CAS Medical Systems' (CASM) CEO on Q2 2014 Results - Earnings Call Transcript

| About: CAS Medical (CASM)

CAS Medical Systems, Inc. (NASDAQ:CASM)

Q2 2014 Results Earnings Conference Call

August 06, 2014 10:00 AM ET

Executives

Bruce Voss - LHA

Tom Patton - President and CEO

Jeff Baird - Chief Financial Officer

Analysts

Suraj Kalia - Northland Securities

Larry Haimovitch - HMTC

Rodney Hathaway - 1492 Capital Management

Fred Ehrman - BMI Capital

Operator

Welcome to the CAS Medical Second Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. (Operator Instructions). As a reminder, this conference is being recorded, Wednesday, August 6, 2014.

I would now like to turn the conference over to Bruce Voss. Please go ahead, sir.

Bruce Voss

This is Bruce Voss 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 second quarter of 2014. If you have not received this news release or if you’d 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 would like to remind you that to the extent management’s comments represent forward-looking statements, I refer you to the risks and other cautionary factors 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, August 06, 2014. 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 things over to Tom Patton. Tom?

Tom Patton

Thank you, Bruce. Good morning, everybody and thank you for joining us to discuss our quarterly financial business results. We are delighted with our second quarter results for many reasons but in particular because the financial momentum we established during the year’s fourth quarter with our FORE-SIGHT ELITE product line has continued and even accelerated. Growing sales, improved margins and a commitment to prudent expense management allowed us to narrow our operating loss even after charges for some one-time items that Jeff will discuss in a moment.

As I’ve said previously, we expect to leverage inherent in our new financial model to become even more pronounced as we into the second half of the year with significantly lower operating losses and a large drop in our cash consumption rate.

I’d like to review some highlights of our FORE-SIGHT business over the past three quarters and draw your attention to some of the growth trends we’re particularly excited about. You’ll recall we launched FORE-SIGHT ELITE late in September of last year. So, the first full quarter impact of that launch was the fourth quarter of 2013. Using that quarter as a starting point, worldwide FORE-SIGHT sales increased year-over-year 17% in Q4 than 24% in Q1, and now 48% in Q2. Worldwide FORE-SIGHT disposable sensor sales increased year-over-year by 26% in Q4 than 30% in Q1 and now they are up 35% Q2. Domestic sale of FORE-SIGHT disposable sensors increased year-over-year by 35% in Q4 than 34% in Q1 and now 42% in Q2.

And finally, shipments of FORE-SIGHT cerebral oximeters increased from 90 in Q4 to 93 in Q1, 110 in Q2. With these trends, we believe that our goal for sustainable year-over-year quarterly FORE-SIGHT sales growth of about 40% is certainly within reach. And we also confirm our expectation to ship 90 or more FORE-SIGHT cerebral oximeters each quarter. These are ambitious goals, but we believe they are very achievable with the products, processes and talent we have in place.

We’ve passed an important financial milestone during the quarter as total FORE-SIGHT sales now represent more than half of our company’s net sales. Specifically they represented 56% of the total for Q2. Revenue from FORE-SIGHT disposables alone represented 45% of the Q2 total. And when our oximetry neonatal or non-oximetry neonatal disposable product sales are considered, fully 54% of our revenues for the second quarter were generated from recurring disposable sales. And as the installed base of FORE-SIGHT continues to grow in the future, we expect the percentage of revenues from disposables will also grow.

The trends in the FORE-SIGHT ELITE business in the U.S. have been simply excellent. Our win rates after clinical evaluations have improved, our selling cycle has shortened and our sensor utilization rates have increased.

First, once a sales rep convinces the hospital, conduct a clinical evaluation of FORE-SIGHT ELITE, we’re able to convert about 75% of those hospitals to customers. This is the higher rate of success than with our first generation FORE-SIGHT.

