Cardiovascular Systems, Inc.
Q1 2017 Earnings Call Transcript
Published:
- Operator:
- Good afternoon. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2017 Cardiovascular Systems, Inc. Earnings Conference 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] Thank you. It is now my pleasure to turn the call over to Jack Nielsen, Senior Director of Corporate Communications and Investor Relations. You may begin your conference.
- Jack Nielsen:
- Thank you, Mariama. Good afternoon and welcome to our fiscal 2017 first quarter conference call. With me on today's call are, Scott Ward, CSI Chairman, 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'll now turn the call over to Scott Ward.
- Scott R. Ward:
- Thank you, Jack, and good afternoon everyone. It's our pleasure to be with you on today's call and to update you on a solid start to our new fiscal year. Our first quarter financial results demonstrate that we are making meaningful progress towards our goal of delivering revenue growth, balanced with improving profitability. Revenues of $49.8 million were above the high end of our guidance range and 14% higher than our first quarter revenue last year. The quarterly net loss of $1.9 million was also better than forecast, driven by the aforementioned revenue growth, improved gross margin and lower operating expenses. As a result, CSI produced positive adjusted EBITDA equal to $2.6 million, an improvement of nearly $11 million compared to the first quarter of last year. Our top and bottom line results marked the third consecutive quarter of financial improvement, excluding one-time charges in the third quarter of fiscal 2016, and these results validate that the execution of our strategy can provide attractive revenue growth while positioning CSI for positive cash flow and profitability. We achieved these first quarter revenue results with roughly the same-size sales force that we had in the fourth quarter. While the composition of our sales team may fluctuate moderately from quarter to quarter, we continue to believe that our team of cross-trained, clinically skilled sales professionals, including quota-bearing reps, clinical specialists and sales associates, can provide the necessary coverage for our peripheral and coronary opportunities as we drive increased adoption of orbital atherectomy. We still have considerable work to do to improve sales rep productivity and ultimately deliver our goal of stable, profitable growth. Nevertheless, the learnings and progress achieved over the last nine months provide encouraging evidence that CSI is on the path to growth and profitability that I articulated last January. In the first quarter, our quota-bearing reps met our near-term goal of generating revenue in excess of $250,000 per rep. Our next near-term goal is $275,000 per rep. Certainly we have learned that this is a process of continuous improvement. As we look to the future, we will compete based upon the quality of our products, the strength of our medical evidence and the clinical acumen of our organization. I'll provide additional thoughts regarding our progress following Larry's financial commentary. Larry?
- Laurence L. Betterley:
- Thank you, Scott, and good afternoon everyone. As Scott mentioned, first quarter revenue of $49.8 million was 14% above the comparable period last year and above the upper end of our guidance range. We sold 14,700 devices during the quarter, generating 92% of revenues. Life-to-date, we've sold over 275,000 devices. Coronary revenue increased 33% to $11.6 million and peripheral revenue resumed year-over-year growth increasing 9% to $38.2 million. The estimated below the knee peripheral revenue grew 13% over prior year, with above the knee revenue growing as well in the low single digits. Below the knee product mix was about 59% of peripheral revenue. Reorder revenues remained high at 98% of total revenue. We added 40 new peripheral accounts and 52 coronary accounts during the quarter. Gross profit margin remained strong and improved to 81%, compared to 80% last year, due to unit cost reductions and slightly higher device ASPs. Operating expenses of $42.2 million declined about $6 million or 13% from last year, primarily as a result of our previous cost realignment initiatives and timing of studies and projects. Operating expenses were lower than our first quarter guidance due to the timing of clinical study costs and some additional effect from last year's cost realignment. First quarter net loss of $1.9 million or $0.06 per share improved $11.4 million or $0.35 per share over the first quarter of last year. Adjusted EBITDA was positive at $2.6 million, compared to a loss of $8.2 million last year. At quarter end, our cash balance was $58.2 million. Our cash burn in the quarter was $2.4 million, including a $3 million initial payment as part of our settlement with the Department of Justice. Excluding that payment, cash flow was positive for the quarter. Our priority continues to be to implement our current strategy within our existing cash levels and reach positive cash flow and profitability. We continue to evaluate non-dilutive financing options, including a possible sale-leaseback of our corporate headquarters, for potential cushion. I'll now discuss our near-term financial outlook. For the second quarter of fiscal 2017, we anticipate revenues in the range of $49 million to $50 million, representing year-over-year growth of 18% to 21%. We expect gross profit as a percentage of revenues to be similar to the first quarter of this fiscal year. Operating expenses are projected to be similar to first quarter as well. Net loss is expected to be in the range of $1.7 million to $2.3 million. This equates to loss per share of $0.05 to $0.07, based on approximately 33 million average shares outstanding. Also, adjusted EBITDA is expected to remain positive in the second quarter. I'll now turn the call back to Scott for additional commentary. Scott?
