Medical Systems' (CASM) CEO Tom Patton on Q2 2016 Results - Earnings Call Transcript

| About: CAS Medical (CASM)

Medical Systems Incorporated (NASDAQ:CASM)

Q2 2016 Earnings Conference Call

August 04, 2016 10:00 AM ET

Executives

Jody Cain - LHA, IR

Tom Patton - President & CEO

Jeff Baird - CFO

Analysts

Charles Haff - Craig-Hallum

Brian Marckx - Zacks Investment Research

Larry Haimovitch - Haimovitch Medical Technology Consultants

Raymond Myers - The Benchmark Company

Operator

Welcome to the CAS Medical Systems' Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, August 4, 2016. I would now like to turn the conference over to Jody Cain. Please go ahead, ma'am.

Jody Cain

This is Jody Cain with LHA. Thank you for participating in today’s call. Joining me 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 2016. If you've 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'd 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 contained in today’s press release as well as in the Company’s most recent SEC filings. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live call, August 4, 2016. CASMED undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. With that, I'd like to turn the call over to Tom Patton. Tom?

Tom Patton

Thank you, Jody. Good morning, everybody, and thanks for joining us on today's call. We're pleased to report another quarter of strong top line growth, with net sales from continuing operations of 18%, and FORE-SIGHT sales up 15%. We had a particularly strong showing for FORE-SIGHT's disposable sensor sales, which increased 27% over the prior year. I'll start the call by sharing a few highlights from our second quarter FORE-SIGHT business. One, our overall revenue growth for FORE-SIGHT was driven primarily by the higher disposable sensor sales, up 27% as I just mentioned. Our FORE-SIGHT sensor sales represented 73% of total revenues from continuing operations.

Two, our total FORE-SIGHT domestic sales increased 18%, and international sales increased 3%. While these total growth rates are lower than we have experienced lately, it is all attributable to lower sales of monitors compared to prior year, both in the United States and internationally. While monitor sales are important to us, the most important source of revenue and the key to our long term revenue growth is our sensor growth rate. Which brings us to three, our domestic sensor sales were up 24%. I'm proud to report that this was our 25th consecutive quarter of double digit year-over-year growth in sensor sales. And it was the 10th out of the last 11 quarters that we exceeded 20% domestic sensor growth.

Fourth, our international sensor sales grew 48%. Key to our international strategy is to leverage our existing distribution to penetrate country-by-country markets. This large jump in sensor revenues shows our distribution partners our accomplishing that goal. And fifth, the increase in total revenues and in sensor revenues in particular drove gross margin increases both in dollars and as a percentage of total sales. Gross margin for the second quarter of 2016 was 54.6%, an increase of 340 basis points year-over-year. It was also the highest gross margins this Company has seen in almost 15 years or more actually.

In the second quarter, we continued to expand the market for three-block symmetry and to take market share from our competitors, both due to our marketing meeting technology. Over the past four quarters, approximately 35% of our new monitor placements in the United States were to accounts that we converted from a competitor. And about 65% were monitors that were either placed into Greenfield accounts that had not used three-block symmetry in the past, or were placed at current customers that were already users of FORE-SIGHT as they expanded their usage. This means that approximately 65% of our growth is coming from market expansion. We think that the accuracy and ease of use of FORE-SIGHT is driving this dynamic as we deliver on the promise of what three-block symmetry can do for patients.

While increases in same-store sales within our current customer base is a significant part of our growth, bringing new and blue-chip customers into the FORE-SIGHT family continues to be important. In the second quarter, we were happy to gain another blue-chip customer in the Washington Hospital MedStar system in Washington, DC, and Baltimore, which is one of the largest and prestigious heart centers in the Mid-Atlantic area. This customer acquisition was particularly noteworthy because the Hospital conducted a thorough evaluation of four cerebral monitoring systems and overwhelmingly chose our FORE-SIGHT technology over all others, displacing one of our major competitors. Again, we're finding that in most instances when customers put our FORE-SIGHT products through the paces, we have a high opportunity to win the business.