Second, our selling cycle has shortened. The average time from a clinical evaluation in a hospital to the point at which we receive our first purchaser from the hospital which indicates that they’re now customer, has been cut almost in half with FORE-SIGHT ELITE compared to our generation one product.

And third, we are seeing evidence that utilization rates are higher with ELITE monitoring versus the first generation product, perhaps as much as 20% higher on an annualized basis. The reasons for higher utilization are intuitive. ELITE is a better monitor with a higher level of accuracy and it’s easier to use and it appears that is simply being used more often. It’s still early, so these utilization rates may moderator as our experience growth, but the data we’re seeing so far are very encouraging.

In Q2, we also continued to take accounts from competitors while expanding the market for cerebral oximetry. Over the past nine months since we launched FORE-SIGHT ELITE, more than half of our monitors in the U.S. went to accounts we took from competitors. This has been the primary driver of our growth. But just over a quarter of our net monitor placements in the U.S. in the past nine months, we're into hospitals where cerebral oximetry had not been actively used before. This too is rewarding as it tells us we continue to expand the market with new customers.

And finally, about a fifth of our U.S. monitor shipments were to current customers as they expand the use of FORE-SIGHT monitoring within their hospitals. This has resulted in an increase in the same-store sensor sales, meaning hospitals that have been customers for 12 months or longer, up 7% over the last year’s second quarter.

We also continue to benefit from our targeting of large accounts in the U.S. Of our top 30 domestic customers in Q2, seven were customers added just in the last 12 months. Our direct U.S. sales reps in the aggregate had another great quarter with sensor revenues up 62% over Q2 of last year. And the growth rate of the new sales reps we brought on-board during the first quarter of this year, trailed our tenured reps as we expected but their pipeline appears to be robust. With this type of selling success, we will continue to evaluate the rate of addition to the domestic sales force. With just nine direct reps and three manufacturer rep organizations in the U.S., we still have many geographies in the country that are not covered at all or insufficiently covered.

Upgrades in key domestic accounts from our first generation FORE-SIGHT monitor to the FORE-SIGHT ELITE monitor continue on plan. We have converted about 70% of our first wave of target accounts already and expect these conversions to be largely completed by the end of the third quarter.

Our international FORE-SIGHT efforts are also beginning to bear fruit with sales up 50% over the prior year quarter, a record for the company and contributing substantially to the overall growth rate. We secured some very high quality distributors in the second quarter and benefited from a few small stocking orders along with recurring revenue. I will speak to some of those international efforts a bit later.

And from a cost standpoint, sensor manufacturing costs are in line with our projection and as such our margins have improved and will continue to do so as FORE-SIGHT ELITE becomes a larger portion of our business. While worldwide sales of our tissue Oximetry products were up 48% in the quarter, our total net sales were up 16% due to a 9% decline in sales of traditional monitoring products.

As we previously discussed, we have initiatives to enter new markets with new distribution partners with our vital science product offering including significantly better access to non-VA hospitals and improved access to the outpatient surgery market.

We are making progress with these initiatives but that progress is slower than expected and overall we now anticipate a decline in total traditional monitoring sales in 2014 versus 2013. This decline now should be offset by the momentum we are seeing with FORE-SIGHT and therefore we expect to see growth in total revenue in the coming quarters and for the full year with enhanced margin improvement and operating leverage.

Let me now turn the call over to Jeff Baird, our CFO to go though the financials. Jeff?

Jeff Baird

Thanks Tom and good morning everyone. We reported net sales for the second quarter of 2014 of $5.8 million which represents an increase of 16% from the second quarter of 2013.

Total FORE-SIGHT oximetry sales were $3.3 million, an increase of 48%, over the prior year, as Tom discussed. FORE-SIGHT disposable sensor sales reached $2.6 million, an increase of 35% compared with the second quarter of 2013, including 42% growth in the U.S.

