Cardiovascular Systems, Inc.
Q1 2015 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Cardiovascular Systems Incorporated Q1 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I’d now like to turn the conference to our host, Mr. Larry Betterley, Chief Financial Officer. Sir, you may begin.

[Larry Betterley:]

Thank you, Eric. Good afternoon and welcome to our fiscal 2015 first quarter conference call. During this call we’ll make forward-looking statements. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding CSI’s future financial and operating results or other statements that are not historical facts. 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’ll also refer to non-GAAP measures because we believe they provide useful information for our investors. Today’s news release contains a reconciliation table to GAAP results. I’ll now turn the call over now to CSI’s President and CEO, Dave Martin.

[Dave Martin:]

Thanks, Larry and hello everyone. We’re pleased to report that momentum that we built in fiscal 2014, strengthened as we began a new fiscal year. First quarter revenues grew 39% to $41.4 million. Our momentum is due to our market expanding products that allow physicians to treat calcified lesions throughout the body. In support of this we’ve begun cross training our peripheral representatives to also sell our Coronary products, an initiative we call Project Evolve. Since the end of June, we’ve cross trained another 29 of these hybrid sales professionals. Going into this second quarter, we’ve a sales force of 60 hybrid, 24 coronary, and a 107 peripheral representatives. We plan to cross train about 25 hybrids each quarter. While still very early, we’re encouraged by our hybrid productivity which is a key factor for the success of our coronary ramp and future profitability. The product revenue numbers look -- they look great. We’d hope that will be the case and the early returns on the metrics look super. The Coronary launch has focused on quality training, great patient outcomes, and account penetration. We sold nearly 1,400 Coronary units by the end of fiscal 2014 and we needed about eight months after FDA approval to get that done. In the three months ending last quarter, we sold 1,300 units with the expanded hybrid sales force as a driver, generating nearly $5 million in Coronary revenue. We added 27 new PAD reps during the quarter. We will continue to assess what the optimum number is for our sales force. Our vascular market opportunity is enormous, because of our ability to treat coronary and tibial arteries, we’ve more vessel opportunity and patient contribution opportunity than our competitors. On the technology side, we remain excited about our 1.25 millimeter crown, including the March launch of our tibiopedal access device. It's a Low Profile 4 French sheath-compatible system. It allows physicians to treat the small and tortuous vessels located below the knee through alternative access sites in the ankle or the foot, and in the future in the radial artery or the arm. It’s estimated that 20% of lesions below the knee cannot be crossed using the traditional femoral access approach. The retrograde access that we offer means physicians can help a broader range of patients who may otherwise face the amputation. In addition, use of smaller sheaths has shown to reduce procedure and access site closure times. It lowers radiation exposure, and enables faster patient recovery, while also reducing complications from bleeding. First quarter sales of all our 1.25 millimeter solid and Micro Crowns represented 45% of peripheral device revenue versus 36% just a year-ago. That’s 53% growth between the periods. Going forward, these low profile devices will be a key driver device growth in market expansion, allowing a growing number of physicians to safely and effectively treat calcified lesions, even in the small vessels below the knee. And those doctors used the 1.25 as their primary device. These are happy customers. They’re delivering great outcomes. Calcified and small vessel disease is a determining factor for critical limb ischemia or CLI, which if let untreated often results in debilitating amputations. It's estimated that nearly 3 million people in the United States alone suffer from CLI, and the number is expected to double by 2030. CLIA is vastly under treated with only 150,000 of these patients receiving endovascular interventions annually. And unfortunately over 160,000 more patients receive amputations. Dr. Mustapha at Metro Health Hospital, in Michigan, estimates that beginning in 2009 he himself has used our device on nearly 250 patients suffering from PAD, who would have otherwise been candidates for limb amputation. At an estimated savings in excess of $8 million in amputation related procedure cost over that period, $8 million. Our Orbital technology is uniquely proven to safely effectively treat complex CLI disease, addressing a multi billion dollar market opportunity. Larry will now provide details on our quarterly financial results and then I’ll return to comment on our clinical and our research activity before we take your questions.

