MRI Interventions' (MRIC) CEO Kimble Jenkins on Q2 2014 Results - Earnings Call Transcript

Aug. 9.14 | About: MRI Interventions (MRIC)

MRI Interventions, Inc. (OTCQB:MRIC) Q2 2014 Earnings Conference Call August 7, 2014 4:30 PM ET

Executives

Oscar L. Thomas - VP, Business Affairs and Secretary

Kimble L. Jenkins - President, CEO and Chairman

David W. Carlson - CFO

Analysts

Jose Haresco - JMP Securities

Steven Schwartz - First Analysis

James Terwilliger - Newport Coast Securities

Raymond Pirrello - Pendulum Capital Markets

Operator

Greetings and welcome to MRI Interventions' Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Oscar Thomas, Vice President of Business Affairs.

Oscar L. Thomas

Great. Thanks, Ron. Good afternoon and thank you for joining us. With me are Kim Jenkins, our CEO; and David Carlson, our CFO.

Before we begin, I want to point out that some statements we make during today’s call will be forward-looking statements. Any statements we make today whether in our prepared remarks or in response to questions that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements by their nature address matters that, to different degrees, are uncertain and involve risks and they are made based on the current beliefs of MRI Interventions’ management.

Uncertainties and risks may cause our actual results and the timing of events to differ materially from those expressed or implied in forward-looking statements we make today. Detailed information regarding the risks and uncertainties that could affect our actual results and the timing of events are described in the Risk Factors section of the Form 10-Q that we filed with the SEC on May 13, 2014. You can find our SEC filings in the Investors section of our Web-site at mriinterventions.com.

And with that, I’ll turn the call over to Kim.

Kimble L. Jenkins

Thanks, Oscar, and good afternoon everyone. Thank you for joining us for our Q2 2014 earnings call. On behalf of the management team and the employees of MRI Interventions, we appreciate your interest in our Company, and for those of you who are shareholders, thank you for your support, we're honored to be working for you in building this great Company.

We had a very strong quarter. We reported record total product revenues, we reported record disposable product revenues, we have generated eight consecutive quarters of sequential growth in revenues from our disposable products, we're now at 37 ClearPoint sites, drug delivery trials are going well, our ClearTrace development effort in coordination with Siemens is going well, and we believe Medtronic’s acquisition of Visualase which was announced last week is a very positive development for our Company and for our emerging field.

I'll come back to you with some additional comments in a minute, but for now I'd like to turn the call over to David Carlson, our CFO, to walk you through our second quarter results. David?

David W. Carlson

Thanks Kim. We're pleased to report a strong second quarter. I'll first cover the results for the quarter and then we'll talk about what happened in the first half of the year.

For the quarter, we recorded total product revenues of $1.2 million compared to $497,000 in Q2 of last year, more than doubling, representing an increase of 132%. Disposable product revenues were $766,000 in Q2 of this year compared with $404,000 in the second quarter of 2013, representing growth of 90%.

We recognized $389,000 in product revenue related to our ClearPoint capital products compared to $93,000 in the same period in 2013. Due to the nature of capital product sales, ClearPoint capital product revenues may vary significantly for us from quarter to quarter. Other service revenues, related mostly to installation services and ClearPoint service agreements, were $29,000 in Q2 of this year and there were no such revenues recorded during the same period last year.

Development service revenues related to contract product development were $5,000 in Q2 of this year compared to $65,000 in the same period in 2013. The decrease reflects the completion of a development project the Company has been performing on a contract basis. The Company does not expect development service revenues to be an ongoing source of revenues.

Cost of product revenues was $577,000 for Q2 of 2014 compared to $296,000 for the same period last year, an increase of 95%. The increase in cost of product revenues of 95% was less than the 132% increase in product revenues as we're beginning to leverage certain fixed costs over a greater production volume.

Research and development costs were $898,000 in Q2 of 2014 compared to $742,000 for the same period in 2013. Selling, general and administrative expenses were $1.9 million in the second quarter of this year compared to $1.7 million for Q2 of 2013.

Net other income was $902,000 for Q2 of 2014 compared to $948,000 for the same period last year. Net interest expense was $279,000 for Q2 of this year compared with $122,000 for Q2 of 2013.

Our net loss for the quarter was $1.6 million or $0.03 per share compared with a net loss of $1.4 million or $0.02 per share in Q2 of last year.

During the first half of 2014, we recorded product revenues of $1.9 million compared to $958,000 for the first six months of last year, an increase of 95%. Disposable product revenues were $1.3 million for the first six months of this year compared with $752,000 for the same period in 2013, representing growth of 77%.

