AtriCure Inc (ATRC) 2012 Q4 法說會逐字稿

Good afternoon and welcome to AtriCure's fourth quarter 2012 earnings conference call.

My name is Derrick and I'll be your operator for today.

At this time, all participants are in a listen-only mode.

We will facilitate a question-and-answer session towards the end of the conference.

As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Lynn Pieper, AtriCure's Investor Relations consultant from Westwicke Partners for a few introductory comments.

Please proceed.

Thank you, Derrick.

By now, you should have received a copy of the earnings press release.

If you've not received a copy, please call 513-755-4136 to have one emailed to you.

Before I begin today, let me remind you the Company's remarks may include forward-looking statements.

These statements include, but are not limited to, those that address activities, events, or developments that AtriCure expects, believes, or anticipates will or may occur in the future such as revenue and earnings estimates, other predictions of financial performance, launches of new products, and market acceptance of new products.

Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including but not limited to the rate and degree of market acceptance of AtriCure's products, governmental approval, and other risks and uncertainties described from time to time in AtriCure's SEC filings.

AtriCure's results may differ materially from those projected on today's call.

AtriCure undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Additionally, we may refer to non-GAAP financial metrics.

A reconciliation of those non-GAAP metrics is included in our press release which is available on our website.

I'd like to remind everyone on the call today that the Food and Drug Administration or FDA has not approved certain AtriCure products for the treatment of atrial fibrillation or AF or for stroke reduction.

The Company and others acting on its behalf may not promote these non-approved products to train doctors with the surgical treatment of AF and stroke reduction unless the product is so indicated.

These restrictions do not prevent doctors from choosing to use the product for the treatment of AF or stroke reduction, or prevent AtriCure from engaging in sales and marketing efforts to focus only on the general attributes of the product for the current cleared uses.

AtriCure educates and trains doctors in the proper use of its products and related technologies, including for the treatment of AF in accordance with the product-specified indication.

With that, I'd like to turn the call over Mike Carrel, President and Chief Executive Officer, of AtriCure.

Mike?

Thank you, Lynn.

Good afternoon and welcome to AtriCure's fourth quarter and year-end 2012 conference call.

Joining me today is Andy Wade, our Chief Financial Officer.

On today's call, I'll provide a review of business trends, our strategy for capitalizing on our AF approval, new product developments, and an update on our clinical trial progress.

Andy will provide more detail on our fourth quarter financial results and will also provide our outlook for 2013.

As many of you know, I joined AtriCure in early November and I've spent the past several months working closely with employees and visiting customers to define the strategic and operating priorities of the Company.

Specifically, I've visited over 75 customers, met and received feedback from almost our entire organization, attended over five key trade shows, many of our educational sessions and spent time with our clinical consultants.

During this time, we completed our 2013th growth-oriented budget and strategy.

I've learned a great deal and am more excited today than when I joined.

I continue to be impressed by the resiliency of this team and my first impressions are the same as what I learned during my diligence.

We have a highly talented group of people, including employees and physicians alike who are all committed to our growth and success.

We have a great brand and an even better customer service ethic that permeates every aspect of the Company.

When you combine all of this with our FDA label, significant IP, exceptional products, first-class sales force, and now a strong balance sheet, we are well positioned to accelerate our growth in the upcoming years.

Our foundation is strong.

Now, we need to invest in key areas and execute.

In the midst of all the leadership changes, the Company stayed true to its mission and had many accomplishments during 2012, including growing the business more than 9% and International growing 14%; closing the year strong with $18.4 million in fourth quarter revenue or 9.5% year-over-year growth, building momentum going into 2013; training nearly 800 physicians on the Maze IV Procedure, representing roughly 400 sites; introducing key products, including the BOA Pro for minimally invasive clip in the US and the Coolrail relaunch; including a 510(k) clearance for both these products; starting enrollment in the Staged DEEP AF feasibility study, focused on the hybrid approach; receiving approval for the FDA ABLATE post-approval study; growing our cryo sales over 50% to 4,500 probes and gaining significant share; and finally, achieving nearly 80 competitive conversions.

As many of you know, we are committed to the disciplined growth and making our business simple to understand.

I believe in this market and under my leadership, we'll be focused on getting AtriCure to be broadly recognized as a dominant provider of technologies and solutions for the treatment of atrial fibrillation and left atrial appendage management for stroke reduction.

As such, we will anchor our business around the following five key strategic comparatives.

One, increase penetration and market share in the concomitant AF space.