With these initial comments, I'd like to turn the call over to Jeff Baird to provide some detail around our financial results. Jeff?

Jeff Baird

Thanks, Tom, and good morning, everyone. Our second quarter net sales from continuing operations were $5.5 million. This represents an increase of $830,000, which Tom mentioned is up 18% over the second quarter of 2015. Total FORE-SIGHT sales increased 15% from the prior year to $4.5 million. This includes FORE-SIGHT sensor sales of $4.1 million, up 27% over the second quarter of 2015. Domestic FORE-SIGHT sensor sales grew 24%, and international sensor sales were up 48%, both over the prior-year period.

We shipped a net total of 83 FORE-SIGHT monitors in the second quarter of 2016, excluding upgrade, which brought our cumulative worldwide shipments to 1,871 units. Our domestic-installed base had a record increase of 60 units to 1,019 at the end of the quarter, up 25% over the prior-year base. As Tom mentioned, international monitor shipments were a bit weak but that was offset by very strong international sensor orders. We expect the U.S. monitor count to continue to grow as our new reps become more productive, and for the international monitor accounts to rebound in the second half on stronger sales to Asia in particular.

FORE-SIGHT sales represented 81% of net sales for the second quarter of this year. FORE-SIGHT disposable sales were 73% of net sales in this year's second quarter, showing that our transformation over the last few years from a commodity capital equipment seller to a high margin seller of unique medical disposables is complete.

Sales of traditional monitoring products were $1 million for the three months ended June 30, 2016, an increase of $236,000 or 29% from the prior-year period. This increase is due to a couple factors. First, a few of our customers finally made the transition to our MAX IQ non-invasive blood pressure platform. These customers had purchased last time buys of our earlier generation NIBP product and, therefore, were not buying a new MAX IQ until that older stock was consumed and the new technology integrated into their product. In addition, we have added some new smaller customers, and sales to our largest customer continued to increase as their core business expands.

Gross profit margin for the second quarter of 2016 was 54.7%, up from 51.2% for the second quarter of last year. The gross margin improvement resulted primarily from favorable product mix driven by FORE-SIGHT sensor sales, both in total and as a percentage of overall sales. In the second half of the year, we expect to see margins tick up a little higher, possibly another 100 to 200 basis points as we continue to take costs out of our FORE-SIGHT product.

Operating expenses for the second quarter of 2016 were $4.4 million, up just 3% over the $4.2 million reported for the prior-year period. Slightly higher SG&A expenses were partially offset by lower R&D spending. The loss from continuing operations for the second quarter of 2016 was $1.7 million or $0.08 per share, which compares with a loss from continuing operations of $2 million or $0.09 per share for the second quarter of 2015.

Cash used in operations for the first six months of this year was $3 million, compared to $2.5 million for the prior-year period. Lower losses from continuing operations were offset by unfavorable changes in working capital items, primarily inventory, accounts payable and accrued expenses. At the close of the quarter, we entered into an agreement with two lenders for a secured term loan of $8 million and a revolving line of credit for up to $2.5 million. Net proceeds from the new term loan agreement were $1.7 million after extinguishing the prior term loan agreement.

Our new loan is on an interest-only basis for 12 months through June of 2017, with the opportunity to extend that interest-only period for another six months should certain FORE-SIGHT sales targets be achieved. As of June 30, 2016, CASMED had $7.6 million in cash and $2.1 million available under its line of credit. Finally, we are reaffirming our outlook for FORE-SIGHT sales growth of more than 20% in 2016, and for FORE-SIGHT monitor shipments to exceed 400 units this year. We also expect continued modest improvement in gross profit margin for the remainder of 2016. With that, I'll turn the call back over to Tom.

Tom Patton

Thank you, Jeff. We are executing well as evidenced by the 22% growth in FORE-SIGHT sales for the first half of 2016. This gives us confidence in reaching our revenue and growth outlook for the full year. We continue to expect that a majority of that growth will come from the US market where we'll continue to upgrade our team under the director of Kim Strusky, our EVP of U.S. Sales.