- Scott R. Ward:
- Thank you, Larry. On balance, we are encouraged by the progress we have made on our pathway to profitability over the last nine months. We have restored stability to the business and we are now focused on key initiatives that will drive sustainable profitable growth. Our Diamondback Orbital Atherectomy System is the only atherectomy product in the market supported by strong medical evidence published in peer reviewed journals that demonstrates safe and effective calcium removal, vessel preparation and improved patient outcomes. With over 5,000 patients under study, CSI has a strong track record of providing medical evidence to the physician community. Our core competitive advantage is that we offer the best interventional solution for the treatment of calcium in the vasculature. We have the strongest medical evidence in the market and we have a channel composed of 240 sales professionals and clinical specialists who focus solely on supporting physicians in the treatment of calcified coronary and peripheral lesions. This is a powerful combination that differentiates CSI and establishes a strong foundation for growth and continued market leadership. As you know, we recently announced the 30-day follow-up results from our LIBERTY 360° trial. LIBERTY 360° is a prospective, observational, multi-center study to evaluate procedural and long-term clinical and economic outcomes of endovascular device interventions in patients with symptomatic lower extremity peripheral arterial disease. This is an all commerce, all treatment option study and included all approved technologies to treat claudication and critical limb ischemia. 1,200 patients were enrolled in the study, including approximately 500 Rutherford 2-3 patients, 600 Rutherford 4-5 patients and about 100 Rutherford 6 patients. Our Diamondback Orbital Atherectomy System was well represented in this study, being used to treat nearly 50% of all lesions and over 60% of lesions in patients in the Rutherford 6 classification. As a result, LIBERTY will illustrate how orbital atherectomy is currently being used in real-world patients, and will inform physicians regarding the treatment algorithms that will optimize clinical outcomes. At the Amputation Prevention Symposium held in September, Dr. George Adams presented the acute 30-day data from this study. Notably, freedom from major adverse events was over 90% in all three Rutherford groups and a high level of procedural success was achieved. This early evidence suggests that percutaneous vascular interventions for Rutherford 2-3 patients may yield positive patient outcomes. In addition, the study suggests that Rutherford 6 patients are suitable candidates for intervention and that amputations can be avoided. Recall that Rutherford 6 patients have critical limb ischemia and may be considered candidates for amputation without further intervention. Not only were these Rutherford 6 patients successfully treated, 78% were discharged to home after the procedure. This is a remarkable outcome for a very sick patient population. We expect to provide additional updates regarding the results of the LIBERTY 360° trial upon completion of patient follow-up at 6, 12 and 24 months. Going forward, we will continue to invest in generating clinically relevant medical evidence that will enhance the quality of care, increase the use of orbital atherectomy in calcified arteries and extend our market leadership position. Next week at TCT, we will announce plans for the largest randomized trial to study coronary atherectomy for calcified lesions. This trial will compare orbital atherectomy to balloon angioplasty prior to the placement of drug-eluting stents in calcified lesions. We will share more details regarding this trial after it is announced by the principal investigators on November 1. In closing, I'm encouraged by the progress CSI has made in calendar year 2016. We have stabilized the Company and established a strong foundation for sustainable profitable growth. As I have said, we seek to increase shareholder value through the achievement of steady growth, productivity improvement and sustainable profitability. We will achieve this by remaining focused, focused on orbital atherectomy, focused on treating calcium in the vasculature, focused on supporting our customers with best-in-class clinical support, and focused on improving patient outcomes for patients with calcified coronary and peripheral lesions. We look forward to updating you on our progress when we report our fiscal second quarter results in January. Larry and I will now take your questions. So, Mariama, you may repeat the instructions for the Q&A period now and thank you.
