Cardiovascular Systems Inc (CSII) 2016 Q1 法說會逐字稿

Good afternoon. My name is Laurel and I will be your conference operator today. At this time I would like to welcome everyone to the Cardiovascular Systems First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I'll now turn the call over to Jack Nielsen, Senior Director of Corporate Communications and Investor Relations. Please go ahead, sir.

Good afternoon and welcome to our fiscal 2016 first quarter conference call. With me on today's call are David Martin, CSI President and CEO, and Larry Betterley, Chief Financial Officer.

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's Chief Financial Officer, Larry Betterley.

I'll review our fiscal first quarter financial results and provide earnings guidance for our fiscal 2016 second quarter. David will then update you on a few key business initiatives. Following our prepared remarks, we'll open the call for your questions.

Total revenues grew 11% to $43.9 million, excluding Asahi guidewire sales in the comparable period a year ago. Device revenues were 92% of the total. We sold over 13,000 devices, bringing the life-to-date total sold to over 220,000. Devices sold included approximately 2,200 coronary units, a 76% increase over last year. Coronary revenue totaled $8.7 million.

Peripheral unit growth was 9%, with grown below-the-knee devices estimated to be 12%. Reorder revenues remained high at 97% of total revenue, consistent with the first quarter of last year. We added 50 new peripheral accounts and 47 coronary accounts.

Gross profit margin was very strong at 80%, compared to 78.5% in the prior-year quarter. The improvement was largely due to unit cost reductions. 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 maintain gross margins near the 80% level.

Operating expenses rose 19% over last year, primarily from planned investments related to sales force optimization and expansion and coronary commercial launch. First quarter operating expenses were lower than expected, largely due to a lower number of sales representatives than planned and timing of projects and studies.

Net loss was in line with our preannounced range at $13.3 million or $0.41 per share, and compares to a loss of $8.2 million or $0.26 per share last year. Adjusted EBITDA was a loss of $8.2 million, compared to a loss of $4.2 million last year. At quarter end, our cash balance was $77 million. Cash usage in the first quarter was $7.2 million, $5.2 million of which was from operations. With improving sales productivity in the future, we believe we have sufficient cash to execute our current strategy and reach profitability.

I'll now discuss our financial outlook. As part of our sales optimization plan refinements, we reduced revenue expectations for our sales representatives to allow more time to drive sustainable adoption in their accounts. We've also added a significant number of new representatives who will have a limited initial productivity, which will improve over time. These factors have reduced near-term financial performance; however, we expect improvement in the second half of this fiscal year and beyond.

For the second quarter of fiscal 2016, we anticipate revenue in a range of $42.5 million to $44 million. This range includes coronary product revenue of about $9 million. We expect gross profit as a percentage of revenues to be similar to our fiscal first quarter this year.

Operating expenses should be approximately 5% higher than the first quarter, reflecting our sales force expansion and timing of projects and studies. And net loss is expected to be in the range of $15.8 million to $16.7 million. This equates to a loss per share of $0.49 to $0.51, based on 32.6 million average shares outstanding.

I will now turn the call over to David for additional commentary.

Our investment to expand the sales force and train them to sell both our peripheral and coronary franchises in small, optimized territories will drive long-term adoption of the Diamondback 360 and future profitability. The expansion of our sales footprint allows our representatives to develop relationships with the many stakeholders at provider centers and in the communities they serve.

The most successful sales professionals have shown that this approach is successful in small, low-traveled territories and here's the reason why. First, within the hospital, committee decision making is the norm, and administrators across these institutions are in need of information, specifically clinical and economic outcomes. It's industry's job to move this forward.

Our clinical sales representatives work with the hospital, the decision makers, and help them understand the clinical and economic outcome data that we have to support the use of the Diamondback 360. We have excellent proof of outcomes, both clinical and economic.

