Executives
Joe Dorame
Gregg O. Lehman - Chief Executive Officer, President and Director
Wesley W. Winnekins - Executive Vice President of Finance and Corporate Development
Todd M. Austin - Executive Vice President of Global Marketing, Engineering and Corporate Strategy
Analysts
Jack Wallace - Sidoti & Company, LLC
Larry Haimovitch - Haimovitch Medical Technology Consultants
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
MGC Diagnostics (MGCD) Q3 2013 Earnings Call August 29, 2013 4:30 PM ET
Operator
Good day, and welcome to the MGC Diagnostics Third Quarter of Fiscal Year 2013 Operating Results Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead, sir.
Joe Dorame
Thank you, Denise. Thank you for joining us to review the financial results for MGC Diagnostics Corporation for the third quarter of fiscal year 2013 which ended July 31, 2013. As Denise indicated, my name is Joe Dorame of Lytham Partners. We are the investor relations consulting firm for MGC Diagnostics Corporation. With us on the call representing the company are: Dr. Gregg Lehman, President and Chief Executive Officer; and Wes Winnekins, Chief Financial Officer.
At the conclusion of today's prepared remarks, we'll open the call for question-and-answer session. If anyone participating on today's call does not have a full text copy of the release, you can retrieve it from the company's website at www.mgcdiagnostics.com or numerous financial websites.
Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of MGC Diagnostics Corporation during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The use of words such as anticipate, believe, estimate, expect, project, intend, plan, will, target and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects identify forward-looking statements.
The forward-looking statements contained herein are subject to certain risks, uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward-looking statements included herein. These risks are detailed from time to time in MGC Diagnostics Corporation's filings with the United States Securities and Exchange Commission, including the annual report on Form 10-K for the year ended October 31, 2012.
Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The company undertakes no obligation to publicly release the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
With that said, let me turn the call over to Dr. Gregg Lehman, President and Chief Executive Officer of MGC Diagnostics Corporation. Gregg?
Gregg O. Lehman
Thank you, Joe. I would also like to thank all of you for participating on today's call. We appreciate your continued interest and support of MGC Diagnostics as we continue to position MGCD as the leading cardiorespiratory medical technology company. I am pleased to report our third quarter financial results were very strong and on a sequential basis, they continued the momentum from a very good second quarter.
Total revenue increased 15% versus last year's third quarter with double-digit growth across most revenue categories and geographies, and we recorded the highest level of net income since the first quarter of 2007.
Domestic and international revenue increased 12% and 29%, respectively. Equipment sales increased 17%, and service revenue increased 29%. Increased service revenue, along with higher average selling prices for equipment, improved gross margin by more than 170 basis points to 55.4%, and operating expenses as a percent of revenue fell to 46.9% compared to 57.8% for last year's third quarter.
An important driver for the quarter was the 29% increase in service revenue versus the comparable quarter last year. Our continued focus is to work with our customers to ensure their MedGraphics products work effectively and efficiently with very little downtime. This represents an important market differentiator for our company.
An important metric for us is the point-of-sale Attachment Rate for extended service contracts. For the just-completed third quarter, the Attachment Rate increased to 26% compared to 3% in last year's third quarter. These contracts, which have terms ranging from 1 to 5 years, will result in higher-service revenue in future periods once the initial 12-month warranty expires.
In that regard, recurring revenue for the third quarter increased 12% to $3 million and represented 38% of total revenue. Revenue from our GPO or Group Purchasing Organization distribution channel increased 20.5% compared to the third quarter of 2012 and accounted for 54% of total revenue. We are pleased with the solid and consistent growth from these 2 categories thus far.
International revenue for the quarter was up 29% versus last year's third quarter, driven by new sales in Latin America and Canada. We experienced a revenue decline for the quarter in our European and Asia-Pacific markets, but we continue to show positive growth in these markets for the year.