- Operator:
- [Operator Instructions] Your first question comes from Mike Matson from Needham & Company. Your line is open.
- Mike Matson:
- I apologize for the background noise. I guess just wanted to start with the pricing, you mentioned pricing overall was up, but I'm curious about pricing within peripheral as well as coronary.
- Laurence L. Betterley:
- Mike, are you comparing to prior year?
- Mike Matson:
- Yes, year-over-year, price for both peripheral and coronary, percentage change, if you can give it.
- Laurence L. Betterley:
- ASPs were up low single digits, around 3%, year-over-year. Coronary was very similar. PAD was up about 2% and coronary was just up slightly.
- Mike Matson:
- Okay, thanks. And then, obviously great performance on the operating expenses. You mentioned something regarding clinical trial timing. So I was wondering, it sounds like you're expecting similar OpEx for the upcoming quarter, but is the clinical trial spending going to ramp up again at some point, would that drive R&D back up?
- Scott R. Ward:
- I think we expect clinical trial spending to stay relatively flat with where we have been. We are in a period now where the enrollment in LIBERTY 360° obviously has been finished, and so that expense is coming down, but we will see our clinical expenses ramp back up as we initiate this coronary clinical trial. And I think, Mike, with our ongoing commitment to medical evidence, we're going to continue to be a strong investor in R&D and we're going to continue – you can expect us to continue to have a healthy clinical research and development line.
- Laurence L. Betterley:
- And if you look at the guidance for Q2, Mike, I would say you'll see some shift between SG&A and R&D as the R&D projects and studies start to ramp.
- Mike Matson:
- Okay. That's all I have. Thank you.
- Operator:
- Your next question comes from Danielle Antalffy with Leerink Partners. Your line is open.
- Danielle Antalffy:
- Scott and Larry, I was wondering if you could comment on, so guidance for Q2 implies basically flat sequentially. Can you talk about the puts and takes there, why we wouldn't see revenues actually improve sequentially?
- Laurence L. Betterley:
- It's a good question. We came into the quarter with a few headwinds. None individually are significant but we had a very strong finish to Q1. There were some weather issues in the Southeast that hit some of our accounts particularly. We are making some changes to how we monitor and report our sales activities in the field in relation to our Corporate Integrity Agreement and that is delaying some of our sales programs, and none of these are individually significant but overall it did create a slow start to our second quarter. Now it has picked up and we're encouraged by that, but with the holidays at the back-end of the quarter, we feel it's prudent to give the guidance that we gave.
- Danielle Antalffy:
- Okay, that definitely makes sense. And then just a higher-level question on the competitive landscape, Boston Scientific reported today, talked about strong atherectomy sales. You also saw some competitive data from Shockwave at the VIVA meeting. Just wondering what you're hearing out there from a competitive perspective and are you seeing any impact there?
- Scott R. Ward:
- Danielle, I'll address that. So we most certainly expect to see competition in this market. We are serving a large underpenetrated market here that continues to rapidly grow. The treatment of peripheral and coronary artery disease and in particular the treatment of severely calcified lesions and more complex lesions is a rapidly growing market and it is a large market. So we fully expect to see competition. We think we're well prepared for competitive threats. We have a great core technology. We've got very strong medical evidence to support that technology. We have a large distribution channel, an appropriately-sized channel, but a large channel in the marketplace. And we are developing, but we also really have, strong customer relationships. And that is the essence of our competitive response, is really being a company that is heavily focused. We're not a company with a bundle, we don't sell a bundle. We sell a product to a specific customer and we develop deep relationships with that customer and support them in their clinical use of our product. So, that's what differentiates us and we think we are well-positioned for that. We do sell a premium product in the market and that's supported by the strength of the medical evidence that we have, and we would anticipate that we'll continue to do that. So, hopefully that answers your question.
- Danielle Antalffy:
- That absolutely does. Thanks so much.
- Operator:
- Your next question comes from Bob Hopkins with Bank of America. Your line is open.
