Cardiovascular Systems, Inc.
Q1 2016 Earnings Call Transcript

Published: 5 Nov 2015

[Operator:]

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 Inc First Quarter Earnings Call. [Operator Instructions]. I would now like to turn call over to Jack Nielsen, Senior Director of Corporate Communications and Investor Relations. Please go ahead sir.

[Jack Nielsen:]

Thank you, Laurel. Good afternoon and welcome to our fiscal 2016 first quarter conference call. With me on today's call are Dave 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 now to CSI's Chief Financial Officer Larry Betterley.

[Larry Betterley:]

Thanks Jack. I’ll review our fiscal first quarter financial results and provide earnings guidance for our fiscal 2016 second quarter. Dave will then update you on a few key business initiatives following our prepare remarks we’ll open the call for your questions. Total revenues grew 11% to 43.9 million excluding Asahi Guide wire sales in the comparable period year ago. Device revenues were 92% of the total. We sold over 13,000 devices bring 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 growth below the knee devices estimated to be 12%. Reordered revenues remain 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. Improvement was largely due to unit cost reductions. Going forward we anticipate engineering enhancements and higher production volumes will continue to reduce unit cost. In addition increased sales of the coronary device which has a higher average selling price should help maintain gross margins near to 80% level. Operating expenses rose 19% over the last year primarily from planned investments related to the 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 preannounce range at $13.3 million or $0.41 per share and compares to the loss of 8.2 million or $0.31 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 usages in the first quarter 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 reached profitability. I will 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 since 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'll now turn the call over to Dave for additional commentary.

[Dave Martin:]

Thanks Larry, and hello everyone. Our investments to expand the sales force and train them to sell both our peripheral and coronary franchises in small optimized territories will drive long term adoptions 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 is the reason why. First within the hospital committee decision making is a norm and administrators across these institutions are in need of information specifically clinical and economic outcomes. It’s industries job to move this forward. Our clinical sales representative 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 treatments of the millions of patients who suffer from lagging vascular treatment standards and dated referral position knowledge our sales professionals are able to provide valuable education for physicians in the communities where they live to ensure that patient suffering from PAD gets the best possible treatment. And finally, our clinically trained sales representative excel at training physicians 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 in our investment and 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 AGAINST AMPUTATION prevention program. It's our mission to drive major amputations in the United States from a 160,000 or more annually to less than 100,000 within three years. In June we launched the pilot size with Dr. Brain Fisher, our TriStar Centennial and Dr. Mitch Weinberg at Northstar hospital on Long Island. In July we begin the national rollout of TAKE A STAND were already seeing how increased education and collaboration combined with our powerful technology can improve the standard of care in fact Dr. Fishers practice while we were undergoing the program has grown at a phenomenal rate more than 50%. Dr. Fisher’s collaborations with the greater referral community in the natural area including wound care centers increased arterial wound patient referrals by over 50% and that's what growing this 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 to more than 20%. Patients in the greater national area are now experiencing a greater standard of care thanks to Dr. Fisher, CSI, the referral community and our technology the Diamondback 360. We look forward to expanding this success story to positions in every market in the United States. Our entire sales force is involved now. We will substantial improve patient care while reducing costly debilitating amputation. We are underway and we are encouraged with the initial response from physicians, hospital administrators and payers, a customer of ours. A few weeks ago we hosted our first amputation prevention summate with over 20 positions and we are identifying many more that are passionate about this cause. LIBERTY 360 and that’s the VIVA meeting which is still ongoing today. While we implement strategies to reduce amputations and we continue to expand our clinical study of calcified region to prove how our unique Orbital Atherectomy technology provides improved patient outcomes. We continue to make great progress on our LIBERTY 360 studies 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 for PAD. This morning at the VIVA conference, Dr. George Adams shared updated enrollment statistics in particular that LIBERTY enrollment includes over 600 patients that are Rutherford classification stages 4, 5 and 6. This is a new enormous and needy market. CSI is leading the effort to understand and treat this understudied patient population. We anticipate completing enrollment in early 2016 with presentation of demographic data of this ground waking 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 treatment of PAD, specifically the study will look at patients with calcified below the knee lesions and potential [indiscernible] for vessel preparation with our device when DCBs are launched below the knee in the United States. The TRUTH study, finally last week of TRUTH study was public in Vascular and Intravascular surgery. TRUTH is a prospective, single-arm, non-randomized feasibility study of 25 patients. It’s a first studies present detailed 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 histology in IVUS core lab. The results 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 4 millimeter square to over 9 millimeter square in this 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 TOR was about 92%. And 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 peruse [ph] to defeat calcium. These studies build on amounting scientific evidence that the Diamondback 360 should be the primary treatment, the patients suffers from PAD. In closing CSI is uniquely positioned to capitalize on a multi-billion dollar calcified artery disease market opportunities that we believe is relatively untapped. This requires market development. Our optimized and expanded sales course has clinical experts working intimately with a small number of accounts will enables CSI to driver adoption of our unique Orbital technology. Our technology is well suited to address this market as supported by robust clinical data. Calcium is one of the biggest complicating factors to a patient's outcome and our products can removing into just few seconds of treatment plan. Our small devices allow entry into difficult to reach areas of the body with the use of smaller sheets which have been shown to significantly reduce procedure complication, as we developed this market these factors are expected to provide for attractive revenue growth from many years to come. Finally, before we turn the call over to question, I am happy to share with you that my cancers treatment plan is doing well and I sincerely appreciate all the prayers and support, I can't tell you what a different they make, I feel them all and I can't thank you enough. This completes our prepare remarks, we will now take your questions.