[Larry Betterley:]

Thank you, Dave. CSI’s performance was very strong this quarter. Compared to a year-ago, total revenues grew 39% to $41.4 million, which exceeded the upper end of our guidance range. Device revenues were 88% of that total. We sold over 11,500 devices bringing the life-to-date total sold to nearly 170,000. Devices sold included nearly 1300 coronary units that generated $5 million in coronary revenue. Reorder revenues remained high at 97% of total revenue, above the already strong 96% in the prior year. We added 57 new peripheral accounts and 82 coronary accounts, albeit one of our coronary accounts are also peripheral users, adding confidence in our ability to gain sales synergy with both applications. Gross profit increased to 78.5% from 76.9% in the prior year quarter. The gain was due to higher device average selling prices. The peripheral device ASP was about $100 about last -- first quarter last year. In addition, our coronary device which was not commercially available last year commence a higher selling price. The increased ASPs draw our first quarter gross margin above the top end of our guidance range. Going forward, we anticipate that engineering enhancements and rising production volumes will continue to reduce unit costs. In addition, the higher ASPs of our new products including coronary and tibiopedal access devices, are expected to keep gross margins in the upper 70% range. Operating expenses rose 37% over last year, primarily due to $12.4 million in coronary costs with the commercial launch, clinical studies and new product development. We continue to make investments in sales and marketing, expanded clinical and product development initiatives and medical education programs to fuel the adoption of our technology. These investments allow us to take advantage of our extensive market opportunities and drive high revenue growth. Operating expenses came in below our first quarter guidance, rising about 2% sequentially compared to the fourth quarter of 2014. The lower level of expense than expected with result of timing of new hires and study enrollment. Net loss was $8.2 million or $0.26 per share versus a loss of $7.3 million or $0.29 per share last year. Weighted average shares outstanding rose to $31.3 million from $24.8 million last year. The increase was due to the issuance of $3 million shares of stock in our November 2013 stock offering and warrant exercises, debt conversions, and employee stock plans. Adjusted EBITDA was a loss of $4.2 million which was consistent with last year. Excluding net expenses relating to our coronary launch, adjusted EBITDA was positive for the quarter. At quarter-end we had a cash balance of $116 million. We are primarily using our cash to fund our growth investments including coronary launch initiatives, our sales force optimization, clinical studies, product portfolio expansion, education programs and future international expansion. In addition, we’re building a new facility in Minnesota to accommodate our growth. Progress payments for that facility totaled approximately $2.6 million in the quarter. That completes my prepared remarks. I’ll turn it back now to Dave for commentary.

[Dave Martin:]

