U.S. Markets closed

Edited Transcript of TOS.TO earnings conference call or presentation 7-Nov-18 1:30pm GMT

Q3 2018 TSO3 Inc Earnings Call

Ste-Foy Nov 13, 2018 (Thomson StreetEvents) -- Edited Transcript of TSO3 Inc earnings conference call or presentation Wednesday, November 7, 2018 at 1:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Glen Kayll

TSO3 Inc. - CFO

* Richard M. Rumble

TSO3 Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Christopher Martino

Laurentian Bank Securities, Inc., Research Division - Associate Analyst of Research

* Douglas W. Loe

Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech

* Frederic Tremblay

Desjardins Securities Inc., Research Division - Analyst

* Savneet Uppal

RBC Capital Markets, LLC, Research Division - Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(foreign language) Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the TSO3 2018 Third Quarter Financial Results Conference Call. The English will follow right after the French.

(foreign language) Some of the statements that will be made during this call may be forward-looking in nature. Such statements involve known and unknown risks and uncertainties that may cause the actual results of TSO3 to be materially different from those expressed or implied by such forward-looking statements. The risks, uncertainties and other factors that could influence actual results are described in TSO3's quarterly report and part of the SEDAR filing.

(foreign language) (Operator Instructions)

Mr. Rick Rumble, President and CEO of TSO3; and Mr. Glen Kayll, CFO, will participate in this conference call.

I would like to remind everyone that this conference call is being recorded.

I will now turn the conference over to Mr. Rick Rumble. Please go ahead.

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [2]

--------------------------------------------------------------------------------

Well, thank you, Cynthia, and welcome, everyone, to TSO3's Third Quarter 2018 Conference Call for the period ended July 31 (sic) [September 30], 2018. My name is Rick Rumble, and I am President and CEO of TSO3, and joining me on today's call is Glen Kayll, the Chief Financial Officer. This morning, Glen will briefly review the financials for the quarter, which were published last evening, after which we will discuss the quarter and subsequent events. Glen?

--------------------------------------------------------------------------------

Glen Kayll, TSO3 Inc. - CFO [3]

--------------------------------------------------------------------------------

Thanks, Rick. To begin, all dollar figures are stated in U.S. dollars unless I indicate otherwise.

First of all, in the third quarter of 2018, TSO3 and our former distributor, Getinge Infection Control, mutually decided not to renew the distribution agreement that had existed between ourselves. We agreed to give TSO3 unrestricted independent commercialization rights to our STERIZONE VP4 Sterilizers; allow us to repurchase 230 VP4 Sterilizers from them at $33,000 each, plus associated accessories; and transition to TSO3 the service, maintenance and consumables sales of all existing VP4 Sterilizer customers, as well as the sales pipeline in the United States and Canada. We began this exercise as of August 1, 2018, and are now substantially complete. We have retained 98% of the customers that were transferred and have been adding to them since transition, as Rick will discuss in a minute.

We funded this transfer and the launch of our new commercialization approach with a $20-million financing arrangement with Courage Capital Management. Courage is a Nashville, Tennessee, headquartered alternative asset management firm with a 20-year track record of investments in healthcare services, medical devices and pharmaceuticals. The $20-million financing, which netted $19.7 million after associated costs, was provided in 2 separate but concurrent transactions in the form of a $15-million first-lien convertible note, which has a conversion price of USD 0.82 per share and a $5-million first-lien term loan. This funding bears interest rate of 10% for the convertible loan and 12% if we elect to defer interest payments on the term loan. Both notes compound quarterly and allow us to defer payment of interest until the end of their 5-year terms, should we so elect.

With that in mind, I will turn to our Q3 results. Third quarter 2018 revenue equaled $0.8 million, as compared to $0.4 million in the second quarter of 2018 and $5.1 million in the third quarter of 2017.

During the third quarter of 2018, we shipped 4 sterilizers to end customers. This represents the first time in almost 3 years that we have recorded sterilizer shipments and revenue to end customers. In prior periods, we were limited to selling sterilizers to our former distributor, and we shipped none to them in the second quarter of 2018 and 44 to them in the third quarter of last year.