[Operator:]

[Operator instruction]. Your first question comes from the line of Ben Andrew with William Blair. Please go ahead.

[Scott Schaper:]

This is a Scott Schaper in for Ben actually. My first question is for Larry and it’s a quick modeling question. What were peripheral device sales in the quarter in dollars either in dollars or in growth? It looks like in the press release you’re no longer given the units and looks like maybe you lumping in some of the other revenue into total PAD. And then to follow up to that is in the $9 million guidance for coronary in the second quarter, was that assumed for contribution from other coronary revenue beside devices?

[Larry Betterley:]

Peripheral device revenue was 32,524,000 for the quarter. And I’d say it was increased or the content is about 5% for the coronary product. So 105% of the device gives us the total coronary number.

[Scott Schaper:]

Okay, that’s helpful. And then maybe for David. It seems as though the last few quarters have kind of surprised you guys and I know we’ve talked a lot about sales force even with the preliminary announcement. But you guys talked about processes and new things that you put in place to help prevent kind of being surprised about some of the sales force disruption. So maybe talk about what you’ve seen in the last months since we’ve talk about this, is that helping you with the turnover or the disruption you’ve seen in the sales force?

[David Martin:]

Yes, we’ve done a number of things, the team has done a number of things since October 1st in 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 team, so we’ve increased communication. We’ve got something great to offer, small territories no travel. The ability to get imitate with customers in your hometown and hometown heroes. It’s a great story that might have been lost last year in some aggressive quota setting and the related conversation for some of our sales people. So 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 things are on the move and we’re feeling great about it.

[Scott Schaper:]

Okay and if I could squeeze in one more. Any updated thoughts on technologies being developed externally that you think would be helpful to throw in the bag and maybe accelerated growth or should we think about this kind of two product company for the foreseeable future? Thanks.

[David Martin:]

Well, thanks for that question. The biggest growth market in vascular is below the knee, there is three vessels in each leg. Unfortunately, the way this disease works, if you’ve got it in one leg, you got it in the other. So in addition to six vessels below the knee, two legs and the three in the coronary, there is a lot to do and people of 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 debilitator to a good clinical and economic outcome calcium. So we’ve got a good internal organic pipeline for products that are smaller in scale and help us treat. There are other company that we’re doing a lot of work with [indiscernible] and some of the other company who are submitted to minimally micro invasive technologies. On the outside, Chris Walker, 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 is a lot of working 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 a more -- even more efficiently way than we do today. So nothing specific, but definitely a lot of activity in that area organic and business development.

