Authentidate Holding's CEO Discusses F1Q 2014 Results - Earnings Call Transcript

Nov.14.13 | About: Authentidate Holding (ADAT)

Authentidate Holding Corp. (NASDAQ:ADAT)

F1Q 2014 Earnings Conference Call

November 14, 2013 04:30 PM ET

Executives

Peter Seltzberg - Regional Vice President, Hayden IR

Ben Benjamin - Chief Executive Officer

Bill Marshall - Chief Financial Officer

Analysts

Bradley Donner - J.P. Turner

Operator

Greetings and welcome to the Authentidate Holding Corp’s Fiscal 2014 First Quarter 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, Peter Seltzberg, Regional Vice President with Hayden IR. Thank you. Mr. Seltzberg, you may begin.

Peter Seltzberg

Thank you. Welcome, everyone. Joining us on the call with me today from Authentidate are Mr. Ben Benjamin, Chief Executive Officer and Mr. Bill Marshall, Chief Financial Officer.

Before we get start, let me take a moment to read the forward-looking statements. The conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. When used in this release, the words believe, anticipate, think, intend, plan, will be, expect and similar expressions identify such forward-looking statements. Such statements regarding future events and/or the future financial performance of the company is subject to certain risks and uncertainties, which could cause actual events or the actual future results of the company to differ materially from any forward-looking statements. Such risks and uncertainties include, among other things, the availability of any needed financing, the company’s ability to implement its business plan for various applications of its technologies, the impact of competition, the management of growth, and the other risks and uncertainties that may be detailed from time to time in the company’s reports filed with the SEC. In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by the company or any other person that the objectives and plans of the company will be achieved.

With that concluded, let me turn the discussion over to Ben Benjamin, CEO of Authentidate Holding Corp. Ben, please proceed.

Ben Benjamin

Thank you, Peter. Good afternoon, everyone and thank you for joining us for today’s call. During the call, I will provide an update on Authentidate’s business, I will then turn the call over to Bill to review the financial results for first fiscal quarter ended September 30, 2013. Afterwards, I will make some closing remarks and we will open the call for questions.

Although it has only been about a month and half since our last call, we’ve continued to make solid progress with our business this was a strong quarter for Authentidate, one that provides a glimpse into the company we expect to become. The effort of the last year to deploy our telehealth offering with the VA are finally paying dividend. In the first quarter of fiscal 2014 we delivered record revenues on our highest growth rates ever from current operations. We also continue to reduce our operating and net losses compared to the prior year period as our revenue growth out-takes expense growth demonstrating the leverage in our business model.

Clearly, we believe we are on track to achieve our goals for the year. We continue to see increased interest in our products and services as healthcare organizations address new regulatory reforms and focus on lowering costs, improving patient outcome and delivering quality care to growing number of patients that will have access to these services.

Coupled with our VA opportunity we decided to raise some additional working capital to position the company to more aggressively grow revenues, respond to new product orders on opportunities as they arise and expand our presence in the marketplace. We believe the net proceeds of approximately $2.4 million from our recent private placement of restricted stock and warrants will help us to address these needs and we are pleased that we were able to complete this transaction on terms that we believe reflect the progress we have made.

Moving to our core products and services. This quarter’s financial our operation performance is primarily the result of laying the downward with VA for our industries in telehealth solution. Our VA project has been a significant contributor to our top line results and we are excited about the opportunities for future growth with the VA.

As you know during the last fiscal year, we completed the testing phase for both the products we provide to the VA, received approval for the major disease management protocol and completed the interface between our telehealth solutions and the VA, Vista Electronics Health Record Systems.

The Vista interface was designed to make it faster and easier for clinicians to enroll and manage patients and update patient’s information in the Vista Systems. However, the ability to interface with these types of systems also makes it easier to share information among agencies and we believe this capability will be important as [Congress] looks for ways to reduce the cost of delivery and healthcare to veterans and active (inaudible) personnel.

Following the end of the fiscal year, we began to enroll patients for our VA pilot program for HIV patients. We customized our HIV programs to meet the VA’s needs, navigate the security and add key requirements of the VA and implemented the program. The pilot is proceeding well and we expect this to lead to opportunities in the public sector.