ClearPoint capital product sales were $481,000 in the first six months of this year compared to $206,000 for the same period in 2013. Product revenues for the first half of 2014 included $56,000 in ClearTrace system components sold to a site for research use. Other service revenues related to installation services and ClearPoint service agreements were $40,000 in the first half of 2014, and again no such revenues were recorded in the prior year period.

Development service revenues related to contract product development were $104,000 for the first half of 2014 compared to $219,000 for the same period in 2013.

The Company recorded license revenues of $650,000 during the first six months of 2013, while no such revenues were recorded during the same period in 2014. The decline was attributable solely to the expiration of the revenue recognition period for license fees the Company received in 2008 from Boston Scientific that were deferred and recognized over time.

Cost of product revenues was $928,000 for the first half of 2014 compared to $522,000 for the same period last year, an increase of 78%. This increase in cost of product revenues of 78% was less than the 95% increase in product revenues as, again, we're beginning to leverage some of our fixed costs over our greater production volumes.

Research and development costs were $1.7 million for the first half of 2014 compared to $1.5 million for the same period in 2013. Selling, general and administrative expenses were $3.7 million for the first six months of 2014 compared to $3.3 million for the first half of 2013.

During the first half of 2014, the Company recorded a gain of $4.3 million related to the sale of certain intellectual property to Boston Scientific. The purchase price was satisfied through the cancellation of notes payable previously issued to Boston Scientific in the aggregate principal amount of $4.3 million. The Company recorded a gain equal to the purchase price, as the assets sold had not been previously recorded on the Company’s balance sheet.

Net other income was $1.5 million for the first six months of 2014 compared to $1.6 million for the same period last year. Net interest expense for the first six months of 2014 was $428,000 compared with $221,000 for the same period in 2013.

For the first six months of 2014, the Company recorded net income of $1 million, which resulted in earnings per share of $0.02, compared to a net loss of $2.2 million for the same period in 2013, which resulted in a net loss per share of $0.04.

Moving over to the balance sheet, we ended the quarter with a cash balance of $4.1 million. Our cash burn for the quarter was $1.7 million, which was up from $1.4 million in the first quarter. The additional cash used in operations relate in large part to spending related to conferences as two of our most significant medical conferences were held in Q2. We also had an increase in professional fees associated with the timing of patent filings and patent prosecution.

Our net cash burn when compared to Q1 was also negatively impacted by the lower accounts receivable balance at the end of the first quarter which turned into cash collections in Q2, compared with the AR balance at the year-end that was converted to cash in Q1. Our accounts receivable collections continue to be predictable and steady as we ended the quarter with a DSO of 43 days.

Our inventory levels have increased by approximately $400,000 since year-end as a result of planned growth in sales and the impact of product line extensions. We've strengthened our balance sheet during the first half of the year which is evidenced by the $5.3 million reduction in current liabilities when comparing our June 30 balance sheet with our balance sheet at year-end.

With that, I'll turn it back over to Kim.

Kimble L. Jenkins

Thanks, David. So I'm very pleased, we had a very strong quarter. I'd like to take a minute to provide some additional commentary on a few items.

First, as David mentioned, we reported record product revenues of $1.2 million, which is up year-over-year and also up sequentially 62% over our first quarter. We reported record disposable product revenues of $766,000, which is up year-over-year and also up sequentially 36% over our first quarter. We now have eight consecutive quarters of sequential growth in our disposable product sales. This is an important trend since our disposable product revenues are the key driver to our business, with our razor-blade business model.

We are pleased to add three new ClearPoint sites, Duke University Health System, Robert Wood Johnson University Hospital and the University of Michigan. This brings our current number of sites to 37, 35 in the United States and 2 in Europe. Our footprint is growing.

Our presence within the neurosurgeon community continues to build. During the quarter, we participated in two major neurosurgeon conferences, the American Association of Neurological Surgeons Annual Meeting in San Francisco, and the American Society for Stereotactic and Functional Neurosurgery Biennial Meeting in Washington. Both events were very successful for us with neurosurgeon podium presentations on ClearPoint and a substantial level of activity in our booth.

As you are aware, we are involved in six drug trials in which our ClearPoint system is being used in the direct delivery of drug to neurological target. Four of the trials relate to delivering drug to treat brain tumors, two of the trials relate to delivering drug to treat Parkinson's disease. These trials are going well, the procedures are going well, and ClearPoint is performing as promised.

