Cardiovascular Systems Inc (CSII) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2011 Cardiovascular Systems, Incorporated earnings conference call. My name is Erin, and I'll be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Laurence Betterley, CFO. Please proceed, sir.

Thank you, Erin. Good afternoon, and welcome to our fiscal 2011 fourth quarter conference call. Before we begin I would like to remind you that during the course of this call we'll 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 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 most recent form 10K, and subsequent quarterly reports on form 10Q. CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments, or otherwise. We'll 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 I'll turn the call over to Dave Martin, CSIs President and CEO, for comments. Dave?

Thanks, Larry, and hello, everyone. We had another exciting quarter at CSI, making substantial progress in our priorities to achieve profitability, generate scientific data, enter new markets, expand use of our Diamondback and Stealth systems in the PAD market, and introduce new products.

Highlights of the quarter included solid revenue growth, and substantial reduction in our net loss; continuation of limited release of our new Stealth 360 product, with its innovative ease-of-use enhancements and improved operating performance; presentation of data from our clinical studies at two major medical meetings; and FDA approval to complete patient enrollment in our ORBIT II coronary trial. We'll touch on all these accomplishments during the call today, but first we'll review the financial results for the fourth quarter.

Revenue of $21.7 million was up 20% over the year ago period. We have consistently achieved a strong year-over-year quarterly revenue gain, revenue growth, gross margin improvement, and operating efficiencies were the main drivers in reducing our loss as compared to a year ago. Adjusted EBITDA was positive, and improved by $2 million from last year's fourth quarter. Our net loss decreased 44%, to a negative $2.5 million, even though it included a negative $1.3 million of expense related to conversion and valuation changes of our convertible debt. We have a strong customer base to support significant revenue growth.

Physician adoption of our technology is evidenced by increases in CSIs device sales. Quarterly device unit sales are up 18% to nearly 6,300 devices, including over 1,600 Stealth devices. That brings the total number of devices sold to over 66,000 since the initial product launched in September of 2007.

We are focused on driving adoption in key target accounts that offer the highest growth potential. In the fourth quarter the number of accounts using more than 30 devices in the quarter rose 28% over the prior year period. At hospitals that have been converted to the Stealth 360, device usage rates increased 25%, and the number of accounts using more than 30 devices per quarter increased 59%. In addition, more physicians in those accounts are becoming users as they gain familiarity with the performance of the Stealth 360. Now, Larry will provide more details on our financial results. Larry?

Thank you, Dave. For the fourth quarter of fiscal 2011 compared to a year ago revenue grew 20% to $21.7 million. Diamondback and Stealth device revenue was 88% of the total. Other product revenue rose 19% to $2.5 million, driven by higher Diamondback and Stealth device sales. We added 41 new accounts compared to 60 last year, as we placed our priority on driving adoption in key existing customers. Reorder revenue rose 24%, and was 96% of total revenue. Gross margin increased to 81% compared to 77% last year as a result of greater operating efficiencies, product cost reductions, and shipment of fewer controlled units.

Operating expenses increased only 1% to $18.4 million, as expansion of our sales force and education programs was partially offset by improved productivity. The increase in interest and other expense to $1.6 million was primarily due to $1.3 million of expense from conversion and valuation changes of our convertible debt during the fourth quarter. The resulting net loss was $2.5 million, or $0.15 per share, improving 44% from $4.4 million, or $0.29 per share last year, even with inclusion of the $1.3 million, or $0.08 per share of convertible debt expenses.

The number of average weighted shares outstanding rose to 16.3 million from 15 million last year, with the issuance of stock from our employee stock plans, exercises of stock options and warrants, and the conversion of $5 million of convertible debt into 639,000 shares of common stock during the year. Adjusted EBITDA, calculated as loss from operations, less depreciation and amortization and stock-based compensation expense, improved by $2 million from last year to earnings of $539,000 in the current quarter.