We expect that the HIV telehealth program will be made available for VA, HIV patients nationwide after the pilot is completed. However, we cannot predict how many patients will use this service. The HIV program uses our Interactive Voice Response telehealth solution, which we provide for a recurring monthly subscription fee for patients. We plan to continue our focus on supporting the VA in its efforts to the level of quality care to our veterans and increasing the amount of revenue we generate from VA projects.

On our last call, I mentioned that the VA's fiscal year will begin on October 1. The VA recently released its 2014 to 2020 Draft Strategic Plan, which reaffirm a significant commitment for telehealth. The VA's requested appropriation for telehealth for the 2014 fiscal year is $460 million, a 4.3% increase or $19 million compared to 2013. This demonstrates the VA ongoing commitment for telehealth and its recognition of the shift towards a mobile society coupled with the need to expand better indexes to care without regard for physical location.

We are highly encouraged by the VA’s commitment to use in technology to help patients monitor healthcare condition. And we believe our telehealth solutions helped the VA monitor patient’s health from the comfort of the patient’s own home with a goal of improving healthcare asset and outcomes, overall reducing the cost healthcare.

We believe that our efforts to increase our business with the VA are going extremely well. And we believe that VA telehealth project position us well to pursue opportunities with other states and federal agencies as well as private sector customers. With respect to our Hospital Discharge solutions we are continuing to pursue a number of RFPs for this solution on a standalone basis as well as for solutions that combined one or more of our product and services and we’ll update our shareholders as these opportunities develop.

We continue to see increasing interest in our solutions as hospitals address new regulatory requirements and we believe we're well positioned to capitalize on these trends. Although, we continue to add customers for our Referral Management solution, we remain primarily focused on increasing the use of our services by our existing customers. As these customers and other organizations in the home medical equipment and home health agency businesses deal with government imposed cost cuts and competitive billing for their products and services, we are seeing increasing interest in our solutions.

As you may know both our Hospital Discharge and Referral Management solutions incorporate multiple features and security technologies such as rules-based electronic forms intelligent routing, transaction management, electronic signatures, identity credential and content authentication and automated audit trails and integrate both web and fact based communication into automated secured and trusted workflow solutions. We believe these are the tools that healthcare organizations need to help reduce the growing administrative cost of providing patient care.

We continuously refine our product platform and continue to develop new applications to grow our business, and address market needs. As the healthcare industry embraces technology to help lower cost and provide quality care for patients, we believe we are well positioned to benefit as healthcare providers and governments recognize to these solutions and services contribute to safer, more efficient healthcare environment.

I’d now like to turn the call over to Bill to briefly review our financial results for the period ended September 30, 2013. Bill please proceed.

Bill Marshall

Thanks Ben, and good afternoon everyone. I’ll start with the review of our consolidated results and offer additional comments as needed. As Ben mentioned, we reported record revenue growth for the quarter from current operations and we improved our margins and lowered our operating loss and net loss for the period. These results demonstrate the leverage we have in our business model, where many of our costs are fixed to a large extent. We expect to see continued improvement in these areas as we grow revenues and transition to a cash flow positive business.

Moving to the numbers. Revenues for the quarter ended September 30, 2013 increased approximately 96% to $1.8 million compared to $0.9 million for the prior year. These results reflect an increase in revenues from our telehealth products and services as we shipped more equipment during the quarter and increased our monthly service revenues, compared to the fourth quarter of fiscal 2013 revenues were up 25% reflecting the same trends as the first quarter.

Cost of revenues was $1.3 million for the quarter compared to $0.7 million for the prior year period reflecting the increase in telehealth equipment sales offset impart by lower data center maintenance expenses.

Selling, general and administrative expenses increased to $1.9 million for the quarter compared to $1.7 million for the prior year. The increase is due primarily to higher selling and support expenses and higher investor relations costs for the period. Product development expenses were $241,000 for the quarter compared to $248,000 for the prior year. The decrease for the quarter reflects lower personnel expenses.

