Cardiovascular Systems Inc (CSII) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter Cardiovascular Systems' earnings conference call. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Larry Betterley, Chief Financial Officer. Please proceed.

Thank you, Jennifer. Good afternoon and welcome to our fiscal 2010 second 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. 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 and 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 on our most recent form 10-K and subsequent quarterly reports on form 10-Q. We suggest that you read these and other further filings that we may 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 new release contains a reconciliation table to GAAP results.

I'll now turn the call over to Dave Martin, CSI's President and CEO, for comments. Dave?

Thanks, Larry, and hello, everyone. In fiscal 2010, we are focused on several priorities. They are, first, driving adoption in existing accounts through customer education on optimal large vessel protocol for the Diamondback 360 and to increase procedure volume below the knee and avoid the devastating result of amputation; second, launching ORBIT II under the terms of the conditional IDE approval to evaluate our technology for use in calcified coronary lesions, a major new market opportunity for CSI; third, advancing the COMPLIANCE 360 and CALCIUM 360 clinical trials to generate additional data on the use of the Diamondback 360 in treating peripheral arterial disease; fourth, introducing new versions of the Diamondback 360 to improve ease of use and enhance device effectiveness throughout the leg; and fifth, balancing revenue growth and operating expense to achieve profitability and positive cash flow. I'll elaborate on our progress in these areas later in this call.

Turning now to the fiscal second quarter financial performance, revenue of $15.1 million was up 8% over the year ago period, in line with our expectations. We focused on installing the optimal large vessel protocol at existing accounts to develop a customer base for long-term, sustainable growth.

Balancing revenue growth with effective expense management resulted in a substantial reduction in our loss from last year's second quarter, and continues our progress toward CSI's goal of profitability. The net loss improved 22%, a higher rate than sales growth, as the quarter benefited from improved gross margins and lower operating expenses.

During the second quarter, we made significant headway in educating our customer base on the optimal large vessel protocol for using the Diamondback 360 to change lesion compliance in vessels about the knee. As a result, we are seeing improved customer satisfaction and greater product usage in targeted accounts. We achieved over 50% growth sequentially in those accounts, a subset of our total customer base.

Due to this success, we expanded our programs to a majority of our customer base in the current third quarter to spur deeper adoption in existing customers. We are prioritizing this initiative over opening new accounts. By focusing on superior outcomes and increased usage in our current account base rather than a broader account penetration, we can build a sustainable revenue growth for the future.

Diamondback 360 treats plaque throughout the leg and addresses many of the limitations of other treatments. In just over two years since FDA clearance, the Diamondback system has been used in more then 20,000 cases. At this early stage, we've captured the number one or number two share in the above the knee atherectomy market in each region of the United States. We are a dominant number one share in below the knee across the country.

Our unprecedented safety profile means more patients are finding relief and improved outcomes with significant economic benefits. Our product's competitive benefits includes differential sanding that protects the vessel wall, minimizing the potential for arterial perforations or dissections. We are the only device that can routinely and safely treat both above and below the knee heavily calcified arteries, and we've got a treatment time of just a few minutes.

Physicians are adopting our technology, as evidenced by increases in both hospital accounts and physician users. Forty-eight hospital accounts were added in the quarter. We sold 4,449 Diamondback devices, up from 4,368 in the second quarter last fiscal year, bringing the total number of devices sold to over 33,000 since initial product launch. The percentage of revenue generated from reorders increased to 92% for the fiscal 2010 quarter, up from 76% in the year ago period, reflecting our emphasis on driving adoption in existing accounts.

Now, Larry will provide more details of our financial results. Larry?

Thank you, Dave. For the second quarter 2010 compared to 2009, revenue grew to $15.1 million, which is an 8% increase over $14 million last year. Diamondback device sales continues to generate most of our revenue at 88% of the total.

Other product revenue grew more than $600,000 from sales of our Viper product line and distribution partner products, which have been introduced over the last year. This is net of the effect of the ViperSheath recall announced on November 16, which reduced revenue by about $200,000 sequentially from the 2010 first quarter.

We added 48 new accounts. That's down from 117 last year as we focused on driving adoption in existing accounts. Adding fewer new accounts reduced revenue by $2.2 million between periods. However, this was more than offset by an increase in revenue from reorders of $3.3 million to 92% of total revenue compared to 76% of total revenue last year.