For the full fiscal year ended June 30, revenue rose to $78.8 million, a 22% increase over last year. Reorder revenue was 94% of total revenue, up from 93% last year. The gross margin was 79%, up 2 percentage points from 77% in the previous year for reasons similar to the quarterly gross margin gain. Operating expenses declined 2% to $71.3 million, primarily due to reduced research and development expenses. The R&D reduction was driven by receipt of a qualifying therapeutic discovery program grant and refundable tax credit, as well as lower stock compensation expense. SG&A was flat with last year on 22% revenue growth, as operating and cost structure efficiencies improved productivity.

Interest and other expense increased $1.3 million, driving by $900,000 of net expense from valuation changes and conversion of convertible debt during the year, and a lower interest income and gains from option rate securities, which were all redeemed or sold by the end of fiscal year 2010.

The full year net loss narrowed by 53% to $11.1 million, or $0.70 per share this year, including the $900,000 or $0.05 per share of net expenses from conversion and valuation changes of convertible debt. The averages shares outstanding grew to 15.9 million, from 14.7 million a year ago for reasons similar to the quarter. Adjusted EBITDA improved 88% to a loss of $1.6 million. Cash and cash equivalents at the end of the fiscal year were $21.2 million compared to $23.7 million at the end of fiscal 2010. The main uses of cash for the year were $8.5 million for operations, expenditures of $1.7 million for PP&E and patents, and $2.4 million of debt payments, which began on November 1, 2010. These uses were partially offset by $2.6 million received from our stock plan purchases and warrant exercises, and $7.5 million of proceeds drawn on our convertible debt line.

Total current and long-term debt levels rose by $900,000 as a result of additional draws of convertible debt, net of conversions, and term debt repayments. During the fourth quarter $3.5 million of convertible debt was converted and then redrawn at a conversion price of $13.64 per share, bringing the convertible debt balance outstanding to $4 million. We have not drawn on our $15 million working capital line of credit.

We continue to manage our business to live within our available cash and debt capacity. As we've said before, we may raise additional capital in the future to fund acceleration of our growth initiatives or additional growth opportunities if we believe it will add significant value to CSI.

In June we filed a universal shelf registration statement that will permit CSI to sell up to $75 million of equity or debt securities, providing greater flexibility to take advantage of financing opportunities as needed.

I also want to note that CSI was added to the Russell 2000 Index at the end of June. This Index measures the performance of the 2000 largest US companies based on total market capitalization. Inclusion in the Russell 2000 recognizes our growth, and raises CSIs visibility among investors. I will now turn it back to Dave for additional comment. Dave?

Thanks, Larry. Next, I'd like to update you on new product and science developments. In March we received 510K marketing clearance from the FDA for Stealth 360 PAD System, and began a limited marketing release. Through the limited release we are collecting valuable physician feedback to establish best practice for advise operation, and provide a smooth transition to the new platform. In addition, we are educating additional physicians in those accounts about our products. The Stealth 360 combines our proven Orbital mechanism of action in an electric power device with an improved shaft design. This shortened system set up times and enhances operational performance.

The simplified Stealth 360 design eliminates separate counsel, moves controls to the handle, and into the hands of the physician during procedure. As a result, physicians now have complete control of the device operation. Our device is a front line therapy for both complex and routine cases. Additionally, eliminating the capital equipment portion of the current product reduces our product cost. We believe all these innovations will encourage more physicians to adopt our technology to treat lesions through the leg, including the most difficult lesions below the knee.

The Stealth 360 gives physicians the ability to remove plaque in peripheral arteries faster and more efficiently than ever before, and provide successful treatment for more patients. Initial feedback from physicians has been impressive. We expect this product to drive substantial revenue growth in 2012 after completion of the limited release.

CSI has collected a wealth of scientific data. In 12 studies of more than 3,700 patients, in 5,400 lesions, contributed by 500 physicians in over 350 hospitals, these ongoing studies provide further data demonstrating the safety, efficacy, and cost effectiveness of the Diamondback 360.