We recorded $0.2 million of consumables revenue in the third quarter of 2018, which reflects a period of transition from distribution to a direct sales model, along with inventory adjustments associated with that. We expect consumables consumption and revenue run rates to normalize in future periods at retail rather than wholesale prices. And in keeping with that premise, so far in October 2018, we've recorded in excess of approximately $0.1 million in consumables revenue and are monitoring fourth quarter progress closely.

Gross profit was $1.2 million in the third quarter of 2018; that compares to $0.1 million in the second quarter of 2018 and $2 million in the third quarter of 2017. Our third quarter 2018 gross profit includes $0.8 million of the reversal of warranty expense associated with the inventory of sterilizers we repurchased from our former distributor.

Our research and development expenses declined to $1.3 million in the third quarter of 2018, as compared to $1.5 million in the second quarter of 2018 and $1.6 million in the third quarter of last year. We continue to reduce our R&D expenses as we focus our expenditures on our sales and marketing efforts.

Our SG&A expenses -- sales, general and administrative -- were $2.6 million in the third quarter of 2018 versus $2.5 million in the second quarter of 2018 and $2.1 million in the third quarter of last year. We incurred expenses associated with the transfer of our VP4 Sterilizer business, as well as increased investments in sales and marketing activities.

Financial income amounted to $0.6 million in the third quarter of 2018, as compared to immaterial amounts in the second quarter of 2018 and third quarter of 2017. We recorded $0.5 million of accrued interest expense in relation to the debt I mentioned earlier and recorded a noncash gain of $1.1 million in the quarter and revaluation of the derivative component of the convertible note. The company expects to incur similar noncash gains and losses related to the revaluation of the derivative component of the convertible note on an ongoing basis until the note is extinguished.

Our net loss was $2.1 million, or $0.02 a share, in the third quarter of 2018, as compared to $4 million, or $0.04 a share, in the second quarter of 2018 and $1.8 million, or $0.02 a share, in the year-ago quarter.

Regarding cash, we ended the third quarter of 2018 with $16.1 million of cash, cash equivalents and investments.

In the second quarter of 2018, we consumed $1.7 million in cash for operations, excluding noncash working capital, and $8.7 million in noncash working capital adjustments, which includes $7.9 million used for the repurchase of the VP4 Sterilizers and associated accessories I mentioned earlier. Note as well to consider the impact of the $0.8 million in warranty reversal in these cash numbers.

Inventories were $4 million as of September 30, 2018. During this third quarter of 2018, we added the repurchased distributor inventory, which I mentioned earlier, and we applied the unamortized $6-million balance of deferred license fees associated with our original and now terminated distribution agreement to the units that we repurchased. Also, we applied the $0.5 million of upgrade-related repurchase provision that we recorded in the second quarter of 2018 against inventory, and since the original cost of the associated units was still in our inventory at $0.3 million, this resulted in a net $0.2-million reduction of our inventory balance. In summary, of the $4 million of total inventory at the end of the third quarter of 2018, $2.5 million of that was finished goods and included 237 sterilizers.

We plan to continue to monitor our costs closely and continue to redirect our expenditures toward sales and marketing efforts to commercialize our products. With the cash and relatively inexpensive inventory we have added to our balance sheet and our focused commercialization approach, we are in a good position to take our company forward.

And with that, I would like to turn the call over to Rick.

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [4]

--------------------------------------------------------------------------------

Well, thank you, Glen. In my comments given in Q2 earlier this year, I listed in -- what I believed was our inventory as we began our own commercial journey. That list consisted of having a proven product that we can manufacture at scale, a robust and customer-demonstrated value proposition, the broadest claims in the industry and the only clear claims to terminally sterilize large-bore multichannel flexible endoscopes; at that time, 50 sterilizer placements with 20 planned for installation, and users having adopted or planning to adopt our solution for duodenoscope sterilization.

We had a small but trained sales team with 5, with actions in place to move to more than 10 in the quarter. We had an all-new set of customer-centric marketing collateral material developed and a defined set of new product promotions and price promotions that we were able to use. Lastly, 200-plus units of cost-effective inventory in which to execute a full relaunch of our product.