- Bob Hopkins:
- So I'm intrigued by the announcement of this new coronary trial and I look forward to TCT to getting the details on the actual trial, but the coronary atherectomy market obviously has been around for a long time, probably more than a dozen years, and there hasn't been a lot of new evidence in this market for quite some time. So I'm just curious, why now, what gives you the confidence to do this trial, kind of what do you see out there, what do you see as the opportunity, just would love to understand why you're deciding to do this trial now?
- Scott R. Ward:
- So, Bob, I think you're absolutely right. I think if we look over the course of the past decade, most of the emphasis in the treatment of coronary lesions has been placed on continuous improvement in drug-eluting stents, and drug-eluting stents have continued to improve and perform exceptionally well. That product line and that offering and that combined with I think the expertise of interventional cardiologists in U.S. and around the world have resulted in really good outcomes for the majority of patients that have coronary artery disease. But there is a population of patients that are now referred to as surgical turndowns, they are the patients that maybe have a history of diabetes and smoking or they have chronic kidney disease, and these are the complex coronary lesions that might be bifurcated lesions, they are heavily calcified, left main disease, and there's other disorders like that that make up this population of complex coronary lesions. And we're seeing now many, many more of the coronary cath labs, at least the academic cath labs, are beginning to focus on this patient population. Some call it the chip population, some call it by other terms, but nonetheless this is becoming the unmet medical need of our time and we're seeing a heavy focus on improving the treatment of this patient population, striving to get better outcomes. We believe that one of the most important aspects of that will be to not only effectively open those vessels and remove the calcium but also to properly prepare those vessels, removing the calcium from the vessel, creating an environment where you can prevent malapposition of the stents and also creating an environment where a physician can stent a lesion from healthy to healthy tissue. So, we think we have a really important role to play in establishing the foundation for the treatment of these patients. This has obviously been tested and validated by our key clinical partners. The medical community has come to us and has indicated that this is a trial that is really required to help them improve the quality of care. And I think at this point, we're really proud to partner with that group and to play a major role in enhancing the quality of care for these patients and providing that leadership role to bring this forward. So, we are excited about this. I think you'll hear a lot more about it at TCT when the PIs announce it and then we'll be in a better position to explain it to you going forward, but I think you can probably understand that we kind of like to leave it to the PIs to be able to describe what the study is all about and we'll let them do that next week.
- Bob Hopkins:
- I know. I appreciate. I will leave it to that. I look forward to that. Just for these types of trials, do these things require like a year of follow-up before you get the result or is it more of an acute endpoint?
- Scott R. Ward:
- So there will be an acute endpoint that will allow us to demonstrate that we have in fact improved the reference vessel diameter, and then there will be a 12-month follow-up that will likely be something like target vessel failure.
- Bob Hopkins:
- Okay. And then just one other quick question, obviously now that you've got the business stabilized and nice to see kind of in the first it's been I think five or six quarters since the Company grew double-digits, so congrats on that, so clearly there is evidence of real stabilization if not acceleration here, so now that you've been in that CEO role for a little bit and obviously been at the Company for quite some time, I'm just curious, as you look at the business from a revenue growth perspective and as you look at the broader landscape, do you consider it to be kind of a mid-teens growth opportunity here, could it be better than that? I just wanted to get, I'm not asking for long-term guidance, just sort of a little bit of help on how you're thinking about the revenue growth opportunity for the Company now that things have stabilized?
- Scott R. Ward:
- Obviously, Bob, you're right, I can't give you an exact number and I can't give you long-term guidance. What I will tell you, and I think you heard that in our prepared remarks kind of over and over again, is that I think the story for CSI is changing. We are about achieving steady, stable, profitable growth, and with the fundamentals of this business, strong gross margins, an effective channel that focuses on a very specific disease state and a very specific customer population, we believe that we can continue to grow the Company and continue to do that actually in a profitable manner. So, I think the nature of the story for CSI has begun to change a little bit, in that we are about growth but we're also about sustaining strong, profitable growth, and I think the results that we have demonstrated now over the course of the past nine months demonstrates that this business model can be profitable, it will be profitable, and that in fact we can achieve that goal. So, that probably doesn't address your specific question about how fast can we grow, but I can assure you that we're going to be implementing the programs from training and educating our sales organization, continuing to improve the productivity of our channel, to drive deeper access into our accounts, we're going to continue to build medical evidence and we're going to continue to provide a high quality product to the marketplace, and in my experience all of those things normally equal good, solid growth.