Gross margin improved to 77% from 70% last year due to product cost reductions, manufacturing efficiencies, and shipment of fewer controller units. Gross margin on the Diamondback devices alone was approximately 80%.

Operating expenses declined 2% to $18.1 million, a result of effective expense management and resource allocation.

SG&A expenses increased 6% from the year ago period to $15.9 million, primarily due to higher sales headcount which now includes over 100 direct sales representatives. The higher SG&A investment was partially offset by sales expense efficiencies and cost reductions.

R&D expenses were $2.2 million, a 37% decrease over the prior year due to cost reductions as well as the completion and timing of development projects and clinical studies. In our R&D program, we continue to emphasize developing products with improved ease of use and enhanced effectiveness throughout the leg, advancing our PIVOTAL coronary clinical trial, and generating clinical data on our PAD products for physicians.

Net other expenses were $274,000 for the quarter versus $165,000 in the prior year period. Interest expense declined primarily from lower debt warrant amortization expense due to a debt refinancing in April 2009. Interest income and impairment on investments were higher last year as a result of entering into an agreement with UBS in last year's second quarter to repurchase our auction rate securities.

The net loss improved 22% to $6.8 million from $8.7 million this year -- last year. Net loss available to common shareholders was also $6.8 million or $0.46 per diluted share this quarter compared to $11.7 million or $2.34 per diluted share a year ago, which included accretion of redeemable preferred stock of $3 million.

The number of weighted shares outstanding rose to 14.7 million from 5 million last year. The increase was due to the effects of the reverse merger we completed in February 2009, which included conversion of all preferred stock to common stock as well as issuance of new common shares.

Adjusted EBITDA, calculated as loss from operations less depreciation and amortization expense and stock-based compensation expense, improved by 39% to a loss of $4.3 million from a loss of $6.9 million in the year ago quarter. The improvement was greater than the net loss improvement due to higher stock compensation expense this year.

For the six months ended December 31, revenue rose to $30.3 million, an 18% increase over last year. The gross margin was 77%, up from 69% a year ago for reasons similar to the quarterly gross margin improvement and also due to higher production volumes.

Operating expenses declined 10% to $35.7 million, primarily due to cost controls and the timing and completion of R&D projects. Also, fiscal 2009 included a $1.7 million write-off of costs related to our IPO withdrawal.

The first half net loss improved by $9.4 million or 42% to $13 million. Net loss available to common shareholders was also $13 million or $0.89 per diluted share compared to $25.4 million or $5.09 per diluted share last year, which again included accretion of redeemable preferred stock of $3 million. The average shares outstanding for the year-to-date were 14.6 million, up from 5 million a year ago primarily due to the merger transaction.

Adjusted EBITDA improved 58% to a loss of $7.8 million in the first half of fiscal 2010. The additional improvement over net loss is primarily due to a higher level of stock compensation expense this year.

At the end of this quarter, cash and cash equivalents remain strong at $23.6 million, and included $3 million of net funding received in the first quarter of this fiscal year in conjunction with establishing a second production facility in Texas. The Texas funding is recorded as a grant payable and long-term liability, and will be amortized as a partial offset to production expenses over five years.

Net cash usage in the second quarter was $7.2 million. This was slightly higher than first quarter of this year, excluding the effect of the Texas funding, due to timing of working capital requirements. We expect our cash resources and debt capacity to carry the Company to profitability and positive cash flow.

We have auction rate securities with a par value of $22.7 million and a current fair value of $22.6 million, including the value of a put option with UBS to repurchase those securities at par value beginning in June 2010. In the meantime, UBS has provided us with a full par value loan against those securities at an interest rate that matches the interest earned on them. Given the expected timing of the repurchase, the securities and put option are now classified as current on our balance sheet.

I will now turn it back to Dave for additional comments.

Thanks, Larry. Let me first discuss our educational efforts. When we launched the Diamondback 360, it worked exceptionally well in treating lesions below the knee. We delivered a tool with a specific protocol for predictable outcomes. However, physicians began using the product above the knee, and the optimal procedural protocol was not in place. Customer satisfaction above the knee did not match customer satisfaction below the knee. Usage suffered.

We have developed the optimal protocol for large vessels above the knee. We have educated our sales organization on it, and continue to work with physicians and their staffs to install this protocol. Our efforts are paying off in key targeted accounts and provide a basis for expansion of adoption activities into more of our customer base. We can now initiate programs to increase minimally invasive procedures below the knee, reducing amputations and improving outcomes for people afflicted with this life-limiting and threatening disease.