Second, for treatment of the millions of patients who suffer from lagging vascular treatment standards and dated referral physician knowledge, our sales professionals are able to derive valuable education for physicians in the communities where they live to ensure that patients suffering from PAD get the best possible treatment.

And finally, our clinically trained sales representatives excel at training positions and the staff to identify calcium and determine successful procedural algorithms to treat it. We are a member of the [Cath lab] team. While growing the team and establishing this new customer intimacy has been challenging, we know this approach is the right one for the long term. It delivers great outcomes, and our investment in building these relationships will drive future sustainable growth and profitability.

One example of our ability to develop these relationships is in the recent launch of our Take-A-Stand amputation prevention program. It's our mission to drive major amputations in the United States from 160,000 or more annually to less than 100,000 within three years. In June, we launched pilot sites with Dr. Bryan Fisher at TriStar Centennial in Nashville, and Dr. Mitch Weinberg at North Shore Hospital on Long Island.

In July, we began the national rollout of Take-A-Stand. We're already seeing how increased education and collaboration, combined with our powerful technology, can improve the standard of care. In fact, Dr. Fisher's practice, while we were undergoing the program, has grown at a phenomenal rate -- more than 50%. Dr. Fisher's collaboration with the greater (inaudible) community in the Nashville area, including wound-care centers, increased arterial wound patient referrals by over 50% and that's what's growing his business. In June, July, August, TriStar Centennial reduced the number of amputations by 18% versus the comparable months one year ago.

Utilization of the Diamondback increased more than 20%. Patients in the greater Nashville area are now experiencing a greater standard of care thanks to Dr. Fisher, TSI, the referral community and our technology -- the Diamondback 360.

We look forward to expanding this success story to physicians in every market in the United States. Our entire sales force is involved now. We will substantially improve patient care while reducing costly, debilitating amputations. We are underway and we are encouraged with the initial response from physicians, hospital administrators and [Pairs], a customer of ours. A few weeks ago we hosted our first amputation prevention summit with over 20 physicians, and we are identifying many more that are passionate about this cause.

LIBERTY 360 and at the VIVA meeting, which is still ongoing today. While we implement strategies to reduce amputations, we continue to expand our clinical study of calcified lesions to prove how our unique orbital atherectomy technology provides improved patient outcomes. We continue to make great progress on our LIBERTY 360 study with over 1,100 of a planned 1,200 patients enrolled. LIBERTY 360 is a prospective, observational, multi-center clinical study evaluating acute and long-term clinical, quality of life and economic outcomes of endovascular device intervention in patients with distal outflow or PAD.

This morning at the VIVA conference, Dr. George Adam shared updated enrollment statistics, in particular that LIBERTY enrollment includes over 600 patients that are Rutherford classification stages IV, V and VI. This is a new enormous and needy market. CSI is leading the effort to understand and treat this understudied patient population. We anticipate completing enrollments in early 2016 with presentation of demographic data of this groundbreaking study in early 2016 and 30-day data available next Fall or earlier.

OPTIMIZE study. CSI enrolled the first patients in our OPTIMIZE study in Europe last week. OPTIMIZE will evaluate the acute and long-term clinical and economic outcomes of the Diamondback 360 with DCB angioplasty versus DCB angioplasty alone for the treatment of PAD. Specifically, the study will look at patients with calcified below-knee lesions, and potentially set the stage for vessel preparation with our device when DCBs are launched below the knee in the United States.

The TRUTH study. Finally, last week our TRUTH study was published in Vascular and Endovascular Surgery. TRUTH is a prospective, single-arm, nonrandomized feasibility study of 25 patients. It's the first study to present detained IVUS measurements of plaque modification during the treatment of calcified lesions via orbital atherectomy in patients with PAD.

TRUTH data was compiled using an independent virtual [installogy] in IVUS core lab. The result demonstrated that our unique orbital atherectomy is effective at reducing and modifying calcium from lesions, resulting in low acute complications and improved Rutherford classification.