[Operator:]

Your next question comes from the line of Brooks O’Neil with Dougherty & Company. Your line is open.

[Brooks O’Neil:]

Good afternoon. David we’re happy to hear you treatment are going great.

[David Martin:]

Thanks, I’m fighting the fight.

[Brooks O’Neil:]

You got it, that’s the way. So 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?

[David Martin:]

Sure. We’ve improved our retention rates, morale is high. I think they’re connected. As Larry announced, we have adjusted quarter rates and I think we put in play, the time it takes for people to grow those relationships, we’ve recognized the time it takes for the people to grow those relationships so it can have command and control of the sales cycle. That was received very well. And I think very much like the three year, what 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 productivity in accounts where the patients go and need treatment. In that sales productivity on now a larger sales footprint well over 200, we’ll deliver this company to growth and profit.

[Brooks O’Neil:]

That’s great. Are you guys seen any indication of market softness and either the peripheral or the coronary side?

[David Martin:]

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 DELIVERY 360, I mean we treated 600 patients that’s five years ago, that the societies would scream bloody murder at any positions treating with that prolific -- in those prolific numbers, Rutherford 4, 5 or 6 patients. They can be treated, they can be treated routinely. I think we’re in a good position right now on the go forward, based on proof and the expanded sales footprint and we do -- backs to the morale question we've done the right things today but David and team have done the right things to engage our key audiences and faculties, just one of them, we had an amputation prevents to summit, got a couple of 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 the amputation prevention and our help in their institution to get those policies changed and so that everyone who comes in for an amputation has the benefit at least of an angiogram and if they do get that angiogram, we known now from experiences across the country that they’ll will probably get the Diamondback and they’ll be able to walk out of the hospital.

[Brooks O’Neil:]

That's fantastic so last question I 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?

[David Martin:]

Our reimbursement continues to be really strong and for a 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 right -- the way we treat them now is late stage and it's really expensive, Bob Thatcher, our Chief Health Care policy officer is engaged with payers. We had a payers summit in the home headquarters, they’re our customer, they think we are a diabetes company, and know what we are, we can have 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, that improvement in the standard of care in the United States, it might take three years but we've got the sales footprint to do it now.

[Operator:]

Your next question comes from the line of [Indiscernible] with Leerink Partners. Your line is open.

[Unidentified Analyst:]

First of all good to know the recovery is going well and well for you and thanks for taking our questions. So just on competitively speaking in below the knee, are you seeing any changes in that environment because some of the reps that are not reaching those centers, that is the CSI reps are not reaching those centers and DCB is getting in there and some of these accounts, so if you could help us understand if any of the competitive dynamics are changing because of that?

[David Martin:]

Well everyone wants to get there, I think people woke up, it’s the fact that the barrier grid outcomes is outflow, you could do whatever you want in the SFA, but if there is nowhere for the blood to go, it's not going to happen for the patient and that's got a deleterious effect on economic outcomes. So you've got the three stakeholders then, the provider is the payer and the referral doc, they want a better outcome and some of the stakeholders want the better economic outcome, not everyone can provide that. So I think there is a lot of interest with the rate success of drug clotted balloons in the SFA, we started a study so that we’ll have a known that using the Diamondback first will allow drug clotted balloons to get into that enormous market. All of the drug clotted balloon companies are very excited and aggressive about moving forward to get there but as Medtronic taught us if you go there with direct balloon -- direct drug clotted balloon not only we do 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. 30 to 90 seconds and take care of that. So we see a lot of activity in 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 instance of diabetes, obesity and the ageing 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 the Diamondback and if drug clotted balloons can be an asset, we welcome that. Anything that would help two and three your outcomes data were all for it. Right now though there is not a technology that can compete with CSI in those 1 millimeters to 4 millimeters vessels below the knee, six of them, two legs right and then similarly in our, those are same sized vessels and we provide a unique benefit there and that's a growth market as well.