Depreciation and amortization expense was $186,000 for the quarter compared to $204,000 for the prior year, reflecting lower spending for fixed assets and a decrease in amortization of capitalized software, offset impart by the amortization of acquired telehealth licenses.

Operating loss for the quarter decreased by $188,000 compared to the prior year, due primarily to the increase in revenues and leverage in our business model with respect to expenses. Other expense is $95,000 for the quarter compared to $548,000 for the prior year. Other expense consists primarily of the non-cash amortization of debt discount and deferred financial costs on the company’s senior secured notes payable.

The decrease for the current period reflects to early extinguishment of certain senior secured notes in June 2013 and exchange for Series B preferred stock and warrants to purchase shares of common stock. The remaining notes were repaid in accordance with their terms on October 31, 2013.

Net loss for the quarter was $1.9 million or $0.09 per share compared to $2.5 million or $0.11 per share for the prior year. The decrease in loss for the period is due primarily to higher revenues for the current period and the decrease in other expense.

Moving to the balance sheet, as of September 30, 2013, cash and cash equivalents and marketable securities amounted to approximately $2.5 million and the company had working capital of approximately $3.2 million. This does not include the recent of capital rates that we just completed. For the quarter ended September 30, 2013, we use approximately $1 million to fund operations, changes in working capital and inventory, data center and other investments and pre payments, this amount includes inventory and related investments for approximately $80,000, data center infrastructure and other investments of approximately $78,000 and prepayments of approximately $200,000.

We also paid most of our audit fees and servings, actually testing fees during the first quarter and we paid approximately $162,000 for proved expense related to our June 2013 capital transactions.

For the first quarter, the average monthly cash used for operations after normalizing for prepayments was approximately $275,000 compared to approximately $300,000 for the quarter ended June 30, 2013 and approximately $420,000 for the nine months ended March 31, 2013. We expect our cash use to continue to trend downward as we grow our revenues in future periods. All-in-all, Q1 was a strong start for our fiscal year and we expect these trends to continue.

That concludes my remarks. Let me turn the call over to Ben for some closing comments before we take your questions. Ben?

Ben Benjamin

Thanks, Bill. We are very happy about our progress and the opportunities we see for current fiscal year and beyond. We believe ongoing regulatory reforms focused on controlling cost, automating medical records and processes and expanding the availability of healthcare coverage will help us to drive revenue growth. Furthermore, we believe we will also benefit from healthcare industry trends to significantly reduce cost, shorten the length of hospital stays, reduce hospital re-admissions, shift patient's care towards wellness and preventative care, programs and automate healthcare records and processes.

Healthcare information technology is essential to help controlling healthcare costs, while maintaining quality patient care. And we believe we have laid the ground work, with our best-in-class telehealth and web-based solutions to capitalize on these developments. The strategic boards of healthcare reform initiatives including those within the American Recovery and Reimbursement Act. On a company and healthcare and information technology for economic clinical and health provisions are very much in line with all product platforms. And we believe these reforms will drive increased demand for solutions in 2014 and beyond.

That concludes our formal remarks, Bill and I will be happy to take any questions you may have. Operator, please open the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the line of Aaron [Hudsmith] with AIGH Investment Partners. Please proceed with your question.

Unidentified Analyst

Hi, how are you?

Ben Benjamin

Hi Aaron.

Unidentified Analyst

Can you just give everybody a little bit more color just in terms of what you've stated on prior calls in terms of reaching profitability what that timeframe days and what remains? And then can you also talk about the competition you’re seeing in the telehealth space basically for the VA?

Bill Marshall

We're still on track to attain our goals for cash flow breakeven in our third fiscal quarter and to reach profitability by the end of our fiscal year during fourth quarter. So we haven’t changed those goals. Ben you want to talk about competition?