The worldwide cumulative number of FORE-SIGHT monitor shipped to-date stands at 1,138 monitors, which is up 42% over the total one year ago. We shipped a net 110 monitors during the second quarter of 2014, which is a quarterly record for the company. Traditional monitoring sales were $2.6 million in the quarter, a decrease of 9% compared with the prior year. Sales and service of vital science monitors were down over the second quarter of last year while OEM product sales were about flat.

Gross margin for the second quarter of 2014 was 41%, which is flat sequentially from the first quarter but up from 38% a year ago. There are several reasons for this margin improvement but principal among them is the increase in FORE-SIGHT gross margin.

As FORE-SIGHT ELITE becomes a more significant portion of our revenue, we expect FORE-SIGHT margin and overall margins to improve throughout the year. We also expect to realize sensor cost reductions later this year, based upon our higher sales volume and of course as we continue our ongoing cost reduction efforts.

The operating loss for the second quarter of 2014 was $2 million, an improvement of 22% from the second quarter of 2013. Narrowing of the operating loss by about $500,000 resulted from several factors including higher gross margin, lower R&D expense, partially offset by a slight increase in SG&A, primarily due to an increase in sales headcount and some one-time items.

Of note, included in the operating loss for this quarter is approximately 275,000 in one-time expenses that are related to a legal settlement with Nellcor Puritan Bennett. As you know, we made changes to our spending base during last year’s fourth quarter, including several headcount reductions. We estimate these changes will reduce operating expenses in 2014 by approximately $1 million, depending on the opportunities we see for additional investments in the second half of the year, with a slight offset from higher medical device tax obligation.

The company recorded a net loss applicable to common stockholders for the second quarter of 2014 of $2.6 million or $0.13 per common share. This compares with a net loss applicable to common stockholders of $2.9 million or $0.22 per common share for the second quarter of 2013. The net loss for the second quarter of 2014, when excluding about $450,000 of charges related to the Nellcor litigation and the write-off of deferred financing charges that I'll touch on shortly, reduces the net loss to about $2.1 million.

We used about $2 million in cash to fund our operations during the quarter. We believe this level of quarterly cash consumption will drop by about one half by the fourth quarter due to higher revenues, better margins, flat operating expenses, inventory reductions and lower CapEx as our upgrades in the U.S. to ELITE begin to moderate.

As of June 30, 2014, the company had cash and cash equivalent $6.2 million, plus $1.8 million of available borrowings under our revolving loan agreement with our new lender, for a total of $8 million which is sufficient we believe to support the company’s operations for the next 12 months.

In late June, we entered into a loan and security agreement with General Electric Capital Corporation. GE provided us a secured term loan of $7.5 million and a revolving line of credit of $2.5 million. Term loan and the revolver each mature on June 27, 2018.

Term loan permits us to make interest only payment till July 1, 2015 or until January 1, 2016 if the company reaches certain financial targets which we expect to achieve. Principal payments would begin thereafter and continue in either circumstance, till the loan is fully repaid on July 1, 2018.

Our secured loan of $5 million with East West Bank was repaid in full at the closing of the GE loan agreement. And the revolving line of credit with East West Bank which had not outstanding balance permitted. As part of t he termination of the East West loan agreement, we recorded a charge of approximately $170,000 to interest expense in the second quarter for deferred financing cost that were being amortized over the full term of the East West loan and therefore needed to fully expensed when the loan terminated early.

With that, financial overview, I’ll turn the call back over to Tom.

Tom Patton

Thanks Jeff. Before we open this call up to your questions, I’d like to talk about some of the non-financial highlights of the quarter. At the top of the list is the intangible but very powerful excitement our FORE-SIGHT ELITE product is generating with our field selling organization. I gave you some data points on the strength and competitive situations, and a winning product has our entire sales organization motivate to continue with this early momentum.