[Unidentified Analyst:]

Okay, thanks for that. And this might be for Larry so just want to understand in terms of the goal post that you have for penetration and especially in the account where you already have that presence. So what sort of penetration are you looking at currently and what did the study states for penetration that you want to reach to?

[Larry Betterley:]

While we were just really scratching the surface and specially look at below the knee, as Dave said there is 3 million of people with CLI only 300,000 cases done a year and a half of those, over half of those are amputations. So about 60% of our business is below the knees so you can see we’re just getting started there is just a vast market opportunity ahead of us there, does take market development and when you talked about competition really it's up to us to develop that market and our adjustments to their sales process and our expectations are allowing them time to spend more time in those accounts and drive adoption.

[Unidentified Analyst:]

That's it from me. Thanks for taking the questions.

[Operator:]

Your next question comes from the line of Michael Matson with Needham and Company. Please go ahead.

[Michael Matson:]

So I guess, look I understand there is a lot of turmoil or was a lot of turmoil in the sales force and you had to back for position, but the SG&A spending is up quite a bit and I was just wondering to if you could 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. So 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 expected it to continue to go up in the shorter term? And are there any -- I understand that you have to increase spending in some areas, but are there any opportunities for offsets some of that with cost reductions anywhere?

[Dave Martin:]

Yes the big increase year-over-year has been our sale optimization and adding headcount that was actually a little less than what we had planned because our headcount was over then we had thought. Now going forward the increases are going to subside and we don’t expect to have dramatic cuts, but we are going to just according based on our revenue outlooks so there are opportunities to save money and that’s always there, but we don’t want to robe the opportunity here. So we are continuing to add those reps as we have discuss, moving forward although the addition with slowdown as we get in the second half of the year.

[Michael Matson:]

Okay and then just 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?

[Dave Martin:]

Yes we have placed a good catch up, we are headed for 240 at year end, I think we have telegraph that 250 was our target, we may get there as well but right now we are confidently headed 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 ramp. We are following the same model that delivers 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 as necessary and grow those intimate relationship, so as bumpy as it’s been in the last six months we are in position to do that exact same thing, with a larger footprint, a second franchise coronary which is wonderful, 7 out of 10 of those physicians are -- they are doing peripheral, in the same week or month. So there is a lot of efficiencies that we will trade on. The run kind of starts now on sales pro productivity and then I think that will help, you had asked about expenses, I think sale peripheral productivity defiantly helps us balance out the expenses as that grows overtime.

[Larry Betterley:]

And Mike, so Dave was referring to total number sales reps probably in that 240 range somewhat 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 our goals for the year. It's not fully complete at that point I think what we are saying is that the vast majority of the disruption and change should would be completed by the end of this calendar year, so the ongoing training and so forth going forward, just not to the extend we have to do in the last six to nine months.

[Michael Matson:]

Okay, alright. And then just one final question on the OPTIMIZE study, I mean it's great to see you guys finally doing a study looking at in DCBs with and without Orbital Atherectomy, but I guess what I am wondering is the 50 patient number seems pretty low to me, especially considering that, [indiscernible] ran a trail and I think their numbers were higher. I think want to say it was around 100 total patients and it was inclusive if it was basically underpowered at that level, now they are coming back and running another one, I think with like 250 patients. So do you really think that with 50 patients you are going to be able to show on actual difference in the two arms?

[Dave Martin:]

We‘ve got the best clinical data bar-none in the space because we have always used a stair step approach, so 50 is first, LIBERTY 360 did not start off as the 1,100-1,200 patient study. We work that for year. So we will take the same thoughtful approach going forward, it's a great start, it’s got a [indiscernible] source, I know it's not powered, but combined with other data, if you just look at Dr. Tepe’s data 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 is not enough, it's a great start though and as we open up international markets in Europe and Japan, the relationship that we are making over there in doing some of these studies are just great, those are our future faculty members and customers. So it's also a step into new markets for CSI.

[Michael Matson:]

Alright thanks a lot.

[Operator:]

Your next question comes from the line of Bob Hopkins with Bank of America. Your line is open.

[Brandon Bryant:]

Hey guys it's actually Brandon for Bob can you hear me okay.