The minimum lumen area increased from 4mm squared to over 9mm squared in these patients. Calcium reduction was responsible for 86% of the lumen area increase. We take out the calcium. After 12 months, freedom from target lesion revascularization or TLR was about 92%. That study was done at NYU with Dr. Babaev and we thank him for his participation.

With our LIBERTY 360, our OPTIMIZE study and TRUTH clinical studies, we continue to maintain our leadership position seeking clinical proof in our pursuit to defeat calcium. These studies build on the mounting scientific evidence that the Diamondback 360 should be the primary treatment for patients suffering from PAD.

In closing, CSI's uniquely positioned to capitalize on a multi-billion dollar calcified artery-disease market opportunity that we believe is relatively untapped. This requires market development. Our optimized and expanded sales force, as clinical experts working intimately with a small number of accounts, will enable CSI to drive adoption of our unique orbital technology.

Our technology is well suited to address this market as supported by our robust clinical data. Calcium is one of the biggest complicating factors to a patient's outcome, and our products can remove it in just a few seconds of treatment time.

Our small devices allow entry into difficult to reach areas of the body with use of smaller sheaths, which have been shown to significantly reduce procedure complications. As we develop this market, these factors are expected to provide for attractive revenue growth for many years to come.

Finally, before we turn the call over to questions, I?m happy to share with you that my cancer treatment plan is going well. I sincerely appreciate all the prayers and words of support. I can't tell you what a difference they make. I feel them all and I can't thank you enough.

This completes our prepared remarks. We will now take your questions.

(Operator Instructions). Ben Andrew, William Blair.

This is Scott [Shabering] for Ben actually.

My first question is for Larry and it's a quick modeling question. What were peripheral device sales in the quarter, either in dollars or in growth? It looks like in the press release you're no longer giving the units. It looks like maybe you're lumping in some of the other revenue into total PAD.

And then a follow-up to that is in the $9 million guidance for coronary in the second quarter, what's added to from contribution from other coronary revenue besides devices?

Peripheral device revenue was $32,524,000 for the quarter and I'd say the content is about 5% for the coronary product. So 105% of the device gives you the total coronary number.

Okay, that's helpful. And then for David, it seems as though the last few quarters have kind of surprised you guys. I know we've talked a lot about the sales force even with the prelim announcement, but you guys talked about processes and new things that you put in place to help prevent being surprised about some of the sales force disruption. Talk about what you've seen in the last month since we've talked about this and is it helping you with the turnover or the disruption you've seen in the sales force.

Yes, we've done a number of things. The team has done a number of things since October 1 in the leadership changes, and they are making a difference.

First, our communication is intensified with really key audiences -- our sales management team, our faculty, our field sales trainers, our overall sales teams. So we've increased communication. We've got something great to offer -- some small territories, no travel, the ability to get intimate with customers in your home town and make home-town heroes. It's a great story that might have been lost last year in some aggressive quota setting and the related compensation divot for some of our sales people.

We have addressed that since October 1. Morale is high. The activities are intense and focused on our proprietary markets, both in calcium and amputation prevention. So yes, things are on the move and we're feeling great about it.

Any updated thoughts on technology as being developed externally that you think would be helpful to throw in the bag and maybe accelerate growth or should we think about this as a two-product company for the foreseeable future?

Thanks for that question. The biggest growth market in vascular is below the knee. There's three vessels in each leg unfortunately. The way this disease works, if you've got it in one leg, you've got it in the other. In addition to those six vessels below the knee, two legs, and the three in the coronary, there's a lot to do. Investment is growing, especially ours, in technologies that allow for smaller access, lower profile, being nice to the native vessel, sneaking in and getting the biggest debilitater to a good clinical and economic outcome calcium.

We've got a good internal organic pipeline for products that are smaller in scale and help us treat. There's other companies that we're doing a lot of work with -- with [Cook] and some of the other companies who are committed to minimally micro-invasive technologies.

