Cardiovascular Systems Inc (CSII) 2015 Q4 法說會逐字稿

Good afternoon. My name is Phoenix and I will be your conference operator today. At this time I would like to welcome everyone to the Cardiovascular Systems II Fourth Quarter Earnings Call. (Operator Instructions)

I would now like to turn the call over to Jack Nielsen, Senior Director of Corporate Communications and Investor Relations. You may begin your conference.

Thank you, Phoenix. Good afternoon and welcome to our fiscal 2015 fourth quarter conference call. During 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 or other statements that are not historical facts.

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 10-K and subsequent quarterly reports on Form 10-Q. 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.

I will now turn the call over to CSI President and CEO, Dave Martin. Dave?

Thank you, Jack. Hello, everyone. We had a very successful 2015, capped off by a productive fiscal fourth quarter. Let me share with you some of the highlights of the quarter. We continued to make progress on cross-training our salesforce to sell both peripheral and coronary products.

We trained an addition 25 professionals this quarter, bringing the dual franchise sales professional total to over 140. And for context, we had zero this time last year. Productivity goals were also achieved per representative, further validating our dual application sales approach.

In April, we received FDA clearance for the new micro invasive 4 French Solid Diamondback 360 PAD system. Our ongoing clinical trials, ORBIT II, COAST and LIBERTY 360 are advancing on schedule. Finally, we believe the reimbursement outlook will remain attractive for our products. We'll discuss that in more detail each of these points in our prepared remarks today.

Sales productivity drove 22% year-over-year growth this quarter. However, an average of nine open territories reduced fourth quarter revenue by about $1.5 million or 4% growth over the prior quarter.

PAD revenue growth is also temporarily affected by our sales optimization, as PAD selling time is reduced by four weeks of cross-training, and establishing initial sales at our new coronary accounts. Salesforce expansion is back on track, and as of today we have exceeded 50% of our hiring goals for the first quarter.

We see a path that is patient-centric, and will marry high growth with profit. As you are aware, we are in the process of expanding our salesforce, while developing a dual franchise sales organization, two big things. An 18-month plan that began at the beginning of fiscal 2015, once complete, we believe this evolution of our organization will position CSI to drive the adoption of our platform technology, and marry those two valuable things, high growth and sustainable profit.

At the end of calendar 2015, our clinically-focused sales organization of 250 professionals will have the advantage of selling two high-growth, high-margin franchises in small span-of-control territories. This small span of control will allow us to be service intensive, and relationship strong in every major domestic market.

In the quarter we made significant progress by increasing the number of dual franchise representatives by 25, and completing the associated territory realignments. Dual franchise team met our productivity goals, generating almost $300,000 per representative in the quarter at this early stage. And they significantly outperformed our peripheral-only reps by nearly 70%.

We're building the foundation for high growth and profit in two franchises for years to come. We're in position to lead peripheral interventions to above 1 million annually, and while simultaneously driving the amputation rate in the United States below 100,000 annually.

I'll now turn the call over to Larry for a review of our quarterly financial results, and our guidance for our first fiscal quarter. Following his commentary, I'll address the often-asked questions about competition from other treatment modalities, provide an update on our recent approvals, outline the progress of our trials, and we'll discuss reimbursement developments.

Thank you, Dave. My prepared comments will focus on the fourth quarter results. I won't discuss details for the fiscal year, but I'd be happy to answer questions during Q&A.

Compared to a year ago, total revenues grew 22% to $48.5 million, which is approximately $500,000 or 1% below our guidance range. Device revenues were 89% of the total. We sold nearly 14,000 devices, bringing the live today total sold to almost 210,000. Devices sold include approximately 2,400 coronary units. Coronary revenue totaled $9.4 million. Reorder revenues remained high at 96% of total revenue. We added 45 new peripheral accounts and 71 new coronary accounts. All but four of our coronary accounts to date are also PAD customers.

ASPs for both the peripheral and coronary products are similar to prior periods, with peripheral averaging just over $3,000 per unit, and coronary around $3,700. Gross profit margin increased to 78% from 77% in the prior-year quarter. The improvement was largely due to a higher mix of coronary products during the fourth quarter of 2015 compared to the prior year.

Gross margin was below guidance, primarily due to costs incurred for the transition of manufacturing to our new facility in Minnesota. Going forward, we anticipate engineering enhancements and higher production volumes will continue to reduce unit costs. In addition, increased sales of the coronary device, which has a higher average selling price, should help keep gross margins in the upper 70% range.