In this calendar year so far, we have upgraded four reps out of our 13 U.S. sales territories. We've been thrilled with the caliber of these reps and the speed at which they are developing a pipeline of opportunities and already are beginning to close new business. These changes this year are in addition to the upgrades we made last year. Therefore, out of the 13 sales territories, four were newly staffed in the last six months, and three others were newly staffed in 2015. But these seven new refs had a sensor revenue growth rate in the second quarter of 24%, which was equal to the growth rate of our six tenured reps in that period, showing that many of these new reps are really beginning to gain traction.

Before I open the call to questions, I wanted comment on a couple of recently published pieces of literature in support of the FORE-SIGHT technology. The first is a study published in the British Journal of Anesthesia where data indicating that the skin pigmentation of patients of African descent may confound the competitors' three-block symmetry device. The study compared the pre-operative and post-operative three-block symmetry readings of dark-skinned patients with those of lighter-skinned patients. They had found on average the competitive monitor provided an oximetry value that was nearly 13 percentage points lower for the dark-skinned patients despite similar patient conditions, oftentimes putting the initial values into ranges that many clinicians would think of as intervention thresholds. The study concluded that the competitive device may not adequately account for variations in skin pigmentation.

By contrast, FORE-SIGHT had an on-patient calibration feature that accounts for differences in pigmentation. And in an unpublished series of 114 patients in that same hospital, these lower cerebral values were not observed. The second is an abstract which published initial results on the first interventional outcome study using FORE-SIGHT conducted at New York's Mount Sinai Hospital. On a cohort of 124 patients, this study showed that using an interventional protocol triggered at an absolute threshold of 60% oxygenation during cardiac surgery effectively reduced the time and depth of intra-operative de-saturation episodes in cardiac patients. But most importantly, showed that intervention to reverse these de-saturation events resulted in an increase in post-operative memory function at both three months and six months post-operatively.

While the association between improved cognitive function and de-saturation has been shown in the past, this is the first interventional outcome study that shows a marked improvement for the interventional group over the control. These results are yet another important step in providing additional clinical validation of the benefit of three-block symmetry that we believe will make it a future standard of care for cardiac surgery and other procedures.

So in closing, we're reaffirming our outlook for the full year and see continued momentum going into the second half of 2016. We continue to increase our market share in the US and expand the market for three-block symmetry. We are increasing our margins and managing our operating expenses carefully. And we are continuing to invest in the best sales people we can find and support them with training and marketing to increase our sales force productivity. In sum, we continue to execute on our plan. We expect to see continued growth over the coming quarters.

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

Question-and-Answer Session

Operator

[Operator Instructions] One moment, please, for the first question.

Tom Patton

While we're waiting for the first question, I wanted to mention that we reached a significant milestone with our domestic-installed base. Now it's hitting 1,000 units and approximately 300 hospitals around the country in the United States. It's exciting to reach this important milestone as we now empower thousands of clinicians in hundreds of hospitals across the country to reach towards our vision of a world where no patient is harmed from undetected tissue hypoxia. It was a meaningful milestone for us. Okay, Operator; we're ready for the first question.

Operator

Our first question comes from Charles Haff with Craig-Hallum. Please go ahead.

Charles Haff

Congratulations on the quarter. Jeff, could you share with us what revenues were from discontinued operations in the quarter, please?

Jeff Baird

Sure, Charles.

Charles Haff

While you're looking for that, I'll jump to a question for Tom. Tom, the placements that you had this quarter were a little bit lighter than we were looking for. But you reiterated that you expect 400 placements for 2016, which implies a very significant ramp in the back half. Can you share with us subjectively what gives you that confidence in that big pickup in the back half of this year for FORE-SIGHT placements?

