Cardiovascular Systems Inc (CSII) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2009 Cardiovascular Systems Earnings Conference Call. My name is Shamika and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Larry Betterley, Chief Financial Officer. Please proceed, sir.

Thank you, Shamika. Good afternoon and welcome to our Fiscal 2009 Fourth Quarter Conference Call. Before we begin, I'd like to remind you that during the course of this call, we will make forward-looking statements relating to future financial and business performance that involve risks and uncertainties.

These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and include statements regarding CSI's future financial and operating results or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our registration statement on Form S-4 filed with the Securities and Exchange Commission on January 26th, 2009.

We suggest that you read this and other future filings that we make with the SEC. CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. We will also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains a reconciliation table to GAAP results, and this information is available in the Investor section on our website at www.csi360.com.

In a few moments, I'll provide a detailed review of our financials, but first I'll turn the call over to Dave Martin, CSI's President and CEO. Dave?

Thanks, Larry. This is CSI's second quarter as a publicly traded company and it also marks the end of a fiscal year for us. We achieved a number of milestones in fiscal 2009. Of note, we shifted the focus of the Company to balancing revenue growth with bottom line improvement. We limited operating expense growth and gross margins increased substantially.

While accomplishing this, revenue has grown sequentially each quarter, as it has since the September 2007 launch of the Diamondback 360. As a result, the Company's bottom line improved dramatically, moving CSI toward our goal of profitability. Our sales organization is implementing the Diamondback 360 system with physicians throughout the United States so that they can treat patients with PAD or peripheral arterial disease. We're expanding our clinical research programs to provide data for patients, their families, physicians and hospitals. And we continue to add new projects to our portfolio like PAD.

Fourth quarter revenue of $15.7 million was up sharply over the year ago period and up from the March quarter. It came in slightly below our forecast, largely because of limited spending on programs this year to conserve cash. Further, we dedicated valuable selling days to train our sales force on new procedural methods for the Diamondback 360, and on our new products in a rapidly expanding product portfolio. These initiatives slowed growth in the near term, but position us well for high, profitable growth over the longer term.

Recent operational highlights include the first patient enrollment in our COMPLIANCE 360 clinical trial and progress on other studies, a new product launch in our Viper line and announcement of a US distribution agreement with Invatec. Let me start with a brief review of the Diamondback 360. Through this product, CSI is playing an important role in raising the standard of care for patients with PAD, blockages in leg arteries that could adversely affect the quality of life through immobility and pain. Ultimately, PAD can lead to potential catastrophic risk of limb amputation and crushing expense to patients and their families.

CSI designed the Diamondback system to give physicians a safer, more effective tool to treat the 8 to 12 million Americans who suffer from PAD. The Diamondback system treats plaque throughout the leg in just a few minutes treatment time and addresses many limitations of other treatments. In less than two years since FDA clearance, the Diamondback system has been used in over 15,000 cases. We have completed three PAD clinical studies, including our gold standard OASIS trial and one coronary study.

Our unprecedented safety profile means more patients are finding relief and improved outcomes with significant economic benefits. Our products' competitive benefits include differential sanding that protects the vessel wall and minimizes the potential for arterial perforations or dissections, and the ability to change vessel compliance both above the knee and below the knee in treatment time of just a few minutes.

Our technology platform can be leveraged across multiple market segments, and we have products in development to improve our effectiveness in treating PAD as well to expand our capabilities into coronary applications. Physicians are readily adopting our technology as indicated in both increases in both hospital counts and physician users.

The number of hospital accounts rose to 556, up from 487 at the end of March 2009, and 183 at the end of fiscal 2008. We sold nearly 4,700 Diamondback 360 devices in the quarter, up from 4,600 in the third quarter, and 3,000 in the fourth quarter of last year. Our 90-day reorder rate was strong at nearly 90%. Also, revenue from reorders comprised nearly 90% of total revenue for the quarter, up from 72% in the fourth quarter of last year.