On the outside, Chris Volker, our Vice President of Business Development, has been aggressive at looking at technologies. We have engaged but aren't ready to announce anything right now, but there's a lot of work being done on the micro-invasive front that would fit our profile of unique, high-margin dedicated to small vessels, nice to the vessel but helping us take out the calcium in an even more efficient way than we do today. Nothing specific, but definitely a lot of activity in that area, organic and business development.

Brooks O'Neil, Dougherty & Company.

Can you just give us any color on the sales force hiring and retention and sort of how that's progressed over the last month or so?

Sure. We've improved our retention rates. Morale is high; I think they're connected. As Larry announced, we have adjusted quota rates and I think we've put in play the time it takes for people to grow those relationships. We recognize the time it takes for the people to grow those relationships so they can have command and control of the sales cycle. That was received very well.

I think very much like the three-year run we had which took our peripheral franchise from introducing it to the market to a profitable franchise, and sales productivity was the story -- every quarter during those three years. We're now in position to do the same thing for the next three years -- is to grow sales pro productivity in accounts where the patients go and need treatment. And that sales pro productivity on now a larger sales footprint -- well over 200 -- will deliver this Company to growth and profit.

That's great. Are you guys seeing any indication of market softness in either the peripheral or the coronary side?

Not for us. We certainly have our growing pain right now, but it's worth it for the long-term goal of growth and profit. We deal in calcium and small vessels. Internally we call those our proprietary markets because we are the leader in proof, the leader in usage and the leader in information, as demonstrated by the LIBERTY 360. We treated 600 patients that five years ago the societies would scream bloody murder at any physician treating in those prolific numbers Rutherford IV, V and VI patients. They can be treated. They can be treated routinely.

I think we're in a good position right now in the go-forward based on proof and the expanded sales footprint. Back to the morale question, we've done the right things. David Veino and team have done the right things to engage our key audiences, and faculty's just one of them.

We had an amputation prevention summit. Got a couple faculty meetings coming up. They're engaged and want to help us train and get our sales force up and running. They love the idea of amputation prevention and our help in their institutions to get those policies changed so that everyone who comes in for an amputation has benefit at least of an angiogram. And if they do get that angiogram, we know now from experiences across the country that they'll probably get a Diamondback and they'll be able to walk out of the hospital.

That's fantastic. Last question. I've just love to get any thoughts or comments about reimbursement pricing, anything you saw in the most recent final fee schedules or in the marketplace right now.

Reimbursement continues to be really strong and for good reason. We've got an avalanche of patients coming our way. I think everyone sees it the same way CSI does, I really do, that the way we treat them now is late stage and it's real expensive. Bob Thatcher, our Chief Healthcare Policy Officer, is engaged with payors. We have a payor summit in the home headquarters. They're our customer. They think we're a diabetes company and you know what? We are. We can help. (laughter) We can help quite a bit and we do have that aggressive goal. We would like to take amputations, which are on the grow right now from almost 200,000 a year annually to 100,000 or less. We'd like to be earmarked as being responsible for that improvement and the standard of care in the United States. It might take three years but we've got the sales footprint to do it now.

[Funite Favada], Leerink Partners.

Just on competitively speaking in build of the knee, are you seeing any changes in that environment because some of the reps are not reaching those centers? That is, the CSI reps are not reaching those centers and DCB is getting in there in some of these accounts. If you could help us understand if any of the competitive dynamics are changing because of that.

Well, everyone wants to get there. I think people woke up to the fact that the barrier to a great outcome is outflow. You could do anything think you want in the SFA, but if there's nowhere for the blood to go, it's not going to happen for the patient. And that's got a deleterious effect on economic outcome. So you've got the three stakeholders -- the provider, the payor and the referral doc. They want a better outcome, and some of those stakeholders want a better economic outcome. Not everyone can provide that.