Two, establish left atrial appendage management and AtriClip as a standard of care in conventional cardiac surgery.

Three, accelerate the growth of sole-therapy AF or MIS, and position the AtriCure procedure as the industry standard.

Four, establish a sole-therapy left atrial appendage AtriClip market.

And finally, five, increase AtriCure's global footprint.

In order to be successful in each of the areas mentioned, we need to be at the forefront of physician education and training, establish reimbursement expertise and proactive activity around this, accelerate our new product development efforts, continue our focus and dedication to the clinical science and yet align it with our commercial programs, and build better EP and cardiology partnerships.

Now, turning to some business trends, we are pleased to report that in the fourth quarter, US open-heart revenue including AtriClip was up 18% compared to the same period a year ago.

We believe that this is evidence of our investment and strategic priorities are building momentum and resulting in sustained growth in opportunities.

In the US, procedure trends have remained generally stable throughout the fourth quarter despite the typical seasonal slowdown in December and we continue to experience strong growth trends from our International markets, which were up 10% versus prior year on a constant currency basis.

We are also continuing to capitalize on our investments to support our AF approval through education activities designed to increase awareness and improve patient outcomes.

We initiated our first training and certification event a little over a year ago and to date, we have trained nearly 800 cardiac surgeons, up from the 569 surgeons we reported last quarter.

It is important to point out that what actually matters isn't the number of surgeons trained, but rather that the sites in which they are affiliated are certified and able to continue buying product from us.

As of now, roughly 80% of our customer base is certified and we are continuing to focus on the remaining sites, which we expect to be certified over the course of this year.

We are successfully expanding this program which as anticipated is resulting in increased utilization, competitive share gains, and cross-selling opportunities.

Training levels and the conversion of competitive accounts is providing inroads into new hospitals, which is bolstering our growth rates with the open procedures and put sales.

we expect this to continue to 2013, as we look to accelerate growth through continued and more focused efforts on education, marketing, and the development of a strong referral base.

Clip sales in the US posted growth of 34% and reached $1.9 million in revenue in the fourth quarter.

Our customers are increasingly interested in treating the left atrial appendage and with that are increasing their acceptance of our clip.

In the fourth quarter, we expanded our limited launch to full commercial release of our next-gen articulating robot-friendly clip applier called the BOA Pro.

As expected, it is capturing a meaningful price increase.

MIS sales in the US were down 8% in the fourth quarter, keeping with the trend we've seen over the past several quarters.

We embarked on several efforts to bring this growth rate back up over the long term.

These activities are centered around the acceleration of our DEEP clinical trial and include ongoing clinical support, increasing training and proctoring, and product development.

We are beginning to invest in the expansion of our feasibility study to be ready for a full pivotal trial.

In order to do so, we need to significantly expand the number of surgeons that are trained on this procedure throughout the US.

As such, we are establishing training centers and centers of excellence in the US as well as our crossing borders program with mastering.

Through this program, we are flying clinicians overseas to train as a team.

And finally, we are focused on product development to improve our technology and simplify the MIS approach.

We've recognized that many of these activities are long term in nature and will take time to develop and implement.

In the near term, we don't see growth coming out of the MIS platform.

Over the longer term, with our dedicated focus on clinical support and science, education and innovation, we remain optimistic that we will be successful in developing this market.

Internationally, we are making great strides.

We are expanding our international sales coverage, where we have direct sales particularly in Germany.

Additionally, we are converting the UK from a distributor model to direct.

We have added headcount in the areas of business development, international marketing, and we're adding distributors and support in Eastern European countries.

Operationally, we embarked on several key initiatives in the fourth quarter aimed at positioning AtriCure for growth.

First, as announced in mid-January, we completed a financing that broadened our shareholder base and brought $27 million in net proceeds to the Company.

This was a major milestone.

With a stronger capital structure, we are able to turn more of our attention to executing our commercial strategy.

Secondly, we announced three key promotions.

Andy Wade was promoted from VP of Finance to Chief Financial Officer.

Andy Wade has over 15 years of financial experience and has spent the past five years here at AtriCure, building out our finance and accounting team.

I have the utmost confidence in him.

And turning our focus to our commercial team, we promoted Doug Seith to Senior Vice President of Sales and Marketing.

Doug is responsible for further strengthening our commercial execution and marketing development in conjunction with expanding sales.

Doug has over 25 years of experience in cardiac surgery, cardiology, and general surgery sales, the last nine of which have been here at AtriCure.