Operating expenses rose 15% over last year, primarily from planned investments related to the salesforce optimization and expansion and coronary commercial launch, as well as expanded clinical studies and new product development. Although our fourth quarter expenses were lower to expected, largely due to fewer sales representatives than planned.

Net loss was $8.7 million, or $0.27 per share, compared to a loss of $9.6 million or $0.31 per share last year. Adjusted EBITDA was a loss of $4.1 million, compared to a loss of $5.9 million last year. The decrease was from a smaller operating loss and higher stock compensation, depreciation and amortization expense.

At quarter end we had a cash balance of $84 million. The $9.6 million usage this quarter includes final payments of about $2.6 million for our new Minnesota facility. The remaining usage was primarily for operations.

Now I'll discuss our financial outlook. Please recall that our exclusive distribution agreement for Asahi peripheral guidewires expired on June 30. Our revenue guidance reflects that termination.

For the first quarter of 2016 we anticipate revenue growth of 23% to 27% over the first quarter of fiscal 2015, excluding Asahi guidewire sales in the prior period of $1.9 million, to a range of $48.5 million to $50 million. This range includes coronary product revenue of about $10.5 million.

We expect a gross profit margin of about 79%, operating expenses approximately 12% higher than the fourth quarter of fiscal 2015, reflecting our salesforce expansion and timing of sales meetings and training, and net loss in the range of $12 million to $12.9 million. This equates to a loss per share of $0.38 to $0.40, based on 32 million average shares outstanding.

Dave will now continue with additional commentary. Dave?

Thanks, Larry. We're often asked about how our products will grow market opportunity or compete with other modalities. The introduction of drug-coated balloons is the latest new and exciting technology in the vascular space. Consistent with what many of you have found through your surveys and your research, those companies who feature solutions for soft plaque and large vessels are being affected by DCB usage.

For the Diamondback 360, the only calcium-everywhere device, we are observing synergy. In the fourth quarter we hired a third party to conduct a physician survey. Two of the key takeaways were that one, current CSI users report no difference in atherectomy allocation post drug-coated balloon availability; and two, the majority of physicians surveyed believe vessel preparation is more important with drug-coated balloons. And that's in line with the scientific evidence.

Not all atherectomy is the same. Our Diamondback treats calcium everywhere, including below the knee. The survey results support physician confidence that calcium is a problem, vessel preparation is necessary, and that drug-coated balloons might be an exciting new technology that will help expand the interventional market.

As a greater number of physicians learn the benefits of using orbital atherectomy as the primary treatment, and the use of other adjunctive technologies, they will more readily expand their standard of practice to below-the-knee intervention, where it is sorely needed.

Investigators such as Dr. Edelman have shown that using the Diamondback 360 prior to DCB improves drug uptake by 50%, and it allows uniform circumferential uptake, benefits derived only from our unique orbital mechanism.

Additionally, Dr. Tepe studied 91 drug-coated balloon patients, and concluded that the presence of calcium is the key indicator for whether drug-coated balloons can be effective or not. We'll look to build on this and similar studies next month, as we launch our [OPTIMIZE] study in Europe.

The OPTIMIZE study is designed to measure drug-coated balloon effectiveness in patients with moderate to severe calcium, with and without orbital atherectomy. We anticipate that this study will help illustrate how physicians can best care for their patients with calcified lesions. Calcified lesions account for about two thirds of the vascular interventional market.

Turning to our current clinical trials, we continued to make great progress during the fourth quarter. Enrollment in LIBERTY 360 has reached almost 1,000 patients. We remain on track to complete enrollment in early calendar 2016. To recap, this study is evaluating the acute and long-term clinical and economic outcomes of our orbital atherectomy systems and other devices in treating PAD.

There are over 500 Rutherford IV, V and VI patients under study, 585 to be exact. This is remarkable for two reasons. One, it represents millions of patients who are currently outside treatment norms. And two, exceeding with this patient population is the key to our CSI goal of driving amputations below 100,000 annually in the United States. It's also the first study to compare orbital atherectomy to all other PAD interventional treatment options.