Our US field organization is driving our growth. We now have just over 100 direct sales professionals, the same sequentially as the third quarter. Our plan is to keep the current field force level in fiscal 2010 first quarter. This large, clinically oriented team gives us the ability to reach more physicians in more hospitals with our technology and leading products.

Further, we are leveraging the strategic asset by expanding our product portfolio. Finally, I want to point out that in June, CSI was added to the Russell 3000 Index, which measures the performance of the 3,000 largest US companies based on total market capitalization. Inclusion in the new Russell 3000 index enhances our visibility among investors.

Now, Larry will provide a summary of the financial results. Larry?

Thanks, Dave. As Dave noted, revenue for the quarter grew to $15.7 million, which was a 59% increase over the $9.9 million in last year's fourth quarter. All revenue at this time is generated in the United States. Diamondback device revenue was about 90% of the total revenue, similar to third quarter this year and fourth quarter last year. Supplemental products from our Viper line and Invatec balloons accounted for most of the rest of revenue this quarter.

The sequential revenue increase this quarter over the fiscal third quarter slowed somewhat, primarily because we limited sales and marketing programs to conserve cash prior to completing the reverse merger, refocused the Company on balancing revenue growth with improvements in profitability, and dedicated time to train the field organization. The effect was most evident in initial order revenue, which declined at $700,000 from third quarter to fourth quarter 2009. Programs have now been reestablished, and the training was substantially completed in July.

Gross margin improved to 73% from 63% in the same quarter last year due to higher disposable volumes, product cost reductions and greater manufacturing efficiencies. A greater number of controller shipments, including second units at customer sites and units shipped prior to receipt of complete stocking orders, lowered the fourth quarter gross margin slightly from the third quarter. In the fourth quarter, the gross margin of the Diamondback devices alone, excluding controllers and other revenue, was nearly 80%.

SG&A expenses rose 18% to $14.2 million. As we have discussed, the major factor behind the increase was the planned expansion of our field sales organization and infrastructure investments to support CSI's growth. Note, however, that the growth rate of SG&A was less than half of our revenue growth rate. And SG&A has not grown since the first quarter of fiscal year 2009.

R&D expenses declined to $2.8 million, a 50% decrease over the year ago period, due to the completion and timing of projects, particularly our 2008 coronary trial in India, and the decline in expenses for PAD projects including the electric handle project. CSI continues to invest in innovation and product development to enhance our devices' ease of use and to improve the clinical effectiveness of our technology. We are also working to expand our capabilities into coronary applications.

The fourth quarter operating loss improved by 50% over the year ago period to $5.6 million, a result of strong revenue and gross margin growth with a lower growth rate for operating expenses. Other expenses were $69,000 for the quarter versus $100,000 in last year's fourth quarter. Key drivers were gains from the increased fair value of auction-rate securities and a related put option that were offset by debt warrant amortization and interest expense from debt issued during fiscal 2009.

The net loss improved 50% to $5.6 million, or $0.40 per basic and diluted share in the fourth quarter from $11.3 million or $2.34 per share in the year ago period. The number of weighted average common shares outstanding increased to $14 million from $8.3 million in the third quarter of fiscal 2009, and $4.9 million in the last quarter of fiscal 2008, primarily due to the February 2009 completion of the reverse merger.

On an adjusted EBITDA basis, calculated as loss from operations less depreciation and amortization expense and stock-based compensation expense, CSI's loss narrowed to $3.6 million from $4.6 million in the third quarter, and also improved from $10 million in the prior quarter last year. We are pleased with the progress we've made towards profitability.

For the 2009 full fiscal year, comparisons are more pronounced with only three quarters of revenue in the same period last year. Due to the timing and FDA clearance and September 2007 market launch of the initial Diamondback 360 product, revenue rose to $56.5 million versus $22.2 million in fiscal 2008. In fiscal 2009, we sold 17,250 devices versus 6,800 last year.