For the 9 months, net cash provided by operating activities was $1.3 million compared to $222,000 for the first 9 months of fiscal 2012. Our cash position is now approximately $9 million, which is where it stood prior to the $1.8 million special onetime dividend we paid in this year's second quarter.
We continue to achieve measurable progress in driving sales and profitability as indicated by operating results for the quarter, which are in line with our internal expectations. Heading into our strongest quarter of the year, we fully expect to complete the year on a strong note.
At this point, I'm going to turn the call over to Wes Winnekins, our Chief Financial Officer, for a detailed review of the financial results for the quarter. At the conclusion of Wes' remarks, I will provide you some additional background and then open the call for your questions. Wes?
Wesley W. Winnekins
Thank you, Gregg. For the third quarter, we reported revenue of $7.9 million, an increase of 15% from the prior year's third quarter revenue of $6.9 million. Equipment and accessories revenue increased 17% to $4.9 million from $4.2 million during the prior-year third quarter and accounted for 62% and 61% of total revenue, respectively. This increase is primarily due to increased sales of pulmonary equipment through our group purchasing organizations, international distributors and higher average selling prices.
Supplies revenue was flat at $1.7 million compared to $1.7 million during the prior-year third quarter and accounted for 21% and 24% of total revenue, respectively. Comparatively, supplies revenue for the third quarter is up 13% from the quarterly average of $1.5 million for our first 2 quarters. Moving forward, we remain focused on improving supply sales as they are an important component of growing our recurring revenue base in improving gross margin.
Service revenue, which includes service contracts and time and material billings, increased 29% to $1.3 million from $1 million during the prior-year third quarter and accounted for 17% and 15% of total revenue, respectively. This increase for the quarter is primarily due to a 16% increase in revenue from extended service agreements and a 61% increase in revenue from time and material billings. Again, as with supplies, growing service revenue will be an important objective as we work to increase our recurring revenue base in gross margin.
Domestic revenue for the third quarter increased 12% to $6.3 million from $5.6 million during the prior-year third quarter. The increase in domestic revenue was primarily due to an increase in service revenue, GPO and direct-to-customer system sales. Domestic revenue accounted for 80% of total revenue for the quarter compared to 82% in last year's third quarter.
International revenue increased 29% to $1.6 million from $1.3 million during the prior-year third quarter. This increase was primarily driven by increased equipment sales within the Canadian and Latin American markets. International revenue accounted for 20% of total revenue for the quarter compared to 18% in the prior-year third quarter.
Moving down the income statement. Gross margin as a percent of revenue was 55.4% for the third quarter compared to 53.7% for the prior-year third quarter. The 170 basis points improvement in gross margin is primarily due to improved pricing for equipment sales, time and material service billings, volume and product mix during the quarter. Overall, we expect to sustain margins in the mid-50% range absent significant changes in volume and product mix.
Regarding operating expenses, third quarter sales and marketing expenses were $2.2 million compared to $2.1 million from last year's third quarter. Third quarter general and administrative expenses increased 7% or $60,000 to $973,000 compared to last year's third quarter of $913,000. Research and development expenses came in at $591,000, representing a decrease of $234,000 from last year's third quarter. This decrease is primarily due to expense reductions attributed to management level personnel changes and the conversion of consultant services to full-time, internal personnel.
Year-to-date, we have invested approximately $1.3 million in new research and development initiatives. For the quarter, capitalized software development costs totaled $153,000 compared to $216,000 for the same quarter last year. Even though research and development expenses have decreased, we will continue to invest in new development to ensure our future product pipeline remains robust and to improve our ability to grow future revenue.
In total, operating expenses for the third quarter as a percentage of revenue decreased approximately 11 percent -- percentage points to 46.9% from 57.8% in last year's third quarter. Higher revenue is a primary reason for this positive results.
Operating income for the third quarter was $669,000 compared to an operating loss of $276,000 in the 2012 third quarter. We reported net income of $652,000 or $0.16 per diluted share versus a net loss of $133,000 or a negative $0.03 per diluted share during the prior-year's third quarter.