Tom Patton

Sure. There's two issues driving the placements, Charles. One, of course, is our domestic unit placement and, second, is the international. Our US placements are right on our plan basically and we expect that that number will, after a record 60 placements in Q2, will be at that level or higher as we move into the second half of the year as these new reps become even more productive. So we start with that base.

The decrease in the numbers from previous quarters really is wholly attributable to a slight decrease in some of the placements in our ex-US markets. Particularly, we were a little bit softer this quarter in China and Japan. We believe, and I've already seen orders improve and expect that bounce in the second half. So we still affirm our goal of 400 monitors and I think we can get there.

On a quarter-to-quarter basis, these numbers go up and down; they're sort of lumpy, but what's most important to us is whether or not the international distributors are actually driving market share and taking customers. And the 48% growth we saw in the sensor revenues told us that they are all on track, so a little decrease here in the second quarter doesn't bother us at all.

Charles Haff

Yes. That makes a lot of sense. And just drilling down on that a little bit more on the OUS side from your distributors, could you just refresh my memory on how or when revenue is recognized and how you monitor those distributor inventories? How much lead time do they usually purchase your device before they put it into a hospital there, maybe just some additional color to help me understand the conversion cycle on that for international?

Tom Patton

Yes. We recognize revenue when we ship the product out our door to them. They like to maintain typically at least a couple months, oftentimes a quarter or so, of inventory. And it's also efficient to ship monitors in bulk just for import-export duties and ease of transfer. So we'll see some of these monitor orders come in a bit lumpy while they add to their stock. They'll burn it down over a quarter or maybe even a little bit more, maybe four or five months, and then you'll see another order come in. Like I said, the timing varies depending upon the customer but our biggest customers, particularly in China and Japan, do maintain a stock for a couple of months.

Charles Haff

So is it fair to say then if they want to keep one-quarter worth of inventory and they need to notify you when they need monitors, you probably have three or four months of visibility there in terms of your international FORE-SIGHT box placements. Is that a fair time horizon?

Tom Patton

We usually have a couple months of visibility. Our lead times for them are typically 30 days or less in terms of our ability to turn around their orders. But we're in constant contact with them and understand what their demands are. So I'd say it's really more a couple months of forward vision.

Charles Haff

Okay. So it sounds like by you reiterating this you're pretty comfortable with the orders that you're seen so far internationally, and that's one of the reasons why you're reiterating the 400 boxes for the year.

Tom Patton

Yes. Both what we see in the pipeline and in our discussions with them and our knowledge of their operations and their target lists, all of those things gives us confidence.

Charles Haff

Okay. That's great.

Jeff Baird

Charles, let me answer your question about discontinued ops sales. Sales for the quarter were actually quite low. We reported 150,000 of vital signs monitor sales for the quarter. It actually won't get reported, of course, in our sales for continuing ops, but the traditional -- the neonatal disposable business that we sold in March of 2016, that business is no longer ours. We continue to provide transition services for the buyer up through the end of the year. We billed the product; we sell it. Then we have a transfer pricing arrangement between our two parties. Those sales we no longer classify as discontinued operations. So what you'll see going forward really is virtually little to nothing in the way of discontinued op sales for the second half of this year.

Charles Haff

Okay. And for the second quarter, it was 150,000.

Jeff Baird

Right.

Charles Haff

Okay. That's great. Tom, wanted to ask you about the MedStar win that you had. I know MedStar. In DC, they're a very sophisticated buyer. Pretty interesting that they did evaluations on all the competing products and you guys won that situation because I know they're very thoughtful in how they approach that. Is there anything that you can share with us that they shared with you in why they chose FORE-SIGHT versus the competing products to give us a deeper appreciation about your advantage that you have versus your competitors?

Tom Patton

Yes, a little bit of color. I think that it fundamentally just comes down to the accuracy of the monitor, in addition to the service that we provide and that fact that really this is our bread and butter. We're focused on this and nothing else. It really just came down to the fidelity and the number and its biological agreement and their ability, therefore, to really incorporate this more into their clinical pathways. They have a large population of dark skinned patients. The study that they did showed that the African, American patients seem to have lower cerebral oximetry values with a competitive product. So they did the work to compare comorbidities and outcomes to say: Are these patients really sicker or is this an artifact of the monitor? They didn't think that the African-American patients were sicker. They just thought it was an artifact. And their data showed that.