So I think there's a lot of interest with the great success of drug-coated balloons in the SFA. We've started a study so that we'll have a known that using the Diamondback first will allow drug-coated balloons to get into that enormous market. All the drug-coated balloon companies are very excited and aggressive about moving forward to get there. But as Medtronic taught us, if you go there with direct drug-coated balloon, not only will you not help the patient but they stopped that study because they were hurting patients. You cannot balloon in a calcified environment and get any kind of a good outcome. You need to Diamondback it thirty to ninety seconds and take care of that.

We see a lot of activity and investment, which we think is great for the space. If you think about 3 million patients diagnosed annually every year and growing, because the increased incidence of diabetes, obesity and the aging population, we need to help in investment. But we'll be the primary tool. We'll also deliver physicians fact and proof as to what the right protocol is. It will start with a Diamondback, and you know what, if drug-coated balloons can be an asset, we welcome that. Anything that would help two- and three-year outcomes data, we're all for.

Right now though there's not a technology that can compete with CSI in those one to four millimeter vessels below the knee -- six of them, two legs, right? And similarly in the heart. Those are same size vessels and we provide a unique benefit there, and that's a growth market as well.

Okay. Thanks for that. This might be for Larry. Just wanted to understand in terms of the goal posts that you have for penetration and especially in accounts where you already have a presence. What sort of penetration that you're looking at currently and what's the best study as the sort of penetration that you want to reach to?

We're just really scratching the surface, Funite, especially when you look at below the knee. As David said, there's three million people with CLI, only 300,000 cases done a year and over half of those are amputations. About 60% of our business is below the knee so you can see we're just getting started. There's just a vast market opportunity ahead of us there.

It does take market development. And when you talk about competition, really it's up to us to develop that market and our adjustments to the sales pros and our expectations are allowing them time to spend more time in those accounts and drive adoption.

Michael Matson, Needham & Company

I understand there's a lot of turmoil or there was a lot of turmoil in the sales force and you had to back fall a lot of positions. But the SG&A spending is up quite a bit and I was just wondering if you comment. It was up 31% year-over-year, I think, by my math, and that's a pretty big increase off of a level that was already pretty high. What's driving that and then what's the outlook going forward for the next few quarters? Do you expect that to level off? Do you expect it to continue to go up in the shorter term? I understand that you've had to increase spending in some areas, but are there any opportunities to offset some of that with cost reductions anywhere?

The big increase year-over-year has been our sales optimization and adding headcount, and it was actually a little less than what we had planned because out headcount was lower than we had thought. Going forward, the increases are going to subside. We don't expect to have dramatic cuts but we're going to adjust accordingly based on our revenue outlooks. There are opportunities to save money and that's always there, but we don't want to rob the opportunity here so we are continuing to add those reps as we've discussed moving forward, although the addition will slow down as we get in the second half of the year.

Okay. With regard to your cross-training, is that still on track to be completed by the end of the December quarter? I think that's what you originally were targeting.

Yes. We played some good catch-up. We're heading for 240 at year-end. I think we telegraphed that 250 was our target. We may get there as well but right now we're confidently headed to 240. We did play some catch-up. We have solved and slowed our retention issues so we've got a lot of new people right now, which is just great, and headed for that productivity run.

We are following the same model that delivered peripheral franchise profitability. That was a three-year run with a kind of a stabilized sales force that was able to do the market-building activities necessary and grow those intimate relationships. So as bumpy as it's been in the last six months, we're in position to do that exact same thing, with a larger footprint, a second franchise -- coronary, which is wonderful. Seven out of ten of those physicians are doing peripheral in the same week or month. So there's a lot of efficiencies that we'll trade on.

The run kind of starts now on sales pro productivity and I think that will help. You'd asked about expenses. I think sales pro productivity definitely helps us balance out the expenses as that grows over time.