As of October 31, 2012, the company continues to carry net operating loss and general business tax credit carryforwards. The company estimates that the amount of net operating loss carryforward that is not limited is approximately $14.5 million. These loss carryforwards will expire in years 2018 through 2032, and related deferred tax assets are fully reserved.
As a result of the August 2012 New Leaf asset sale, the company has eliminated all revenues and expenses associated with this New Leaf business and presented the income from New Leaf activities as discontinued operations. For the prior-year third quarter, the income from operations of discontinued operations was $147,000.
Turning to the balance sheet. Cash and investments were $8.8 million at the end of the third quarter compared to $9.7 million at the end of our last fiscal year. On April 26, 2013, the company paid a special onetime cash dividend to its shareholders in the amount of $0.45 per share or approximately $1.8 million. The company ended the quarter with no long-term bank debt, and working capital totaled $13.6 million compared to $13.5 million at the end of our last fiscal year.
That concludes my comments, so I'll turn the call back to Gregg.
Gregg O. Lehman
Thanks for that review, Wes. Let me now touch on a few additional issues before we open the call for your questions.
During the third quarter, we continued to gain traction by obtaining additional sales from accounts held by our competition. I am very pleased to report for the first 9 months of the fiscal year, we converted 71 new accounts from our competitors, representing approximately $3.9 million of new revenue. While we operate in a fairly mature market that consistently grows at a mid-single digit rate, we are confident that we can grow our revenue at a higher rate by taking market share.
Our sales, marketing and field service teams are identifying significant, competitive opportunities and converting those opportunities into new customers. We have an ambitious internal goal for the fiscal year, and we are making good progress towards accomplishing that goal.
By way of review, let me update you on our new forced oscillation technique product or FOT. Forced oscillation is significant in that it can detect pulmonary airway abnormalities with dramatically enhanced sensitivity. FOT will provide medical professionals the ability to make quicker and more accurate diagnoses, ultimately driving down treatment costs. In addition, patients can breathe normally during the test, which is a benefit for patients with severe breathing issues.
As I indicated during last quarter's call, we obtained a CE registration mark in the European Union in April for our FOT product. We are currently wrapping up the training phase for our European distributors. We expect to report our initial international sales in our next earnings release and quarterly conference call.
As it relates to the approval in the United States, we have submitted a 510(k) application to the FDA, and the approval process is proceeding as anticipated. We believe that FOT will receive FDA approval before the end of our fiscal year, so we can begin to market and sell the product domestically. We remain excited about the possibilities for FOT.
For the sixth consecutive quarter, MGC Diagnostics was awarded MD Buyline's #1 overall rating in a number of evaluation categories including pulmonary function products, service and support capabilities. We are pleased to be recognized as a market leader by the industry's leading independent industry analyst.
In closing, MGC Diagnostics today is more competitive, innovative and customer-driven than it has ever been. Our focus is to consistently grow our business with new product introductions and best-in-class service, expand our market share and of course, enhance shareholder value. We have made substantial progress in reconfiguring this company and are now generating positive results. I would like to thank all of our employees for their efforts. There will be many opportunities for us in the coming years, and we look forward to taking this company to the next level.
Before I turn the call over to our conference operator to commence the question-and-answer session, I want to introduce Todd Austin, our Executive Vice President of the Global Marketing. Todd is joining us on the conference call, so if you have any high-level clinical questions, feel free to ask Todd.
With that, Denise, let's open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question will come from Jack Wallace of Sidoti & Company.
Jack Wallace - Sidoti & Company, LLC
A couple of questions here for you. One, was there any -- was there a large -- a new large account or a large order that was placed in the quarter that would have helped the results similar to, say, what Frontera did on the previous quarter?
Gregg O. Lehman
This is Gregg. No. Actually, this quarter just provided quite a few what we call small and mid-level sized sales. We had anticipated the possibility of one landing in Q3, but that was slightly delayed, so we're hoping that you'll see little more activity with what we call luminary accounts in the fourth quarter. But no, there were no outliers like we had in Q1 and Q2.
