretary [23]

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Yes, so here's kind of the math. So the EBITDA, to get the EBITDA positive, we need between $5.5 million and $6 million in revenue. Because we have what we think is fundamentally a fixed operating cost basis here. We have increasing margins and decreasing cost of goods. And so between now and the end of the year, as we grow that business, a material portion of that revenue growth just falls right to the bottom line. So cash flow breakeven is probably a little bit higher than that, maybe just over $6 million. But EBITDA positive is between $5.5 million and $6 million.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [24]

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Okay. Tom, so that sort of implies that operating expenses, the EBITDA $5.5 million to $6 million kind of implies that operating expenses should be pretty flattish from current levels. Is that a fair...

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [25]

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That's exactly right. They will -- operating expenses, we think will be, may be just a tick up from 2017, but not much.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device, and Diagnostics Analyst [26]

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Okay.

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [27]

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Like I said, some of that is variable as sales improve, but the rest of the infrastructure we have here is almost completely fixed.

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Operator [28]

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(Operator Instructions) Your next question is from Larry Haimovitch with HMTC.

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Larry Haimovitch, Haimovitch Medical Technology Consultants - President [29]

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Congrats on the progress, it ended up being a pretty solid year although it had a bit of a rocky start, didn't it?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [30]

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Yes. It was. It was a rocky start as we came into the year, but I honestly believe we bottomed out in Q2, Q3 was better, and Q4 was just a blowout quarter for us. And as we said, that momentum has continued into Q1.

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Larry Haimovitch, Haimovitch Medical Technology Consultants - President [31]

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I joined the call a little bit late, you had some very quick early comments that I just missed about the sales force. I know you've been building up the sales force, I know you and I had talked about that some time ago that, that was going to be one of the paths to build the business. Could you just provide a little more color on both quantity, how many sales reps are you up to now? Are you at the capacity for the time being? And the productivity of the reps. Are they at peak productivity now? Or you do you expect that they will even become more productive with more experience?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [32]

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Yes. So as of today, this is March 14, we have all 16 territories filled. And we've got -- actually the final territory's -- that rep is going to start on Monday. Of those 16 territories, 12 now have been with us for more than a year. And as we mentioned, that kind of 9-month to 12-month period is where they have become familiar with the territory, they've -- they build their pipeline, given that sales processes are often and 9 to 12 months, they begin to harvest their pipeline of opportunity. So not all of our reps are up to that point yet, but the productivity in Q4 was very high and very rewarding in that the performance was really widespread. We had a number of reps that were over 8 monitors for the quarter and that's kind of an unofficial goal for us. Actually, it's sort of more like 6 is our goal and so to see that kind of widespread performance was really exciting. So I think it's possible. I mean look, Q4 was a blowout, it's possible that the productivity could increase, but if we end up with that kind of level of productivity going forward, I'd be thrilled. But I still think we have a couple of reps that are still coming up to speed. So there's opportunities for a greater contribution.

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Larry Haimovitch, Haimovitch Medical Technology Consultants - President [33]

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And are you going to stay at 16, Tom? Or I know Kim has recommend that you continue to build it. What do you think, is that kind of a stability point right now for this year or do you see the possibility of...?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [34]

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Yes, I think that we are at 16 for a while here until we get to that EBITDA positive basis. I'd love to have more, I'd love to have 30. I think our OEM relationships will help get some of that leverage that we'd be looking for with direct reps. But for now, we'll stick at 16 territories.

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Larry Haimovitch, Haimovitch Medical Technology Consultants - President [35]

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And if it weren't for cash constraints and your desire to finally get to EBITDA positive and cash flow positive, would you be adding to the sales force right now?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [36]

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I'd have 40, yes.

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Larry Haimovitch, Haimovitch Medical Technology Consultants - President [37]

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Okay. All right, I'll write you a check for $40 million, how about that and you know (inaudible)?

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [38]

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Deal.

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Operator [39]

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And at this time, we have no further questions. I would like to turn the call back over to Tom Patton for closing remarks.

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Thomas M. Patton, CAS Medical Systems, Inc. - CEO, President and Director [40]

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Well, thank you very much for joining today's call. We are excited about the progress we've made and the opportunities to continue to perform in the future. And we look forward to updating you on our first quarter results in early May. Thank you very much and have a great day.

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Operator [41]

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This does conclude today's conference. You may now disconnect.