[Dave Martin:]

Sure can Brad.

[Brandon Bryant:]

Great, so first of I kind of want to drill down on a couple of questions that were asked before, was it about a price, specifically peripheral, I am wondering what kind of price you guys are assuming in your guidance and if you’re seeing any evidence to the client kind of slowing back to levels that we were seeing previously?

[Dave Martin:]

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 stepper, but I’d say going forward year-over-year this should be pretty consistent with what you’ve seen as far as the decline goals.

[Brandon Bryant:]

So you’re thinking kind of low-single-digits in your guidance?

[Dave Martin:]

Yes.

[Brandon Bryant:]

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

[Larry Betterley:]

Yes, well we’ve decline that significantly and we’ve had a few people comeback in fact. So the leadership change that kind of the reset our expectations in terms of the time to intendancy and influence of 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, quarter is not over, so we can’t commented it now, but we’ve got a great hold in that morale side 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 were it was much needed.

[Brandon Bryant:]

Great and then I’m wondering if you can comment on international, I mean I’m assuming it might be a little bit on hold as you guys reinvestment in the domestic sales force, but just, I mean.

[Dave Martin:]

Thanks for that question. No way. We’re guns ablazing. We filled up that COAST trial in record time, the results are fantastic. We’re working with the ministry on not only approval, but our own reimbursement. We don’t need to step into the Rotorblader [ph] reimbursement, we provide a different and better outcome. We’re a different technology and they recognize it. So we’re excited about Japan, we’ll start our study in Europe and we’re meeting our faculty numbers over there. So we’re guns ablazing for sure international and certainly are growing in the U.S. 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 that the U.S. coronary PMA approval as a window also we gave an 18-month window of which we could be approved in pending good news, obstacles, setbacks or in the case of coronary, we got approved in the first six months of that 18-month window. I think Bob Thatcher and Paul Cain and Chris Walker and team at CSI has us on track for approval in the first half for the window. The window for approval in Japan opens up July 1, 2016 and we’re hussling, we’re doing all the right things to make sure that we can get approved in the first half.

[Brandon Bryant:]

And then timing on Europe?

[Dave Martin:]

Europe would be right behind that. We think Japan is such a rich ripe market and everything is going our way over there. But Europe is still -- Europe is great, we’re working with physicians in Germany and Benelux and Poland and Austria and it’s going well. There is 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 the past to high margins, profitability and also our unique reimbursement for CSI and our unique technology. The 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 this year or next fiscal year, but we certainly do blame the ground work for making a great reputation and making sure that reimbursement matches the high margins that we expect for our business.

[Brandon Bryant:]

Great. Thank you very much guys.

[Operator:]

Your next question comes from the line of Jan Wald with Benchmark Company. Your line is open.

[Jan Wald:]

Good afternoon, everyone. Dave I’ve got to hear you’re doing well. I guess my question, I have one about the sales force, so I guess that I’d like to ask even though people have asked already. And it comes down for this I guess, I’m kind of looking at the glass half empty. And it seems to me that one of the reasons why, what occurred, occurred. That the company was because of the lack communication is the only way I can explain to myself what actually happened to this. No problem with communication from the sales guys, the regional guys into the home losses. Do you think you’ve solved this now with this new guy and the new approach you’ve taken and then why do you think you’ve solved it this time?

[David Martin:]

Yes. I do think we’ve increased communication with all our key audiences and that extends to providers and payers as well, explain to them the benefits to them of expanding our sales footprint. The doctors are asking for more support and services more now than ever before. They actually one vascular expert to serve them with greater frequency, we’re providing that. But there is flipside to it, 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 may be over blew our expectations during our growth and I think as much as communication could have helped, it could have and 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 months -- six week sales cycles, but also some of our best coronary customers have took six months right, so acknowledging that recognizing that, right sizing corners of the sales force, it went over very well on October 1st let me tell you. And so we've got a team who we’re in sync with, communications is a part of that, but so as remuneration.