Last week Medtronic announced its acquisition of a company called Visualase. We view this as a significant development for our emerging field and a significant development for our Company, so I'd like to take a minute to provide a bit more color. For those of you that don't know Visualase, they are a privately held company that markets a product for MRI guided laser ablation. We have known and worked closely with Visualase for a number of years.

Our ClearPoint system is highly complementary to the Visualase product. Let me elaborate a little on how the company's two products work together. Our ClearPoint system enables the placement of the Visualase laser catheter under real-time MRI guidance and is increasingly being used in Visualase procedures. Here's why.

In a Visualase case without ClearPoint, the patient is brought to the operating room, the neurosurgeon and his team then use conventional stereotaxi to blindly place the Visualase catheter without visualization. The patient is then bundled up and transported to the MRI suite where the surgeon gets his first view of where the laser is relative to the target anatomy.

If the laser catheter is in the wrong location, the patient is then taken off the MRI table, transported back to the operating room where the laser catheter is repositioned. After completing the repositioning, the patient is again bundled up and transported back again to the MRI suite for the surgeon to see if the laser is in the correct location. Assuming yes, then the laser is turned on and the energy is delivered. Needless to say, this is cumbersome workflow for the neurosurgeon and his team. This is also highly inefficient for the hospital because it ties up two rooms, both the neuro operating room and the MRI suite.

By comparison, in a ClearPoint-Visualase procedure, the entire procedure is performed in one room, the MRI suite, and the workflow is a simple streamlined approach. The patient is brought to the MRI suite, the laser is placed using real-time MRI guidance, the laser is turned on and the energy is delivered. So ClearPoint enables a one-room procedure instead of two, no neuro operating room usage, no transporting the patient back and forth.

And ClearPoint enables a highly accurate fully visualized procedure. Without ClearPoint, the placement of the Visualase laser catheter is performed blind. With ClearPoint, the neurosurgeon can see what he's doing, the laser catheter is placed under intraoperative visualization.

Since the ClearPoint technologies and the Visualase technologies are complementary, we've enjoyed a strong collaborative relationship with Visualase. Going forward, we look to continue that relationship as Medtronic takes over the sales of the Visualase product, and we're excited about the potential that Medtronic sales force brings because they are many times larger than the Visualase sales force.

We view the Visualase acquisition as noteworthy for two other reasons. First, we see this transaction as a powerful endorsement of the emerging field of MRI-guided therapies. Our fundamental business premise is that the delivery of therapies under MRI guidance is the next inevitable evolutionary step in neurosurgery. We believe Medtronic's acquisition is strong evidence that the industry agrees with our view. Second, we believed that Visualase's transaction price is a positive indicator of the value in our Company.

Lastly, a quick comment on our ClearTrace program. We're continuing to make good progress in our development efforts in coordination with our partner, Siemens Healthcare. As noted in our press release this afternoon, we remain on track for an initial European product release of our ClearTrace system in the fourth quarter of next year.

All in all, we had a very strong quarter. Our Company is growing and our field is growing. With that, I'll open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jose Haresco with JMP Securities. Please proceed with your question.

Jose Haresco - JMP Securities

Quick question just on housekeeping item, you did $389,000 systems capital sold this quarter here. Could you give me an exact number of those systems and the ASP associated with that?

Kimble L. Jenkins

That was four system sales. Is that correct?

David W. Carlson

Correct.

Kimble L. Jenkins

Yes, there's four system sales.

David W. Carlson

The price on the system sales can vary from hospital to hospital in large part due to be equipment that hospital may or may not already have, and so that factors into an ASP, if you took that $389,000 divided by four.

Jose Haresco - JMP Securities

Thank you. The Visualase acquisition is also very significant. What response or what have your customers said since that news hit and I guess how is your interaction with Visualase, if any, changed since that news broke?

Kimble L. Jenkins

With regard to Visualase, again, we've known these guys for a very long time. We work closely with them and they are excited about it and we're excited for them. It's really business as usual in that regard. And for the neurosurgeons, for the folks we've talked with, I think it is good news there, not surprising. The two technologies work really well together, that's a well-known fact. And so, again I think that all in all it's a positive announcement for everybody involved.

Operator

Our next question comes from the line of Steven Schwartz with First Analysis. Please proceed with your question.

Steven Schwartz - First Analysis

Just carrying on from Jose's question, you said four systems but you noted three sites. Is that to say you sold two systems at one site or could you clarify that for me?

David W. Carlson

The systems that were sold were actually part of our ClearPoint Placement Program. That were existing sites as of the end of the first quarter that we sold during the second quarter. So, none of the three sites that were mentioned as new sites are sites that we sold systems to during the quarter.