- Bob Hopkins:
- Scott, I appreciate the answer. Thanks so much.
- Operator:
- Your next question comes from John Gillings with JMP Securities. Your line is open.
- John Gillings:
- So, I just wanted to chat a little bit on the sales force. So the overall field rep number, is that still in kind of that 240-ish range if we want to think about that?
- Scott R. Ward:
- The overall population of our channel is in the 240 range. That includes quota-carrying sales reps as well as clinical specialists and our account representatives.
- John Gillings:
- Okay. And then, is the mix between the quota carrying reps versus the sales associates and clinical specialists, is that roughly similar to where it was last quarter or have we seen any meaningful changes there?
- Scott R. Ward:
- No, it's roughly similar. It varies from time to time, but generally we're trying to keep that reasonably stable.
- John Gillings:
- Okay. And you've obviously done an enormous amount to stabilize the sales force, but there was a period in time where you had to backfill some territories and bring in some new people. Can you give us a sense of sort of what the average tenure of your reps is now, and then maybe talk a little bit about the productivity of the more experienced reps versus the new ones?
- Scott R. Ward:
- Larry, do you want to take that?
- Laurence L. Betterley:
- The tenure has improved quite well. It's up well over three years at this point for our reps in general. We do have a good number of reps and they're going to be some of our more tenured ones that are doing much better than the $250,000 that Scott referenced earlier. About 25% of our reps do over the $300,000 and they would tend to be the more senior reps that have been around for a while and carrying both franchises.
- John Gillings:
- Okay, that's helpful. And then just a quick one on Japan, any color you guys can give us on any discussions with potential commercial partners there?
- Scott R. Ward:
- Not anything new. We continue to negotiate with potential distribution partners. We do anticipate naming a distributor or a partner for our Company in Japan shortly, but at this point in time we haven't nailed that down. We do continue to make really good progress with our Shonin there and with the PMDA, but as you know, this is an elongated process there. We're going to get that regulatory approval and then we'll continue the process into reimbursement approval, and we're still estimating that we'll be commercializing the product in Japan probably in the first half of 2018.
- John Gillings:
- Okay. And then just one quick clarification on cash, looks like you guys were down $2.4 million in the quarter but you paid $3 million to the DOJ, which would appear to imply that you would have been roughly $600,000 in the green if it weren't for the DOJ payment. Am I reading that right and was there anything sort of one-time in the quarter other than the DOJ payment?
- Laurence L. Betterley:
- No, I think you're reading that right, John. We had a $3 million payment upfront and that will now be paid quarterly beginning January 1 at about $400,000 per quarter. So, other than that it's our continued improvement in our cost structure along with the revenue growth and attention to both cash flow and bottom line.
- John Gillings:
- Okay. Thanks a lot, guys, and congrats on the reacceleration in the business.
- Operator:
- Your next question comes from Ben Andrew with William Blair. Your line is open.
- Ben Andrew:
- Scott talked a little bit about, you gave a list a bit earlier about some of the things you're doing with productivity enhancements and field activities, but maybe be as specific as you can of how you've changed versus say 12 to 18 months ago in some of the sales activities, because obviously there's been a big shift in sort of effectiveness with a steady-sized field organization?
- Scott R. Ward:
- So, first of all, I'll kind of take you back to the conversation that we had when we did our earnings release in January, and at that time we were really talking about the fact that we had to stabilize the organization, we had to stop introducing change. We have completed the training and education of the organization. So we stopped taking reps out of their territories and we basically just gave them more time to get back into their accounts and to develop their relationships and drive growth with the accounts they had. We also continued to stay the course with the strategy that we would create an effective, combined sales organization that would focus on the treatment of coronary and peripheral arterial disease, and the vast majority of our reps do that now and are doing that quite effectively. That said, we also introduced the opportunity for sales management to deploy their resources in a manner that they thought would achieve the best results on a local basis, and that might involve the creation of teams where we have a coronary clinical specialist that's combined with our sales rep or maybe we have a coronary and a peripheral rep who also have a clinical specialist that does case coverage. By driving that decision-making deeper in our organization, we created an environment where local management had the opportunity really to stabilize their own business. Now, I have to say, Ben, that continues. We're not driving in the flag and declaring victory just yet. We continue to have work to do, there is an opportunity for continuous improvement here, I guess that's good news, because we do anticipate that we can continue to get stronger productivity out of this organization now, and as we move towards implementing let's say our more important growth initiatives, we'll be better positioned with this channel. Once again, going back to what I had said earlier even, we're defined a bit differently now, we're not a company that's simply all about driving top line growth, we are driving profitable, sustainable growth. And what that means obviously is that we will be very selective about how we manage this channel and how we deploy our resources in the channel to drive that growth. So, hopefully that answers some of your questions. If you had a follow-up on that, I'd be happy to cover it.