At the American College of Cardiology in early April, principle investigator, [Dr. Raymond Dutilla], presented scientifically significant acute results from our Compliance 360 Study. This study directly compared the Diamondback 360 versus balloon angioplasty, which is the current standard of care in treating above-the-knee PAD. Data from 50 patients at nine US sites showed that the Diamondback 360 can achieve far superior results acutely.

Our technology reduces the need for higher pressure balloon angioplasty and stinting. Study results with a P value of less than .0001 showed the procedural success rate of the Diamondback 360 arm was 360% greater than in the balloon arm, and required 91% less bail out stinting. Less stinting leaves patients' future treatment options open. Clinical trial patient follow up continues, and we will report longer term results as they become available.

At the new Cardiovascular Horizons meeting in June, data highlighted the advantages of our Diamondback and Predator 360 PAD Systems. Of note, newly released six month results of the prospective Calcium 360 Study of peripheral lesions below the knee reinforced the advantages of our Orbital technology. The study randomized 50 patients to either Orbital treatment or balloon angioplasty in patients with critical ischemia, which is often the precursor to amputation.

Orbital treatment out performed balloon angioplasty on the primary end point of device success. In addition, durability at six months shows potential for improved long term outcomes. By modifying calcified lesions first, the Diamondback 360 allows use of a lower pressure adjunctive balloon therapy. This reduces the need for bail out stinting with improved longer term patient outcomes.

Our clinical trials are demonstrating several differentiating features about Orbital PAD Systems. First, our Systems have a high safety profile, and for the first time give patients and physicians the ability to address PAD throughout the entire leg. Physicians can safely treat lesions from hip to toes. Compiled results of our studies show extremely low rates of incidences that prevent optimal outcomes. Perforation of 0.6%, bail out stinting of 2.4%, and a nearly zero mortality rate are new standards in the space.

Second, we have irrefutable evidence of acute and long term success in treating PAD. Results from the OASIS Study, our pivotal study for the Diamondback system, demonstrated low retreatment rates. In a patient population with advanced disease, lesion retreatment rates were only 2.4% at six months, 13.6% at two years, far better than results in other studies using alternative treatments.

Third, patients with more severe conditions can be treated with our PAD Systems. Our studies enrolled patients excluded from other trials due to a number of factors; the severity of their conditions, including widespread PAD, lesions with calcified plaque, and lesions with small arteries, as well as many patients who were scheduled for amputation. Over 90% of lesions treated contained calcified plaque, and about 40% of vessels were smaller than 4 millimeters in diameter. The three small vessels below the knee are a new and untapped market. Previously they were the most challenging to treat, but now have proven to be routine for our small peripheral [PAL] device and Orbital mechanism of action.

Turning now to coronary. Receiving FDA approval to complete the Orbit II trial is a major milestone. A [corner] application is a major new market opportunity for CSIs unique technology. There are 1.7 million coronary procedures performed annually in the United States. We now have over 100 patients enrolled in the trial. With this approval we are accelerating efforts to complete enrollment by about the end of fiscal 2012. Given the short 30 day required patient follow up, we expect to be able to complete a PMA submission to the FDA before the end of fiscal year 2012.

During the quarter we welcomed Kevin Kenney as CSIs Executive Vice President of Sales and Marketing. Kevin has more than 20 years of method in our industry experience. He most recently held senior positions with a major Medtronic division. He has management skills to bring out the best in our sales staff, and to develop processes to efficiently support scale in our commercial organization.

Now, I'd like to share our outlook for fiscal 2012. With the introduction of the Stealth 360, and FDA approval to proceed with our Orbit II coronary trial, CSI is now at an appropriate stage to invest further in sales, marketing, and clinical trials to capitalize on our growth opportunities. Therefore, we plan to increase operating expenses in fiscal year 2012 to enhance future growth. This is expected to temporarily increase our net losses in the first half of fiscal 2012 compared to the last half of fiscal 2012; however, we plan to resume progress towards profitability in the second half of 2012.