That excitement is not limited to the U.S. and it’s very interesting to note that although we are about to enter the Japanese market for the first time with the FORE-SIGHT product, there is already much awareness and even enthusiasm for our products in that country. We saw this first hand in the recent meeting of anesthesiologists in Japan where many were excited about FORE-SIGHT ELITE having read the literature regarding its accuracy and performance and having heard about its use in the U.S. and Europe.

In May, we signed an agreement with Century Medical, to service as the exclusive distributor for FORE-SIGHT ELITE in Japan. And in late June, we were delighted to announce received a regulatory clearance market FORE-SIGHT ELITE in Japan.

This is our first product approval in Japan. So the ELITE monitor represents the first FORE-SIGHT product sold in that country. It’s in very capable hands of Century Medical, as they have a 40 year history of distributing high quality medical products. They have some 25 field sales personnel across seven offices in their cardiovascular division, which is division that would be selling ELITE. They sell products that are complementary to the FORE-SIGHT monitoring and therefore have strong relationship with key decision makers across Japan. They also enjoy a strong track record of building and expanding market with unique products and some of the world’s leading med-tech companies. We shipped an initial stocking order to CMI in late Q2 and so they should begin active selling to the customers in this current quarter. We will have additional revenues in Q3 for further stocking inventory for CMI and then likely we’ll have pause as they work through their selling cycles before orders pick up again in early 2015. This Q3 CMI order will moderate what is traditionally a very slow through quarter for our international selling activity. Of note Japan is the world’s second largest market for medical product and we expect the revenues from that country will eventually be second going to those from the United States.

Also in the second quarter we signed a high quality distributor in France named Gamida. Gamida is a company with the 50 year history of distributing anesthesia, surgery and critical care products throughout France. They have 26 sales representatives and 4 clinical specialists supporting more than 2,300 customers. We shipped a small stocking order to them in the second quarter and are excited about their successful selling efforts already. Finally, we completed the build out of a network of distributors in Germany in the second quarter and expect revenues from that country also to contribute the growth in 2015.

We now have distributors in 19 countries worldwide including the world’s top six medical markets and we look forward to expanding that footprint further. We have seen time and time again that accuracy matters and that accuracy is a major selling point for FORE-SIGHT ELITE. Let me give you just two examples of that. I was out visiting customers in Houston recently. Houston has a unique layout and that many of its hospitals are clustered in a single multi-block area. And as I spin the conference room over, looking this vast medical complex with all these hospitals in a single view. I was struck that all of the major medical adult heart programs in that city were now using FORE-SIGHT monitoring. A couple of years ago, we had closed to zero business in that entire city and for that matter very little business from the entire state. This outcome was the result of a multiyear effort on our part to hire high quality sales reps, create and improve all specs of the sales reps education process, provide them with superior support from our clinical specialists, create and refine marketing tools, drive superior customer support and ultimately provide a world-class product at the (Technical Difficulty). That formula has made FORE-SIGHT believers had a lot of clinicians in Houston and empowered them to improve the care of their patients.

Another anecdote of this expanding awareness of Cerebral Oximetry in general and the accuracy levels of FORE-SIGHT in particular, there is a major hospital in the West Coast that is in the midst of a critical ongoing initiative to improve patient safety. This particular hospital looked at Cerebral Oximetry a number of years ago for their HERP program and passed on adding it their monitoring regiment. Until recently that is when they had a patient that caused them to reconsider additional measures to improve patient safety. They called us. We set up a clinical evaluation and within a few weeks they became committed to Cerebral monitoring for FORE-SIGHT Oximetry. While this account is unique and has short sales cycle, we believe that is representative of the increasing awareness amongst clinicians of the benefits that Cerebral Oximetry monitoring can provide, particularly when it has the actionable accuracy of FORE-SIGHT.

So, as a closing thought let me leave you with this, our results so far with FORE-SIGHT and with FORE-SIGHT ELITE in particular showed that we have a product that the market wants and needs. We are building the distribution to sell it with success so far and we have the infrastructure to support those efforts. So we believe the future of FORE-SIGHT and CASMED is now simply about execution. And we believe we have the high caliber team necessary to do it.