Steven Schwartz - First Analysis

I see, okay. And then you did address it in your commentary, but if I could ask, the $389,000 in the second quarter compared to the number of systems sold in the second quarter of '13 versus the revenue, so a big disparity, and you did just touch on the fact that it can depend on what equipment is already existing at the hospital, but if you look at your pipeline and for forecasting purposes for us going forward, what should we be thinking about in terms of a per system ASP?

Kimble L. Jenkins

So on ASP, Steven, to make sure I follow your question, you're kind of wondering about an average selling price per ClearPoint system for the capital?

Steven Schwartz - First Analysis

Yes, and understanding that it can vary widely from site to site and so forth but just in terms of helping us understand going forward for the next couple of quarters and what you see in the pipeline?

Kimble L. Jenkins

I think a good number to use is 115. It does vary but I think 115 is a good average number to use.

Steven Schwartz - First Analysis

Okay, alright, that's helpful.

Kimble L. Jenkins

Just to elaborate a little bit on that, we have – over the last year or so, we've been able to utilize, to find ways to utilize equipment that already exists at the hospital, so they don't have to buy it from us. And that's actually what's been, it's been the largest driver of the reduction in the price of our ClearPoint capital component. This is a good news for us. We've got this razor, razor blade model and so to the extent we don't have to sell for example a head coil, if the hospital already has a set of coils that will work, then that's fine for us.

David W. Carlson

And I guess one other comment on that is that the items that we are no longer selling were typically our lowest margin products. So we weren't – it didn't – we were happy to see that change take place.

Steven Schwartz - First Analysis

Okay, so mix is improving in what you're selling. And then if I could ask a follow-up question and along the same lines of kind of what the revenue run rate is, were there any delays in the first quarter with orders or any kind of inventory build in the second quarter in terms of the specially disposable product revenue, what should we think about from an average quarter to quarter basis or normalized run rate here for the next couple of quarters?

Kimble L. Jenkins

So, I guess couple of comments. One is, we're not giving guidance at this point, so I'll limit – I've got some limitation there, Steven. But what's happening as we build our business, we are getting into more sites, obviously more cases are getting done, more cases are getting done leading to an increase in our disposable product revenue, and that's the way this is supposed to work. And I think what you see, we're quite proud, I'm particularly proud of those eight consecutive quarters of growth in our disposable product revenues. That's a nice run that we're proud of, and I think, I guess it speaks to sort of the way the business is building. Again, without going and giving guidance, I think it speaks to the way the business is building for us.

Steven Schwartz - First Analysis

Yes, no doubt impressive, but you don't see any pull forward of orders or that there's nothing like that but you can see with the second quarter numbers?

Kimble L. Jenkins

I mean it's just – one of the reasons we're not giving guidance right now is that we are the pioneers in this field, right. We're literally creating this market and we're excited about the growth we're experiencing, we're excited about and encouraged by what we're seeing. However, with this new market comes a lot of variables, variables for us as well as variables for the emerging field. And so, it's hard to, although I know it would be helpful, to try to draw some conclusions for you. These variables still make it little hard to give you metrics, which maybe is what you're looking for.

Steven Schwartz - First Analysis

Yes, understandable. Thank you, Kim. Nice quarter.

Operator

Our next question is from James Terwilliger with Newport Coast Securities. Please proceed with your question.

James Terwilliger - Newport Coast Securities

Congratulations on a good quarter and thanks for taking my question. A lot of my questions have been answered but the first one is really, how is the tone on the clinical conferences in San Fran and D.C. in terms of the clinical community in adopting this type of technology, what was the tone like from the clinicians?

Kimble L. Jenkins

It's very positive, James. Really each conference that we go to, the momentum builds, the chatter builds, the number of cases that have gotten done, the presentations, the activity at our booth, the discussions at dinners, all of that is growing and what's neat about it is it's growing across different kinds of neurosurgeons.

So, as you know we facilitate electrode placement, DBS electrode placement for example, for Parkinson's and dystonia patients, and that's one sort of neurosurgeon. The epilepsy application that we're pursuing in connection with for example Visualase, that's often a different kind of neurosurgeon, a different guy and/or girl, and that's another set of discussions. The biopsy applications brings in the tumor docs.

And so we are really building, we're building this critical mass at these conferences and we're building these sort of subsets of doctors that are getting excited, and that's been our objective all along and we're seeing it really bear fruit. Success to get success, and so when you go from six sites to seven sites you've got one level of momentum, and when you go from 36 sites to 37 sites it's just a lot easier.