For the first quarter of fiscal 2012 ending September 30, 2011, we anticipate revenue to be in the range of $21 million to $22 million, or 16% to 21% over the year earlier quarter. Seasonally lower procedure volume during the summer months, and the effect of the transition to the Stealth 360 product line are factored into this revenue range. CSIs gross profit as a percentage of revenue should be about 2 percentage points lower than the fiscal 2011 fourth quarter. Stealth 360 will become a higher percentage of revenue, but will still be at limited volumes, which raises its unit's cost compared to the Diamondback 360 device. Also, the ramp up of our second main factory facility in Texas for higher future production capacity will temporarily increase production costs, but enhance efficiencies over time.

We expect operating expenses to be about 7% to 8% higher than in fiscal 2011 fourth quarter. This is due to the expansion of the Orbit II trial, and additional investment with physician and sales education, and commercial infrastructure to optimize the effect of our Stealth 360 launch, and build a base of clinical data.

We anticipate interest and other expenses to be about negative $350,000, excluding the effect of conversions or valuation changes of convertible debt. The resulting net loss is expected to be in the range of negative $2.9 million to negative $3.5 million, or a loss per common share ranging from $0.17 negative to $0.20 negative, assuming 17.4 million average shares outstanding. Again, this excludes potential fact of conversions of valuation changes of convertible debt. The adjusted EBITDA loss is expected to be between a negative $800,000 and $1.4 million negative.

Looking at the full fiscal year ending June 30, 2012, we anticipate revenue growth of 20% to 25% over fiscal 2011. We expect a net loss for the full year, but positive net income in the fourth quarter, excluding the effect of conversions and valuation changes of convertible debt.

To recap, our priorities are to achieve profitability, generate scientific data, enter new markets, expand the use of our Diamondback and Stealth Systems in the peripheral market, and introduce new products. Executing on these initiatives positions us well for significant profitable growth over the long term. Now, we'd like to open the call for questions.

(Operator Instructions)

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

Good afternoon, guys.

Hey, Ben.

Hey, Ben.

So, maybe talk a little bit more about the cost increases or the operating expense increases you're going to take, and give us a bit more granularity in terms of head count? And any additional clinical studies or some of the other things that you spoke briefly about? And then I'd like to turn to come understanding a little bit of the lag effect of when that kicks in to kick that growth rate up to get you to 20 to 25 for the full year, given that you're guiding to 16 to 21 for the first quarter?

Ben, you're talking about the forward quarter guidance?

Yes.

Yes, investment front and center is Orbit II. We're supremely confident. We were confident because of the Orbit I results, but the study, we feel, is going very, very well, and warrants additional investment to accelerate the enrollment. The quality is just fantastic, and certainly there's a large market for patients in need.

Secondly, for the peripheral market, science continues to validate that there's a need for our Orbital technology, it's unique and well positioned in the market. And the Stealth, the new product, the Stealth is everything we wished it to be and more. So investing behind these mounds just makes a ton of sense. Sort term, certainly, we'll take a little bit of a hit, but we think we'll be able to recognize growth off these investments in the second half of the year. Larry, do you have anything to add to that?

Yes, Ben, to give you a little more specifics. The SG&A line will probably grow in the 6% to 7% range, and we'll grow a few direct sales people, but we've also bolstered management to bring in some additional expertise for the future, but also reduce the number of direct reports of the senior people, and get them working hard, and have more time to work in the field. R and D will probably grow in the range of about 10% over Q4, and again, that's primarily in the Orbit II study.

When you say about 10% over Q4, you mean for the first quarter or for the year?

For the first quarter.

Okay. And then, the investments that you're making here, they totally make sense. But in terms of how we might think about the sequential performance after Q1, given you're guiding more like 20 to 25 for the full year, that's going to be a pretty nice acceleration at some point during the year?