Jack Wallace - Sidoti & Company, LLC
Okay. That actually answered my follow-up in thinking that there could be 1 or 2 POS to come in the fourth quarter. It's good news there. Second, it was mentioned that sales were down slightly in the EU and Asia. Was there any reason for that or was it maybe just some seasonality or a blip?
Gregg O. Lehman
I think it's a blip, and it is seasonal. We do find that in Europe, in particular, there are still pockets where some of the effects of the recession are still hanging on, and hospitals, in particular, that issue government tenders for new equipment are a little slow out of the gate. But we do think that because our year-to-date sales in some of those softer markets for Q3 are still very strong, and we expect them just to continue to grow anyway for the next several quarters.
Jack Wallace - Sidoti & Company, LLC
And then, it was mentioned a couple of times in the prepared remarks that the average selling prices were going up and was that, like I say, a factor of a better product mix from the comparable quarter? Was there better GPO pricing? Can you tell me kind of what was going on there?
Gregg O. Lehman
Yes. Wes may want to jump in on this, too, or possibly even Todd. But basically, a lot of that has to do with product mix and some of the accounts that we closed. We also did not have to provide discounting that we do sometimes. The GPO pricing has stabilized, and we haven't found, really, any significant continued degradation in margin as it relates to GPO accounts. So do you guys want to add anything to that?
Wesley W. Winnekins
I think that's good.
Gregg O. Lehman
Okay.
Jack Wallace - Sidoti & Company, LLC
And I guess lastly here, it looks like you're starting to really pick things up from taking market share. You're starting to generate a larger amount of cash than previously. Do you have any plans of the cash -- from the previous quarters, there was talk about some possible M&A activity. Is there anything on the horizon that you're -- or certain areas maybe that you're looking at similar to your last efforts? Any other plans for the cash?
Gregg O. Lehman
Well, we're always thinking through that, Jack, and candidly, we're trying to remain very opportunistic as it relates to emerging technologies or companies that could potentially be M&A targets. So we are going to continue to be opportunistic and find uses of that cash as we proceed with our efforts when we get down the path where it's discloseable, we'll obviously talk about that on conference calls. But we're not just content to sit on this cash indefinitely. Hence, that's the reason we didn't have any M&A activity that concluded in an acquisition during the last 12 months. So that's why we declared that special onetime $0.45 per share dividend.
Operator
The next question will come from Larry Haimovitch of HMTC.
Larry Haimovitch - Haimovitch Medical Technology Consultants
A couple of my questions were answered, so now I've got to be creative. So the Attachment Rate obviously is something you're very proud of. I'm sure it's been something we've talked about when we've met or we've talked on the phone as well. And it's great progress. Is there an upper limit, Gregg, to where that number can go? You've gone from 3 to 26, that's a tremendous improvement. Obviously, you're very happy with that. But where could that go? Could you get 50%, 60%, 70% or 80% of the contracts down the road? Is that possible?
Gregg O. Lehman
That's the goal. I mean, I think we're always going to try to increase it. Obviously, we were a little late to the game compared to some of our competitors who have Attachment Rates above 60%. But our goal is to continue to push and show improvement year-over-year in those Attachment Rates. So I don't know if there is an upper limit, but I would think once you get closer to 70%, you probably have reached saturation in terms of some of the smaller hospital systems. You may not have as much success as you would for a larger installed base where they have a lot more to risk if they're doing more tests on a given day or a given month. So it's -- I would guess, somewhere in the 40% to 70% range is a lot more comfortable for us. We're very pleased with 26% or 27%, but we're not satisfied to rest on our laurels. Let's put it that way.
Larry Haimovitch - Haimovitch Medical Technology Consultants
And that is, Gregg or Wes, you mentioned service revenue is providing you a better gross margin. I'm assuming also that business is very good for cash generation as well?