Gross margin was 71%, up from 60% in 2008, driven again by higher volumes, product cost improvements and manufacturing efficiencies. Operating expenses were $74.5 million compared to $51.4 million in fiscal 2008, reflecting the buildup of the Company's sales force and infrastructure. The 45% increase in operating expenses is far lower than the 155% increase in revenue for the fiscal year. And expenses decreased in each quarter of fiscal 2009 since the first quarter. The first quarter of this fiscal year did include a $1.7 million write-off of capitalized IPO costs from withdrawal of our IPO.

R&D expenses were higher earlier in the current fiscal year due to a greater number of PAD development projects and our coronary study in India. For fiscal 2009, the net loss was $31.9 million compared to $39.2 million last year. The lower loss reflects higher revenue and gross profit, partially offset by the higher operating expenses. Fiscal 2009 also includes $3 million of other income from a decrease in the value of preferred stock warrants.

Adjusted EBITDA for fiscal 2009 narrowed to $27 million from $30.5 million in the previous fiscal year. Net loss available to common shareholders decreased to $9.1 million or $1.13 per basic and diluted common share from $58.6 million or $13.25 per share in fiscal 2008. The decrease was driven by a $22.8 million decline in the value of preferred stock in fiscal 2009 versus a $19.4 million increase in value in fiscal 2008 and by the lower net loss between periods. All preferred stock and preferred stock warrants were converted to common stock and common stock warrants on the completion of the reverse merger.

I'll now make a few comments about the balance sheet. The February 2009 reverse merger between Replidyne and CSI has resulted in a strong balance sheet, primarily affecting cash and equity. We ended fiscal 2009 with $33.4 million in cash versus $37.8 million at March 31, 2009 and $7.6 million at June 30, 2008. The year-over-year increase is largely the result of approximately $37 million in net assets, mostly cash, received through the reverse merger. We expect these resources and our debt capacity to carry the Company to profitability and positive cash flow.

Accounts receivable have continued to grow with revenue, but we're maintaining a 40-day DSO. Revenue has declined as a result of careful inventory management, even though -- inventory has declined, even though revenue has risen, as a result of careful inventory management. We continue to hold auction-rate securities with a par value of $23 million. The current fair market value combined with the fair market value of a put option asset related to those securities is $22.8 million.

The put option asset relates to our acceptance of the UBS offer to repurchase our securities at par value beginning in June of 2010. In the meantime, UBS has provided us with a full par value loan against those securities at an interest rate of (inaudible - technical difficulty) on them. The remainder of our debt consists of two term loans from Silicon Valley Bank, due in equal installments of principal and interest through August and November of 2011.

I will now turn it back over to Dave for an update on our product portfolio expansion, clinical research and CSI's financial outlook. Dave?

Thanks, Larry. In the fourth quarter, CSI announced several developments related to both clinical research programs and product offerings. First, a clinical research update. At CSI, we recognize that patients and their families, physicians and hospital decision makers need sound, scientific data to support their clinical decisions, and we are committed to an ongoing clinical research program. In June, the first patient was enrolled in the COMPLIANCE 360 study, a prospective, randomized, multi-center study evaluating the clinical benefit of modifying plaque to change large vessel COMPLIANCE above the knee with the Diamondback 360.

This study compares the performance of the Diamondback 360 plus three atmosphere balloon inflation, if desired, with that of high pressure balloon inflation alone. This study calls for enrolling 50 patients at five US medical centers. Hospital IRB, or internal review board submissions are in progress for the CALCIUM 360 study, also a prospective, randomized, multi-center study comparing the effectiveness of the Diamondback 360 to balloon dilatation in treating heavily calcified lesions below the knee.

Calcified lesions occur in 75% of lesions below the knee. This study will also enroll 50 patients at five US medical centers. Additionally, a retrospective study evaluating the long-term results of 64 patients from our pivotal OASIS trial has been completed. Outcomes were analyzed out to a mean of 29 months and include limb salvage rate, target lesion, and revascularization rate and ankle brachial index.

The results are expected to be reported by Dr. Barry Weinstock, an interventional cardiologist at Orlando Regional Medical Center, in an abstract at the September TCT Conference. These studies will expand on the knowledge gained through out landmark pivotal OASIS clinical trial, the prospective multi-center trial for our unique PAD system.