Based on the excellent clinical outcomes in treating small vessels with the Diamondback 360, we intend to leverage the device's capabilities to expand into the interventional coronary market. In January, we announced conditional FDA approval for our IDE, or investigational device exemption, application to begin ORBIT II, a pivotal trial to evaluate the safety and effectiveness of the Diamondback 360 in treating calcified coronary lesions, a large potential market opportunity for our core technology. Per the conditional approval, we will initially enroll up to 100 patients at 50 US sites.

In 2008, the Company completed the ORBIT I trial, a 50 patient study in India, which investigated the device's safety in treating calcified coronary arterial lesions. Results successfully met both safety and efficacy endpoints. We are confident that we can repeat these favorable outcomes in ORBIT II.

Additionally, in the second quarter, CSI announced several developments related to clinical research programs. We recognize that 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 mid-November, we enrolled the first patient in our CALCIUM 360 study. This trial will compare the effectiveness of the Diamondback 360 to high-pressure balloon inflation in treating heavily calcified lesions below the knee where calcified plaque exists in about 75% of lesions.

In June 2009, we began enrolling patients in the COMPLIANCE 360 study, which is evaluating the clinical benefit of modifying plaque in lesion compliance above the knee with the Diamondback 360. This study compares the performance of the Diamondback 360 plus low-pressure balloon inflation, if desired, with that of high-pressure balloon inflation alone. Both of these clinical trials are prospective, randomized studies that will be core lab adjudicated. Each will enroll 50 patients at up to 10 US medical centers. Each enrollment completion is expected by the end of this fiscal year.

Now, I'd like to share our outlook for fiscal 2010 third quarter ending March 31st. CSI anticipates revenue in the range of $15.5 million to $16.5 million, or growth of 3% to 9% over the third quarter fiscal 2009 as we continue to focus on customer education, adoption, and PAD awareness in existing accounts.

Gross profit as a percentage of revenue is expected to be approximately the same as the second quarter of fiscal 2010. We anticipate a net loss to range from $6.5 million to $7.1 million, or $0.44 to $0.48 per share, based on 14.9 million shares outstanding.

On an adjusted EBITDA basis, we anticipate a loss between $3.6 million and $4.2 million versus a loss of $4.6 million in last fiscal year's third quarter. We believe that the net loss and the adjusted EBITDA will improve as revenue grows in the future.

Balancing progress towards profitability with long-term revenue growth is a key priority for CSI. We have invested time and resources to educate customers on the optimal large vessel protocol and to drive adoption in our accounts. This initiative has slowed recent revenue gains. It's improved revenue quality, and we believe that this will lead to sustainable, profitable growth over the longer term.

Given our current progress, we expect revenue growth for the full 2010 fiscal year over 2009 to be in the range of 10% to 15%. We continue to target fiscal 2011 to achieve our first profitable quarter, and expect to live within our cash resources and debt capacity.

To recap, in fiscal 2010 our priorities are expanding customer education on optimal large vessel protocol for the Diamondback 360 to additional accounts in order to foster greater use and improve customer satisfaction as well as building PAD awareness, particularly below the knee; launching ORBIT II per conditional IDE approval to evaluate our technology for use in coronary lesions, a major market opportunity; advancing the COMPLIANCE 360 and CALCIUM 360 clinical trials to then generate additional data on the use of the Diamondback 360; enhancing products for ease of use and greater effectiveness, which we will discuss in the coming months; and finally, generating sustainable revenue growth while driving towards profitability and positive cash flow. These initiatives will position us for significant profitable growth over the longer term.

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

(Operator instructions.) And your first question comes from the line of Ben Andrew from William Blair. Please proceed.

Good afternoon, guys.

Hey, Ben.

Hi, Ben.

Just a few things, David. I mean, the protocol installation, talk us through kind of what the protocol is, how many centers you've worked with it on, how much kind of feedback you've gotten, and how -- and then, the next question after that sequence is sort of how broadly and how quickly can you expand that educational effort?

Sure. The protocol for above the knee is using an eraser technique to channel across the lesion. It's keeping run times to 20 to 30 seconds. It's a little rest in between, and a total run time of two to three minutes. That's what worked in the OASIS trial. That's what's working above the knee to change compliance and allow for, when necessary, low pressure ballooning. And the outcomes with that protocol have been really satisfactory.