We also promoted Mike Rogge, the Vice President of Marketing, and under his expanded responsibility, he'll be focused on market development activities, building a product management function, and physical education programs that reach the redefined target markets.

Mike has over 22 years of medical device experience, the past seven with AtriCure.

In addition to these promotions, we're also beginning to expand our commercial team and have recently added a Director of International Marketing and a Director of Referral Development here in the US.

Both of these individuals have 25-plus years of experience at major medical device technology companies, with a particular focus on AF.

Lastly, we are pleased to announce that Dr. Jim Cox has joined ArtiCure to guide us in the development and execution of a world-class professional training and education program.

It's hard to quantify what it means to work alongside the inventor of the Maze procedure, which has been responsible for improving the lives of hundreds of thousands of patients.

Dr. Cox believes that with our FDA approval and post-approval study, we are in an excellent position to drive awareness, education, and treatment of AF patients and we agree.

We believe that Dr. Cox's primary areas of contribution to AtriCure will include, one, the assistance in developing a world-class physician training and education program; two, helping to assemble and coordinate our Medical Advisory Boards and Committees; and three, working with regulatory and clinical to help guide protocols, contribute to communication with the FDA and to help develop and justify our clinical trials.

Suffice to say, Dr. Cox will be very busy working to ensure that more patients are treated with improved outcomes.

Moving to an update on our clinical programs, in an effort to bring more clinical knowledge internally and better monitor cost, we're building up our internal clinical research operation and continue to leverage and work with our outside consulting firm in key strategic areas.

As a result, I'm pleased to announce that we recently added a Director of Clinical Operations, a seasoned individual with over 20 years of clinical trial experience.

Additionally, we continue to invest in clinical science and FDA approvals.

In October, we start enrolling in our ABLATE post-approval study or PAS.

This landmark three-year, 350-patient study is intended to build additional evidence on the safety, efficacy, and long-term durability of the ArtiCure Maze IV concomitant treatment for AF using ArtiCure's proprietary surgical devices.

The study is being led by Dr. Patrick McCarthy, Chief of Cardiac Surgery at Northwestern University and includes almost 50 sites from around the US who will be enrolling patients.

As of today, we have 16 sites up and running with an additional 25 which are going through final IRB approval and processes.

Including the patients from the ABLATE AF, we now have approximately 100 patients enrolled and expect to accelerate the enrollment in the back half of the year.

The study supports our goal to increase penetration and market share in the concomitant AF market.

Moving to the Staged DEEP AF Feasibility trial.

As Mike Hooven discussed on the last call, we initiated enrollment in the DEEP AF Feasibility study in September at two sites.

We now have four of six sites up and running and have enrolled 13 of the 30 patients to date.

This study supports our goal of accelerating our growth for sole therapy and working closely with EPs as it is a hybrid procedure.

While we do not yet have results to report, we are pleased with the progress and look forward to providing an update as we have more data.

Now, onto the ABLATE II.

ABLATE II was designed to get approval for a right lateral thoracotomy sole-therapy approach.

We've decided to cancel this study in favor of putting our efforts behind the DEEP study noted earlier and a yet to be determined stroke and/or clip study.

We will make a final decision on these additional clinical studies during fiscal 2013.

In the meantime, we will continue to support key strategic research in both the US and Europe.

In summary, I'm excited about the opportunity at ArtiCure and in the past 100 days, we've raised the necessary capital to support our growth, made several key hires to support our initiatives, continue to make progress on our clinical studies and physician education.

I'll now turn the call over to Andy Wade, our Chief Financial Officer, to provide more detail on the fourth quarter financial results and provide guidance for 2013.

Thanks, Mike.

For the fourth quarter of 2012, revenue increased 9.5% to $18.4 million.

Revenue from product sales in the US was $13.7 million, an increase of 10.2% from the fourth quarter of 2011.

Revenue from open-chest ablation-related product sales in the US increased by approximately $1.1 million to $8.4 million, with the decrease in sales of products used in minimally invasive procedures of approximately $300,000 to $3.4 million.

US sales of the AtriClip System during the fourth quarter of 2012 were $1.9 million as compared to $1.4 million for the fourth quarter of 2011.

International revenue grew 7.8% on a GAAP basis and 10.1% on a constant currency basis as compared to the fourth quarter of 2011, up to $4.7 million.

The increase in International revenue was driven primarily by growth in Europe.

Consistent with prior quarters, we experienced a modest decline in ASPs in the fourth quarter.