James Terwilliger - Newport Coast Securities

Excellent. The second question is the Medtronic acquisition of Visualase is very exciting. Do you see any say sales and marketing displacement by the acquisition, something you guys could capitalize on and expand your sales force, and remind me again, how large your sales and marketing department is currently?

Kimble L. Jenkins

Sure. We've got 14 people in our sales, marketing and support team.

David W. Carlson

15.

Kimble L. Jenkins

15, sorry. And, David, probably six? Six sales folks that includes Rob, our VP of Sales, five clinical field support people and the balance in marketing and support, case support. So that's our group. So as I mentioned in our prepared remarks, we've been working closely with the Visualase guys really for many years, I mean going back to like 2008, or maybe before, actually before then. They've been around for a long time, we've been around for a long time. We wanted to make sure our products would work together from the very beginning, for the reasons I outlined a minute ago.

We have had a very natural collaboration at the field level, at the account level with Visualase, again because of the complementary nature of our products, and we have every expectation that that will continue as Medtronic takes over this sales effort. Now, the leverage there would come from the fact that the Medtronic's sales force is many, many times larger than the Visualase sales force, and we're excited about where that may take us.

James Terwilliger - Newport Coast Securities

Okay. Again, thank you for taking my questions and congratulations on a good quarter.

Operator

Our next question is from [Bruce Conway] (ph), a private investor. Please proceed with your question.

Unidentified Participant

First, I just want to say, great quarter and great comments regarding the significance of Visualase acquisition to MRI. I was however a little disappointed there wasn't a better stock market reaction to that because I happen to agree, I think it's extremely significant for us. And in that light, I wanted to ask, have you seen any revenue projections regarding Medtronic's acquisition and does that give you any color, and I realize this is forward-looking, but does that give you any color for possible revenue projections for us?

Kimble L. Jenkins

Bruce, I'm not aware, I haven't seen any projections from Medtronic with regard to kind of what they're hoping to do with this business. One could assume I think, and safely assume, that they expect to grow the business. So I don't have a direct answer. What I can say is to reiterate what we've talked about. I think many of the folks on this call would have heard us talk about the size of the epilepsy market, right. So, we believe one of the primary drivers of Visualase and the acquisition of Visualase by Medtronic was presumably going after this epilepsy market, and the epilepsy market is a really exciting one.

There are 2.3 million patients in the United States that suffer from epilepsy. A little over 10% or 250,000 of those patients are treatment refractory. What that means is a drug simply don't work in eliminating the seizures. And so the quality of life for these 250,000 patients is very poor. That population is really center of the bullseye for laser ablation therapy, where you go in, ablate the epileptic foci, and the idea is, the clinical objective of that is to eliminate the seizures. So, we think there's an enormous amount of potential in bringing this powerful therapy to that large patient population and we think that's part of what has excited Medtronic about it.

Unidentified Participant

Great. Okay, thank you, Kim.

Operator

Our next question is from [Michael Swarovski] (ph), a private investor. Please proceed with your question.

Unidentified Participant

I just first of all like to see if someone can verify that if the equipment is being used at the Ohio State University, in Columbus, Ohio?

Kimble L. Jenkins

Yes.

Unidentified Participant

I was told that the doctors there actually fight to get their patients listed on the use for the next day and that usually the senior doctors are the ones that end up using the process. My question is, as I'm a layman, is that most of the time we hear and learn that operations are to be done a 100% sterile room, consider the operating room. Is there anything kickback from physicians or anyone else that these procedures are done in an MRI room versus the operating room?

Kimble L. Jenkins

Great question, and this is one of the key hurdles that we had to get over. We do create a sterile environment in a diagnostic MRI suite for performing these ClearPoint procedures. We take a non-sterile environment and create a sterile environment for the procedure. So you're exactly right in the question that you raised. The way we do it is, we developed a sterile draping system that we had to get FDA clearance for, specific for that draping system, to create that sterile environment. And that's worked very well for us.

Is it a matter of discussion for new hospitals? Absolutely. We always, with no exception, we always meet with the sterility committee inside of a new hospital and we share with them the results we've had at all the rest of the hospitals, the very strong good results that we've had with creating this sterile environment for these procedures. We walk them through the data that we have that shows that we're successful in creating a sterile environment. And again, as you can tell with the number of sites, we are successful in getting the sterility committees comfortable with this new approach. But you're right, on the money it's an issue that we had to solve and we're pleased that we solved it.