That also is the COMPLIANCE 360 trial. So, we thought we knew the answer when we started that trial. We're 40% enrolled in that trial and committed to completing that over time to substantiate what we're doing in the field.

Okay. (Inaudible - technical difficulties) a lot of that protocol to other accounts?

Yes. We had great success last quarter in a subset of our accounts. It's that specific, clear, crisp message with -- delivered with some frequency. Physicians and their staffs needed it, and we had some great results, over 50% growth, in those accounts. So, we will expand that exponentially into this quarter into about a half of our customer base.

You're saying about half.

Yes.

And then, if that's the case, the guidance, is it conservative or -- because you're kind of -- you're up a little bit sequentially but not a whole lot in terms of the guidance on the low end. So, what's the -- what do we attribute that third quarter guidance to?

Well, we've got a long-term approach for sure. So, we're going to do the work for sustainable growth, customer satisfaction, and that's the main reason. We've got the protocol to install in more accounts as well as we do want to call attention to, in this quarter, in a way that maybe we haven't in the last two quarters to the advantages that we've got below the knee and the opportunities we have to head off amputations and to grow the market in general and CSI's part of it for below the knee in small vessels.

Okay. So, if we look at kind of rep productivity, I mean, you had, I think it was, 87 or 89 reps at the end of last quarter. You said over 100 now. I mean, just on an annualized basis, that's about 600,000 a rep. Are you happy with that level? And if not, where do you think that can go over what timeframe?

No, we're not happy with that level. And we did hire some people over the course of the quarter and had a training event for those new people at the end of the quarter. We do think that the reinstall of the optimal protocol did take up opportunity to grow revenue production per sales pro. And we do believe that will grow over time.

The first milestone there is $1 million per territory annually. But, we think it can get even better than that over time.

Okay. And then, maybe a little bit of a big picture question. With the constraints that you've put on the Company given the cash balance and kind of the situation today, what are you giving up? I mean, where are those cuts really coming from? Is it headcounts at other parts of the organization? It is marketing efforts? What -- is it R&D? Sort of where are you having to really tighten the belt?

Yes, it's been everywhere. We have, over time as the size and stage of the Company has grown, have modeled each department appropriate to the milestones ahead of us. As far as the commercial effort, we don't attend every meeting. We still believe in a one physician at a time type of training and adoption curve. So, we do invest in a field force to get that done.

But, I'd say we've touched every department over the last six to 12 months in order to streamline the operation and move towards profitability.

Thanks.

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

Thank you. Guys, I'd like to ask a question on the drop in R&D spending. With all of the trials going on, I'm curious how you achieved that and whether there was some headcount reduction as a part of that.

Yes, we did reduce headcount in R&D to match the priorities that we've got. We do have some great clinical work ongoing. And then, as far as product projects, we've really funneled that down to ease of use on the handle portion of our device, and we also have in the queue a change to our crown that are advances. And we've modeled the R&D in order to get that done within this calendar year, both projects.

Steve, I would say that last year, that new handle device, there were a lot of expenditures at the earlier stage of the product last year. And that has come down dramatically, as well as some enhancements to the crown where expenditures were higher last year than this year.

Okay. When you're looking at expanding this protocol through your customer base, is this going to be largely a top down process, meaning you're going to go for the biggest volume accounts first? Or -- I mean, I guess I'm curious as to why you're looking at about half the customer base and not closer to 100% for this new protocol.

It's a stair step approach. We had great success with a subset of our account base. We think key to success was a quality message delivered with frequency. We're in the accounts. We deliver the message. We're willing to see the cases through. And in some cases, we track the cases for the account in order to prove it. So, we want to roll out an expansion of that same quality system in a stair step approach.

And last and not least, could you characterize any expected impact on your deal with Invotec given the Medtronic transaction?

Sure. There's nothing to unwind. We never purchased inventory, and it's been a great synergistic relationship going forward. In same cases above the knee we do recommend low pressure ballooning, and Invotec has a great balloon.

Also, we were interested in the relationship for the same reasons that Medtronic was. We think that drug-eluting balloons have a place in the future. And we think that we're a fantastic enabler for any agent that is to be applied to the vessel wall because we uniquely take the plaque out, especially the toughest plaque to get out which is calcified plaque. So, it was validating to see that happen for us.