Last month we announced the enrollment of the 100th and final patient in our COAST study. Taking place in the United States and Japan, this study is designed to assess the safety and efficacy, as well as economic outcomes of our new Micro Crown Orbital Atherectomy System in treating severely calcified coronary lesions. COAST is expected to build on our successful ORBIT II study.

As you recall, we recently shared the ORBIT II two-year data, revealing that the long-term clinical and economic benefits of treating calcified coronary lesions with the Diamondback. Of note, the two-year patient and payer benefits included a 94% freedom from TLR, a cost savings of $5,000 per patient, and a cost-effectiveness saving of over $25,000. That's extraordinary.

COAST is being conducted as a harmonization-by-doing study. That's a real term. This program is a cooperative effort between industry, academia and the government bodies in Japan and the US. And it's designed to promote global clinical trials, and encourage timely approval of medical-device solutions.

The study will pave the way for approval of our 1.25 Micro Crown in both the US and Japanese markets. We expect commercialization of the Micro Crown in Japan in fiscal 2018, although the approval window for best-case scenario begins about a year from now, thanks to Bob Thatcher, Paul Koehn, and the team who's gone overseas to do great work on behalf of those patients in need in Japan.

CSI recently received FDA clearance for a new technology in the US. In April we expanded our Micro Invasive line of peripheral offerings with the FDA clearance of the 4 French 1.25 Solid Crown Diamondback 360. This 145-centimeter long device builds on the previously approved 60-centimeter peripheral device. Physician may now access peripheral lesions through the leg using 4 French access, via the foot or the groin. This unique suite of products is patient and user-friendly and reduces procedure times and complications significantly.

In July the FDA cleared our new ViperWire Advance Peripheral GuideWire with Flex Tip. This wire is easier to navigate, and the softer, more flexible tip provides physicians with more confidence when advancing the wire in distal and tortuous vessels.

In just a few weeks since introduction, the feedback has been outstanding. Including that the wire has great torque response and deliverability, a softer distal section improving maneuverability, without sacrificing functional performance, and even has the potential to be a primary wire.

Our pipeline will continue to yield innovative products that benefit both patients and physicians. We are pursuing product improvements and evaluating new technologies to strengthen and broaden our product portfolio of powerful micro invasive tools to treat patients from heart to toe.

Regarding reimbursement, we're encouraged that the proposed 2016 reimbursement rates are largely unchanged from 2015. This was certainly welcome news, but not surprising. Some view the announcement of the MEDCAC panel on treatment for extremity PAD as a warning that 2016 reimbursement might come under pressure. Two weeks ago, the MEDCAC panel delivered a vote of confidence that evidence exists supporting intervention for intermittent claudication and CLI, both key markets for CSI.

As a result, we believe it is highly unlikely it will result in a national coverage determination that would adversely affect reimbursement. Given our leadership and clinical data, we were encouraged that the panel discussed the need for clinical evidence, and recognized the need to reduce amputation rates. We are front and center on both.

The timing is ideal, as CSI is launching a new initiative to introduce amputation prevention programs in select hospitals nationwide. Our mission is to increase awareness of PAD with specific focus on increasing the treatment of CLI and greatly reducing the number of amputations related to PAD. Nearly 175,000 amputations are estimated for this year.

In addition to the pain, suffering and challenges that amputations cast upon patients and their families, it is a massive burden to the US healthcare system and tax payer. Larger than coronary artery disease, larger than cancer, stroke, and larger than congestive heart failure, CLI the most severe form of PAD leads to amputations, which cost the US healthcare system over $10 billion every year.

We've already engaged with a small number of physicians at high-volume amputation institutions, with a goal of adopting a simple patient algorithm. We've also commissioned a report to study on how our plan and our technology drives economic benefits to participating hospitals. Once implemented, we'll track the results, showing reduced amputations, improved patient outcomes, and lower hospital costs. Once successful, this is something that we will replicate across the country.

In closing, we believe CSI is the clear leader in peripheral and coronary atherectomy. We develop outstanding products backed by strong clinical data, marketed by a highly trained sales team. Soon we will be in an even better position to thoroughly cover the top coronary and peripheral institutions, driving deeply into these high-volume accounts.

Our patient outcomes first and highly productive dual franchise sales professionals put CSI on track for continued strong double-digit revenue growth and future profitability. The importance of calcium removal continues to gain mindshare in the medical community. The patient populations we treat are large and they're underserved, 4 million patients with CLI, and 400,000 coronary procedures with significant calcium present are performed annually.