Gross margin for the fourth quarter of 2012 was 70.8% as compared with 70% for the fourth quarter of 2011 and 71.6% for the third quarter of 2012.

Similar to what we've described for earlier quarters, the year-over-year change in gross margin was primarily the result of investment in manufacturing and quality systems to transition and maintain the manufacturing of PMA-approved products and to support our expanding operations, along with a small portion driven by the continued increase in the mix of International sales and an increase in the placement of capital equipment.

We also took a $225,000 charge to our inventory reserve, equal to approximately 125 basis points on gross margin.

We continue to be highly focused on increasing efficiencies and reducing product costs.

Operating expenses increased 10.6% or approximately $1.4 million from $13.4 million for the fourth quarter of 2011 to $14.9 million for the fourth quarter of 2012.

Sequentially, operating expenses were up $800,000.

Research and development expenses, which includes clinical activities, were $3 million for the fourth quarter of both 2012 and 2011.

Note that in the fourth quarter of 2011, we recorded a $300,000 gain on the sale of a patent as an offset to R&D expense.

Year-over-year, this gain was primarily offset by a significant decrease in consulting expense from the fourth quarter of 2011, related to the preparation for the FDA panel meeting held last year.

We expect clinical cost to increase modestly in support of our key clinical initiatives, namely the post-approval study in DEEP AF along with the continued investment in our product pipeline.

SG&A increased approximately $1.4 million, due to increases in selling, marketing, and training costs, along with legal and administrative expenses.

Our operating loss for the quarter was $1.9 million as compared with approximately $1.7 million for the fourth quarter of 2011.

Our adjusted EBITDA loss was approximately $945,000 compared to $575,000 for the fourth quarter of 2011.

Our net loss per share was $0.12 for the fourth quarter of 2012 compared to $0.13 for the fourth quarter of 2011.

Turning to the full year, worldwide revenue was $70.2 million, a GAAP increase of 9.1% or $5.8 million over 2011.

On a constant currency basis, growth was 10.3%.

For the US, sales grew 7.5% to $52.6 million.

US open revenue was strong, growing at 12.6% to $32.9 million.

Cryo ablation products, which are included as a component of open sales, performed very well, growing over 50%.

US sales of products used in minimally invasive procedures declined 10.1% from 2011 to $12.7 million.

US sales of the AtriClip products grew 25.9% to $7 million.

International revenue grew 14% on a GAAP basis and 18.9% on a constant currency basis to $17.6 million.

Gross margin was 71.2% for 2012 compared to 73% for 2011.

EPS was a loss of $0.47 for 2012 compared to $0.35 for 2011.

And our adjusted EBITDA loss was $1.8 million for 2012 compared to income of $131,000 for 2011.

Note that 2012 included approximately $1.6 million of expense or $0.10 per share related to the departure of the former CEO and CFO.

Now, turning to a few balance sheet items.

We ended the quarter and year with $12 million in cash, cash equivalents, and investments.

Additionally, we had approximately $5 million of borrowing capacity under the revolving portion of our credit facility.

As a reminder, in mid-January, we completed a stock offering of approximately 4 million shares, which generated net proceeds of $27.1 million.

We believe our current cash position will support the execution of our strategic plan.

Lastly, we would like to provide the following guidance for 2013.

We anticipate top-line growth of approximately 9% to 11% year-over-year on a GAAP basis, or revenues of $76.5 million to $78 million.

We anticipate gross margin to be in the 70% to 72% range for the year, which implies a modest price decline, consistent with what we've been seeing.

Note that we will be including the medical device excise tax as a component of cost of goods sold and we expect this tax to impact our gross margin by approximately 100 basis points to 125 basis points or $800,000 to $1 million.

We do not anticipate being able to pass along this cost to our end customer.

We expect R&D to be in the 17% to 18% of sales range and SG&A to be roughly 64% to 66% of sales in 2013, a slight increase in spending levels versus 2012.

We anticipate increased spending related to previously describe activities, including clinical science, training and education, and international expansion.

We expect adjusted EBITDA for 2013 to be a loss in the range of $3 million to $5 million.

Lastly, we anticipate an increase in cash burn for 2013 versus 2012 due to additional investments in operating expense to fund commercial development and product development activities and international expansion, along with working capital and CapEx needs to support our growth strategy.

At this point, I would like to turn the call back to Mike for closing comments.

Thank you, Andy.

Overall, we are pleased with our fourth quarter performance.