We're -- we've got open discussions with Medtronic. We think there's a lot of opportunity there, not only with distribution that we have, but we've got manufacturing capability, clinical capability, regulatory capability. It's early on right now. The deal ends on the 31st, but we see it as an opportunity to continue discussions. And we'll let you know at the next conference call what we come up with.

All right. Thank you very much.

And your next question comes from the line of Larry Neibor from Robert Baird. Please proceed.

Hi, guys. This is Rob [Kruchak] for Larry Neibor. Thanks for taking the call -- for taking the question. It looks like you guys have -- something's happened with the price of the device a little bit. It looks like the ASP might have decreased a little bit sequentially. Can you just give me any perspective on what's going on there?

Hey, Rob. No, it really didn't decrease much. It was -- it's always been right around $3,000, if you do the math. So, sometimes it's a few bucks above. This time it was a couple bucks below. But, that's kind of the range it's been at.

Okay. And are you guys prepared to say right now how long you think it's going to take to penetrate all the accounts and get them all retrained? I mean, is this still -- that sounds like it's probably an event that's -- will be several quarters out.

Yes, we'll complete this in this fiscal year. And the great news now is we install with quality, with a crisp, clear protocol where we can get reproducible results in vessels large and small every time.

Okay. And I know that in the past you guys have talked about getting to a double-digit number of devices per account. Has your expectation for the timeline for that changed at all, given how you're concentrating on the existing accounts?

Yes, this is the path to do it. We had an opportunity a couple quarters ago to identify this problem and then fix it. So, it has slowed us down for sure. But, that still is the goal, double-digit usage per account.

But, do you anticipate that taking substantially longer than you had thought, or --?

Yes, I think it delays us. I think you could say that it delayed us six months, the six months that we've really spent identifying the problem, training our entire organization in order to deliver the right message to physicians and staffs. And what we found out too is that frequency counts. You have to deliver a quality message with frequency. Unfortunately, it's wasn't a one visit situation to help us get there.

But, we do have the recipe. We've accomplished that in a significant subset of the accounts. We'll just keep rolling in a stair step fashion on that. And we think we can complete the work before fiscal year-end and free up time for additional, particularly below the knee, market building.

Okay, great. Thanks a lot for taking my questions. I appreciate it.

Thank you.

And your next question comes from the line of Ernest Andberg from Feltl and Company. Please proceed.

Dave, Larry, how are you?

Good. Hey, Ernie.

Good. Thanks, Ernie.

The implication of, let's call it the midpoint, of your guidance for the third quarter is sort of a continuation of the usage that you saw in the second quarter. How -- given that some subset, and you've very carefully avoided saying what kind of subset has seen a significant increase in usage, you call it 50%, how long do you think it takes in this retraining to have that start showing up in the utilization per customer or --?

Well, yes. Well, for that subset of accounts, it took 90 days or less, which is great. Anything you can complete, start and finish within the quarter, is great. That's why we're excited about the move forward.

There's a couple minor things that happened, too, and play into the guidance. We did lose the Sheath, as you know, mostly driven by our OEM and Johnson & Johnson. We didn't really have any problems with that but we did recall those devices, and that was a couple hundred thousand dollars. And then, with the Invotec, that's in the mix. And we may expand it maybe more, or we may end it. So, that plays into forward guidance as well.

But, the Diamondback, which is our business, we'll take a stair step approach. We'll expand that protocol that we know works and we've got proof sources for working. And that'll be the driver for our growth in this next quarter.

But, theoretically if you are able, over the next 90 days, to cover half your sales force, and arguable you won't get possibly the same experience out of half instead of a small subset, you should start to see some improvement in utilization in Q4? Am I thinking the right way?

You are. You bet.

Okay. Larry, I was -- the sales SG&A line was higher than I thought it might have been, and it jumped up a little over $1 million from Q1, and you've been running below $15 million there for four quarters in a row. Is there anything unusual in the number this quarter?

No, I think in our last call, Ernie, we said we were going to add some headcount in sales, and we did that. And that was really the primary driver for the increase.

Okay. The implication of your guidance is that the R&D and SG&A are higher over the -- in the third quarter. Is that what you're driving this to, to get to a six, seven to $7 million loss?

Yes, there would be -- we expect some increase in SG&A and R&D. Probably of the increase, it would be about 60% SG&A, 40% R&D.

But, they -- we should see some increases over the next couple quarters relative to where you were this quarter, by your guidance?