Wesley W. Winnekins
Yes. That's correct, Larry. We get that cash upfront at the point-of-sale. So when the deal is closed, we'll get the cash related to the service revenue upfront. I think we won't be able to recognize that revenue until the initial 12-month warranty expires on the system.
Larry Haimovitch - Haimovitch Medical Technology Consultants
So I noticed on your balance sheet, Wes, the deferred income account has gone up, looks like roughly 30%, which it sounds like it's more or less paralleling the 26% -- the 29% or whatever that number is, jump into service revenue. Is that sort of a good rule of thumb that the deferred income accounts is going to grow approximately at the same rate as the service revenue is?
Wesley W. Winnekins
Well, clearly, the increase in deferred income compared to the end of our last fiscal year is by and large attributed to the growth of service contract revenue. There are also some other revenue sources that are booked into deferred income. It could be a trading that we don't deliver until after a period of time from the systems sale. There could be some other equipment elements related to an upgrade path that get deferred and recognized when that equipment is shipped and installed.
Larry Haimovitch - Haimovitch Medical Technology Consultants
Okay. And then the service revenue, the deferred service revenue gets recognized on a quarterly basis as you go through each quarter?
Wesley W. Winnekins
Yes. It's all tied to the contract terms, Larry. So we can sell either generally, a 1 year, 3-year or 5-year service contract. So it kind of stands again, but I would say that most of our contracts right now are generally 3-year contracts that are being sold at the point of service. So once the first 12 months of the warranty expires beginning in months 13, which is month 1 of the amortization of that contract through month 36, we'll recognize that ratably over 36 months.
Operator
Our next question will come from Brooks O'Neil at Dougherty & Company.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
So I'm curious, obviously, you highlighted again having success against some of your competitors, I think -- at least one of which is quite a bit larger. Can you just talk a little bit about what you think is driving that success at this point and where you see that going maybe in the future?
Todd M. Austin
Brooks, this is Todd Austin. That's a great question and a lot of the success that we have right now is anchored to 2 points. 1 of those is our service and customer support reflected by the rankings in MD Buyline. And the customers that have a reason to go shop and convert, that tends to be one of their first stopping points. And the second is really the connectivity of the electronic medical record. We have a professional services team that implements and installs and consults with those hospital systems information technology departments to assure that the data they have collected over time is accessible in their new instrumentation, and that our new instruments in push-and-pull data from their EMR system and make that accessible to the entire system, positions for interpretation, billing departments for billing and placing orders and conducting day-to-day testing.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
That sounds interesting. So one other question I had is, Gregg mentioned the FOT product and then also highlighted his desire to continue investing in new products. I don't know if you want to talk much about some of the things you're thinking about in terms of the new dimension. But if you could, it would be a big help.
Gregg O. Lehman
This is Gregg, Brooks. We can't give you guidance on that, but we can talk generically about what our R&D strategy is, and I'll let Todd -- Todd actually oversees our research and development department, so I'll have him weigh in on that just a little bit.
Todd M. Austin
Brooks, on the FOT, Gregg gave us a good update on where we are with expecting to get the FDA approval by the close of fiscal year and gaining traction in upcoming international trade show events where we train our business partners and start to roll that product out. As far as the overall engineering strategy, you can see in the notes that we've shifted from a consultant-based to a long-term permanent employee. So all the savings that are reflected really come from that investment in the long-term personnel. And we've also kind of flattened our organization and taken out some levels of management to have closer contact with our development team. And then most importantly is the $1.3 million to date that we've invested in new R&D. And as innovation is the pipeline to a medtech company, that's where our R&D development investment, really, is anchored on technologies and products in the future.
Gregg O. Lehman
So Todd, you might want to amplify just a little bit in terms of -- would you say to our investors that our goal is to focus not only on new and innovative product releases on a consistent basis, but also we're kind of morphing into more of a technology company, which would include robust software but innovative software as well?