In addition, based on the excellent clinical outcomes in treating lower extremity PAD with the Diamondback 360, we intend to leverage the device's capabilities to expand into the interventional coronary market. A coronary application would address a large opportunity, further leveraging our core technology and expanding our market potential.

In 2008, the Company completed the ORBIT 1 trial, a 50-patient study in India, which investigated the safety of the device in treating calcified coronary arterial lesions. Results successfully met both safety and efficacy endpoints. An IDE application was recently submitted to the FDA for ORBIT 2, a United States pivotal trial to evaluate the safety and effectiveness of the Diamondback 360 in treating severely calcified coronary lesions.

In early April, we named Dr. Nabil Deeb, a highly qualified interventional cardiologist and researcher, the Company's medical advisor. He has formed a world class science task force, and together, they oversee the Company's ongoing clinical programs to ensure that clinically useful information is being provided to our physician users and the medical community at large.

Next, I want to recap two product related developments. We introduced the ViperCaddy, a secured guide wire holder that provides a steady grip on multiple guide wires used during an interventional procedure, improving treatment efficiency. ViperCaddy joins our growing portfolio of supplemental products, all designed to optimized performance of the Diamondback 360. They include the ViperSheath, ViperSlide, ViperTrack and ViperWire.

In April, we initiated a distribution agreement with Invatec, a comprehensive provider of interventional products based in Italy. Under this agreement, CSI is marketing Invatec's PTA balloon catheters in the United States. We have trained our sales team on Invatec products, and our team is now offering Invatec Submarine Plus, Admiral Xtreme, and Amphirion Deep PTA balloon catheters. Through this relationship, we're expanding our offerings to physicians while leveraging our sales organization.

In some cases, balloon angioplasty may be also used to achieve larger vessel diameter after removing plaque. In these cases, vessels can be made more compliant through initial treatment with just a few minutes of the Diamondback system, followed by three-atmosphere Invatec balloon expansion, reducing the risk of vessel damage and the need to stent. These product developments reflect our commitment to providing physicians with the endovascular tools they need to fight PAD.

Now, I'd like to discuss out outlook for the fiscal 2010 quarter. CSI anticipates revenue in the range of $15.7 million to $16.5 million, representing growth of 35% to 42% over the first quarter of fiscal 2009. We expect the gross margin to be similar or slightly higher than the fourth quarter of 2009. The first quarter net loss is expected to be $6.1 million to $6.6 million, representing a 52% to 55% improvement over the first quarter of fiscal 2009. Loss per share is expected to range from $0.42 to $0.46 per share based on 14.5 million shares outstanding.

On an adjusted EBITDA basis, which again is calculated as loss from operations less depreciation and amortization expense and stock based compensation expense, we anticipate a loss between $3.6 million and $4.1 million, versus a loss of $11.8 million in last year's first quarter. The improvement in net loss and adjusted EBITDA between periods reflects increasing revenue and gross profit and a decline in operating expenses. We anticipate a cash burn rate of approximately $2 million to $2.5 million per month. Balancing progress towards profitability with revenue growth has been a key priority for us the last two quarters.

In addition, valuable selling time has been dedicated towards to train our commercial team in new procedural methods for the Diamondback 360, centered around changing compliance in vessels and restoring blood flow in just a few minutes of treatment time, and on our rapidly expanding product portfolio. These initiatives have slowed our growth for the last six months of fiscal 2009 and the first six months of fiscal 2010, but position us well for significant profitable growth over the longer term.

To that end, we expect to grow revenue by about 30% in the fiscal year 2010 and achieve our first profitable quarter during fiscal year 2011 while living within the cash resources and debt capacity we have now. Fiscal 2009 was a milestone year for CSI and our employees. Our Diamondback 360 system is performing well and gaining physician acceptance as demonstrated by our significant revenue growth and procedure growth.

We restructured our business to balance that growth with improving profitability and conserving cash. We've established a clinically oriented sales organization that will become increasingly productive as they gain experience, and as we introduce new products and support them with additional marketing programs.