Ben Benjamin

Yeah. What I would say about competition in the VA, generally as you would expect the customer that doesn’t share [information] of our competitors. So we take that information off anecdotally, but what has happened and I think I reported this on the last call was that the VA has had to sometimes some new DMPs that are more involved that they have asked everyone institute. We of course came on board having to put those new DMPs in place. What we have learned a sense is the other competitors are now doing so and they are, some of them are experiencing some difficulties that gives us some advantage, but beyond that, we clearly see that our product is way advanced and in fact serve patients much better than the competitor’s product. So that's where we have really put all the trust and all believe that we will succeed in the VA.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from line of [Dan Cromie], he is a Private Investor. Please proceed with your question.

Unidentified Analyst

Hey Ben and Bill, congrats on a wonder quarter here. There has been a couple of raises this past year and I was just wondering with the number of warrants that have been put out into the marketplace here. Have you realized any cash flow from conversion of those warrants, are those warrants being exercised?

Bill Marshall

Very few of them have been exercised. We do have about 50,000 warrants exercised as the stocks started to move up. So we would expect that that would continue as our stock moves up.

Unidentified Analyst

Okay. Do you have any estimate in terms of a range of how much money you might be able to generate say in the next 12 months from exercised warrants?

Bill Marshall

I would be guessing, Dan, all I can say is that if everybody exercise we’d raise another $32 million, but for me to try to slice and dice that would be just pure speculation on my part.

Unidentified Analyst

Okay. I did hear you are at $32 million?

Bill Marshall

Yeah if everybody exercise all their warrants it would be just north $32 million coming in the company.

Unidentified Analyst

Okay great. And one other quick question. Is there a trend developing with the VA in terms of the percentage of the IVRs versus the boxes that’s becoming more predictable as you go forward?

Ben Benjamin

No we have not seen that trend as yet, but what we do know is that the VA has a program in place over the next four years of the five year plan to add about 600,000 patients. We anticipate that about a quarter of those are going to be IVR patients. We have not frankly seen that developed, we in fact have seen quite a pull on the devices in recent months. But we think over the long-term that’s how it’s going to play out that you are going to see about roughly three times as many IVR patients you see patients who are on devices.

Unidentified Analyst

Okay great. Thank you both. I will let someone else get back with you here.

Operator

Thank you. Our next question comes from the line of Mark (inaudible) who is also a private investor. Please proceed with your question.

Unidentified Analyst

Guys, congratulations on a great revenue growth number, that’s really terrific and great to see. I have two follow-up questions on some things have just come up and then I have a new question. First one, if I heard you correctly, you said you’re still at about 400,000 or 500,000 people on telehealth and 75,000 on IVRs, is that what I just heard to say?

Bill Marshall

I said 600,000.

Unidentified Analyst

Okay. And in the past you said that there are two companies providing IBO services, is that accurate or is that still accurate?

Ben Benjamin

That is still accurate.

Unidentified Analyst

That’s terrific, so that means that we have a good opportunity for the line share of that number. Now when you say they are going to put on 600,000 what period of time, do you have any idea what that might?

Ben Benjamin

Well, it wants to be in the five year cycle of the contract, so they are, it’s a little more than 3 years or approximately 3 years left on it.

Unidentified Analyst

Yeah, so we should start to see rapid acceleration if those trends hold?

Bill Marshall

That’s my expectation.

Unidentified Analyst

Okay. And then you brought in this new thing about this Vista that you were talking about, now is that something that your competitors have done or are doing or do we have advantage with this new concept that you introduced in last call?

Bill Marshall

We’ll as I said earlier, the customer is very careful about sharing competitive information, so we don’t know exactly what our competitors could do. What we do know is that we have done so and what is allows is the physicians can in fact control all patients’ record or data from a single point. We have been complimented numerous times about the ease that the capability in our system have provided the clinicians with. So what we know is only anecdotal thickness that people would make with respect to the use of our systems, but they never comment on competitive systems.

Unidentified Analyst

So is this been around for a long time, is there something brand new that came into play recently?

Ben Benjamin

Well, you might have read in some recent reports in the newspapers and elsewhere where collectively the VA and DOD has spent over $14 billion in the last six years to build these systems. What has been reported is that the VA was successful in building the systems that they have that they call VistA, this is a electronic health record system, it's at the heart of the ACA, the Affordable Care Act. They're moving everyone to electronic records until they help systems that help plans raise in to get these systems in place.