Todd M. Austin
Very much so. We're in the midst of a couple of software projects that are revamping our acquisition software, as well as extending this connectivity software platform that we previously described, really making the data, not only secure and private, but mobile to the expanding health care organization. As we see these hospital systems consolidate, and they wanting to control their referral network and their external patients, making sure that the data is accessible to their hospital information system, as well as their consulting and referring physicians is extremely important today. Not only just the devices from collecting robust data and allowing the diagnostic test, but really making that data portable and accessible to everybody who needs access to that. And that software is sold in on a software license and a subscription base based on usages. So that's an additive to our existing software that just sells acquisition software to diagnostic devices.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
That sounds great. I'm just curious about one additional thing and that is, as you think about the mobility and the patient situation today, it seems to be that one direction might be data gathering from patients not in a hospital or office setting, but maybe in the home. I'm curious if you see any potential for your product set moving in that direction.
Gregg O. Lehman
Very much so. We see that same trend that home health care and telemedicine, really, is on the frontier and coming closer and closer and making sure that not only can we collect that data that physicians use to monitor their patients long-term for medication changes or quality of life changes, but also being able to capture diary events and wellness scores and being able to tie that back into their overall database. Along with that, there's a host of handheld devices that are used to mark those patients in a remote setting. And although our products today are really based in the university and the hospital, we've got active programs identifying how to extend that technology into the patient-centered homes.
Operator
[Operator Instructions] The next question will come from Terry Bungie [ph], a private investor.
Unknown Attendee
And I think the percent of profitability as a percent of revenue is really starting to move up in a range that one would expect in a medical device company, so I think that's extremely encouraging for us as investors. I guess, I echo everything that people have been talking about in terms of encouraging R&D and getting more products out the door. I guess, I just have a question about the FOT product and how that is going to be positioned. And not knowing a lot about this market space, I guess my question would be, as we look at an existing customer that has your equipment currently, when the FOT product is released, is that product then a product that would replace their existing units or is it an additional product they might buy? Or how is it going to be positioned against your current product line?
Gregg O. Lehman
Great question, Terry. It's not a product that cannibalizes our existing product line. It's really an adjacent extension to that diagnostic array of products we currently have. And it really is in line with what we just previously discussed as far as providing simpler and easier technology to the less technical user as it moves away from the university and hospital laboratory. It gives very similar measurements that our current products do, but it gives it in a way that's very simple to the operator to use, that provides a great deal of quality assurance and the oversight and interpretation that provides results to less skilled technician and a physician who wants to provide that service but either doesn't have the capital funds available to invest in a large laboratory or has a small space requirement in their clinic that doesn't accommodate the footprint of some of our devices. So as we move further and further away from the laboratory, these devices tend to get smaller and simpler. But yet, they're very robust and the connectivity components of those devices become even more important. And devices like the FOT device have an array of sending data back to the hospital, either through a cell phone card, a wireless network or even downloadable data that the patient can bring back with him at the next physician visit.
Unknown Attendee
So do you see most or a very large percentage of your existing customers adding this to their capabilities?
Gregg O. Lehman
That's the desire. We see that our existing customers that are hospital and university based adding these devices to kind of complement the device that they currently have and then move out into their outpatient clinics and satellite clinics in that area. And then alternatively, we continue to find ways to position this technology for the larger opportunity of home healthcare and telemedicine as that market starts to develop and emerge in the future.
Operator
[Operator Instructions] The next question will come from Lou Moser [ph] of Mayfax Investors.
Unknown Analyst
I haven't really noticed the company until your report came out this afternoon. And listening to the conference call, I had a question about the FOT product also, which has been mentioned several times. And the question is, do you expect to have this product approved at the end of the coming quarter? Is that what I heard?