Yes, you bet. I think right now, as you saw in the previous quarter, we only sold 1,600 Stealth devices, but the results and the impact was really phenomenal. Some per activity indicators, we were able to get deeper into accounts, and move from overall a one physician per hospital model to Stealth accounts, two, three, four, five, and in some cases, seven, eight, nine. So, we're excited about that. It makes sense to take our time to roll it out, but at some point in time in the second half of the year we will have turned the tide and transitioned most of our major accounts, if not most of our customer base to Stealth.

Anything with the kind of limited launch of 360 that you've learned that needs to be reworked with the product?

There's some things, yes. In kind of the small [mall] category. There's a beeper indicator for the physicians that they've asked to be louder. We've already made that change. So, again, the Stealth, the product that the team in the home office produced, with the great feedback that we got over time from physicians, it's better than expected. The device is easy to use, and we think it's got some clinical benefits as well, because of the dependability of the electric power device.

Okay. And then you talked about how well the Orbit II is going. Have you seen data or any sort of reports on that, or just the speed with which the trial has been enrolled that has been so encouraging?

No, we're not allowed to really look at data, and we wouldn't comment on that. But just being in the accounts and working with the physicians, what's coming to the ford is that there's a critical need for these patients with calcification. There are no good solutions. Our device is wonderful. It does seem that the same safety profile that we're achieving in really difficult calcified vessels, small vessels below the knee, is transferable. We knew that because the Orbit I study that we completed and shared with the FDA, and is out there for all to see, and there's no indications that they are anything different but good, quality results for a needy patient population in the current trial.

Okay. And then just to the extent that you can answer it, after you make the filing for Orbit II, call it mid-- the end of fiscal '12, what's the process from there to bringing the product to the US market?

Well, we will submit the PMA, and it is variable what kind of response we'll get, but there's a number of things that we can do in the meantime, including to get the word out about Orbit I, and highlight the problem of both cost and durability that calcium is. So, there are activities that we can do in preparation for the ultimate approval of that device.

I guess my question is, do you think the Orbit II study is sufficient to give you an approval? I know it will depend on the data, but let's say it's positive. Is there a thought you'd need to do more clinical work? Or could that lead to an approval, say, a year later under a typical TMA timeframe?

I think the current study will get us cleared and on the market, but I think there will be opportunity to do post-market studies. I don't think it will be required, but this patient population is unstudied. And one of the sources of excitement for physicians and the FDA and the Company is that this group of calcified coronary patients has been excluded from every other study, so there probably is opportunity to reinforce what we find out in Orbit II, to reinforce the Orbit I findings with further post-market studies and science. And the Company's got a great science capability, and a commitment to more and better on that count.

Thank you.

Your next question comes from the line of Jose Haresco from JMP Securities. Please proceed.

Hi, good afternoon, guys.

Hi, Jose.

Hi, Jose.

I have a couple of questions again, I guess, focusing on the ramp up. Are we to assume that as long as you guys are still focusing on the role of the Stealth that the number of new accounts that you add every quarter will probably be more similar to what we found in the fourth quarter, rather than what we've seen historically, which was in the 50%, 60%, 70% range?

You're talking about the 41 new accounts that we bought in?

Yes. Should be consider that kind of a decent run rate, given that the majority of the focus is on driving the Stealth forward to existing accounts?

Yes. Yes, that's a -- the team exacted some necessary and great control on our efforts and activities. We really focused on existing accounts, especially some of the ones where we could go deeper, and had multiple physicians who were using our device and hadn't been using our device. So, we'll continue to do that, and convert existing customers to new product.

Okay. On the cost side, you mentioned in terms of ramping of the facility in Texas. Is that something we're just seeing in the gross margins, or would some of that slow down the SG&A as well?

That's in the gross margin guidance. There will be some ramp up as they get ready to start producing the Stealth device, which will probably occur at the end of the calendar year. So, we'll have some additional costs that we're incurring to build that up, get it ready to go, and that'll be rolling through in the gross margin line.