The Diamondback 360 is the only treatment that delivers consistent durable outcomes for patients with calcified plaque. As more doctors and their patients experience firsthand the performance of the Diamondback 360 product line, we are highly confident that we will be able to capitalize on the enormous opportunity before us.

That completes our prepared remarks. Operator, we will now take questions.

(Operator Instructions) Brooks O'Neil, Dougherty & Company

Good afternoon, everyone. And thank you for all that detail. It's extremely helpful. I'd just like to start off by seeing if you could give us a little more color on any issues that resulted in that shortfall in hiring of the sales organization.

Yes. Thanks for the question, Brooks. Yes. There's a lot more. Training takes field representatives out of the field for four weeks. We reorganized 100% of the territories this year, some of them a half a dozen times to get to where we're going. So there was a lot of disruption.

Thanks are due to the sales management team. I mean they really hoofed it. One area where they did not move their standard, their high standard, was on hiring. We could have filled those spots, but chose not to. We also could have changed our patient-outcomes-oriented sales training. But one, we couldn't find a good way that we were confident with to reduce the four weeks out of the field to get someone up and running on peripheral, and then secondary coronary.

So the team worked hard. We made the right decisions for the long term. We did fall behind for the quarter. But we're, as we speak right now, we're back on schedule.

Great. Could you also just talk a little bit, obviously the 7% growth you had in the peripheral business was quite a bit slower than it has been lately. And I understand the impact of the salesforce training and expansion. But could you just talk a little bit about what you're seeing in the overall market that gives you confidence that high growth rates in procedure volumes and device utilization will continue going forward.

Yes. It's a great question. So we're interested in that answer too. And we dug in deep. Not only did we do the survey by a third-party operator, a lot of us got out in the field and just asked our faculty and our users, what's going on and how they're incorporating new technologies. It does lead me to conclude that our own distraction lost field days is the answer. We've got synergies certainly, seven out of 10 of doctors are cardiologists. It's the same call point.

But to get someone up and running at CSI, and we've got a lot of new employees in general. And 75 of them are in the field. We do take the time to train them on peripheral first. Then we put them in a territory that's realigned and new to them. And then we let them get peripheral success before we bring them back for coronary training.

Coronary training takes them out of the field for a couple of weeks, and it includes proctoring of six cases, just like we put our doctor through. But we were really validated. This quarter those 75 new professionals led growth 22% quarter over quarter. They were lions. And the feedback from the doctors about the quality of person that we're putting in their lab is extraordinary.

So our hiring profile is great. But it does lead to less PAD attention. In addition to the time out of field for training, there's a real sales cycle for coronary. Even if a physician wants it, as we all know, half of the doctors work for the hospital. You've got that administrative call. A lot of the hospitals are built to kind of thwart an onslaught of new technology.

So sometimes you have to wait for a new products committee to meet. And at most, they meet monthly. So there's a real sales cycle, and so there's getting, especially getting those initial devices in. That's real.

Another comparison that might help with that question, because it's a real good one, if you look at this fourth quarter last year versus the fourth quarter this year. Fourth quarter last year was our last quarter of pure-play peripheral. We had, by objective measure, the best salesforce in the peripheral space. And then after that quarter we started the cross-training.

I estimate that we may have gotten less peripheral sales calls in Q4 of 2015 than we did in Q4 of 2014. And it was exacerbated by falling behind on the heads. But there is natural distraction. We're doing the right things. Because we see the productivity in those hybrid representatives. And I did mention that those also led. In addition to new employees, newly trained, having that 22% growth rate quarter over quarter, $300,000 per representative of sales productivity for those people who finally got to that great place where they had a sales territory of maybe six accounts. And they were handling both franchises, and obviously doing it very well.

That just scratches the surface. So we're really excited about where this can go once we complete the project here and get to our 250. So long-winded answer, but I wanted to attack a couple of those points.

One final thing, I did sit down with a number of doctors, Dr. Ramadurai and Dr. Chopra in Chicago. I sat down with Dr. Kim and Dr. [Fisher], Diamondback users. And this is more anecdotal than the survey but, Dr. Chopra used-- and this is in the category of competitive technologies and are they maybe affecting the sales of this Company. Of the 86 drug-coated balloons that Dr. Ramadurai had done, every one of them he started with the Diamondback.