Gregg O. Lehman
Yes, we do. By the end of the fiscal year, we expect to have it approved. It's been submitted for about 35, 40 days now. We have our initial K number that the FDA grants for filing, so we know that it's been preliminarily reviewed by them. And from the date of submission to the date of potential approvals, typically at 90-day window at which towards the latter part of that where we're currently at, we expect to receive questions from the FDA. The risk of not being approved is relatively low in this product because there are product and devices in the marketplace that's not a pioneering technology. But yet, there's always that risk that we go into the an extra round of questions with the FDA that could postpone the approval. But we don't have any indication that, that's the case yet.
Unknown Analyst
So is there an estimate as to when, if approved, it could bring in some revenue for you?
Wesley W. Winnekins
Yes. We're estimating -- the first quarter of our next fiscal year is the target for our global release. That does include the European release that we already have, as well as the U.S. FDA. The FDA gives us access to other markets, too, in Korea, in Canada, in Japan and markets that kind of wait for the FDA approval before they push those out. So as we get our FDA approval, it will allow us to extend that product into outside U.S. markets.
Unknown Analyst
Okay. The FOT product was the only product I heard mentioned, assuming it's the one that you're most dependent on. I guess the question would be, once this starts to roll out, assuming everything falls in place, percentagewise, can you give me an idea how important the product will be to the overall sales of the company? Are you expecting 2% of the sales, or do you have any estimate as to what it could be if it rolls out correctly?
Gregg O. Lehman
We really don't have an estimate that we can anchor that to. We know that there's interest in the market. We know what the competitive products that are similar to FOT, kind of what they're unit sales are and the strategy that's out there. We've positioned this product as we described as a simpler, easier-to-use, well-connected device as far as the information technology, and we see advantages there that could give us better traction than the existing products. But really, we're focusing on just getting our basic approvals and putting into our existing implementation.
Wesley W. Winnekins
And the way we would probably provide some information about FOT would be, after it's been selling in the market for -- in the market globally for a year, we probably have a much better feeling as to how that product is going to do. As we cranked out real-time diffusion as our product release last March, it now represents over 80% of our new product sales. So we're just going to have to wait and see and then basically do our own internal forecasting based on how the product is received in the market.
Unknown Analyst
Okay. On those subject I followed specifically, small companies that doesn't know too much about with very low volume trading. But what happens is at a certain point in time, in my experience which is over decades, when a company is noticed and because they're doing well, volume comes out of the woodwork. I mean, its intrigue [ph] increase. And that looks like the potential in the case of the MGCD. The question about the coverage of the company, all I can find is one analyst that predicted that you're going to makes $0.06 and you made $0.16. I don't know how close to the company he is or what kind of relationship you have with him, but more so than that, is there any effort or interest in terms of pursuing other opportunities with other analysts that you might add to one that does cover your company now?
Wesley W. Winnekins
This is Wes Winnekins. Yes, we do have an interest in developing additional relationships with research individuals. When you're a small public company, it's hard to get the attention. And then coming out of the past 5 years being kind of business to sideways, it's hard to attract that attention. Now that the numbers are moving at a very positive direction, we would hope that additional research individuals will come to the table and then have an interest in covering the company.
Unknown Analyst
Do you attend any industry conferences where analysts are -- where you can do a presentation for the analysts?
Wesley W. Winnekins
Yes. We have a pretty robust investor relations program. Joe Dorame is on the call with us today of Lytham Partners. He get us involved in investor conferences where he thinks we'll get some really good visibility as a company. So he's targeting those investors, much maybe like yourself , that like small public company stories that are beginning to do well. We, Gregg and I, will go on the road a couple of days in the quarter and do meetings in large cities that have the kind of investors that would be appealing to us. So it's -- we do have a very active investor relations program. We'd like to get similar analysts in here and we're always interested in getting in front of new investors.
Operator
Ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to Dr. Gregg Lehman for his closing remarks.
Gregg O. Lehman
Thank you, Denise. Thanks to all of you for participating on today's call. We look forward to talking with you again at the conclusion of the current quarter. Have a great day and a safe and restful holiday weekend.
Operator
Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
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