And with that overview, I’ll now open the call to any question. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from the line of Suraj Kalia with Northland Securities. Please go ahead with your question.

Suraj Kalia - Northland Securities

Tom and Jeff, congrats on a nice quarter.

Tom Patton

Thank you, Suraj.

Jeff Baird

Thank you, Suraj.

Suraj Kalia - Northland Securities

So Tom, you guys gave a lot of information on the call. Obviously the trend has been pretty phenomenal over the last three quarters, let me try to dig in a little deeper. Jeff, you gave the total install base is 1138, at least what I wrote down. Did you give what is the install base of ELITE?

Jeff Baird

We did not do that, Suraj. But as you know, marketing the ELITE now for roughly three quarters, most of the units that have gone in over the past three quarters have been ELITE. Certainly in the U.S. nearly all the ELITE monitors outside the U.S. there are customers that continue to buy, but we have not released that information.

Suraj Kalia - Northland Securities

So, in the quarter the Oximetry sales were up 48% year-over-year, can you quantify for us growth rate of ELITE whether units or sales however you want to split it?

Tom Patton

Well, the growth rate, this is Tom. The growth rate of the ELITE is almost ex-financial given the very small base that we have. So, I would say that of the 48% of the growth that I think probably largely attributable to increases in the resale and increases in ELITE sales to our existing customers.

Suraj Kalia - Northland Securities

Fair enough. Tom, in terms of GEN 1 shipments to China any color?

Tom Patton

We, continue to -- ship monitors to them, they become actually reliable customers but we expect that to actually continue to accelerate into 2015 and 2016. Our distributor there (inaudible) is very excited about the product and reception they are getting and has a very, very large target list of customers.

Suraj Kalia - Northland Securities

Tom, last two questions. And again, I know you gave some commentary on same-store sales. My apologies I could not catch that, and to build on that question, Tom, if I were use the 48% increase in Oximetry sales, is this some way you can give us some at least directional idea about how much of that is competitive share gains versus greenfield accounts, that will be great? Thank you for taking my questions.

Tom Patton

Thank you. Actually I don't have the -- so the same-store sales growth was 7% in the U.S. and we haven't broken it out in terms of competitive gain versus greenfield but as I noted about half of our U.S. monitor placements were to competitive accounts. And if the utilization rates are approximately equal amongst them, you can infer that a good portion of that growth is from taking competitive accounts.

Thank you Suraj for your questions. I appreciate it.

Operator

Your next question comes from the line of Larry Haimovitch with HMTC Please go ahead with your question.

Larry Haimovitch - HMTC

Hi. Good morning. Good quarter, congratulations.

Tom Patton

Thank you.

Larry Haimovitch - HMTC

Tom, a couple of questions. One, I am sure that it was covered in the script, I missed it. There is a big jump in the number of basic and diluted shares outstanding, is that more accounting? You didn't issue any stock in the quarter so is that just, is share becoming in the money or what's the reason for that?

Tom Patton

Larry, if you're comparing to last year where we had a public offering.

Larry Haimovitch - HMTC

Okay.

Tom Patton

In July of last year which increased the outstanding by 5 million shares.

Larry Haimovitch - HMTC

Yeah. Right. Okay, great. Yeah, I’ve forgotten about that. Thank you very much. And then Tom, you may have also covered this in the script. Obviously we're watching the balance sheet carefully and obviously you are too, evidenced by the fact that you have a nice line of credit now. The cash burn was about 2 million in the first half. What you're feeling from about getting to cash flow positive or cash flow breakeven. I'm sure you do not want to do an equity offering here. So I'd like to understand what's your thinking is at this point on that?

Tom Patton

Yes. So we have, we think, we can actually get the cash flow breakeven by the end of 2015, early 2016. But the rate of cash consumption will narrow substantially in Q3 and then again in Q1. With the addition of $2.5 million to the term loan that we secured from GE capital, we feel good about our current cash balance against our projected cash burn and think that our cash we have on hand get us to where we need.