When a physician recognizes calcium and what it can do to an outcome, it's hard to-- they'll start with the Diamondback. Same with Dr. Chopra, over 100 drug-coated balloons, almost every one of those cases was started with a Diamondback. Dr. Fisher the same, Dr. Kim the same, another half a dozen doctors the same.

So our Diamondbackers are solid. They like the new technology. But the science and their experience is leading them to be more confident in using the Diamondback 360 first in order to clear out that calcium, which is the biggest obstacle to a great result.

Great. That's very helpful. I have just one last question. And I listened to the MEDCAC meeting. I thought it was very interesting. And I definitely heard the concerns you articulated about reducing the amputations and the clinical need that's out there in the marketplace. I was a little surprised it didn't seem there was tremendous awareness of both your clinical, proven clinical outcomes, and/or the capabilities of your systems.

And I guess I concluded from that the sky's the limit if these so-called experts didn't even seem as knowledgeable. But is that similar with your sort of observation? Do you think there is still just tremendous opportunity for you to educate the marketplace about the capabilities of your systems?

Oh, yes. I mean it's-- calcium was never talked about until CSI brought it up, and now it's a major source of topic and science in the category. I think that MEDCAC panel, you bet. We brought them from zero to 50. If you look at the presenters, those were as it turned out, people with great familiarity with below-the-knee intervention, and great familiarity with the Diamondback. We had a chance to shine and put our best scientific foot forward. We had a number of key opinion leaders present on our behalf. And the evidence was overwhelming.

Even for a new group who is starting at zero, they voted strongly that evidence did exist for patients in need, particularly in those end-stage diseases. And I think we did highlight that amputation and Critical Limb Ischemia is an enormous problem in the US. It costs the US $10 billion a year. So I think awareness is going to drive support. I don't think it will do anything other than drive support, and drive maybe even more quicker the standard of care changing to routine treatment of below-the-knee vessels and calcium.

Great. Thanks a lot.

Danielle Antalffy, Leerink Partners

Good afternoon, guys. Thanks so much for taking the question. Dave, I was hoping you could elaborate a little bit. I'm sorry if you did go through this in the prepared remarks. I'm jumping between calls. But what impact from a sales perspective, if you just think about sort of what productivity that you might have lost from those nine reps. What could growth have been if you did have those reps, to sort of give us maybe as best you can, an apples-to-apples comparison?

Yes. Thanks, Danielle. They would have produced $1.5 million to $2 million in revenue had we filled those spots, so with a difference between just missing the range and the high part of the range. So that was unfortunate. We made the right write-offs. The sales management team was diligent in their quality hiring. We stayed on track for putting the best trained representative in front of the physician in cath labs.

So it was a tradeoff. We are back up to hiring par right now as we speak. And by quarter end, we'll be back on track. So we've already course corrected. You know, there's another piece though that we didn't mention. And that is for those, we're in process. We've cross-trained 140 people, which is unbelievable commitment and investment by the Company in our people. And it's going to pay off in spades for years to come.

But there were a trailing group of 30 who were PAD only. And for those-- that cohort of sales representatives, they didn't grow at all. In fact, they were minus 9%. The reason is probably two-fold. One is in that group might have been a few people who aren't really excited about having the dual franchise, and maybe not excited about having a lower span of control, and that's just a few of them.

But the evidence suggests and the excitement for the majority of the group is that when they get their coronary training, when they get their realigned territory, they're going to do the same extraordinary things that everyone has done before them. So we'll get that done as well. And that's ongoing.

Mike Matson, Needham & Company

Hi. Thanks for taking my questions. I guess [it wasn't] clear, if you could just comment on the guidance. It looks like-- I think the 23% to 27% that you're guiding to backs the impact or the sales that you had last year from Asahi out of the numbers. One, is that correct?

Yes, that's correct.

Okay. And then two, that would sort of imply that you expect growth to be higher next quarter than what you saw this quarter. So what gives you the confidence that the growth can reaccelerate a bit sequentially?

Yes, you're right, Mike. That would give us growth in the PAD side of 10% to 14%, again backing out the Asahi effect. And as Dave said earlier, really a lot of the confidence is around us seeing the productivity in the fully trained and fully staffed territories, and knowing that we're filling the void right now. So that's what gives us confidence we can move forward.