We have an experienced R&D science and regulatory teams that are developing new products and moving clinical trials forward to provide critical information that meets market needs. We're expanding our product portfolio, and more products are in the pipeline, adding to the tools that we offer physicians to fight PAD. And we expect to leverage our technology to expand into additional markets such as coronary. And finally, we believe that the minimally invasive PAD market is growing at a double-digit rate, driven by the need for effective treatments to remove plaque and modify compliance for arterial vessels both above and below the knee.

Now, we'd like to open the call to questions.

Thank you. (Operator Instructions).

Your first question comes from the line of Ben Andrew of William Blair. Please proceed.

Hi. Good afternoon, David.

Hey, Ben.

Hi Ben.

A couple of quick questions for you, just curious about the training and the procedural shift that you've seen. Can you give us a little bit more detail on that and kind of where that came from and why it's proven such a distraction this last quarter in particular?

Yes, we did invest in field training. We have a field sales team in training and out in the field for up to four full days times the 100 professionals that we had. And the reason why is twofold.

One is we've got a specific recipe for above the knee. And just as we walked out of the OASIS trial with a specific gold standard recipe, short run times for below the knee, we, through working with our physicians and through single center study, now recognize that that same treatment opportunity is available to us above the knee, short run times, two minutes, followed by three-atmosphere balloon. So procedurally, we wanted to install that with our field sales team and roll that out to our customer base.

The second reason is new products. We've got new products that are six months new at best. We've got the ViperSlide, the ViperSheath, the ViperTrack, the ViperCaddy and the new relationship with Invatec. So it was a great time to pull the field sales team in and regroup behind new products and specific and prescriptive procedural selling.

Was -- when you look at the kind of same store sales, if you will, on a day basis for a rep in the second -- this fourth fiscal quarter versus the previous quarter, did you see a change there? Is that still going up at the same rates, and this diluted that? Or did that flatten out this quarter?

Well, we've -- let me step back a little bit, we've had flat commercial spending for four quarters. We've had the same size field organization for several quarters. And we feel great about the increase in reorder rate overall. Versus the previous year, reorder revenue increased by 100% and sequentially reorder revenue increased by 10%. Our devices per account per quarter is at 8, which is strong compared to other devices in this space, and we are committed with this training to march that out to double digits per account per quarter over time.

Does that answer your question?

Yes, it gets to it. Okay, so, as you think about the drivers of growth over the next year and the guidance that you've given, you've gotten most of the guys trained. You said you finished that up in July. How do you feel about kind of rep productivity over the next year? Are we going to see that increase 5%, 15%, or is it going to be driven by staff adds in terms of the revenue growth you'll generate?

No, we're really attentive on our current, existing account base, and the answer is both. Yes, we'd like to march up through training and prescriptive procedural selling accounts, devices per account per quarter up. But yes, we'd also like to expand the customer base. We're only penetrated into a fraction of the available hospital universe, and even exponentially lower the number of users dedicated to endovascular peripheral treatment.

Yes, Ben, I think if you look at the sales, the quarterly sales per account manager, about $155,000 per manager in the fourth quarter, and we see that going over up over $200,000 by the end of fiscal 2010.

Okay. Okay, that's helpful. And then, Larry, just a question for you, the gross margin, it moved around a little bit in the quarter. How would you look at that in the same sort of time frame out a year? Are we getting back to more of those peak numbers or is this a new kind of base we're working off of?

No, I'd say it dropped a percentage point from third quarter, but I would see it going back up around 70%, mid-70's, potentially a little higher by the end of the year.

Thank you.

Your next question comes from line of Ernest Andberg of Feltl and Company. Please proceed.

Good morning, or afternoon now, aren't we?

Yes.

Hey, what -- how are you allocating the sales time between new accounts versus getting deeper penetration, or as the previous questioner asked, same store sales?

It is dominated by same store sales. We've got a prescriptive way to allow the physician to treat in a very short period of time, a couple of minutes, above-the-knee lesions. And we want to install that to serve our current customer base first. But we also want to grow and expand the account base. But I would say that the commitment to training and the regrouping of our sales force behind new products and these new procedural pearls is aimed first at our existing, standing customer base.