Larry Haimovitch - HMTC

One would your guess about cash burn in the second half of this year, ball park guess?

Tom Patton

Ball park could be probably 2.5 to…

Jeff Baird

$2.5 million.

Tom Patton

$2.5 million in that range for all six months.

Larry Haimovitch - HMTC

Right, so that would bring it to let's say, lets round it to 2 million or two of you say 2.5, So that would bring you to above 3.5 million in cash for by the end of the year plus the availability of the term loan.

Tom Patton

Exactly, plus another $1.8 million to $2 million in revolver.

Larry Haimovitch - HMTC

Yes. And then it sounds like from what you just said Tom, you don't think you're going to be generating any cash throughout '15 or either. So that would take you cash balance pretty low. What's your feeling about cash burn for '15?

Tom Patton

We're not prepared to get into specifics about that, but again we think that it will continue to drop dramatically. So we think that, we'll still have on the balance sheet a multiple of our cash burnt even exiting 2015.

Larry Haimovitch - HMTC

Okay. And one more question I'll jump back in queue. Do you have a sales number inline that gets you to cash flow breakeven? I know obviously as you place monitors that does burn cash even though obviously it has tremendously positive implications long-term. Is there a number though on the sales line Tom that says to you that's one we start turning the corner on cash?

Tom Patton

Well, probably driven as much by the ELITE revenue or rather than the total company revenue. And so we're sort thinking about it being in 4.5 million to 5.5 million range of probably closer to five where we should be able to generate cash.

Larry Haimovitch - HMTC

And what that mean for total sales then that’s just the ELITE because your quarter just ended at 5.8 million?

Tom Patton

Yes. So obviously that be a run rate of 25 million on the annual basis for FORE-SIGHT alone.

Larry Haimovitch - HMTC

For the total company?

Tom Patton

No, for FORE-SIGHT alone.

Larry Haimovitch - HMTC

Okay, great. Thanks very much Tom.

Tom Patton

Thank you, Larry.

Operator

(Operator Instructions). Your next question comes from the line of Rodney Hathaway with 1492 Capital Management. Please go ahead with your question.

Rodney Hathaway - 1492 Capital Management

Hi, Tom. I wasn’t sure if you covered this earlier. But have you seen any competitive response from some (inaudible) the company as far as any pricing or anything like that that should be aware?

Tom Patton

Good morning, Rodney. Nothing really comprehensive, I mean anytime you go into an account where there is an incumbent one of the message to hold on to it is to look for price concessions. We like to think that we have a prior year product and so we always talk about the potential to sell our product at a premium. So well, we expect ASPs in general just as because it's a medical product in the medicals field and these will compress we expect them to compress at kind of an industry rate, we haven't seen of price for breakout in anyway.

Rodney Hathaway - 1492 Capital Management

And secondly, should we be keeping our eyes out for anything the next couple of quarters as far as clinical data that would help you to kind of bolster the clinical selling benefits of your system?

Tom Patton

Yes. I don’t think there is anything that’s going to move the needle materially. But as always, we continue to publish or clinicians continue to publish data regarding cerebral oximetry in FORE-SIGHT ELITE or -- excuse me not FORE-SIGHT ELITE but FORE-SIGHT in particular. So I think it just kind of adds to the drumbeat of awareness in the marketplace. But there is no [permanent] studies that will be real needle movers in the near-term.

Rodney Hathaway - 1492 Capital Management

Yes. Lastly, are there any particular medical avenues whether it be orthopedics or anything like that that you are seeing a pickup in adoption as you get more I guess well known with the clinical community?