Okay. If we look out to all of 2012 though, would you expect that the gross margin ends up similar to where to what it was for full year fiscal 2011, around that 79%, 80%? Or should we assume some sort of a full 12 month of ramp up period as you get the stuff out there?

Yes, I think the gross margin can get back in that close to where we ended the year this year, and that's 79%. Might not hit 80%, but by the end we should be able to get back up there.

Okay. And when it comes to costs on the clinical trials, I'd -- should we assume a lot is going to fall in the back of the year as you complete the mission, or should we space this out a little bit more evenly?

Yes. Part of the increase in R&D, of course, when I said it would increase over Q4 about 10%, that's going to be accelerating the Orbit II trial, so I would say the first two quarters we'll have acceleration on Orbit II. It'll start to fall off in the third quarter as we ramp it down. They also have a liberty trial that we talked about before that's currently under construction, and that'll start ramping up probably the second half of the year. So you should see a pretty stable flow of clinical expenses throughout the year, maybe a little lower towards the end.

Okay. Thank you very much.

Your next question comes from the line of Ernie Andberg. Please proceed.

Good afternoon, Dave, Larry.

Hi, Ernie.

Hi, Ernie.

Can you give me a little better idea of where you are in the key accounts? I believe you said that you were targeting to try to get to about 25 accounts in this beta test phase. How many are actually using it right now?

For the Stealth?

Yes.

107. We exited the quarter with 107 Stealth accounts. And accommodation was existing accounts with commitment for peripheral vascular [needs] and multiple physicians, but we also at the end of the quarter did start to convert brand new users. Instead of shipping the old product out, it made a lot of sense to give them the new product, and that--

So some of those 41 new accounts actually started with the Stealth, rather than the Diamondback 360?

Yes, that's correct, Ernie. We had 14 of those were started with Stealth.

Okay, fair enough. How do you see over the next couple of quarters that roll out going in the key accounts? And how many do you expect to get to, let's say, by mid year and the end of the year?

By mid year we'll still be controlled mode. It makes a lot of sense to be paced on this, and the knowns now are great clinical and ease of use is emerging as two great stories, so it makes sense for us to be controlled about that. But I do anticipate the back half of the year we can start to take the gloves off, so to speak, in order to fuel some of our annual growth targets.

So, we shouldn't expect a significant increase in the number of accounts over the first half of the year using Stealth, is that what you just said, Dave?

Yes. First half of the year will be paced.

And of your 900 to 1,000 accounts by count over time, probably some of those are inactive. Where do you think that that gets to over the second half of the year in terms of what you consider your key account structure?

Well, I think in general, I think anyone would tell you that there's a couple, 250 accounts, that drive the market, and that's where we'll be focused as well for this fiscal year. And it's true what you said, that our account total is from the test of time. We've never, never edited our account base, so there are some accounts there that maybe were inappropriate targets.

But in terms of the year and how to look at Stealth, we'll be paced to the mid year mark. We'll be investing. We're very excited about Kevin Kenny and what he can do with the infrastructure, systems and process. He'll be great for scale, and we'll be prepared for the back half of the year and a little more pay off on that investment in the first half.

Fair enough. On Orbit II, let me get the timeline straight. I've heard you talk about it and get asked a question. You're aiming to have the enrollment of the 425 patients done by the end of fiscal 2012, is that correct?

Yes.

Okay. There's only a 30 day acute period for the safety part of it. You have collect data. When did you say the end of calendar 2012 to potentially submit?

Well, we'll need some time to get the paperwork together, certainly. And we're hoping for 2013 revenue. So, there are some variability there in what the FDA will do with their submission, but we're confident because of our hand-in-glove relationship in terms of communicating to them the parameters of the Orbit I; the fact that we've got Orbit I submitted; that we designed the Orbit II in a similar fashion; that they've looked at the first 50 patients from the Orbit II, and approved us to move forward. We're feeling pretty good that that, despite all the noise about the FDA, that that period of time that they would evaluate would be shorter rather than longer.