Operator

Our next question comes from Raymond Pirrello with Pendulum. Please proceed with your question.

Kimble L. Jenkins

Ray, are you okay? Hello? Operator?

Operator

He must have gone cut off. Okay, our next question comes from [Mark Abraham] (ph), a private investor. Please proceed with your question.

Unidentified Participant

I have some questions as far as numbers go, I'm kind of a numbers guy, and you lost $1.5 million this quarter, and I'm trying to get a handle on at what point can you guys make a profit, because the stock price is anemic and it's probably the reason because people are looking at some point for you to make some money, and by going with an extra three installations, I mean how many more installations do you need to get to, to make a profit? And the one thing here, last quarter you did about $790,000 worth of business, and my question is, how many procedures – they're all $7,000 a procedure, is that all right?

Kimble L. Jenkins

Yes, $7,300 is sort of the average selling price.

Unidentified Participant

So it's around 100 procedures over the whole quarter, which is around three procedures per place per quarter, which is like one a month, and is that what it's going to be, do you see more procedures being done? Because at some point, if you keep losing $1.5 million a quarter, you're out of money in three quarters. So I'm just trying to look at numbers at some point, when you're going to make some money? I know you don't like to go forward and everything like that, but you want to know when you're going to make money before they're going to invest in your Company. I've been investor since day one, before you went public.

Kimble L. Jenkins

Mark, we appreciate your support and let me – I'll start and David may want to chime in. First, let me speak to sort of utilization, right. So we have in our sites, in our set of sites, we got some sites that are high-volume users and some that are low-volume users, and a big part of that sort of phenomenon is really just part and parcel of growing the business. It's kind of like if anybody is invested in – it's kind of like the same-store sales model for a retail operation, you set up a new store, you make investments in it, and there's a certain level of sales in the first month and then it takes some number of quarters for that site to, that store to mature, and you've got marketing to bring customers in and that sort of thing.

So our business is not really all that different from this. We've got sites that are mature and that we would consider high-volume users, and we got sites that are relatively immature and that we're growing. So the numbers that you gave, just I would amend that just a little bit just to say, if you think about our business growing, you got to think about sites, some sites being mature, some sites sort of being in process, some being new or relatively immature, and that's got, that has a big bearing.

As far as the number, I'll tell you I think that a breakeven for us is going to be about 130 procedures a month, is that right, based on our current infrastructure, is that about right, David?

David W. Carlson

Yes.

Kimble L. Jenkins

So that will give you a sense of kind of where we're headed. So, Mark, is that responsive to you?

Unidentified Participant

So if you do 130 a month, so you're doing about 110 a quarter now, so you need to triple your procedures to breakeven. And the other thing is, the sales force you have out there, coming in with three extra sites here, and when can they really do something, do you have anything in your horizon at all about possibly partnering up with a big medical device company that can get out and sell these placements? If you're going to sell three sites a quarter, you're never going to get it done.

Kimble L. Jenkins

So, I understand what you're saying but I want to point out that we grew disposable product revenue 36% sequentially Q2 over Q1, right. And so there is inherent leverage in our business model, right. And as we were talking about, we get the store set up and then we grow revenue, and for us, the driver, the key is getting that disposable revenue which grows our business. There is, again, inherent leverage. Now leverage comes from taking a site that's doing one case a month and getting them to do two cases a month or three cases a month, and we replicate that across 10 or 15 or 20 sites, then there's real leverage in it. And that's really what we've been working to build, Mark, over the last handful of quarters.

We got a great sales team in place finally, we got a strong clinical support team in place, we got a wide group of applications that range from treating Parkinson's patients with DBS electrode placement to laser ablation for epilepsy. So, all of these things are a part of really growing that utilization, and that's what propels growth. And again, I understand the numbers are still small but we grew revenue, disposable product revenue 36% from Q1 to Q2, and I think to me that is evidence that the model is working.

Unidentified Participant

Well, percentage is – you just put numbers on the board, you still have to make money, and you've got a $50 million market cap rate now, and the reason this things doesn't go up is because everyone is looking, when they're going to make some money, and you've got these big and big numbers, I mean you say 38%, those sound nice but it's the real dollars of cash that really make a difference.

Kimble L. Jenkins

But, Mark, with all due respect, it is real cash, $766,000 in disposable revenue, again, more than $565,000 in Q1. You said you're a numbers guy. I mean that's real growth, that's real growth and it doesn't take many of those, it doesn't take growth like that for long to be real numbers. If you look over, again, the business, we're eight quarters in a row of growing that disposable revenues.