Yes, we're -- right, for Q3, which is what we're talking to, it would go up less than $1 million total, probably in the 700 to 900 range with that 60/40 split that I mentioned.

Dave, you had suggested in your comments that this training phase you're emphasizing the new protocol, deemphasizing new accounts. Larry seemed to imply that that has already affected the new account total. You were up 48 in the quarter. Is that a reasonable target, or do you think it's above or below that for the next couple quarters?

No, I think that's a great target for the next couple quarters.

Okay. That's it. Thank you very much.

Thanks, Ernie.

(Operator instructions.) Your next question comes from the line of Joshua Zable from Natixis. Please proceed.

Hey, guys. Thanks for taking my questions here.

Sure.

Most of my questions have actually been asked here, but just a couple of quick follow-ups. Just on the Invotec deal, if you will, and I know you commented on it. So, as we stand right now, I mean, are we just sort of unclear what's going to happen, or do we -- are we assuming we continue the relationship. We assuming the relationship ends for now? Just sort of how are you guys thinking about it right now?

Well, we've just begun talking with Medtronic as opposed to negotiating with Invotec. So, it's really early stages, but there is a great opportunity to expand it. But, we need to look at our goals, too, and determine what's best for us. And also, the relationship is different and that allows us to set up a different criteria.

Okay. So, as of right now, though, today, so to speak, you still are selling the product or distributing it?

Yes, right through March 31st. And we've grown that business every quarter. We've got a nice little track record. And it is a good balloon that in some cases is a great adjunct at four atmospheres for our procedure in large vessels.

Great. Okay. And then, I know you made some comments just about being the leader below the knee for calcified lesions. You said number two in above the knee. Obviously, sort of over the past six months, I guess ev3 has launched the competitive TurboHawk, which is sort of more competitive than the SilverHawk above the knee. I know at the same time you guys are actually sort of focusing more on your accounts, sort of going deeper into the accounts that you're in. So, I'm just wondering, are you guys even coming head to head with them at all, or are you just kind of focused on their accounts and they may be going after some of the accounts that are sort of less focused accounts for yours? Or, are you actually even kind of meeting them up, and sort of how are things faring there?

Yes. We don't target any competitors' accounts specifically, but we do target high volume accounts and those accounts committed to treating those patients. So, we see them all the time. It has been a battle in the above the knee space, but we've been working on the quality installation of our protocol.

I think the TurboHawk, we have seen it out there. It's still an indiscriminate cutter. It's got -- it's hard to miniaturize because it's got that long, rigid housing. It's got the nose cone that dodders in advance of the cutting. And they do have to collect the tissue for that.

So, there is some usage out there, but it hasn't moved what our core primary objective is, which is to install a clear, crisp protocol for above the knee usage.

Great, guys. Well, thanks for taking my call here.

Thanks, Josh.

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

Thanks. Guys, just had a quick follow up on the customer count. You talked about adding 40 accounts. Is that gross or net? And where did you end the quarter in terms of total active customers?

The 48 that we've added, that's the total number of new customers. If you do the math, since inception that would take us up to -- last time we reported 611, so you'd add 48 to that. But, of course those customers have different levels of activity.

Okay. Thank you.

And your next question comes from the line of Bob Thatcher from CSI. Please proceed.

Jennifer, I think that's a mistake.

And your next question comes from the line of Ernest Andberg from Feltl and Company. Please proceed.

Back on the Invotec. Dave, how significant is that in your other revenue stream? You just said it was growing each quarter.

Yes. But, in the grand scheme of things, it's pretty small. It was a couple hundred thousand last quarter. The driver for that is it just fits into our system sell and produces a great outcome for the patient and the physician.

Thank you.

There are no more questions at this time.

Thank you. The Diamondback 360 is raising the standard of care for patients with PAD, an underserved market. We believe that the minimally invasive PAD market is growing, driven by the need for effective new treatments to remove plaque and modify compliance of lesions of both above and below the knee.

In the first half of fiscal 2010, we made great progress in educating our sales professionals and customers on the optimal large vessel protocol for the use of the Diamondback 360 above the knee. This initiative will continue, and is the right strategy to build a sustainable revenue stream for the long term as we leverage infrastructure investments over increasing sales volumes to achieve profitability.

We are optimistic about our future, and look forward to updating you on our progress each quarter. Thanks again for joining us today.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.