Today, 3 months later, I can report the following. There are 59 units installed, an increase of 9. There are 9 additional units in hospitals waiting to be installed, which means we have a total of 68 sterilizers in hospitals. Lastly, we have 22 additional units in our backlog waiting to be shipped. In all, this identifies 90 sterilizers with current or future homes.

During the third quarter, 7 purchase orders were taken, and in the month of October that followed the quarter, 10 additional POs and commitments were taken. Three of these orders came from hospitals in the provinces of Quebec and British Columbia and an additional 7 units from the United States. The Canadian orders were in direct relationship to tenders awarded, one of which has been announced and one which has not yet been announced by the tendering authority. All October activity was the direct result of TSO3 sales activity.

TSO3 started the quarter with 5 individuals selling the STERIZONE sterilizer, and today we have 8, having added 5, replacing 1, while exchanging the role of another. We expect to have 11 filled territories. In fact, interviews have taken place and offers have made -- been made to qualified candidates.

Previously, we disclosed that there were 3 independent agents contracted with, and these are rep agent organizations, contracted with to help uncover opportunities. One additional independent rep organization has been signed and an additional organization is being signed, and we are in the process of signing. In all cases, however, it is the TSO3 sales professional's responsibility to lead all efforts associated with selling our product line.

For the first time today, TSO3, in its shareholder letter and in the MD&A, stated that we have a measureable goal, and that is to gain the commitment for the sale of 200-plus units that are in our inventory by year-end 2019.

In the last call, I outlined that TSO3 was in the process of rolling out a 3-pillar sales strategy as a means of leveraging our resources while we build additional strength and breadth within our own organization. The 3 pillars consist of a direct or clinical sale, a top-down or C-suite sale and then the ushered-in sales strategy.

As you recall, in the clinical sale, you have one sales rep with one hospital leading to one purchase order. Essentially, this is the standard sales model where a salesperson works through the hospital by connecting and relating to customers to understand needs, then working with the account to define mutual benefit, resulting in advocating a solution that will result in a sale. This is the process where TSO3 fits into the standard replacement process or the expansion plans of a facility.

The C-suite sale is driven by demonstrating our meaningful cost savings when converting to our system. The company has continued to actively work with large healthcare systems to collect the information on their current low-temperature sterilization utilization costs and has provided guaranteed savings or risk-sharing proposals for their review. As previously stated, C-suite sales can take more time, but typically the reward is higher, with multiple units being awarded in multiple facilities.

Lastly, we are directing a portion of our sales efforts toward that ushered-in approach. In this ushered-in approach, TSO3 is working with nonexclusive like-minded organizations such as our independent representatives to assist in deploying our technology. To date, these opportunities from these independents number 31.

Our sales approach and process differs based on hospital needs and size. As a result, we have created a series of sales programs that allows our salespeople to tailor their approach to each segmented customer. In the past 90 days, I can say that TSO3 has quoted business that is pure lease, pay over time, cost per cycle and straight price. Additional programs are also being defined to help customers gain the benefit of our sterilizer.

During the quarter, our company continued to participate in and advocate for a greater safety assurance level when reprocessing medical devices such as multichanneled endoscopes, and growing consensus is emerging that terminal sterilization should be applied to an increasing number of medical devices that have in the past been treated as semicritical. These instruments are likely to be re-classed as critical devices in the future. TSO3 and our technology is one reason why this change can be pursued, and we are proud of the positive impact we are having enabling the industry to improve.

With direct control over all aspects of our business, TSO3 can now strive to exchange business information at an increasing pace and in new ways. We have been attempting to increase the content of our website, and I suggest that you look there to see what is news on a regular basis. I assure you that we are looking for ways to improve our transparency. We are not at the pace yet where we can see all 200 sterilizers committed for in 2019, but we are seeing real traction, as indicated in the past few months. We are doubling down on each of our programs and commitment to our end users, and intend to meet or exceed any goal that we set.

And with that, I'd like to open the call for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(foreign language) (Operator Instructions)

(foreign language) Your first question comes from Frederic Tremblay from Desjardins. Please ask your question.