They are very expensive and they are very complex electronic systems. So the VA has successfully deployed VistA and in fact has innovated in a way they have done so. So they have looked (inaudible) looked upon as a leader in this space. What we are excited about is having the ability to connect our systems and exchange data exposes us to a lot of people who look to the VA as a leader in this space.

Unidentified Analyst

So could you have connected the VistA a year ago or two years ago, or is this something that just became available?

Ben Benjamin

No, in fact the VA has been built into system for the last six years, really tied it down about a year and half ago, two years ago. And we were asked as part of been awarded the contract to build an entities to the system. And we spent last year also building that entity, completing it a few months ago.

Unidentified Analyst

Okay. So it's a time consuming process. Okay. Moving to the original question I wanted to ask. In terms of RFPs that are out there, have we been on any that we've not been awarded and how is that process going?

Ben Benjamin

Well, I can tell you the queue RFPs have increased significantly and it has a lot to do with the new healthcare act. Many people are finding that they have to put a lot of new systems in place and I will tell you all three of our products [are tendered] to the move to getting these new systems. So we have been participating in a lot of RFPs. Now they’re relatively new things, I would say we've seen an acceleration in the last couple of months, but over the last year there have been a number of them. We continue to participate in them and continue to move on the selection process. As you would expect with complex system it takes a long time for people to make decisions. Having said that, we expect there will be decisions made in the next two to three months and we’ll see what happens, but we're still running to those states that we have been a candidate for.

Unidentified Analyst

Very good. And then my last comment is on Inscrybe. I noticed that obviously we have tremendous growth in the telehealth product, but it looked like Inscrybe did not have any growth this quarter. I know in the past that we had expected our Inscrybe users to sort of increase the amount of usage so we can get them to go from maybe 10% or 20% to up potentially 90%, but yet they didn’t see growth there this quarter. I was wondering if you can comment on that.

Ben Benjamin

Mark, that’s kind of what we experienced in when Liberty was required. We've had some customers who are really being affected by the competitive bidding, that’s going on in that space and have senior businesses declined a bit and that's -- I won’t mention any names, but that's just offset to some degree the growth that we've had in some of the other customers, but the real increase in penetration that we are talking about, I mean that really hasn’t kicked off in a great degree where we've added new customers, we've got certain customers ramping, but that's why you are seeing what looks to be static realm of revenue there, it’s kind of ins and outs.

Unidentified Analyst

Right, the level of Liberty deal.

Ben Benjamin

The big opportunities that we’re still pursuing and trying to get ramp, those are still there.

Unidentified Analyst

Very good. Thank you.

Operator

Thank you. Our next question comes from line of Bradley Donner with J.P. Turner. Please proceed with your question.

Bradley Donner - J.P. Turner

I had a couple of questions. So I wanted to ask first and foremost, since the prior question was about the VistA information system, I’ll ask you about that Ben. Since we've been in the VistA information system, have we seen any other opportunities open up for us, either in possibly the Department of Defense or other avenues of the VA or maybe even in new private sector?

Ben Benjamin

Well, there are opportunities if you can in the phase to electronics health records as I said earlier that’s the direction that everyone has been thought to move to if they didn’t want to because of the mandate from the Affordable Care Act. But additionally what I would tell you between the VA system and DOD system, there is a huge opportunity because everything you do for the VA, it’s actually (inaudible) when you look at what’s going on over at DOD. So we would expect that this will give us opportunities for particular things that may occur in the future with DOD.

Additionally Congress is looking to reduce the cost of delivering healthcare and Congress has been openly exploring how they may in fact converge between the differences that exist at the DOD. So we don’t know what direction they are going to go to but should they move to make the system for both government agencies then in fact that gives us a tremendous leg up. So what we are particularly interested in is the opportunities really that exist between VA and DOD.

Bradley Donner - J.P. Turner

Well, I was looking at, I did a little bit homework on that now granted, I want to like a PDF on the internet looked at VistA and it give me a definition of and explanation of VistA system so that may not be totally accurate, but one part of that it mentions that over 60% of all physicians trained in the U.S. rotate through the Veterans system and clinical electives and because of that it’s one of the most familiar and widely used systems in the U.S. I can’t help to think that if a doctor is rotating through that system and using the VistA system you guys have to have a presence there correct or am I wrong to assume that that they would remember you guys or get familiar with using your system?