Ernie, I would say, before we've talked about opening 75 to 100 accounts per quarter, but with this different focus, I would say that number would be closer to 50 per quarter in 2010.

That was going to be my next question. So basically, at 50 per quarter, you expect some improvement in the same-store sales site and I think --?

That's correct. We do expect usage per account to increase throughout the year.

Okay Dave, I think that you said that you expected a cash burn of $2.1 million to $2.5 million per month. Was that in the first quarter and should, as revenues improve and the loss decline, go down over the balance of the year?

That's correct, Ernie. That did relate to the first quarter and the burn rate should come down as revenue grows throughout the year.

Okay. Larry, on the R&D line, where should we expect that to go from the low point in Q4? You've got one trial started. You've got a second trial you're trying to get the ID or the hospitals to agree to start up, and then you've got the ORBIT 2 trial coming. How does that drive the R&D line over the balance of the year, or in 2010?

I'd say, Ernie, that Q1, it'll probably go up a few hundred thousand dollars in Q1 and be fairly flat throughout the year --

Okay.

-- from that point.

Okay. Dave you had made a comment about the absolute decline in SG&A expenses and then stabilizing in the last two quarters. Your guidance in the first quarter suggests that goes up some. Either Dave or Larry, how do we look at that over the Q2 through Q4?

Yes. I'll start that. We've had flat sales and marketing commercial spend throughout the last year. We've been able to grow the Company with the same size field force over the last couple of quarters and the opportunity certainly warrants more investment. We're not remotely penetrating the large market opportunity and there would be reason to spend more going forward.

So, we ought to expect that to trend up over the balance of the year?

Yes, I'd say sales and marketing and expense would grow in the 5% to 10% range over the year. G&A should be pretty flat, but the sales and marketing portion would go up, depending on the revenue growth, 5% to 10%.

Okay. Larry, you mentioned, I think, during your comments that your disposable revenue on your new installations was down $700,000 quarter-over-quarter. Did I hear you right when you made those comments?

Yes, Ernie, the new installation revenue was $1.7 million in the fourth quarter of '09, and in third quarter, that was $2.4 million. So, as we've changed this focus, and really moving more towards focusing on the new procedural methods and driving the adoption, we have been installing fewer new accounts, which drove that decline.

Okay, so is it simply the lower number of new accounts, or is it less catheters being shipped to the new accounts or I guess a combination is the third alternative?

Yes, it's a combination, Ernie. You're correct.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Stephen Simpson of Northland Securities. Please proceed.

Thank you. Guys, quick question on sort of the competitive state of the market. Looking at your competitor, EB3, they had a strong sequential performance for this same quarter, and I'm curious if you're getting any feedback from customers or your sales team as to something they may be doing differently or more aggressively to be prompting that reversal of growth for them? Thanks.

Yes, I mean they took the tough route there with $40 million in sales and then down over the several quarters previously and then back up recently. The market is so large and there's not enough minimally invasive tools for the physicians to use. I think any device with utility can do well. We have led growth in this space and will continue to lead growth in the space.

All right, thanks a lot.

Your next question comes from the line of Raj Denhoy of Thomas Weisel Partners. Please proceed.

Hi, good afternoon.

Hi, Raj.

I should ask a little bit of clarity. I may have missed this, but did you mention -- you talked about training of the sales force, and basically taking them out of the field for a period of time and that may have impacted some of the growth over the recent quarters. Is that now come to an end? Do you expect to get the sales force fully back out there now in the first quarter so that this kind of training period is behind us?

We're committed to ongoing training. We think that short term investment will pay incredible long term dividends, both in the coming quarters with new products, installing our new above-the-knee recipe, supporting the clinical trials and then as a ramp up to eventual coronary approval, we believe. So, there'll be more training to come.