Okay. Thank you.

Your next question comes from the line of James Terwilliger from Duncan Williams. Please proceed, sir.

Hey, guys, can you hear me?

Yes, we can, Jim. Thanks.

Nice job on the revenue growth number. I've got some questions. I apologize in advance if they've already been asked. I'm kind of juggling between calls. Is it safe to assume that any new account is going to get the Stealth? Is that safe to assume?

Now, there's still a mix in the fourth quarter; 14 of them did receive Stealth of the 41. As we go forward we expect that mix probably will increase, though some are still being initiated with the Diamondback product that has the controller unit.

And then if I would look at your entire installed base, what would be the percentage that have been converted to the Stealth?

The full base since the start of time is 993 accounts, and we are at 107 self Stealth accounts at the end of the quarter.

Okay, thanks. Switching gears. There's been some reimbursement issues in some other parts of the health care sector with what's going on with the budget. Is there any reimbursement fears or update that the management team would like to make at this time?

Reimbursement continues to be strong for both coronary and peripheral. So we're -- and that makes sense to us, because the cost of the problem is large, and the United States can benefit from more treatment and a higher standard of care for these patients, so it all makes sense to us.

There's three ways in which the peripheral patient can access reimbursement. One is in the hospital same day treatment, which we facilitate with our minimally invasive same day opportunity. There is also overnight or in-patient, and now as of January 1, there is reimbursement for our procedure being done in the doctor's office, which is real convenient for patients as well. I think there's a real recognition that with 8 to 12 million people with this disease, and just a fraction of them being treated, that more access points for these patients and for physicians to treat makes sense. So I think you'll see general support going forward, not only today, but going forward from CMS to reimbursement and to attack this problem, this opportunity, in the United States.

For coronary, reimbursement's been in place for a long, long time. There's a lot of excitement about what CSI, in particular, is doing for the calcified patient. Patients with calcification in these small coronary vessels, those are the ones that really are both cost and durability are very, very difficult. These are the sweaty cases for the physician. We think based on our Orbit I trials and our experience in the peripheral that we have a real solution here, both economically and clinically, for this patient as well. So, we expect strong reimbursement now, and for the foreseeable future in the coronary market as well.

Excellent. One quick, one last question here. In terms of the sales force as you close fiscal 2011 and going into fiscal 2012, what type of sales force build should we look for in 2012?

I think mostly will be seeing productivity gains. I think you might see some build in ones and twos and threes and fours and fives over time, but really, it's a productivity story. With the science as strong as it is and continuing to emerge, and our continued commitment to science, with the new technology making it easier to use, and giving us a great story for physicians two, three, four, five, and six in the hospital to use, I think productivity would be a key driver.

And then another reason for excitement about the coronary is, seven out of ten of our current customers are cardiologists who treat both legs and hearts. So there's a real nice parlay here for this wonderful platform and Orbital technology for the Company, and so you can imagine that operating efficiency is going forward, and chance for revenue growth and profit are really exciting for us in the future.

Excellent. Thanks, guys. I'll jump back in the queue. Nice revenue number. Nice revenue guidance. Thanks, guys.

Thanks.

The next question comes from the line of Deepak Chaulagai from Dougherty & Company .

Good afternoon, guys. Thank you for taking my question.

Deepak.

Hi there. You mentioned that in hospitals where Stealth has been installed the device use is already up 25%. Could you talk about sort of the ramp up? Is it folks who have been using it for a quarter or two that are using it more now, or is it an initial bump that it's very receptive or becoming very receptive?