Okay. All right. And then Dave, I understand the comments around the survey that you did, and it's consistent with what I've heard out there and when I was at New Cardiovascular Horizons, there was a lot of talk about vessel prep with drug-coated balloons.

But I guess one thing that I've been wondering about and we heard Spectranetics make some comments on their call about is to the degree that these physicians are doing more atherectomy before they do the drug-coated balloons, do you think some of that additional volume is being picked up Medtronic and Boston Scientific? Because they were making a pretty hard push to kind of bundle the products together.

I don't know if they're bundling from a pricing strategy. But at least they're marketing them together. And so do you think that there's some sort of a competitive impact there so that the net increase to atherectomy volumes are benefitting them more than you guys?

Yes, it's hard to tell. But the device has its limitations. So Dr. Ramadurai in fact had, he was Jetstream user. And I asked him if he would ever pick it up again. And he said, no. That technology, that mechanism can't do what ours does. He's trying to eliminate calcium. And there's only one device that does that, and does that circumferentially.

But I think we're solid. We've got a great base of business. We've got some really active, excited users. It's fantastic. They are out there with footprint. Are they getting to some new prospects before we are? That could be true. We realigned 100% of our territories, some of them a half a dozen times this year. So it's been pretty busy. And they might have been first to the handshake. But there's no doubt with our mechanism and our science, we'll get every one of them.

So if there is a slowdown, and they're making an in-road, we'll go in right behind them and take that business back. But we don't see a ton of evidence of that. But it could be happening.

All right. And just with the COAST enrollment done, I was wondering if you could provide an update on when you expect to [get into the market] in Japan?

Yes, the team-- we have so many people from Minnesota fly to Japan to cover cases and make sure things went right. We just had three executives get off the plane a few days ago. The team has done a great job. We're on a fast track. We expect in fiscal 2018 to have approval. But CSI has got a reputation for accelerating regulatory clearances. And we think the window for good news opens this time next year. That's when the window opens. But realistically based on other submissions and other data, non-CSI, fiscal 2018 is when we're looking at that.

So if I'm hearing you correctly, you're implying it could potentially be as early as fiscal 2017, but you're official guidance is for 2018?

Yes. We're hoping for an ORBIT II-like result. You know, we got good news about nine months early. But, yes. Reasonably from all other data, you would have to model it for fiscal 2018.

All right. Thank you. That's all I have.

Ben Andrew, William Blair

Hey, good afternoon. This is actually Scott Schaper in for Ben. I wanted to stay with a couple questions on the salesforce. For the nine open spots that you mentioned on average in the quarter that were open, were those productive reps that perhaps left and weren't replaced, or were those new territories and new reps that you didn't fill as part of the expansion process that you guys are doing? And if it's the latter, I guess well I would ask, what do you normally expect a new rep to produce in the first quarter of being hired?

Yes. I'll start that question. And then Larry can finish it. Yes, it was a mix. Six of them were open all quarter long, and most of those in major metropolitan areas. So you know, it was a toughie. We've got over 30 hiring regional managers. And so if half of them have one open spot, you could see how this could happen, sneak up on you, and it did on us. There were a couple of people who liked the way it was. They liked their large 22 account peripheral territory. They did not want their dirt cut. And they choose to move on. And that's fair. Those people did great for us.

And we need excited people about handling a dual franchise and getting more intense relationships in fewer accounts. That's going to really be patient-centric and great for the franchises. So that's the front part. Maybe Larry could talk about numbers.

Yes. The new reps typically will have a quota in the $100,000 plus, $100,000 to $150,000. And that gives them a good start on their territories.

Okay. That's helpful. But I also wanted to confirm something you said on the productivity front per rep. That 22% growth number you were talking about, those were just new reps, or with those ones that were existing reps entering the quarter?

The 22% was our revenue growth fourth quarter over fourth quarter.

Okay. So that wasn't a productivity number?

There's a cohort of new representatives who were hired in the last 12 months who were trained in both franchises. And they did grow over 20% quarter to quarter. That cohort was really exciting. The other exciting cohort of sales pros were the ones that overall veteran and new who had both franchises and an optimized territory. Optimized generally means six accounts or less. And those are the ones we quoted as having $300,000 in the quarter of revenue productivity.