I guess what I'm trying to reconcile, though, is that your guidance for the first quarter, on the very low end of it is essentially flat sequentially on what you did here in the fourth quarter, and I'm trying to figure out as to why that would be --?

It reflects the quarter. It reflects our commitment to ongoing training.

So, that's really what might drive it to the low end is that the sales force won't be fully out there again? Or is it something else that may be, to that previous question, that competitively it is getting more difficult out there for you to grow as aggressive sequentially?

It takes repetition over time, so even for the training that we have done, to install that it takes more than one visit to our user base. So, that takes time to show in the numbers. In addition, we liked what we saw in the training and the potential it gives us, so we're going to do more of it.

Okay, okay. So in a sense, you guys still aren't, in a sense, fully out there, I mean since you're still in this training mode. Is that -- am I incorrect in --?

Well, we took four days out of last quarter. So, that's a fraction of the selling days, but that's a reasonable amount for what we offer, which is a two-franchise solution for those physicians who treat PAD and for six new products, the oldest of which is only six months new, and we've got a commitment to new things going forward and to training and bringing the group together regionally in areas and as a national sales team. It'll accelerate the long term opportunity for installation of procedure and product.

And part of it lies too, as we're going out and implementing the new procedural methods, that takes time to implement, and will, as I mentioned in a previous question, it will impact our initial orders and probably we will do fewer initial orders in the quarter than we did in Q4. And that will have an effect.

Okay. Okay, I think I understand that. And then, you -- the Invatec balloon business, did you break out what the revenue was for that in the quarter, the distributed revenue?

No, we didn't.

We don't break that out. It is part of our supplemental revenue, which is most of the remainder of our revenue, not Invatec, but supplemental in total.

So, in a sense, I think you broke out the disposals were something like $14.1 million in the quarter. It's not in that $14.1 million. It's in the other piece?

It's in -- right, it's in the other -- the remaining.

Okay. Great, that's all I have, thank you.

(Operator Instructions).

Your next question comes from the line of Joshua Zable of Natixis. Please proceed.

Hey guys, congrats here on a nice quarter and thanks for taking my questions.

Thanks, Joshua.

I just kind of want to get back to kind of what Raj was getting at. I'm just trying to understand. You guys have been probably been growing the atherectomy market in general over the past year, getting to lesions that other people can't, if you will, and I'm just sort of trying to reconcile sort of what's going on with your sequential growth. I know you guys explained about training, but even so, I guess I'm just trying to understand, do we think the market can still grow? Obviously, to what extent do we think that is?

I know you guys have some data coming out and that's obviously very important I think for the entire market and especially for you guys. But I just want to know if we've sort of hit a point where you guys, because you've talked about growth relative to same-store sales, so is it really a function of the guys who believe in atherectomy now believe in the Diamondback, and because you guys do procedures faster and maybe they like it better, they're going to use it more? And the other guys that haven't tried atherectomy or aren't willing to do it because of lack of a sort of general data kind of thing are still waiting? Or I guess I'm just trying to reconcile these things.

Yes, the minimally invasive market is growing double digits per year. And we've got a PAD system, so physicians don't wake up in the morning being a stent guy or a balloon guy or -- they just want a way to get through the day with a safety profile and an ease of use profile that is best for them and their patients. And we offer a product that is --with two minutes of run time we could treat extremely long segments of disease. We could treat the toughest disease. And we take, routinely, patients who are diagnosed, but previously wouldn't be treated.

And that is part of our population. We head off the amputations routinely. We do reduce the number of bypasses in the practices that we've had a chance to expose ourselves to at this early stage. We change stents and balloons to provisional instead of primary and we also compete very well in those -- in that category of removing plaque. So, we see ourselves as a PAD system. Minimally invasive is a trend that's two decades old and it's not going to slow down.

There are so many legs to treat that we see double-digit growth going forward for years to come. And that's why we've got an opportunity to invest in sales training so that we could cement our peripheral franchise in advance of entering the coronary franchise.