Then when we showed up with our monitor, they really didn't see that disparity. They didn't see low numbers to start to the extent that there were values that were in the interventional threshold or below an intervention threshold that they used. They were biologically believable. So they just said: Look, this is a monitor that we can trust. And they chose us. You're right. They're a very sophisticated buyer. Their process is probably the most sophisticated we've seen. And we were happy to come out on top on that one.

Charles Haff

Okay. That difference with the darker-skinned patients isn't something that I had factored into my analysis before. That's a very interesting new dynamic. I'm wondering if price came into the discussion much at all. Of course, hospitals are sensitive to pricing these days and since they're eating the cost of this, imbedding it into their expense base, I know that they are, hospitals can be price sensitive. Was price much of the discussion here or was it more driven by the clinical outcomes and doing what's best for their patients?

Tom Patton

I think it was the latter. Price is always important. We have to show these hospitals that the use of this technology can help them lower costs through the continuum of care and improve outcomes, and we think we have the data to do that. They were very clear all along that the decision was being made by the cardiac surgeons here and it was all about patient care. They really were kind of noble in the pursuit of the best technology. So we were thrilled by that.

Operator

Your next question is from Brian Marckx from Zacks Investment. Please go ahead with your question.

Brian Marckx

Tom, you talked about growth coming from, part of it coming market share gain versus your competitors and then increased utilization just within the cardiac surgery space, deeper penetration of that space. Are you also seeing any growth in terms of other procedures, so outside of a cardiac surgery, say, thoracic surgery or maybe beach chair shoulder surgery?

Tom Patton

Yes, we are. When we talk about things to our sales growth, there're sort of a, I'm speaking in generalities now, there's a phenomena that we see. Oftentimes when we acquire a new customer, either a Greenfield account or from a competitor, there's a base amount of business that is typically focused on the big cardiac cases. Then, after a period of time, where clinicians really begin to use the technology, understand it, we see expansion into other cardiac cases. We go from, say, on-pump CABGs to the tava room, maybe to the electrophysiology room for ablations. Then we also see this migration into neuro. We see migration into thoracic, and we see migrations into shoulders. So I think the answer is yes. As people gain experience with this technology, they find more ways to use it.

Brian Marckx

Okay. Great. I think you had talked in the past about a couple development projects, upgrades to FORE-SIGHT. I think one of those was continuous hemoglobin functionality. If you could talk about where that is in terms of development?

Tom Patton

Yes. We continue to pursue that. The data that we have so far is quite good. And now we're beginning to take this into the clinic to see whether or not that controlled data really begins to hold up with sick patients. We're on track and we're gathering information now.

Brian Marckx

Okay. In terms of traditional monitoring, I think you had guided previously that you expected that to be roughly flat this year, maybe up or down, plus or minus a percent or two. Is that still what your expectations are?

Tom Patton

Actually, we think we've had a couple of good quarters here and we think that that can kick up now. Jeff, what's our expectations for the full year for the traditional business at this point?

Jeff Baird

I would say, it's moderate single digit.

Operator

The next is from Larry Haimovitch, with HMTC. Please go ahead.

Larry Haimovitch

Tom, there was a comment in the prepared remarks about the productivity of the new reps. Obviously, Kim is very good at selecting her new reps. Does that suggest to you the possibility of adding more reps at some point given that she's been so successful in bringing on new reps and transitioning some of the old reps out? What's the feeling for you on that right now?

Tom Patton

It does. The economic return on a rep is dependent upon two things, both how quickly they come up to speed, develop a pipeline and begin to convert companies and then ultimately what I'll call their terminal velocity. What is their ultimate capacity when they're running at full throttle? I think that with Kim's leadership, we're beginning to see some changes in that and improvements in that model.