- Ben Andrew:
- Yes, that's helpful. And just doing a quick bit of math, I mean the $25,000 a quarter increment you're hoping to get from the organization as your next – per quarter in next near term sales goal, roughly seven to eight units per quarter. I'm not in any way belittling the effort required, but seven or eight cases, so two or three per month, is that a really kind of conservative comfortable goal and that's going to keep getting ratcheted up in the relative near-term or how do you think about kind of the capacity of the organization?
- Scott R. Ward:
- I appreciate your confidence. We have come out of three quarters now where we have achieved I think the sustained growth and improvement and stability that we had hoped to achieve. It's not been easy and it's not been linear by any means. So, we do continue to have challenges. We continue to focus on helping our sales organization be more effective at going deeper into their accounts. We don't really add that many new accounts any longer. In our coronary business for example, our coronary business now is really all about getting stronger same-store sales, if you will, and that is now a new set of initiatives, a new set of opportunities to drive growth, and we're going to take that on. My next target is $275,000. I don't know where we'll go from there. We'll continue to learn really how much productivity we can drive into this channel over time. For now, I'm pleased with guiding $250,000, I am, and I think that is really a great performance. Now we've got to show that we can continue to grow and build upon that and we're going to do that in a good, steady, thoughtful and planful way.
- Ben Andrew:
- Great. That was helpful.
- Laurence L. Betterley:
- As I said prior, now we do have quite a few reps that are well over $300,000. Those tend to be the ones that have the characteristics that Scott described. They are very clinically astute with good relationships with their physician customers. So, we know we can go higher and we'll see how it progresses as we continue to gain experience in the sales organization.
- Ben Andrew:
- Okay. And Larry, you talked about doing a sale-leaseback to increase the cushion. With $50 million-plus and neutral to positive cash dynamics, what do you need the cash for? Is that a warchest to perhaps add something to the portfolio, and Scott, at what point might you consider adding, if you will, something to the bag?
- Scott R. Ward:
- It's not a warchest to add something to the portfolio. I think it's appropriate for a company of our size to have a reasonable amount of cash to support ongoing operations and to be stable. And we're approaching that, we're happy with that, but if we have opportunities to secure our cash position, we'd like to be in a position – we'd like to take advantage of that, and I think that's a good standard practice and you see that across most companies. And so, you can expect to see us, and namely Larry, continue to focus on just implementing good conservative financial management strategies for this Company and that will include continuing to build our cash position. I do get asked that question a lot about when are we going to add something to the bag, and I just have to say, the best opportunities for us are the ones we have in our bag right now. Focusing on peripheral and coronary artery diseases is a great opportunity. We've got the right channel, we got a great core technology, we have strong medical evidence and we're just really well-positioned to drive growth with the core technology that we have today. So, if anything, I would say you can expect to see us remain focused, focused, focused, and that would be the name of the game for us for a while.
- Ben Andrew:
- Great. Now that's good to hear. Last question is, when might we see the 6 or 12 month follow-up from the all commerce study, is that mid-2017 or maybe later in 2017?
- Scott R. Ward:
- Correct me on this if I'm wrong, but I think mid-2017 is the six-months. Is that correct, Jack? Oh, it's at ISET in February, okay. So we'll be releasing the six-month results from LIBERTY 360° at the ISET Meeting in February, and then the 12-months results will probably be next fall.
- Ben Andrew:
- Great. Thank you so much, Scott.
- Operator:
- Your next question comes from Jan Wald with Benchmark. Your line is open.