Thanks, Larry. Now update you on our clinical programs. CSI continues to build on large body of clinical data that validates the use of our Diamondback 360 as the primary treatment therapy. The unfortunate reality is that a number of people suffering from vascular disease continues to mount. In aging population, many of whom suffered from diabetes or BCD in other word, that it is translates into calcium as a growing and underserved problem. The complication is related to the presence of calcium, result in poor patient outcomes and higher treatment costs. Fortunately, our Diamondback 360 provides cost effective and long-term durable outcomes for these patients. In the first quarter, we continue to advance our clinical initiatives, enrollment in our LIBERTY 360 Trial now exceeds 450 patients, an increase of over 180 since the end of the fourth quarter. This study is evaluating the acute and long-term clinical, up to five years in fact and economic outcomes over our Orbital Atherectomy Systems. It’s the first study that’s kind to compare Orbital Atherectomy -- to any other PAD treatment option in a very difficult to treat patient population. This month as part of the liberty 360 trial, Dr. Mustapha removed the calcified lesion with our Diamondback system, prior to using the newly approved Lutonix Drug Coated Balloon. Dr. Mustapha believes that when the significant -- when significant calcium is present, plaque modification is beneficial for adequate and uniform drug transfer from a drug coated balloon to the vessel wall. In his experience CSI’s orbital technology is unique in its ability to treat these calcified lesions prior to drug-coated balloon treatment. Furthermore, Dr. Tepe of RoMed Hospital in Rosenheim Germany and other key opinion leaders have concluded that vessel preparation to remove calcium prior to using drug eluting technologies leads to better outcomes. We believe that preparing the vessel well, while preserving the health of the native artery with our device will ultimately become the standard of care and we’ll continue building the science to make this happen. Another important study we have in the OAS COAST, were Coronary Orbital Atherectomy System trial, taking place in the United States and Japan. The study is designed to assess the safety and efficacy as well, as economic outcomes of our new micro crown orbital atherectomy system. It’s also designed to facilitate approval of our system in Japan. This week we began enrolling our first patients in Japan with Dr. Saito of Kamakura General Hospital, performing the first seven procedures just two days ago. And like ORBIT I, ORBIT II and the U.S commercial experience, those cases went great. There is a lot of excitement and the team here did a great job. Thank you. And they’re still in Japan. So safe travels back. For COAST, we plan to enroll up to a 100 patients in 15 U.S sites and 5 sites in Japan. While commercial operations Japan are probably a few years away, entering this coronary market with the strong acceptance of minimally invasive coronary procedures and attractive reimbursement potential provides CSI with another exciting future growth opportunity. In the near-term, we look forward to passing an important coronary milestone early in 2015 by sharing two-year data from our ORBIT II study. This study evaluated the Diamondback 360s effectiveness in treating severely calcified coronary lesions. The one year data revealed a high freedom for major adverse cardiac events and an impressive 95% freedom from reintervention. We are confident the two-year results will demonstrate that our device delivers quality long-term patient outcomes. Data shows that with significant calcium is present, much higher rates of adverse events and death occur. Its estimated that significant calcium is present in 40% of coronary cases performed in the U.S annually. These $400,000 underserved patients represent a 1.5 billion market opportunity. Our coronary system is the only device approved in the United States for treating severe coronary calcium. Now I'll detail our financial outlook for the fiscal 2015 second quarter ending December 31, 2014. Revenue is expected to be in the range of $43.1 million to $44.8 million, representing year-over-year growth of 33% to 39%, including approximately $6 million to $6.5 million of coronary revenue. Gross profit as a percentage of revenue is anticipated to be similar to first quarter results. Operating expenses should increase approximately 13% compared to the first quarter of fiscal 2015, primarily due to the expansion of our sales organization and increased enrollment in clinical studies. And then, finally, net loss is expected to be in the range of $11 million to $12 million or a loss per share of $0.35 to $0.38 based on 31.5 million average shares outstanding. We remain committed to expanding the vascular intervention market, a large and growing number of people suffer from vascular disease and our innovative and unique solution provides excellent outcomes in the real world populations, including very difficult to treat patients including Rutherford Classifications of four through six, in PAD, previously untreated population. Specifically our products routinely treat calcium, have an excellent safety profile and a the data to back it up in real world populations. We provide a low profile, an alternative to the asses capability which reduces procedure times and we allow physicians to treat the most difficult disease states, while preserving the integrity of the native artery. Individually these are powerful differentiating points when doctors and hospitals are evaluating what treatments to use combined based at CSI PAD. Finally, before closing, I’d like to thank our chairman, Dr. Glen Nelson for his guidance, unwavering support, and steady governance of CSI for more than 10 years. His passion for improving the quality of care for patients has touched everyone here at CSI. Dr. Nelson you did good. Our accomplishments to date, and growing opportunity in front of us, have benefited from his passion at our annual shareholding meeting this month, we -- next month, we will look forward to Dr. Nelson’s continued support of CSI as he retires, he’ll be both Chairman emeritus and he will also be one of our most significant shareholders. Dr. Nelson we just can't thank you enough. Look forward to seeing you at the annual meeting, This completes our prepared remarks. Operator, we’re ready to take questions. Thank you. (Operator Instructions) And our first question comes from Ben Andrew of William Blair. Please go ahead.