As that develops, I think we're compelled to do that math to see how many more reps we can afford on our path to cash-flow breakeven, and do that math to see how quickly and what rate we can hire them. So we're actually in the middle of that analysis right now and, hopefully, by our next quarter report we'll have something to report there. But you're absolutely right. As these reps become more productive in their quality and their capacity continues to improve, it improves our business model for adding new reps.

Larry Haimovitch

Okay. Good. Second point, you hit a very nice milestone getting 1,000 monitors out into the field. You and I have talked about this in the past. Do you feel you're getting closer to the point where this becomes a true standard of care, where it just becomes compelling and necessary for hospitals to use this technology?

Tom Patton

We are. First of all, that 1,000 monitor milestone actually is a great one, with half of that growth just coming in the last couple years. The last 500 we put in very quickly. We were thrilled by that. Knowing that this is care that we're providing to hundreds of thousands of patients around the world is exciting.

We do think that ultimately this will become the standard as care. The literature that I've talked about, the interventional outcome study that showed a positive impact on memory for interventions is all, the number of these key institutions that continue to expand their use of the cerebral oximetry. All of this points to the fact that I think it's a one way street. It will become the standard of care. When? I don't know, but if we continue to penetrate the cardiac market, and I suspect we're probably pretty close to 40% or maybe up to 50% at this point of the industry, they'll be a tipping point here sometime in the next couple years, I hope.

Larry Haimovitch

Tom, following up on that, the 40% or 50% you just cited, is that 40% or 50% of the cardiac care units and the surgery units? Or is that 40% to 50% of the cases that are being done? What was the metric there?

Tom Patton

Yes, 40% to 50%, I believe, of the cases that are being done are probably [Indiscernible] now with three-block symmetry. I'm talking particularly about the CABGs, the coronary artery bypass graft cases and big valve replacements, the on-pump cases. In terms of placements within cardiac ORs, I'd suspect that we're actually maybe a little bit higher than 40% or 50%, that the technology is available in more procedures than it is actually used. So again, what it compels us to do is try to expand that usage where we have these monitors in various cardiac ORs.

Larry Haimovitch

Tom, if you had a lot more cash and cash were not an issue at all, would you be able to spend more to get that standard of care moved closer than it is today?

Tom Patton

I think so, yes. I think that if I had a significantly higher cash balance, I would spend it more on sales reps because I think that that is really the only governor on our growth. It's just our ability to get out there and tell the story. And I'd spend it more on some of these really landmark interventional outcome studies.

Operator

Your next question is from Raymond Myers from Benchmark. Please go ahead with your question.

Raymond Myers

My interest is around the sales force. Let me understand some things here. You have 13 territories. I assume that's one rep per territory, correct?

Tom Patton

Correct.

Raymond Myers

Okay. So, you've swapped out seven of the 13 reps, so slightly more than half.

Tom Patton

Right. Just recently. Right.

Raymond Myers

Yes. So, of those seven, you said they experienced 24% growth and that is the same as the corporate average. Help us to understand that 24% growth. Because, of the four reps upgraded this year, one would anticipate they probably wouldn't be selling very much in the first few months of a new rep. Yet they still grew by 24%. Can you help us to understand how that works?

Tom Patton

Right. So the reps that we have had on board since, the ones that we hired in the middle to the second half of 2015 have really kicked in and their growth rates were significant, actually higher than the 24%. So the four new reps that we most recently hired, you're right, most of them were hired actually in the second quarter. Two were hired in the second quarter; two were hired late in the first quarter. While they're actually, we saw an increase in all but one of those territories already. In the second quarter over the prior year the growth rate was a little bit lower. But when you average the seven, they performed equal to the tenured reps, which is, I think, really a terrific statistic because I think they still have a great deal of capacity left to come. I think they're really just getting started here.

Raymond Myers

That's great color. Of the four reps that you hired this year, is their trajectory looking similar to the three reps that performed so well that you hired last year?