Mike, David was referring to total number of sales reps would be probably in that 240 range somewhere going into our third quarter, end of this second quarter. Of that, probably about 190 or so would be hybrid and that's pretty close to our goals for the year.

It's not fully complete at that point. I think what we're saying is that the vast majority of the disruption and change would be completed by the end of this calendar year. They'll be ongoing training and so forth going forward, just not to the extent we've had to do in the last six to nine months.

Okay. All right. One final question on the OPTIMIZE study. It's great to see you guys finally doing a study looking at DCBs with and without orbital atherectomy but what I'm wondering is the 50 patient number seems pretty low to me, especially considering that Covidien ran a trial. I think their numbers were higher. I want to say around 100 total patients. And it was inconclusive; it was basically underpowered at that level. Now they're coming back and running another one I think with like 250 patients. Do you really think that with 50 patients you're going to be able to show an actual difference in the two arms?

We've got the best clinical data in the space bar none because we've always used a stair-step approach. So 50 is first. LIBERTY 360 did not start out as a 1,100, 1,200 patient study. We worked on that for years. So we'll take the same thoughtful approach going forward. It's a great start. It's got a proof source. No, it's now powered, but combined with the other data -- if you look at Dr. Tepia's that in the presence of calcium DCBs don't work. If you look at the Medtronic study, you start to build a nice story.

So no, 50's not enough; it's a great start though. And as we open up international markets in Europe and Japan, the relationships that we're making over there in doing some of these studies are just great. Those are our future faculty members and customers. It's also a step into new markets for CSI.

Bob Hopkins, Bank of America.

It's actually [Brandon] for Bob. First off, I wanted to build out on a couple of questions that were asked before. It was about a price peripheral. I'm wondering what kind of price you guys are assuming in your guidance, and if you're seeing any evidence of the decline slowing back to levels that we were seeing previously.

Yes, I think it has. And when you're comparing Q1 to Q1 -- actually if you go back a year, our peripheral ASPs were a little high last year in Q1 so the decline looks a little steeper. But I'd say going forward year-over-year they should be pretty consistent with what you've seen as far as the decline goes.

So you're thinking low single digits in your guidance?

Yes.

Yes.

Okay. And then back to the sales force turnover, you guys said I think it was 17 people and most of them were in the second half of the quarter? Can you quantify if and how many people have left so far this quarter since the last call?

We've declined that significantly and we've had a few people come back in fact. So the leadership change, kind of the reset on expectations in terms of the time to intimacy and influence with your customer has gone over very well. We had a few people call back and want back in. We let one of them back in and we might let others back in as well. We're happy to have them trained and happy. But that deterioration rate has declined significantly. The quarter's not over so we can't comment on it now but we've got a great hold on that. Morale's high. The activities are in play and we've got right-sized quotas with reasonable expectations for influence for each and every sales representative. So we've got a different morale and culture at the Company, certainly in the field sales force where it was much needed.

Great. I'm wondering if you can comment on international at all. I'm assuming it might be a little bit on hold as you guys reinvest in the domestic sales force but just wondering --

Thanks for that question. No way. We're guys a blazing. We filled up that COAST trial in record time. The results are fantastic. We're working with the Ministry not only on approval but our own reimbursement. We don't need to step into the Rotablator reimbursement. We provide a different and better outcome. We're a different technology and they recognize it.

So we're excited about Japan. We started our study in Europe and we're meeting our faculty members over there. So we're guns a blazing for sure international. Certainly our growing pains in the US are maybe stealing the show from that, but outcomes are great over there. We're looking forward to that. The approval window for Japan -- and we kind of treated the US coronary PMA approval as a window also. We gave an 18-month window of which we could be approved and pending good news, obstacles, setbacks or, in the case of coronary, we got improved in the first six months of the 18-month window.

I think Bob Thatcher and Paul Kane and Chris Volker and team at CSI has us on track for approval in the first half of the window. The window for approval in Japan opens up July 1, 2016, and we're hustling. We're doing all the right things to make sure that we can get approved in the first half.