- Jan Wald:
- Congratulations on the quarter. I guess I have a couple of more follow-up type questions than anything else. I guess in terms of the increased productivity that you expect from the sales force over time, I guess I just wanted to make sure, it's because of continuous improvement and you have a dynamic object there, you're going to massage it and make it better, there's not new things that you're going to be trying to do with the sales force, so it's more of a continuous type of improvement rather than more likely to see a [stent fortune] [ph] or something like that happen?
- Scott R. Ward:
- You're absolutely right, it is continuous improvement, and like I said, it's not linear, but my hope is that it will be steady, and I think what it largely is going to come down to is clinical acumen. Our core competitive advantage is to have a really strong product in the market supported by really strong medical evidence and then to have a distribution channel, to have a sales organization that has deep clinical acumen where they can develop those strong local partnerships and really work closely with our physicians to improve the quality of care for their patients. And since we are focused on just treating calcium in the vasculature, we have an opportunity unlike our competitors in that we can come in and carve that out as our particular niche, as the place where we will have a unique core competitive advantage, and with 200 reps in the field, our principal objective is to go out and assure that that organization has deep clinical acumen. Now that doesn't happen overnight. Getting our sales organization to the level where they can perform in that really close partnership with their customers is going to take time. It takes time. They've got to see a lot of angiograms. They've got to get trained and educated sometimes by their own customers. But over time, we will develop that deep clinical acumen that will as a result give us very strong same-store sales and very strong close relationships with our customers. And that's going to be our unique core competitive advantage.
- Jan Wald:
- My next question is on the profitability. You've made some really nice strides towards profitability. If that's a short term goal, you've done a nice job. I guess in terms of having to build the sales force out into the clinical acumen and having the data that they need to use that acumen that they are gaining, those are both potentially expensive propositions. How do you see profitability in the future? Do you see that as more of a short-term goal, a medium-term goal, how do you think about that?
- Scott R. Ward:
- I think that you've heard us talk about this, Jan, in the sense that we have the Company on the pathway to profitability. We intend then to develop basically through this channel the opportunity to sustain just good, steady, profitable growth. I think that we will do that by driving enhanced productivity in our sales organization and we'll continue to be strong investors in employee and sales rep training and education and we're going to continue to be strong investors in R&D and product development as well as in the conduct of clinical trials. Now, none of that is really new. And so, when I describe these concepts, we made some changes in our cost structure at the end of March and that set us on a course which we're basically executing on now. So we're well-positioned to deliver steady, profitable growth over time.
- Laurence L. Betterley:
- Jan, what we said is, it would take about $55 million of revenue in a quarter to start to turn the corner on net profit. Now that can fluctuate in a quarter based on where projects are and studies are, but in general that's something you can look at as you're building your model. And as you can see, we are approaching $50 million now. So, we are not a long way away from that.
- Jan Wald:
- Okay, thank you. And I guess my last question, someone asked earlier about competition, I think it was Danielle, but one competitor that just came into the market, both in terms of a product but also in terms of becoming a public company, is Sonicwave and they have an interesting, it seems like an interesting device that works inside the vessel, inside the intima for example, so it's capturing, it's going to capture that kind of plaque. How do you see that as a – do you see that as a competitor and how competitive is it to you or to the orbital atherectomy in general?
- Scott R. Ward:
- So, Jan, just to confirm, you're referring to Shockwave?
- Jan Wald:
- Shockwave, I'm sorry.
- Scott R. Ward:
- Okay, that's all right. I was just hoping there wasn't another company named Sonicwave that was out there.
- Jan Wald:
- No, no. Sorry.
- Scott R. Ward:
- No, that's okay. So just to go back to what I mentioned to Danielle, I mean we are going to see competition come into this market and the use of lithotripsy device to treat calcium in calcified lesions in the vasculature is an interesting idea. Haven't yet – we've looked at six-month clinical results from Shockwave. That's early. Just we don't know how to interpret those results. I don't know that anybody does at this early stage. It will be interesting to see how their clinical outcomes play out. Certainly they, as you said, recently got approval in the peripheral vasculature and we understand that they may be launching into that segment soon. I don't know whether they or anybody else has started an IDE for the coronary applications, but as you know, the coronary atherectomy is a PMA device, and so if no one has started a clinical trial today, they are quite a few years away from entering that market. The other thing we just don't know, and I don't know the answer to this, I don't know how a product like lithotripsy-based product that is basically a balloon-delivered device would be reimbursed in this marketplace. I don't know how that would fit with CMS requirements and so on. So, I guess at this point, to us there are just many unknowns, probably more unknowns about this than there are knowns and it's just very early days. That said, this is a large and growing and important unmet medical need. We are well-positioned to take advantage of this and we're going to continue to set the standard for medical evidence and for having the best trained, a best-in-class clinical sales organization in the marketplace. That is our core competitive advantage, that's how we're going to win, and we will have competitors, that's how we will sustain our position.