Tom Patton

It is or better.

Raymond Myers

As good or better. That's great.

Tom Patton

Yes.

Raymond Myers

So that dovetails into the next question, which was so you have 13 reps now. For a national sales organization, that sounds very low. If cash were not a constraint, how large would an effectively deployed sales force be?

Tom Patton

That's a hard question to answer because the more money I had available, the more reps I'd have. If I could afford 40 reps right now, I'd have 40 reps. I think, though, taking a step back from that, I think having about 20 to 25 reps allows you to reasonably cover the major metropolitan areas around the country. Our ability to get to that number as quickly as we can is a goal, so that kind of 20 to 25.

Raymond Myers

Okay. That's great. A final related question. Your cash liquidity is probably better today. I wouldn't say it's unconstrained, but it's better today than I've seen it in many years. Would you agree? And does that give you some flexibility to get toward that 20 to 25 maybe faster than people might expect?

Tom Patton

Yes, it does. We're always watching our cash, of course. It's late relative number that we would buy. I track daily, but with $7.6 million in cash at the end of the quarter plus another $2.1 million of availability, we've got about $9.7 million to work with here. And it does; it gives us a little bit of flexibility to add reps a little bit sooner than we would have. I don’t think that we get to the 25 in the near term, but we're doing the math and I hope to be able to report that we'll be adding a couple more later this year and early next year and spend some of that money because, again, as the reps become more productive faster, the return on that investment is delivered much faster.

Operator

[Operator Instructions] So our next question is from Charles Haff, with Craig-Hallum.

Charles Haff

I had a few numbers questions for you, Jeff, and then wanted to talk about the pediatric side, Tom. On the numbers side, Jeff, can you share with us what stock comp, D&A and CapEx were in the quarter? And maybe while you're looking for that, Tom, wanted to talk about pediatrics. This is a relatively new opportunity for you guys, just launched in late last year really. In the NICUs, they always want the best and they're not price sensitive really at all compared to the adult market. Can you talk to us about the pediatric market and where it stands today in terms of your penetration of that market? What kind of uptake you've seen from the children's hospitals. I know you've mentioned a few on prior calls, but any new wins on the pediatric side this quarter? Any color there would be helpful.

Tom Patton

I think that the pediatric market seems to be a very good opportunity for us. We've continued to train our sales force to sell into that market, which is a little bit different from the adult cardiac. I've been thrilled with the traction we're getting. We've had evaluations in a couple large institutions and those have gone very well. We've converted a couple of hospitals already and the list of targets continues to expand. That rounds out our product opportunity and is beginning to contribute to our growth rate and I think will continue to contribute to it going forward.

Charles Haff

So on the pediatric side, when you win business there is it mostly from competitors because they're using a competitive offering and you're displacing one of those? Or are there Greenfield opportunities on the pediatric side as well?

Tom Patton

Very few Greenfields because the penetration rate for three-block symmetry in the pediatric market is quite high. I'd say it's -- again, I'm just guessing, but it's probably in the 70%-75% of the pediatric hospitals use a three-block symmetry either in their cardiac cases or in the PICU. So typically it is a conversion from a competitor.

Charles Haff

Okay.

Jeff Baird

Charles, with respect to your question, stock comp for the three months ended June is 198,000; six months, 393,000; depreciation and amortization, 293 for the three months and 688 for the six months. And I'm guessing, if you have the press release, you already have the interest expense. If you're driving towards EBITDA, negative 920,000 for the three months just ended.

Charles Haff

Okay. And on the CapEx side?

Jeff Baird

Sorry, yes. In the three months ended, 225,000; six months ended, 627,000.

Charles Haff

I'm sorry, could you say those numbers one more time?

Jeff Baird

225,000 for the second quarter of this year and so year-to-date would be 627,000.

Operator

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Tom Patton

Thank you all for participating on today's call. We're pleased with our progress so far and look forward to updating you on our next call in November. Thank you 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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