Ben Benjamin

Well, I don’t know the exact percentage. I trust if you say 60% of the physicians in the U.S. rotate through the VA system that in fact they would all be exposed to what we do there and the information they would have seen the name in all likelihood. I think just having the interface capabilities to the systems which transferable to any of the big systems that use commercially gives you tremendous leverage because other than to the VA it simplifies the work of a clinician or physician, because they have one point at which they interact with the records of the patients, so they can entertain into the patient records or look at things in the patients record that are pulled from all parts of the systems that the health system might be using.

So I think it’s positive if clinicians or physicians remember have been seen all candidates in the VA, but more importantly just having the capability to simplify a work and make it easy for them to conduct their work is the significant benefit to your candidates since May.

Bradley Donner - J.P. Turner

Okay, great. So another question a follow-up to what the prior individual left about the IVR add-ons over the next three years. You said that there is roughly about 600,000 that should be added on in the next three years, obviously we don’t know how many of those are going to get versus other competitors that are in the field, the one other competitor that’s in the field. But if indeed the VA were to come to you and ask for a rapid rollout on those, my understanding is that the foot of the switch and you guys arrive on IVR correct?

Ben Benjamin

Yes, we have retail rollout IVR patients much more quickly than can the electronic healthcare patients and the reason of course the logistics of having the manufacturer of device and haven’t it delivered and setup. There is so some training but as far as the infrastructure goes there is minimal need to increment the infrastructure. So one can add patients in large numbers, this will likely be bottlenecked at the point where you have clinicians to in fact low at the records of those patients that it would not be limited by what our candidates can do. So we can run very quickly on IVR patients.

Bradley Donner - J.P. Turner

I got to say I have seen over the last month or so, two, three, four weeks a lot of advertisings on TV for the VA looking for clinicians and employees. And this fits right in with what you've been saying for the last couple of conference calls about that the move towards telehealth and the need to have these clinicians manage this equipment and the system. So, obviously that I'm guessing that goes hand in hand with the what you're saying with the IVR is correct?

Ben Benjamin

That's correct. And in fact a strategic plan that they just released a few weeks ago calls out in much detail what their intentions are around telehealth. So we are excited, we view it as a tremendous opportunity for us and we think that you would have of course other disciplines, other types of services that will also benefit.

Bradley Donner - J.P. Turner

Alright, great. Thanks guys. I appreciate your time and again good luck in the future and congratulations on the quarter.

Operator

Thank you. Our next question comes from the line of [Dan Cromie] with Private Investor. Please proceed with your questions.

Unidentified Analyst

Ben, as a follow up to your comments that you're still in private mode with the HIV roll out with the VA which is consistent with what you had mentioned on the last conference call. Can you speak in generalities in terms of pilots in general, like how many pilots is Authentidate currently enrolled in, in both the private and the public sector?

Ben Benjamin

We're enrolled in, in about three or four pilots write-down, the single pilot we have with VA, but now I will tell you the VA we go through a lot of pilots, anything that is nearing VA you will require to go through a pilot. So I generally don’t include those when I talk about pilot because they’re only open to the approved vendors. If for example they look to put a new disease management protocol on, the process requires if you put some number of patients into pilot and then you have to hit a certain performance level before it’s accepted as a standard offering. So the VA will go through a lot of pilot so almost everything you do the first time you do it’s just the pilot.

Outside there are many more pilots as I said. As you look at RFPs, very often the RFPs are being modeled very much of the VA. What they require is they’re bringing (inaudible) in a pilot and then depending on how you’re performing that pilot that you would ramp into the full-time supplier to that customer. So more and more you’re seeing people use this approach, I don’t know if it’s in each cases it’s been modeled after what’s been done in the VA. But I know in one particular program that we're involved in that is indeed the case because they’re using the VA as a consultant.