- Jan Wald:
- Okay, thanks a lot, and again, congratulations on the quarter.
- Operator:
- Your next question comes from Ben Haynor with Feltl and Company. Your line is open.
- Ben Haynor:
- Just a couple here for you. It looks like a nice sequential pickup in the quota-carrying sales force productivity. I think in the past, you've mentioned what the sales force productivity looks like for the dual-franchise reps, and I was just wondering if you have that number handy.
- Laurence L. Betterley:
- Almost all of our reps are dual now. So we don't break that out separately, but almost all of them are now, Ben. So going forward it fits our pool.
- Ben Haynor:
- Okay, that's helpful. And then, it looks like as we get more data in this LIBERTY 360°, we will obviously have a lot more than we know about all these patients are being treated, but with just the 30-day I know it's hard to read into it, but has there been anything that you guys internally have been able to triangulate or tease out of the data that you think might be worth sharing?
- Scott R. Ward:
- I think we should be cautious about that. Right now, it's 30-day data, and at any time you get that, it's hard to draw any meaningful conclusions about clinical outcomes at 30 days. We can say that we had good procedural success. We can say that we're very pleased with a low rate of major adverse events. And I guess the two observations are the observations that I shared in my prepared remarks. The first was that there is evidence that patients that are Rutherford 2-3 class do benefit from intervention and that intervening in that patient population may be the appropriate care pathway versus watchful waiting. Yet to be learned about that and we will find out more as we look at the 6 and 12 month outcome. The second observation that I think is important is this Rutherford 6 class where the Rutherford 6 patients as you know are generally patients that have CLI and this is a patient population that is a candidate for amputation without further intervention. So, what we discovered is that there was a fair number of patients, over 100, that were enrolled in this trial that were Rutherford 6, and that the vast majority of those patients had successful procedures performed, and in fact about 78% of those that had procedures performed actually went home the same day. I think for our principal investigators and the clinical investigators in this study, that was a really surprising result to them. I don't think they anticipated that first intervention would be performed at that rate in these Rutherford 6 patients or that the procedural success would be quite that impressive. So, those are kind of two things that we'll be watching and seeing where they go forward. At the end of the day, I think this trial, this LIBERTY 360° study, is going to be a study that is going to teach us all a lot about how physicians are treating peripheral artery disease and what the success of those various interventions are, and in many ways it might give us proprietary data that just allows us to power a future clinical study. But at this point, we're quite excited about it and we'll update you as we get to 6 and 12-month follow-up.
- Ben Haynor:
- Perfect. Thanks for the color there and congrats on the quarter. That's all I had, gentlemen.
- Operator:
- There are no further questions in queue. I will now turn the call back over to Scott Ward for his closing comments.
- Scott R. Ward:
- All right, thanks Mariama. Thank you everyone for your continued interest in CSI and for joining us on this call and for your kind remarks today. We do look forward to updating you on our progress next quarter and this concludes our quarterly earnings call. Thank you.
- Operator:
- This concludes today's conference call. You may now disconnect.
Other Cardiovascular Systems, Inc. earnings call transcripts:
- Q1 (2023) CSII earnings call transcript
- Q3 (2022) CSII earnings call transcript
- Q2 (2022) CSII earnings call transcript
- Q1 (2022) CSII earnings call transcript
- Q4 (2021) CSII earnings call transcript
- Q2 (2021) CSII earnings call transcript
- Q4 (2020) CSII earnings call transcript
- Q3 (2020) CSII earnings call transcript
- Q2 (2020) CSII earnings call transcript
- Q1 (2020) CSII earnings call transcript