--------------------------------------------------------------------------------

Frederic Tremblay, Desjardins Securities Inc., Research Division - Analyst [2]

--------------------------------------------------------------------------------

First question would be just on the Courage Capital. I assume that you're in regular communications with them, and can you just share with us maybe the -- their degree of involvement in TSO3's business in general, and if you had -- if you've had success so far in leveraging their contacts in the healthcare space?

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

We have stated in the past, Courage is a true partner in this relationship. Yes, we do have routine communication with them. They are very active in the healthcare community and have a number of connections which they have shared with us and helped us to meet with certain organizations. I won't get into the details as to which ones they are. But we've had a number of very good and very high-level meetings that have produced and continue to produce results.

--------------------------------------------------------------------------------

Frederic Tremblay, Desjardins Securities Inc., Research Division - Analyst [4]

--------------------------------------------------------------------------------

Okay. On the -- your 200-plus goal in terms of commitments by the end of next year, what's your view on installation capacity for those units? And if you can just maybe talk about -- yes, your capacity to install those units once you get those commitments?

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Great, and that's a great question, Frederic. I mean, at the end of the day, installation is at the will of the hospital when they have -- when they're ready to install the unit. That's when we go in and do it. And if we could sell the unit, ship the unit and install it in our time line, it would be done much faster, but we have to work within the guidelines that we're given. We have the capacity, obviously, to install all 200 units if it is smooth over the course of a 12-month period. Our goal is to reach as many of those commitments, POs, as quickly as possible so that it gets into a scheduled -- a delivery schedule. That being said, my #1 goal is to get POs for every single one of those instruments, and then we will work with the hospitals to establish. I didn't mention it in my prepared comments, and then I probably should have, but we do carry not only our own service organization, we also have a number of service relationships very similar to our independent sales organization. We have independent service organization relationships, which are there to help us move forward quickly in the installation of the equipment. So I do not see manpower as ever being a limitation on installation. Installations will be governed by hospital time lines.

--------------------------------------------------------------------------------

Frederic Tremblay, Desjardins Securities Inc., Research Division - Analyst [6]

--------------------------------------------------------------------------------

Okay. And just maybe a clarification for me on the 90 units that you're quoting and you're mentioning. Does that include options at all, or is it strictly what's firmly committed, let's say?

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

No. That's a great question. In fact, that does not include any of the options identified in -- as an example -- in the Quebec agreement that has been published both by the Quebec organization as well as we've made statements about it. There are 3 sterilizers in that tender. We received the order for one. There are 2 additional options. We state that there is another contract that's out there where the tendering authority on the west coast has yet to name who won the award or how many units are associated with it. It's kind of operative. Everybody kind of knows where it is, but we're respecting the policy that they've asked us to play by, and while we have taken purchase orders for 2 units on -- that are both the west coast as part of that contract, there are a number of other opportunities that are also engaged in that contract. In fact, that contract is now being applied to additional provinces such as Alberta, Saskatchewan and Manitoba.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

(foreign language) Your next question comes from Chris Martino, Laurentian Bank.

--------------------------------------------------------------------------------

Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Associate Analyst of Research [9]

--------------------------------------------------------------------------------

So you've got 8 salespeople in the field now and you expect maybe to get to 11 by year-end?

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Associate Analyst of Research [11]

--------------------------------------------------------------------------------

So what would be a reasonable OpEx or run rate at that time, heading into 2019, if you add those salespeople as you expect, and reduce R&D?

--------------------------------------------------------------------------------

Glen Kayll, TSO3 Inc. - CFO [12]

--------------------------------------------------------------------------------

Yes, I mean, we're not giving forward guidance, but I think what you can try to do is, our goal is to maintain or adjust our cash consumption away from noncommercialization activities towards our commercialization activities. So -- and a big part of the compensation, or a big part of the cost, is sales effectiveness. So the extent to which we have sales effectiveness, you'll have some variability in that cost. So that -- if you're going to take a look forward, that's kind of what our goal is, is to try and transition costs into that -- into sales and marketing, and then you will have some variability associated, in the event that -- the result that we hope, which is good sales performance.

--------------------------------------------------------------------------------

Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Associate Analyst of Research [13]

--------------------------------------------------------------------------------

Okay. And have you seen any traction with your independent sales partners under the ushered-in approach?