Unidentified Analyst

Okay. Now are you talking more from the private sector or still the public sector for this pilot?

Ben Benjamin

We're talking as a public sector.

Unidentified Analyst

Public? Okay. And generally, there is the pilot run 90 to six months -- 90 days to six months time period or is that too far out?

Ben Benjamin

No, they generally run between 30 days and 90 days.

Unidentified Analyst

90 days okay.

Ben Benjamin

Yes.

Unidentified Analyst

Okay. All right. All my other questions have been answered already, so thank you very much.

Operator

Thank you. Our next question comes from line of [Dan Bernstein], a Private Investor. Please proceed with your question.

Unidentified Analyst

I have a few questions. First is around pipeline and what other opportunities outside of the VA, is there for you guys to pursue on telehealth? I mean I know there is a lot of business that we can guess there over the next three years of contract, but are we pursuing other avenues, do we have a percentage of win that we make think maybe out there in next six months?

Ben Benjamin

I won’t offer a percentage simply because it’s a dynamic thing. As I said earlier, we've seen that pipeline grow daily, but to give you some sense Dan as to what's going on there, all the major health plans involved in all these tools, to all these systems that are required in order to bring cost down.

So I will tell you most of the major health plans out there have RFPs out for things like telehealth and other kind of automated systems that we offer. So what we’re seeing is that that's my plan is increasing significantly and exactly how do I look into the crystal ball and say what percentage I’m going to win, I would say I don’t have the ability to do that.

But I feel reasonably certain that I’m going to win enough to more than need, more than use up the capabilities that we have in terms of resources.

Unidentified Analyst

Yeah. I am really curious around like a relationship metrics you guys keep that kind of thing and are we developing the right relationships around and I heard you say congress is looking at some things and do we have those stores open that we could be able to contract some of these other agencies?

Ben Benjamin

Well we don’t have access to congress but what I will tell you with respect to the relationships metrics, the relationship metrics is driven by the objectives we have for the company. We pursuing opportunities that lend themselves to us from leveraging of what we have done already. And in particular in the telehealth space we have a tremendous referral from the VA, they have always been willing to set forward the reference to us so we have leveraged that. The other thing is the movement in United States is to move healthcare into a new structure call and ACO accountable care organizations. And for the large parts they have been led by hospitals. So we have sought relationships with hospitals and large physician groups. And so when we look at the relationship metrics that you are looking is really seeks to address the objective of the company, it’s not driven purely by need to have certain relationship but in fact the closer relationship that lends itself to the company achieving its goal.

Bill Marshall

However we are also suing consultants to open the doors that we need in the hospital sector as well as in the some of the other governmental agencies that we are looking at. And I was going to add this when we model I mean which we talk about these things for pursuing that when we model and talk about what we think we are going to achieve we are really looking at only our existing customers. We are not depending on a bunch of new win that would all the upside to our plan.

Unidentified Analyst

Yeah. I guess my last question also is for you Bill, with regards to breakeven. At our current level of SG&A if that remains stagnant my calculation seems to state that we would need $6 million in revenue per quarter for breakeven and you said third quarter of 2014, is that like 100% for quarter?

Bill Marshall

No, you are kind of high there. We will look at our breakeven as to how much cash we are using. And as I said we were using about 275 a month this past quarter so far in this quarter, I mean we haven’t used the whole out of all, but we can close that very quickly in the service revenue. So we are seeing our service revenues ramp everyday as we had patients for telehealth. We are also seeing, we expect we will see some ramp in our other services and then we get some margin on our hardware as well. And I should also add, I think I said it in my comments but the first quarter for us with SG&A, we have all of our audit fees in there, we have all of our servings actually fees in that and things like that, so it kind of blows that quarter up a little bit. So we think we get there at a lower level than what you have calculated.

Unidentified Analyst

Okay. Yeah, I mean it’s definitely a big improvement in the margin 24 up to 28 and that seems like the new products are really driving that somewhere around 34% or 35%?

Bill Marshall

Yeah. That's going to increase as we they mix with services revenue increases which happens as we had patients. And as we said on previous calls, we have ongoing initiatives to lower the cost of our products. And also you're going to see depending on the mix of what we shift will also drive that. So, it could be a little lumpy for now, but it's going to continue to trend upwards.