Yes, thanks. That's a great question. Just to give you a one hospital snapshot, and this is a real example, and there's more of these examples in the 107. But there is one institution where we had two physician users, even though there [was] four physicians in that hospital dedicated to treating the peripheral disease patient. One physician that was really fascinated with our device, had mastered kind of the difficulties of use, and was at kind of a maximized usage rate. Another physician was using us because we're the only game in town or the only solution really for small vessel.

And two of the other physicians weren't using us. They were kind of working off a previous standard, because we were hard to use, and our science was emerging. We went into that hospital with the new product, with the Stealth. We re-introduced the Company and the technology and our wealth of science, including over 5,000 lesions under study. And we were able to get four people to use the device, instead of the two before Stealth. Physician number one continue at his maximal rate of device usage.

Physician number two doubled usage, and physicians three and four at that hospital went from zero -- not using -- to significant usage. And that's the story that we're looking for. What enabled that was a new tool; it was easy to use, and scientific proof.

That's pretty -- I think that's good for going forward. Having said that, could you expand on why -- I understand you want to be cautious, and make sure everything's right -- but why not the ramp up today versus towards the end of this coming fiscal year?

That's still a (inaudible) market. There's a lot of information swirling around. These physicians have never been under more pressure, both with standards, and economics, and hospital bureaucracy. So it takes time for us to educate our physician operators, and their support staffs. So the sales cycle, for example, we're barely fitting the sales and education cycle into one quarter, because introducing ourselves to the carpeted areas of the hospital administration, to educate and amplify the benefits, working with physicians number one, two, three, four, and five, and some cases more.

Educating the staffs; it all takes time and thought, and therefore, we think a controlled approach is the best way to go about it for long term prospects. We're looking for sticky revenue. I think there is, with this device and the excitement around it, there would be an opportunity to get a mass bolus of revenue, but we think it might be at the expense of phenomenal long-term prospects. So, we'll take our time now, and that will open the door to massive, exciting growth later.

Now, that makes sense; that makes sense to me. One last question I have for Larry. Do you have the total number of sales reps by the end of this quarter, or current quarter.

At the end of Q4?

Yes.

Yes, it was about 120. Those are direct sales representatives.

And you said you would kind of add to that as you go forward, not a huge extension, but we should expect some expansion there?

Yes. I think Dave said three to five per quarter, maybe in that range, but not an explosive growth. But we will continue to add as we see the opportunity to do so in a productive manner. As I said, we have as part of our increase in expense for Q1, we are increasing some of the management, and other professional staff to really drive physician education. It's the opportune time to do that for us with our data, and the Stealth, and so we're adding people more to the infrastructure, as well as to allow us to do that. And also, spending on creating the right tools and programs for physician education going forward.

Thank you very much.

Your next question comes from the line of Ernie Andberg from Feltl and Company. Please proceed, sir.

A couple of follow ups, Dave. By calculation your average or your ASP went up a little bit in Q4. Is that because of premium pricing on the 1,600 Stealth handles?

Yes.

Okay. Fair enough. Dave, you gave us two pieces of data on the Stealth accounts. Usage was up 25%, and then a second piece of data, accounts, did you say over, who are doing over 50 procedures a quarter also increased significantly?

Yes, over 30. Over 30 per metric.

Over 30 increased, did you say, by 50%?

60%; 59%, to be exact.

Okay. Fair enough. Thank you very much.

There are no further questions at this time. I would now like to turn the call over to Dave Martin for closing remarks.

Thank you. Reflecting on the close of our fiscal year and looking ahead, I'd like to underscore the progress our team has made in helping physicians treat peripheral arterial disease. We have an exciting new product, the Stealth 360, that we're rolling out to key accounts. Our penetration and our target accounts is growing. We continue to generate an unprecedented level of data through our wide-ranging clinical trial program. Our pivotal trial for coronary application, a major new market opportunity, is progressing as planned. As a result, we expect our revenues to continue growing and achieve profitability in late fiscal 2012. Again, thank you for joining us today.

Thank you for your participation in today's conference. That concludes the presentation, and you may now disconnect. Have a great day.