So great validation for where we're going. The two, if you missed it Ben, the two disappointments were one, it was very measurable having on average nine open territories, six for the entire quarter, most of those in major metropolitan areas. But those people we haven't trained yet, there's 30- 27 to be exact PAD-only territories. And those territories hadn't been realigned. It just had one franchise. And that as a group, was a boat anchor as well.

We fold them into the training schedule and most of those are really excited about getting the coronary training and the reduced-size territory.

Okay. In terms of average productivity per rep though, compared to last quarter, for the existing reps, not counting the nine that were open or not counting some of the newer guys, some of the productive reps per-- the average productivity compared to last quarter, was it the same? Did it accelerate?

Compared to third quarter? It went up a little bit. It was a little less than $230,000 last quarter. This quarter when I factor in the average open territories, it was probably closer to $240,000.

Okay. I guess I have two more quick ones if I could. The hybrid training, I know you said you guys were on track to hire the ones that you were planning on. But in terms of cross-training all 200, is that still on track to be completed by the end of the calendar year?

Yes. Yes, by the end of the calendar year we'll be back on track. We're largely on track right now. We've got two big classes coming in in this quarter. One class gets out on August 21, the other one October 1. So it's going to be a great catch-up quarter for us.

Okay. And then my last one, in terms of the peripheral volume, do you guys see a similar split this quarter between, like 60/40 between above-the-knee and below-the-knee? And then did the above-the-knee accelerate from last quarter? I know we talked about last quarter that it kind of slowed from the 15% historical growth. And it just grew a little bit last quarter. Do you see that accelerate, or is that still kind of lower single digits?

On the above-the-knee? Yes. It was low single-digit growth. And below-the-knee was higher.

But a similar split?

The mix is similar, yes.

Okay. And then above-the-knee, is that kind of where we should expect it to continue going forward?

I would expect that once we are able to get through the transition, the optimization, I would expect that to regain some steam.

We'll win sales calls back, we'll have less distraction, more dedicated sales days as we go. That will help.

Great. That's it. Thanks, guys.

Bob Hopkins, Bank of America

Hi. Thanks for taking the question. So just to be clear on where the slowdown occurred. Obviously it was all in peripheral with that 7% number. I guess what I'm curious about, was there a difference in the rate of deceleration above-the-knee versus below-the-knee?

I think the below-the-knee, the rate of deceleration is probably similar. The growth below-the-knee is higher than the growth above-the-knee.

So it wasn't like the majority of the slowdown this quarter was above-the-knee?

No. Probably a little more weighted above-the-knee. Since there wasn't people selling in those territories, it affected both.

And then lastly, just curious a lot of questions on reps, so just one more. What was rep turnover in the quarter relative to the last couple of quarters?

It was probably a little above industry standard. We've definitely raised the bar on hiring. And we need to, right? Putting someone in a case, in a coronary case, we want them to succeed from day one. So it's intense.

If industry is around 10%, we're probably a little bit above that, if that helps.

Yes, no, just curious. But did that change this quarter relative to the last couple?

Yes. It was a little higher in fourth quarter. And some of it's driven by the transition to the new two-franchise rep. Not everybody is going to be suitable for that.

Okay. All right. Thank you.

Jan Wald, Benchmark

Good afternoon. I guess a couple of questions left, in the coronaries, what I guess I'm interested in is I've heard from sources I guess that there are physicians that are interested in doing more complex cases, and patients with higher comorbidities. Do you think that helps you? Is that a trend that is going to support higher growth potential in the coronary franchise do you think?

Yes. For sure. That's very insightful. In fact, both Thoratec and Abiomed have a patient population that is severely compromised. And they're finding that a lot of times those patients benefit from the Diamondback. We're the safest device in those situations. So there's-- one technology does not rely on the other. But that severely compromised patient benefits from both their technologies and ours. So there's been a lot of really natural field synergy, helping those physicians and cath labs manage that really difficult-- to treat patients.

And I also think that trends, demographics that we're going to see more and more and more sick patients. In fact, the incidents of calcium continues to grow with the aging population, demographics like obesity and then amino-compromised patient like the diabetic. So I think that is a significant market. It's a growing market. And I think you're seeing other companies take off in it like Thoratec and like Abiomed.

Okay. And I guess another question on the peripheral atherectomy market, I guess the thing that we've heard a number of times is that there's sort of an algorithm that's being developed. If nothing in principle, if not in fact, as to how to treat patients with drug-coated balloons and the more severely calcified patients and things like that. Do you see that kind of algorithm sorting out and being developed? And if you do, where do you think you fit into an algorithm like that?