[Ben Andrew:]

Good afternoon, guys. I had a few questions for you, if I may. David if you look at the opportunity for the low profile device, obviously a big increase year-over-year in the utilization of that within the mix. Where does that go over time, in your view?

[Dave Martin:]

The 1.25 millimeter, it's one of the most exciting franchises in vascular intervention. It goes everywhere. If you think about measuring market opportunity and contribution. In fact, we’ve got those three vessels in the heart that were approved for where uniquely able to routinely treat the three vessels in each of your CAS. And unfortunately if you get disease in one leg, you got it in the other and it can go right down to the big toe. So our market opportunity as measured, by worth a disease is and patient need is extraordinary. So I see years and years of runaway with the device as a primary treatment therapy. And it does dovetail with the future of vascular intervention. We are all like very excited about the contribution that might be in place for drug therapy. And we think this is just an initial volley. Right now it’s on a balloon. We think as time progresses there are more efficient ways to deliver drugs. And we think that at 360 degrees standing of that artery, the application of the drug in order to preserve uniform and predictable uptake is a great idea. So we can be more excited about it.

[Ben Andrew:]

Okay. And lets drill into the peripheral business a little bit more. So what percentage of revenues this quarter came from the retrograde product, the tibiopedal product compared to I think it was 5% last quarter?

[Larry Betterley:]

Yes, Ben, this is Larry. I think for that specific 60 centimeter product that you’re talking about, it was comparable percentage. I think it was 5% last quarter, again, 5% this quarter for that product specifically, which is actually it was good because of course initially we got some uptake from some of the early retrograde users. So we felt good that it contained -- it consistently remained at that level in summer quarter.

[Ben Andrew:]

Okay. And then, the 20% growth in volume, I think we saw in peripheral the way we calculated. I’m not sure if that’s right, based on what your comments on ASP, but how did you feel about that and how did that trend during the quarter, if you have additional detail for us?

[Larry Betterley:]

Yes, it was about 20% based on volume and PAD. The summer quarter it tends to start a little slow, but it did ramp throughout the quarter and we had a very strong September finish.

[Ben Andrew:]

Okay. And you had said, you had a 27 reps to the organization in the quarter. How well is it typically take those newbies to kind of ramp their productivity and what is your plan for a rep hiring kind of for the balance of the year, separate of the retraining obviously the hybrid group.

[Larry Betterley:]

Well, the -- it will take down a while to get productive, but of course as part of this because we’re cross training hybrids and we’re dividing territories as well. So a lot of them are going to start with culture of making that. So then that will be productive, I’d say in general productivity will probably flatten out for a while because of this cross train and rearrangement of territories, but overall it should be very consistent with where we’ve been in total. As far as going forward, we’re evaluating in our optimum sales model. Now at this point we hired 27, and potentially we could hire more. We’re continuing to evaluate that going forward. We’ll report more of that next quarter.

[Dave Martin:]

We don’t know what optimal is, but the reason why is that there is an expanse based on good news. If you think about a year-ago, we did have the great commercial coronary outcomes. We are hoping for approval. We didn’t have the excitement that surrounds the new access points that can be delivered only with our 1.25 franchise, the tibiopedal product included. So, everything worked in a good way that allowed us to kind of reevaluate what optimal is. And training and physician support is still a big part of the adoption equation. So 27 now and we will have to mark it over time what optimal is. But even in the early going, there was representatives who are caring both the coronary product and the peripheral product in a smaller territory. They’ve got better commercial metrics and they’re delivering great service to the customer.

[Ben Andrew:]

Okay. Last question for me, the devices per customer usage in the quarter for peripheral on particular, should we see that ramp over the year as it typically has and kind of where would you see that actually in the next year? Thank you.

[Dave Martin:]

Yes, it was down in the quarter. So little bit above where we’re last year, but it was down from a fourth quarter, and that's primarily the summer quarter impact. And we should see progress in that probably the device results for quarter throughout the year.