Okay, so then just kind of back to the numbers here, I mean is it safe to say you guys are being conservative? I'm just -- because if you sort of annualize what you did this quarter, which is obviously not a full quarter because you guys are missing because of the training and then, and then you kind of just multiply by double digits, you're right at that 30% growth. So, I guess given you guys are taking some share, I'm just trying to understand the math here. Thanks.

Well, I'm going to ask you for a clarification on that question. But let me start with saying we made choices. Everyone knows the environment that we're existing in, and big companies and small are making decisions. We think we made shrewd decisions with our spend. We've got a great history of growth at this Company. We've got a growth capability at this Company.

We're ready to scale in a different environment, but we really felt it important to focus on financial independence as well as growth. So, I think to say that sales training was the driver, I'd step back from that and say that we just made choices that we thought were good for our investors and for the current environment.

But your question, if you could you just rephrase it, I'm not sure that Larry and I understood it completely.

Sure, sure. I mean, if I kind of take the $15.7 million that you did on the top line, right, and I just multiply that by 4, and then I grow it by 10%, I'm kind of right by that 30% top line growth that you guys are talking about. And obviously, this quarter with selling days, maybe it should have been a little bit higher than $15.7 million, so I guess I'm just trying to understand what -- maybe the competitive dynamics a little bit, or if I'm kind of missing -- maybe I'm doing my math wrong. It just seems like it's conservative, which is fine. I just want to make sure I understand it properly.

Well, it is conservative, but it's where we may take the business based on today's environment. We've benefited greatly by not only having a long term plan, but a short term plan. We managed the business very intensely quarterly. We made mid-quarter changes. So, that's the range. As far as the competitive environment, we're limited mostly by what we spend, and the doorknobs that we can touch and the frequency with which we can deliver messages. We're working right now on the quality of our messages.

Over time, we'll continue to invest in the frequency in which we deliver it. As far as the competitive landscape, physicians, as you know from talking to them, they don't have enough tools. We deliver in just a few minutes, the ability to treat long segments of extremely tough to treat diffuse disease. Our adverse event rate is microscopic when the procedure is done per our prescription, and we got a huge opportunity going forward.

Okay, and then just sort of also along these lines, again, what kind of are you guys considering -- you guys have done a really, really good job on below the knee and then also calcified lesions. And you've kind of talked about part of the training here is that, just like any other device, once you get it out there in the field, you perfect the way to use it, if you will, and one of the goals is to get it above the knee, perfecting the way to use it. And I guess -- when you think about next year and same store sales, are you thinking more below the knee, or is it more of a mix of the type of procedures or is it a little bit of both? I'm just --

It's both. Unfortunately for these patients, if you've you got it above the knee, you've got it below the knee, and oh, by the way, you've got it in the other leg. So, it's a tough situation. We walked out of the OASIS trial with the recipe for success that's standing the test of time and it's just great. And as a compliment to the technology and what it was doing below the knee, physicians naturally walked it upstairs to above the knee, but we didn't have a study.

We only did 5% percent of our OASIS cases above the knee, and we just didn't have it. But through working closely with our physicians, and through understanding some single-site experiences and what the top physicians were doing, we recognized just recently just a couple of minutes of run time above the knee, followed by three-atmosphere balloon, that is the recipe for success. We're committed to it in the COMPLIANCE 360 trial. We just trained our sales force to it. We'll roll that out over time to lab staffs and physician users, first in our existing standing customer base, and then also to new customers.

Great, guys. Well, congrats and thanks for clarifying all those things for me. I appreciate it.

Thank you.

(Operator Instructions). There are no further questions in the queue. I would like to turn the call back over to management for closing remarks.

Fiscal 2009 was very productive for us with robust sales, establishment of best in class sales team and expansion of our product portfolio. These developments, in an underserved, growing PAD market, are fueling our revenue gains. As revenue grows, we can leverage the investments in our infrastructure over increasing sales volumes to achieve profitability. The Diamondback system is raising the standard of care for patients with PAD, an underserved market definitely in need of new treatment options.

We have the capital resources, the products, and the talent to implement our plan and continue our growth. We look forward to updating you on our progress each quarter. Again, thank you for joining us today.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.