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

Yes, and again, we've got 31 opportunities that we're collectively exploring to date. Not one yet has come into a full PO. Basically, the opportunities go into a pipeline, the pipeline gets measured, we go to a 30-, 60-, 90-day definition of business when we understand where the -- what the likelihood is of a successful close, and we monitor their -- those very, very closely. So I'm pretty pleased with the 31. They are real; they are true opportunities for us. They exist both on the west coast as well as on the east coast, as well as the organization in Michigan area is also providing opportunities. The new ones that we're bringing on are providing additional -- they're coming with opportunities, if you will, which is fantastic. That's the way we like to be ushered in. And so we are able to use relationships to the best possible ability, but we allow the sterilizer to sell itself when it comes to its capabilities and to the value proposition that it has.

--------------------------------------------------------------------------------

Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Associate Analyst of Research [15]

--------------------------------------------------------------------------------

Okay, that's great. And are there any time lines or hurdles required to obtain the 2 optional follow-on orders with the CHU?

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [16]

--------------------------------------------------------------------------------

No, they've got -- the options as they define it are -- they have the ability within a couple of years to make that selection. I can say that one of the new salespeople we have is now going to be in Canada, and so we'll have more traction in the Canadian market, and there are discussions about a second unit and what -- and where it might go, but we haven't received any firm indication of a next sale.

--------------------------------------------------------------------------------

Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Associate Analyst of Research [17]

--------------------------------------------------------------------------------

Okay. And then just on the consumables, I think the $0.2 million was a bit lighter than what we were looking for. Can you provide any color into that? And maybe what would the consumable ASPs be like under your direct sales as opposed to the distributor model?

--------------------------------------------------------------------------------

Glen Kayll, TSO3 Inc. - CFO [18]

--------------------------------------------------------------------------------

Yes. So remember, in Q3, the first month was wholesale pricing. The second month was a transition from the distributor and some inventory adjustment. And then the third month we started to see the normalized traction. So Q3 is not very representative of what we think forward-looking consumables sales will be like at the retail level. So that's why we put in, here's what's happening already in October. We're up $0.1 million. It gives you an idea of how this is playing out on the back of 59 installations. There is -- we are seeing the pricing that we thought -- we're actually a little bit higher per cycle than we had originally estimated in the U.S. in particular. The Canadian consumables pricing is typically lower, which is normal in the industry. But we are actually seeing good traction. And that's why we put the $10,000 to -- sorry, $20,000 to $30,000 per year. I think really what we're trying to say is, you're tracking towards what we anticipated on a per-year basis, but over time, as we hopefully transition to higher-volume customers, where our real value proposition plays out, then we could start seeing higher returns on that as well.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

(foreign language) Your next question comes from Doug Loe, Echelon Wealth Partners.

--------------------------------------------------------------------------------

Douglas W. Loe, Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech [20]

--------------------------------------------------------------------------------

So just -- there's a fairly long list of well documented duodenoscope-associated infections in high-profile U.S. hospitals that I would have predicted might have been low-hanging fruit for your initial sales and marketing reach-outs, and sort of reading into your 4 system sales in Q3 that those hospitals are neither low nor hanging in this regard, so I was just sort of -- and without referring to any specific hospitals like UCLA or Virginia Mason or -- you know who they are -- just, like, what sort of general feedback are you getting from hospitals that clearly have a duodenoscope reprocessing problem, and VP4 is clearly a solution to that problem? And yet your sales traction is, at least, tangibly been a little bit sluggish here. So just any comment on what sort of feedback you're getting from those hospitals, and just to what extent your duodenoscope claims are truly going to drive your order flow over the next several quarters?