Tom Patton

Yes, we are actually. We are seeing an increasing awareness in orthopedics, particularly in orthopedic beach chair procedure. We have some very well known orthopedic hospitals that are actually evaluating now if they would incorporate it into their practice. But I think as we look forward, we think that a lot of the growth within the industry can simply come within -- our initially within our target market which is basically the heart and vascular cases. And even in the major heart cases, I would estimate that the industry probably is only about 35% penetrated into that sector where there is huge opportunities for growth. We actually just today -- we picked up another top 20 heart center in the United States. And that heart center never used cerebral oximetry routinely. There is a couple of doctors that kind of play with it but they had never used it routinely. And now we are going to put it in the cardiac OR. And so I think that that’s probably the principal area for our growth in the near-term and that these other avenues, orthopedics, general surgery, elderly co-morbid surgeries, ICU monitoring will continue to grow but as a smaller dollar volume in the near-term.

Rodney Hathaway - 1492 Capital Management

I am just curious that example you gave is the major heart hospital that you just brought on as a client, was there a particular reason they did not use cerebral oximetry on a regular basis in the past, was it they weren’t comfortable of the accuracy of the previous technologies or was there any particular reason they decided to now adopt to?

Tom Patton

It’s hard for me to say. I mean in general, I think that they just didn’t feel like the proposition at that time around cerebral oximetry was sufficient to justify the cost. And again, with improving levels of accuracy, with increasing amounts of data, with more awareness about the harm that can come to patients, downstream as a result of the unrecognized cerebral hypoxic events or desaturations, it was enough to convince them to say okay now we believe and we are going to incorporate it. So I think it’s really multi-factorial. It’s ironic that some of these hospitals are still considering it in the first instance when there is others that have been using it literally as a standard of practice or care in their hospitals for five or ten years.

Rodney Hathaway - 1492 Capital Management

Okay, thanks.

Operator

Your next question comes from the line of Fred Ehrman with BMI Capital. Please go ahead with your question.

Fred Ehrman - BMI Capital

Hi Tom and Jeff.

Tom Patton

Good morning, Fred.

Fred Ehrman - BMI Capital

Could you discuss the non-FORE-SIGHT business, patient monitoring solutions business, whether you see any possibility of stabilizing that business? You have had some new products coming out and just give us color on that?

Tom Patton

Yes. So there is really kind of three different components for that business. One is align a near native disposables that I talked about briefly today. Is that business, we think actually it's flat to growing slightly against that we're happy with that.

The second is the OEM non-invasive blood pressure business; that business we think has reached kind of a level of revenue now that we think we can generally maintain and then improve as we gain some new customers. That revenue growth in that sector I think will take some time as we work our way into sales cycle, the development cycle. So, companies who are looking for non-invasive blood pressure. But our MAXIQ technology has been very, very well received a number of our major customers now are or have converted to it. I think there is some enthusiasm for it out there.

Then the final piece of this is the vital sign and frankly that's been a little bit disappointing. We've launched the new 740 SELECT Monitor. And we are now finishing it up within the next quarter actually with the addition of carbon dioxide monitoring, CO2 monitoring. And so with that addition, we are hoping that some of these additional sales channel activities that we've been working on will come to fruition. And that's really kind of been the driver of some of these declines. While we don't think we can kind of rest the year-to-year decline this year, we're hopeful that next year we can, as a group have that business to be flat.

Fred Ehrman - BMI Capital

And you are running at about a $10 million per annum rate revenues?

Tom Patton

In that business, yes $10 million or $11 million.

Fred Ehrman - BMI Capital

Okay. Thank you.

Operator

(Operator Instructions). I think there are no further questions at this time. Please proceed with your presentation or any closing remarks.

Thomas Patton

Okay. Well thank you everybody for participating in today's call. As you can see I hope we are encouraged by the growing momentum we have here with FORE-SIGHT and are very enthusiastic about the leverage in our financial model that’s starting to show up on income statement. And we appreciate you taking the time to participate in the call and look forward to speaking you in November, when we report our third quarter results. Thanks again and have a great day.

Operator

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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