And then timing on Europe?

Europe would be right behind that. We think Japan is such a rich, ripe market and everything's gone our way over there. But Europe is too. Europe is great. We're working with physicians in Germany and Benelux and Poland and Austria and it's going well. There's a critical need. We'd like to introduce ourselves in two ways. One, with our ability to serve the patients in need over there with amputation prevention. We think that's a great way to enter the market and a path to high margins, profitability and also our unique reimbursement for CSI and our unique technology. But coronary is needed as well over there and we're doing work on that.

So Europe will be a little bit behind Japan depending on when it's approved. We don't have any revenue forecasted for it this year or next fiscal year, but we certainly do laying the groundwork for making a great reputation and making sure that reimbursement matches the high margins that we expect for our business.

Jan Wald, Benchmark Company.

My questions -- I have one about the sales force that I'd like to ask even though people have asked already. It comes down to this I guess, and I'm kind of looking at the glass half empty, and it seems to me that one of the reasons why what occurred occurred at the Company was because of the lack of communication. It's was the only way I can explain to myself what actually happened. A problem with communication from the sales guys to the regional guys into the home office. Do you think you've solved that now with this new guy and the new approach you've taken? And then, why do you think you've solved it this time?

I do think. We've increased communication with all our key audiences, and that extends to providers and payors as well, explaining to them the benefits to them of expanding our sales footprint. The doctors are asking for more support, services. More now than ever before. They ask for one vascular expert to serve them with greater frequency. We're providing that.

There's a flip side too. We had aggressive goals last year. We had high quotas; a lot of people didn't achieve their quotas. That has the effect of declining commissions, and I think that's what really hurt us is we maybe overblew our expectations during our growth period. And I think as much as communication could have helped, it could have, should have and would have and it is right now.

I think also right-sizing people's quotas so that they can attend to what sometimes can be a six-week sales cycle but also some of our best coronary customers it took six months, right? So acknowledging that, recognizing that, right-sizing quotas with the sales force, it went over very well on October 1, let me tell you. So we've got a team who we're in sync with. Communication's a part of that but so is remuneration.

And the management team that's supporting this, you feel comfortable with at this point?

Yes. We've got the right plan. We're replicating the success that made us the top five grower in medical device for three years straight and took peripheral profit. We're replicating that model but with a bigger opportunity -- peripheral and vascular. And we didn't pull anyone in from the outside. We had a great plan. It could have been executed better and we're doing that now, so it's definitely a growing pain.

But it was received very well that we tapped internal leadership to lead the new charge and make the adjustments. Morale is high with the team. The people we put in charge are knowns and received very well. And the activities that we're doing and David Veino's 45-day plan are paying off nicely.

For anyone that was at VIVA, I think you saw a lot of CSI. We had eight different physician events. We continued our leadership in delivering clinical outcomes. I think you saw a unique amputation prevention suite. You also saw us bring Cadaver Lab and Cadaver Lab training to the meeting. We're getting a lot of great feedback from the people that drive our revenue and our Company and change in the communities that they serve -- doctors. We had a great meeting. It's just one of many things that have happened since October 1.

As simple as it sounds, communication was easy with the internal leadership changes to turn the light switch up on that. And it's being received very well and we're seeing some of the early fruits of those changes.

Okay. I guess I have one question on the TRUTH study. I think I understand what it is, but what's your goal for that study? Why are you doing that study and what do you think you'll get from it?

Well, people want to know, right? What we saw is drug-coated balloons are delivering a great result in soft plaque. Medtronic put out some really nice two-year data, and we loved that. But the barrier to a clinical outcome is calcium, and people want to know about that. There's never been more curiosity, interest and thirst for information. So we want to provide that.