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [21]

--------------------------------------------------------------------------------

Great, thanks, Doug. Yes, it's interesting. I want to be careful that I'm saying that it's -- what is not slow traction. Many of the systems, possibly even some that you've identified, when they look at our product line and they -- it gets very big very quickly because it's now a system approach. So it's not -- it's no longer dealing with a hospital, a policy, a group of individuals from one location. It quickly expands into a system-wide discussion and documentation. A lot of our energy is being spent with large healthcare systems that are looking at, specifically, this challenge of large-bore flexible endoscope/duodenoscope reprocessing. We are fortunate that we have a number of existing adopters where they're able to share their experience, but they -- the first one, Altru, who was probably -- was a smaller system and able -- and was able to move a little bit quicker, they then helped the next system get started, and now we're working with multiple systems to get them started. If I can walk you through a little bit of the sales process that has occurred, and to let you know that the change that occurs in a meeting with 7 individuals or 8 individuals, depending on the facility, that I've been at, when we've gone in to talk about alleviating this pain point, they're currently using multiple supplemental methods to reprocess their duodenoscope. In many cases, it could be up to 72 hours between the time that they start reprocessing and the time that the instrument is put back into circulation for patient use. During that time, it would have been reprocessed by 2 high-level disinfection processes, possibly via liquid chemical sterilization process, and in many cases, actually shipped to a third-party location for ethylene oxide sterilization, at a cost that is absolutely incredible to calculate. When you sit there, to a group of individuals, not all of which are clinicians but risk managers, legal, go on through the list of administrators, and you say that you're going to be able to handle all of that in less than an hour, where they have just spent years defending themselves by putting in this robust process, we get the wow effect, which causes people to go back and really evaluate. So that's my very longwinded answer to say that we are engaged with many accounts, many systems that are looking to convert their current practice to a fresh approach using a STERIZONE that takes 1 hour to sterilize their scope and put it back into circulation. The documentation and the process policies and procedures that need to be rewritten are not minimal, and I look forward to being able to share with you how many systems are moving forward with multiple purchases in the not-too-distant future. We're working on them, and we expect that we'll be able to deliver on them.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

(foreign language) Your next question comes from Savneet Uppal, RBC Capital Markets.

--------------------------------------------------------------------------------

Savneet Uppal, RBC Capital Markets, LLC, Research Division - Associate [23]

--------------------------------------------------------------------------------

Just a quick question. Just on the 200 purchase orders that you're hoping for by the end of 2019, as we think about the -- first of all, if you could comment on just the timing of this throughout the course of the year. And secondly, as we go from the purchase orders towards the installed base you mentioned earlier on the call that it really depends on when the hospital chooses to have you guys come in and do the installation, is there anything that would -- that you see happening over the course of the year that would accelerate the conversion from simply just a purchase order towards the installed base? That's it. Thanks.

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [24]

--------------------------------------------------------------------------------

Good question. I think one of the things that we can do -- I mean, our own sales targeting efforts -- let's be clear. TSO3 sales individuals are out there and have been given the instruction to, let's go make this happen, this is time to penetrate, we've been on the market long enough, there is no more time, let's just go get it; we've got the right product for the right opportunity. And so hospitals that are in construction, we're after those. Hospitals that are already constructed and using low-temperature, we're after those. Hospitals that are expanding because of an increased amount of surgical procedures, we're after those. Now, each one of those different hospitals have a different time line to purchase. They'll acquire, POs can be delivered in all 3 cases at the same time, but in a hospital under construction, we will wait until that hospital is constructed before we can send the sterilizer. So if it's in red iron stage, it could be 9 months, 10 months before we even ship the product. Other hospitals that are already up and expanding, already -- hospitals that are already up and expanding their surgical procedures and need more sterilization capacity, or it's time to replace their old units, those are the ones that have a faster turnaround. So we have different programs to help customers at different stages of their purchasing process, and that's what I referred to in that we have cost per click, we have lease, we have outright purchase, we have every program you can think of, and when a hospital needs another way to buy the product we'll look at that and see how we can help them meet their needs because of our flexibility so that they can install it quicker. If we can help a hospital make a purchase decision that results in a faster installation, I can tell you, that's where our heart is, because it converts to cash instantaneously, almost. And remember, all of this inventory has already been paid for. So it immediately bumps up our cash position.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

(foreign language) Mr. Rumble, there are no more questions at this time, so I'll let you conclude.

--------------------------------------------------------------------------------

Richard M. Rumble, TSO3 Inc. - President, CEO & Director [26]

--------------------------------------------------------------------------------

Well thank you very much, and I appreciate the call this morning and the questions. I look forward to facilitating additional communication in the upcoming future as we begin to show additional signs of progress. Everyone have a wonderful day.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

(foreign language) Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may all now disconnect. Thank you.