Unidentified Analyst

Okay. Thank you.

Operator

(Operator Instructions) Thank you. Our next question comes from the line of Mark Frifert a private investor. Please proceed with your question.

Unidentified Analyst

Hi guys. I know maybe two quarters ago or three quarters ago, we had like, we're working on getting up to 12 DMPs and then last quarter I think we're up to like 20. And I was just -- and I know that, when we went from 12 to 20, I think you commented that this was an indication that they were finding this useful for more and more conditions. And I'm wondering if that's continuing to increase and what kind of comment you can make on the DMPs?

Ben Benjamin

Yeah. It's continued to increase markets up to, we have about 20 DMPs now that we're working with. What it says is as you pointed out, is they are finding more and more diseases for which this type of treatment a telehealth device realizes and ROIs benefits in terms of patients care. It's more than a chronic ailment. What we've find in many of the new DMPs in the behavioral health space. So we've seen things certainly in the VA that relates to PPSD. We're seeing a lot of stress disorder type of DMPs. We've seen things like smoking, alcohol patients they’re finding that it’s cost effective to treat those kinds of diseases with this type of system.

So we're continuing to see a significant growth in that area. The VA and others are telling us that the real explosive growth is going to come in the behavioral health sector. And those of you pay attention to the news might have observed in recent week, the government has been pointing out that that’s one of the things that is new in healthcare progress that comes under the ACA. So lots of growth in terms of DMPs in particular in the area of behavioral health.

Unidentified Analyst

And do you feel that’s a strong point of ours and will position well in behavioral health?

Ben Benjamin

Well, we're positioned well all across the board. What is a very good behavioral health for us is we also have the IVR solution, because very often these people mobile for two reasons either, things like alcohol and smoking cessation, those people have jobs and what not they can call in and use the system on the go. And in the case of people who may not have homes and things like that that also makes it easier for them to reach the system and be careful. So we think having both systems give us a tremendous advantage in the behavioral health arena. But generally speaking we find ourselves to be strong across the board.

Unidentified Analyst

And I would think that the other competitors must be pushing to put an IVR in place. Wouldn’t that be the case and why wouldn’t that be?

Ben Benjamin

I would imagine yeah, they’ve got to go through all the processes at VA and goes on taking someone else. So the DMPs are just very time consuming, as you know it took us a greater part of the year to get there.

Unidentified Analyst

So, if another one of the existing competitors wanted to add IVR, if they decided today that they’re going to do that, how long would the process take for them to be approved and to start providing IVR services?

Ben Benjamin

Well, I don’t know their capabilities, but I would tell you for us it took many months.

Unidentified Analyst

Okay. And just one more comment on DMPs. Any event that we started to [wand] other large clients whether it be the DOD or some other large healthcare provider. Will they likely, do you think the DMPs would just carryover or they would use the same that the VA, which of these probably have unique requirements?

Ben Benjamin

No, what we find a large part -- modify them, but they don’t completely ask the new things. The chemical process is a scientific process, it has to be done in a particular way. So what they [update] with is how often you do it, how long it should be and those kinds of things. But clinically the process is the same that the DMPs tend to be the same.

Unidentified Analyst

So when you go out, RFPs it’s got to be a huge edge that you’ve already got 20 DMPs that are being used effectively by the VA, I mean there is got to be few competitors who could claim that, right?

Ben Benjamin

You are very right about that, not only that, but it’s improved by a clinical team that it has renown for being at the forefront of this type of thing.

Unidentified Analyst

Excellent. Thanks Ben.

Ben Benjamin

You’re welcome.

Operator

Thank you. That is all the time we have for questions today. I would like to turn the floor back over to Ben for closing comments.

Ben Benjamin

Thank you, operator. Thank you for participating in today's conference call. As always, should you have any additional questions, please feel free to call Peter Seltzberg at Hayden IR, Bill or myself. We thank you for your interest and support and look forward to speaking with all of you again in the near future. Have a great day.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.

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