Now I will say, look, why does this take time? The reason it takes time is we are changing physician practice. We are creating a new field of medicine and that takes time, but it's working. It's working, and again, that's why we're in the hospitals that we are in, we're in five of the top 10 U.S. News and World Report surgery centers, some of the best doctors in the country are using ClearPoint and increasing their use.

So look, it does take time, but I would, again I'd respectfully just push back a bit and say, we're getting there, we're making it happen.

Unidentified Participant

I think the product is fantastic. I mean I don't understand why a hundred hospitals don't sign up. I mean what is their reasoning, why don't they want it? I mean everybody should have it. It's the best thing out there. There's nothing – you guys got the greatest product in the world. Why aren't people flocking [beating it to a down park] (ph)? That's the base of my question.

Kimble L. Jenkins

I couldn't agree with you more that we've got a great product and we're pleased with all the things that we're seeing that indicate that adoption is increasing, and that leads to growth in the business. So look, there may be frustration with regard to – people would like things to happen faster, I would too, but I would say I'm quite pleased with the way the business is growing. We feel very good about our positioning in this marketplace, we are excited about not only the way our business is developing and building, our revenues are building, but the fact that you got other players like a Medtronic saying, this field is important and it's important for neurosurgery going forward. But again, and I'd be happy, I don't want to go too long on this, I'd be happy to talk with you further off-line, Mark, if you want.

Unidentified Participant

No, I appreciate you taking my call. [Indiscernible] I think you guys got a great thing. I just wish there were some more people that would want it, and that was my only concern.

Kimble L. Jenkins

Thank you calling in, Mark.

Operator

Our next question is from [Jeff Romoff] (ph), a private investor. Please proceed with your question.

Unidentified Participant

Just wanted to further on Mark's comment, what discussion has there been around or what implications might there be at providing the hardware at an extremely discounted rate or even at no cost, if you really want to grow the disposable business?

Kimble L. Jenkins

There are compliance hurdles to just giving it away. The guys in Washington don't let medical device companies give away capital. And so we've got to get value for the capital piece. We think our ClearPoint placement program is a good way to stay well within the confines of the compliance of the regulations and be square with all those, but at the same time give the neurosurgeons flexibility to bring the system in, and we think that works pretty well.

You'll see that, again so for example in this last, what we are reporting here, the four sites, the four system sales that we had during the quarter were to existing, they were to sites that existed before the quarter, and our new sites are under the ClearPoint Placement Program. So we think it's a good model for us.

Unidentified Participant

Okay, I'm just trying to brainstorm ideas. As Mark points out, trying to just get into the new hospitals, that seems to be the biggest hurdle, right?

Kimble L. Jenkins

Look, we tell our sales guys to do, we ask them to do two things. We ask them to grow the number of sites and we ask them – so we want new sites in the pipeline, and we want to increase utilization at our existing sites. So they split their time between both efforts and that's going to be – we'll continue with that going forward with that direction for these folks.

Unidentified Participant

Okay, thanks for taking the question.

Operator

Our next question is from Steven Schwartz with First Analysis. Please proceed with your question.

Steven Schwartz - First Analysis

I thought I would jump back on the call into this discussion from the last two callers and ask your opinion on and perspective on something. We understand that the hospital environment is changing, surgeons are going from private practice to becoming direct employees, where the surgeon was the sole decision-maker, there are now these value-added committees, when you are partnered up with a Visualase, are the value-added committees, are you riding in to the purchase decision by the hospitals with Visualase and these other companies or are you guys going up against the committee decision single-handedly?

Kimble L. Jenkins

That's a great question, and as we were developing ClearPoint, we've envisioned it from the beginning as a platform, right. And why is that important? The platform side is important because we have a product that helps the functional neurosurgeon with his movement disorder patients for electrode placement, and we help the epilepsy neurosurgeon who is treating his patients with now laser ablation, and the neurosurgeon the tumor doc.

And so when we go through the hospital process, Steven, our champion or champions are the neurosurgeons. And what helps a lot with these multiple applications is that you have not just one neurosurgeon saying, I want to use this for my Parkinson's patients, but we can bring three neurosurgeons in, the guy for the Parkinson's patients, the guy for the epilepsy patients, the guy for the tumor patients, and yes, to the extent we've got the epilepsy and tumor patients, then that brings in Visualase and Visualase is a part of that. So there is leverage there that's sort of inherent in our platform model and it's positive leverage, it's very helpful to us.

Steven Schwartz - First Analysis

Yes, no doubt. I recognize that. I think like the previous callers, I certainly recognize that, but do you agree that the environment overall has become more difficult not only because of Obamacare but just because of the change in the surgeon-hospital relationship?