We expect growth in 2013 to be led by ongoing success in training and education initiatives, which is driving conversion of competitive accounts at an accelerating pace.

In addition, we are investing in our clinical and commercial efforts to further accelerate this growth sustainably.

As the only Company in the world with an FDA approval to treat the most serious forms of atrial fibrillation, we are committed to advancing the field.

Coming out of 2012, the strongest industry movement that we are seeing indicates that surgeons are warming up to treating atrial fibrillation and AtriCure is emerging as an education leader on this endeavor.

With our recently completed financing in January, we have strengthened our balance sheet to successfully build and grow our business.

We are transforming AtriCure into a commercially focused organization with a clear eye towards accelerating our growth, leveraging our operating structure, and eventually driving profitability.

I look forward to updating you on our progress and we'll now open the call to questions.

(Operator Instructions).

Our first question is coming from the line of Tom Gunderson, Piper Jaffray.

Hi.

Good afternoon.

Hi, Tom.

So, Andy, just a quick clarification on adjusted EBITDA, that's GAAP EBITDA and then including stock comp as well?

That's right.

Okay.

And it looks like at $945,000 loss for the quarter and a $3 million to $5 million projection for the 2013 year, it's pretty close to the run rate that you ran in the fourth quarter as a midpoint.

I mean that's the way we're going to -- I'm looking at modeling here and the modeling will be pretty close to what you did in the fourth quarter?

Right.

Okay.

Thanks.

And then, Mike, my goodness, 75 customers and five trade shows and four months, plus meeting all of the employees, what was the one overriding trend, what was sort of -- did you get any aha moments where after talking to 50 customers, you knew what the next 25 were going to say as far as what you needed to do to maybe help them a little bit and jazz sales at the same time?

Two things, I'd say, and I don't know if they were aha moments, I think they are more confirming statements; one was that, continue to invest in education and physician education was by far came across from every single person that I met, across the board, not just here in the US but globally; number two was to continue to focus and actually lead the field from a clinical science standpoint, continue to invest in the right types of trials, make sure that we're not -- we're spending money where we're going to actually get approval that we can take advantage of.

And what I was most impressed with from the customers is they want us to be successful long term because they believe that it is important for the field, more than anything else.

And that was, I'd say, probably the biggest aha moment, how much they really embraced this Company for success, not for their own personal success but truly for eventually patient outcomes and having good technologies in the market.

Got it.

Thank you, guys.

The next question is from the line of Jason Mills, Genuity.

Hi, guys.

This is Jeff Chu filling in for Jason.

Thanks for taking the questions.

Yes.

Mike, by our calculations, the US open-heart ablation revenue excluding AtriClip was lower in the second half of 2012 versus the first half.

We would have expected open-heart revenues in the US to ramp as 2012 went on given the increasing number of trained centers.

So could you give us a little more color explaining the reason for this trend and what will improve the slope of this sequential curve?

I mean the key growth area -- and I believe the open market is actually, probably the most exciting near-term -- it is the most exciting near-term market for us.

We believe that that market is where you're going to see the growth in 2013.

If you look at it over the year, we're about 13% growth on that open side and when I'm looking at it overall, for the business, I truly believe that's really where we're going to see.

Education is critical towards that.

We are continuing to see competitive conversions, as I briefly mentioned.

We had 15 competitive conversions in the most recent quarter.

Those conversions take time to actually drive to revenue though.

They don't just convert overnight and tomorrow, we are getting revenue.

They need to get rid of inventory that they might be using; they need to get trained on our product and up and running; they need to get close with our reps, so they are actually bringing us in the cases and that just takes time.

And I believe that our continued focus on that education is going to be critical.

People are switching though because we have an advantage.

We've got the only FDA-approved product which matters; our products have proven efficacy and we are the one doing the certification course and you combine those three things together and we're getting the exposure, it's just that it's not going to happen overnight.

Great.

Very helpful.

Just a couple of housekeeping questions.

With regard to the guidance, what are your expectations for US and International growth in that 9% to 11% range?

We are not giving specific guidance by area.

We do -- we are obviously investing a tremendous amount in International.

We think that International can grow at a faster pace than it did this year, for sure.

And so -- and on the US, I believe that we are going to continue to seek strong growth on the open side and on the open clip and hopefully getting on a track back on the MIS side towards stabilization on that throughout the year.

Your next question is coming from the line of Danielle Antalffy from Leerink Swann.

Hi.

Good afternoon, guys.

Thanks so much for taking the question.

If I could start and push you a little bit on the long-term guidance, you're reinvesting heavily.