The TRUTH study was pretty amazing because it showed that our unique technology -- we're the only orbital technology -- takes the plaque out. So people are curious. So what happens in the lumen? We know that CSI preserves the native artery, but what do you take out and what's the effect? When we increased minimum [luminaria] from 4mm squared to over 9mm squared, that's a big deal in flow. And flow equals mobility and life and a great outcome. So why did that happen? Can anything do that? No. The calcium reduction was responsible for 86% of that lumenaria increase. That's amazing, and that tells the story right there. No ability to take the calcium out, then there's no ability to increase the lumen area for these patients.

So it's just another piece that connects CSI with a new standard of care. I always make the argument that in 1980, the cardiac surgeon was king of the hospital but it took 10 years until 1990 until the cardiologist was, to the benefit of millions who could be treated in every state and every regional hospital in the US. We're in the curve right now with peripheral that the outflow vessels is going to be the biggest market period, bar none, to the benefit of standards and outcomes everywhere. So this is just a little piece of information for those skeptical doctors or for the scientists or for our Company, right? To know that this unique technology is responsible for a great outcome.

And you use virtual [ethology] to show that the calcium has been reduced, is that --?

And we used the core lab. Yes, you bet. We used an independent core lab, which everyone appreciates when the results are adjudicated by someone not involved in the study.

And then the doctor -- thanks to Dr. Babaev, who's at New York University. So we continue to tap into the top 200 and the premiere institutions in the US and certainly Anvar is one of those and we really thank him for his work.

Ben Haynor, Feltl & Company.

With regard to amputation avoidance, does the anecdotal evidence that you've seen in Michigan and now Tennessee and other areas of the country tend to resonate with some of the forward-thinking docs out there? Or do they need to see studies to really drive adoption? And could you talk about plans for future studies that might go at that amputation avoidance?

That's a great question. The LIBERTY 360's pointed there. We knew it even five years ago. There was so skepticism about even treating these patients. And we were running up against societies in fact, like the Vascular Surgery Society, saying that we ought not to and that surgery was the gold standard. We knew better because we knew the technology could do it. We knew the early returns on our device.

But the LIBERTY 360 is that proof source for the three stakeholders that need to be pleased right now, certainly for the physician. And as we get past, as you just described, so that early adopters -- the Doctor Mustaphas, the Doctor [Sangilles], they're out in front. They weathered the storm in advance of data.

But the data coming our way in the form of LIBERTY 360 that started at the VIVA meeting that's ongoing right now is the air cover that those doctors who might be a little more tentative need. It's also -- for that provider stakeholder, we met with providers. They are not the enemy. They are our friends. And the enormous burden for them to wait and treat these patients' end stages is super inefficient. So we've got an audience there for them and we've got a proof source for them. LIBERTY 360 tracks patients up to five years, both clinically and economically. And all the data points are being tracked that the recent government panel asked for, but also that [Pairs] and physicians asked for.

And then finally, right now the standard of care is all over the place depending on the community that you live in. You might be slotted into surgery or wait and see or, thankfully, if you've got a Diamondback doctor you might be slotted in your community into one of those doctors and then you could walk out of the hospital.

But proof is really important. The convergence of technology and clinical and economic proof is what changes the standard of care. That happened with coronary bypass to minimally invasive, catheter-based coronary in the 1980s -- the convergence of technology and proof. And we're going to make it happen now, here and now, for peripheral vascular.

So LIBERTY 360 is the thing to watch for. And we'll be presenting at every major meeting from here on out for the next three to five years on that study.

That's great. Very helpful. And one quick one for Larry. On the 5% sequential OpEx increase, should we expect that to be split relatively evenly between R&D and SG&A or is it skewed one way or another?

For the Q2?

Correct.

It's going to be kind of split between the SG&A and R&D due to timing of projects.

There are no further questions at this time. I turn the call back to our presenters.

Thanks, everybody, for joining us today. We look forward to updating you on our progress in January. Thanks again.

This concludes today's conference call. You may now disconnect.