Yes. Thanks. Great question. Well, when there's calcium present, we're the first device used, and 90 seconds of sanding, you could normalize that situation, and then that's a great pathway for that technology, including drug-coated balloons. In fact we know from the Medtronic trial, they went and tried to primarily DCB in small calcified vessels. That didn't work. They had to stop the trial, because they were actually doing harm. That trial was stopped.

Now we know, Dr. Tepe knows. Dr. Edelman, all the scientists and CSI faculty know that if you remove the impediment, which is calcium, the biggest impediment to a great outcome, first with literally 90 seconds of sanding, then you could avail the patient of the benefits of drug therapy. So we're excited for those small balloons to come and any other adjunctive therapy that might help those patients. Because right now treating below-the-knee is the not the standard of care. But we at CSI are quickly proving through data and safety and great results that it should be.

I think that's one algorithm. I do see-- so to be fair, we also see those doctors who have [SFA] practices. They only treat inflow. They kind of spot weld, as I would say, in the larger vessels. They're for the time being validated by DCB. If they were a balloon and stenter before, the DCB is not changing their practice habits at all. Now they're DCB first. And then no matter what happens to the vessel, and dissection happens quite a bit, I mean even trying to exclude and minimize dissections in the two DCB studies that we see, your dissection rate is well over 60%. I think it's higher in practice.

But if you're really dead set on stenting in the SFA, for those doctors they're just stent away. I think the outcome there, the clinical outcome is not good. And I think over time we'll shine the light on that, and we'll get people to complete revascularization, eliminating calcium, and avoiding dissection and harm to the native artery.

Thank you very much.

Ben Haynor, Feltl and company

Good afternoon, gentlemen. Thanks for taking the questions. Just a few left here for me. Just on the coronary side, what are you seeing in terms of utilization growth from the accounts that you originally got going, call it six months, a year ago. Are they continuing to grow as you would expect?

Yes. We changed our strategy a little bit based on success in safety in the opening two quarters. We started, once we got approved, wanting to go very deep in just a select few institutions at a time. And we were very successful at some of the largest institutions in the world, including Saint Francis and Columbia and Beth Israel.

But we found out that one, the device did better in the clinical setting than it even did in our extraordinary results in ORBIT II, and that we could cross-train. We expanded and widened out our coronary offering. So it's had the effect of kind of maybe more accounts than we originally anticipated, but in a good way. We're having great results.

It is sticky, because we're producing a great result in the opening cases. But it will be great to finish our balancing act and get people entrenched in six, five, four-count territories that we can have a daily lab presence, and go a little deeper in those accounts.

So I would say at this point in time, we've had great clinical outcomes in the accounts that we have started. But we haven't had the time quite yet at this stage, to concentrate on getting physicians two, three, four, five and six going.

Yes, Ben, if you're modeling, the usage for account in coronary is similar on an active account basis. If you're modeling from a life-to-date account basis, it's about 50% higher in the coronary accounts. And that's with adding a lot of new accounts, so very early stage adoption. So we're pleased with the usage per account.

Excellent. That's helpful. And then two real quick ones, the 140 salespeople that have been cross-trained now, is that now as in today, or was that at the end of the quarter? And then what was depreciation and amortization either in the quarter or the year?

Well the 140 is as of today. So we just finished a class of about 25. And depreciation and amortization is in the press release, which unfortunately I don't have in--

Did I miss it? Oh, I must have missed it. I'll refer to the release. I must have missed it.

No, it's-- depreciation and amortization was $900,000 for the quarter.

Okay. Great. Thank you very much, gentlemen. That's all I had.

This concludes the question-and-answer session. I will now turn the call back to Dave Martin.

Hey thanks, everybody, for joining us today. And a real heartfelt thanks to the Diamondback Nation. We've worked really hard to put ourselves in great position for future growth and profit and independence. And thank you to each and every one of our more than 600 employees. Everyone, thanks so much. We look forward to updating you on our progress in October. Good-bye, everybody.

Thank you for joining today's conference call. A replay will be made available approximately two hours from now. You can access the replay by dialing toll free 1-855-859-2056 and referencing conference ID 77041031. You may also dial 404-537-3406, and again reference the ID 77041031. Thank you. This concludes today's conference call, and you may now disconnect.