Kimble L. Jenkins

Absolutely. Listen, healthcare is a different animal now than it was even five years ago, and my feeling is a med device company, whether you're large or small, has to show up with a very compelling value argument for the patients, we're going to be better with the patients; for the doctor, it's got to be a procedure that the doctor wants to do over the existing approach; and for the CFO, it's got to work for the economics of the hospital. And by the way, with Obamacare's take in healthcare, it's got to work for the eventual payer, right. So you've got to hit on all cylinders.

We feel strongly that ClearPoint delivers on all of those metrics and we're doing that by again moving – we're doing it in a way that we've already seen it play out in other fields, we've already seen this movie for taking care of heart attacks. You saw the move from open heart surgery to minimally invasive cath lab based procedures, and that helps everybody, right, the hospitals, the surgeons, the patients, the payers, it was a win for everybody. And we're enabling that same thing, that same idea of real-time minimally invasive image-guided procedure. Which was done in a cath lab, we're enabling that same thing for neurosurgery.

And so, I think absolutely it's a much harder environment now than it was a few years ago, but fortunately we're well-prepared for it, and I think that's going to stand us in good stand over the coming months. It has already and it will continue to do that, it will continue to bear fruit for us.

Steven Schwartz - First Analysis

Yes, no doubt. Okay, thank you for the additional color, Kim.

Operator

Our next question is from Raymond Pirrello with Pendulum. Please proceed with your question.

Raymond Pirrello - Pendulum Capital Markets

How many sales guys are on the ground that signed up the three hospitals, how many guys do we have out there?

Kimble L. Jenkins

We have six salespeople.

Raymond Pirrello - Pendulum Capital Markets

Okay. What's the criteria for these guys to keep their jobs? I mean you have only three hospitals with six guys, I mean what's their daily routine, how many hospitals are they able to see a quarter?

Kimble L. Jenkins

Bear in mind they are not just selling capital, they are working on increasing utilization. So they are spending some percentage of their time growing utilization and the other percentage of their time getting these sites. So they are involved on those two metrics, not just one.

Raymond Pirrello - Pendulum Capital Markets

I'm involved on other medical device fields right now and they've outsourced their sales forces, and their margins and their business aren't as big but they are already in 150 something hospitals because of that. Have you guys looked into possibly bringing in some of these guys that do the sales for you?

Kimble L. Jenkins

Sure. We've considered distribution relationships or outsourcing but we are creating a field, we're the pioneers in this new field of medicine, and because of that we need our own sales guys. It's something we've looked at closely, and again, we feel a high degree of confidence that that's the right way of going at it at this point in the development of the market.

Raymond Pirrello - Pendulum Capital Markets

At some point you have to see there's going to be something else that comes to the market, a replacement of possibly you guys at some places or products, right, so you want to get as far stretched as you can across hospitals before another product comes to the market.

Kimble L. Jenkins

That's why we work to grow the number of sites, to grow at sites that are the leaders in their respective fields, the volume centers, we want to keep getting those guys and we're doing it, and then we want at the same time to grow utilization.

Raymond Pirrello - Pendulum Capital Markets

Is it a capital issue, is there more cash you need to hire more guys out there or you're not ready for that at this point?

Kimble L. Jenkins

Again,, we feel good about the team we've got in place. We spent a lot of time last year getting the right guys in place, getting them trained, getting them going, and we've really got a lot of confidence, Ray, in the team we've got.

Raymond Pirrello - Pendulum Capital Markets

So worldwide sales, you think six guys are enough?

Kimble L. Jenkins

No, it's just, we're just U.S. We got the two sites in Europe but we're really focused, all of our energies are focused on United States. Now at some point, we have CE Mark for this product, we'll go OUS, but now it's really focused on the United States.

Raymond Pirrello - Pendulum Capital Markets

How many hospitals are in your target market?

Kimble L. Jenkins

It's probably about 350, about 300.

Raymond Pirrello - Pendulum Capital Markets

Alright.

Kimble L. Jenkins

Look, Ray, thanks so much for calling in and happy to talk further with you if you want, we're always around. I don't want to bore everybody, so operator, maybe one more call.

Operator

There are no further questions at this time. Would you like to make any closing remarks?

Kimble L. Jenkins

No. Listen, thanks for joining us for the call. We appreciate your interest, we appreciate your support for those of you that are shareholders, and please stay in touch. Thanks and hope you guys have a good evening.

Operator

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

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