Can you talk about what you see as the keys to getting you back up towards that 15% range from a top-line growth perspective, the puts and takes there?

And also, on 2013 guidance, what are the puts and takes that get you to the high-end of the range versus the 11% versus the 9%?

Well, I'd say the puts and takes is, if you break down our business really simply on the open concomitant side, that's where we see in the short term, 2013 and 2014, that we continue to see growth.

I do believe this education platform that we have is going to continue to show an acceleration on that side in the US market.

On top of that, we're starting to see more and more clips being applied when we're doing that.

We don't have specific statistics around the percentage of open cases that we have that are tied to that, but we are seeing a nice increase, it was 26% growth in the US market last year on the clip side.

So I believe those two things are really going to begin to start the trend to get us towards that 15% that we talked about in the outer years.

Combine that with, from an MIS standpoint, as we get into the trials and we start moving forward with that and getting more sites up and running and surgeons trained, we'll begin to stabilize that business and that should begin to kind of show to get -- and that applies to both 2013 and to the future years.

If we get that up to kind of a baseline, you'll begin to see us at the top end of the range, if you just kind of do the math on it.

And then, longer term, obviously, hopefully getting that back to on a growth path.

Okay.

That's helpful.

And then, you did just do this cash raise, how do we think about your cash position to get you to profitability?

Will you have to go back to the market or do you guys feel comfortable where you are at this point?

We feel very comfortable with where we are right now.

Okay.

Great.

Thanks so much, guys.

Your next question is coming from the line of Matt Dolan, ROTH Capital Partners.

Hey, guys.

This is Chris Lewis on line for Matt.

Thanks for taking the questions.

Hi, Chris.

You've touched on the international expansion plans for the year, but can you provide some more details just on the progress you've made so far internationally, perhaps where you're adding some of the reps, and how many have been added so far and how many you expect to add by year-end?

Sure.

So a couple of things on the international front.

The first thing we did in the international front was actually add a little bit more infrastructure, so we brought in an International Marketing Manager to help us actually understand reimbursement and the appropriate business plan to go after the different countries.

On top of that, we actually added somebody on the service level, so he could provide better service to both our distributors and on the direct basis.

We're beginning to recruit and expand coverage very specifically in Germany.

We're currently at about two reps.

We anticipate that to grow at least double over the course of the year and into some other areas as well.

We're converting our UK from a distributorship into a direct model, that'll happen mid to end of the year.

And so we're making progress on all those fronts on the European Continent.

Specifically in Asia, what we're doing is we're renegotiating our contract with our distributor to add additional products and to get those approved, that won't have much of an impact on 2013.

But we do see that 2014 and 2015 having some impact on our growth rates and working very closely with the distributor to get those products into the market and to get some more growth out of the Japanese marketplace, where we have a dominant share today just on the clamps.

And then, in China, we have a very good distributor that we're working with and I'll be visiting there in the May time frame to talk to that distributor about growth plans and what they're going to be doing to kind of expand their sales force that enable us to grow our products there as well.

Okay, thanks, that's helpful.

And then, with a number of the investment needs you've highlighted on the call, how should we expect that increased operating spend to trend throughout the year, given the different investments?

I think it'll be a pretty -- we're not going to hire everybody upfront.

We did hire some of the key people pretty quickly in January-February.

So some of them were expensive individuals, let's just say, at the beginning of the year, but we do have hiring in that 25 to 30 plus range throughout the year and it will be throughout the year.

It's not all going to be in the first quarter.

Okay.

And then, in terms of the gross margin, it's down a bit sequentially.

How should we expect that to play out throughout 2013?

Sure.

Chris, this is Andy.

We've got some programs in place with our operations folks to help offset some of the things I talked about earlier in terms of the device excise tax, and also the pricing pressure that we might expect which again will be very small, but obviously, we have given the guidance at 70% to 72%.

We're working on some programs to help offset those.

So, I would anticipate modest improvement as the year goes along and then, especially, as we ramp and grow, as you get farther and outside of 2013, would continue to expect to leverage our operating structure.

Okay, thank you.

And at this time, I'm showing no further questions.

Thank you.

I'd like to turn the call back over to Mr. Mike Carrel for any closing remarks.

All right.

Well, everybody, thank you very much for joining us today.

Look forward to speaking with you on the road over the coming months.

Have a great day.

Ladies and gentlemen, that concludes today's conference, we thank you for your participation, you may now disconnect.

Have a great day.