[Jan Wald:]

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

[David Martin:]

We had we've got the right plan, we’re replicating the success that managed the top five grower in medical device for three years straight and took for the profit, we are replicating that model but with a bigger opportunity for 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 and morale is high with the team, that the people we put in charge are known's and received very well and the activities that we’re doing in David’s 45 day plan are paying off nicely. For anyone that was a dealer, I think you saw a lot of CSI, we had 8 different physician events, we continued our leadership and in delivering clinical outcomes, I think you saw a unique amputation prevention suite. You also saw a spring cadaver lab and cadaver lab training through 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 served, doctors. We had a great meeting, it’s just one of many things that have happens since October 1st as simple as it sounds, communication it was easy with the internal leadership changes to turn the light switch on that, and it's being received very well we’re seeing some of the early fruits of those changes.

[Jan Wald:]

Okay and I guess I had 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 you think you will get from it?

[David Martin:]

Well people want to know right, so what we saw drug coated balloons are delivering a great results and in soft plak. Medtronic put out some really nice two year data and we love that, but the barriers in a clinical outcome is calcium and people want to know about that. So there is great -- there has 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 plak 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, what’s the effects. So when we increased minimum lumen area from four millimeter square to over nine millimeter square that's a big deal inflow and flow equals mobility and life and a great outcome. And then so why did that happen, can anything do that? No, the calcium reduction was responsible for 86% of that lumen area increase, that's amazing. And that tells us the story right there, no ability to take the calcium out, then there is no ability to increase the lumen area for these patients. So it's just another piece that connects CSI with a new standard of caring and I always make the argument that in 1980s the cardiac surgeon was risking at the hospital, but took 10 years till 1990, until the cardiologist was to the benefit of millions who could be treated in every state and every regional hospital in the U.S. were in that curve right now with peripheral, that the outer vessels is going to be the biggest market period, barman, to the benefit of standards and outcomes everywhere. And so this is just the little piece of information for those skeptical doctors or for the scientist or for our company right, to know that this unique technology is responsible for a great outcome.

[Jan Wald:]

And you use this virtual technology to show that the calcium has been reduced is that?

[David Martin:]

And we use the core labs. Yes you bet.

[Jan Wald:]

Okay. Thank you very much.

[David Martin:]

Independent core labs which everyone appreciates when the results are judicated by someone not involved in the study. And then the doctor, thanks to Dr. Babaev who is at New York University. We continue to tap in of the top 200 and the premier institutions of the U.S. and certain [indiscernible] is one of those and we really thank him for his work.

[Jan Wald:]

Thank you very much.

[Operator:]

Your final question comes from the line of Ben Haynor with Feltl and Company. Your line is open.

[Ben Haynor:]

Just a couple of quick ones 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 then can you talk about plans for future studies that might go at that amputation avoidance?

[David Martin:]

That's a great question. The LIBERTY 360 is pointed there, we knew even five years ago there was so much skepticism about even treating these patients and we were running up against societies in fact like the vascular surgery society, seeing that we out not to when that surgery was below standard, we knew better because we knew what technology could do, we knew what really 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 passed -- as you just describe, so the earlier adopters doctors the Dr. Mustapha, Dr. Sangellis [ph] they are 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 VIVA meeting that’s ongoing right, 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 at this stage, its super inefficient. So we’ve got an audient there for them, we 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 the payers 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 in to surgery, or wait and see or thanks fully if you’ve got a [indiscernible] doctor you might be slotted in your community in to one of those doctors and then you could walk out of the hospital. But prove is really important the conversions of technology and clinical and economic prove is what changes the standard of care. That happened with the coronary bypass to minimally evasive catheter based coronary in the 80s, the conversion of technology improved 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 representing it in every major meeting from here on out for the next three to five years on that study.

[Ben Haynor:]

That’s right, very helpful. And then 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 that skewed one way or another?

[Larry Betterley:]

For the Q2 it’s going to be kind of split between the SG&A and R&D due to timing on projects.

[Ben Haynor:]

Okay, great. That’s all I have. Thank you, gentlemen.

[Operator:]

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

[Jack Nielsen:]

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

[Operator:]

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