[Ben Andrew:]

That's a big increase. So you said one device per quarter sequentially through the year?

[Dave Martin:]

Oh no, for the year.

[Ben Andrew:]

For the full-year, great. Thank you.

[Operator:]

Our next question comes from Danielle Antalffy from Leerink Partners. Please go ahead.

[Danielle Antalffy:]

Thanks so much. Good afternoon, guys and congrats on a good quarter.

[Dave Martin:]

Thanks, Danielle.

[Danielle Antalffy:]

Just wanted to touch on the hybrid reps, just two questions for me. The hybrid reps first, as we think about sales force productivity is it reasonable to assume that the hybrid reps can essentially double their productivity level or where there would be some cannibalization as they focus, some efforts on coronary and some on peripheral, I mean, I assume most of the time they are calling on the very same physician for both for a wrong coronary. So how do we think about that?

[Dave Martin:]

Well, the market need is big enough for them to double, no doubt about that, over a period of time -- long period of time. Initially we are going to be -- we're going to continue to be an outcomes based Company. We’re going to focus on preserving the awesome commercial start in coronary and great outcomes. We’ve had some great outcomes with our new access points and tibial arteries. The training for both physicians and for sales pros, that requirement has never been higher right now. So we'll -- we recognize that there is lot of relationship hand offs and things to do, but outcomes is number one. We will take a little productivity hit upfront, but the prospects going forward are exciting and one driver to serve the enormous market opportunity. The other is to have exciting profit in the future. And this hybrid model, the ability to have both franchises in one sales bag and the concentrate service and support in a very small territory, sometimes the smallest too accounts. That is a widely profitable model in the future.

[Danielle Antalffy:]

Okay. That's helpful. And then, I was hoping you could comment on the competitive landscape, obviously some acquisitions made in the space. I'm just wondering what you're seeing out there from a competitive perspective particularly from the larger players now like Boston Scientific and has any thing changed from a pricing standpoint from your competitors? And also how you view drug coated balloons, now that Lutonix is approved. Do you see any cannibalization from drug coated balloons? Thanks so much.

[Dave Martin:]

Yes, the first part, the big companies versus small. The big companies have low single-digit growth in the U.S and they’re bundling and they’re pricing and that’s one thing that’s happened. Our -- we got a unique strategy and that's to offer outcomes based opportunity for new and uncapped markets. And so that’s where we’re. So we got a little different make up and you see then the growth rates with some of the clinical outcomes and economic outcomes rate. So we will continue that. But the consolidation in the space in larger part is being driven by people broadening up their portfolio. I think it's very competitive at the big company. In the big company arena in terms of bundling and -- but our outcomes approach and our value proposition to pay our patient and physician is different. We are not involved in that. We don’t bundle. I think your second question was about the impact of drug coated balloons. I think there is excitement in the space. We are on the verge of a massive amount of investment and time and messaging for an undeserved disease state in the United States. So I think there will be a lot of trial. I think everyone is wide opened to what the optimal procedure technique might be. And I think there is a lot of interest in using what’s offered today and that great news for Lutonix Bard as the opening volley and maybe an era where we can get better outcomes, more durable outcomes two, three, four, five year outcomes for these patients who are in need of intervention. So I think there is a lot of excitement and enthusiasm.

[Danielle Antalffy:]

Okay. Thanks so much.

[Operator:]

Our next question comes from Mike Matson of Needham. Please go ahead.

[Mike Matson:]

Thanks. Just want to follow-up on the DCP question, I guess, so -- we’re going to be seeing the definitive AR data soon at VIVA and I was just wondering if you think that would -- assuming it as positive, is that kind of rising tide can help everyone or is it going to be viewed more specific to the Covidien Turbohawk product?

[Dave Martin:]

Well, calcium is the biggest impediment to a good result with the drug coated balloon, and there’s one company that treats calcium everywhere. So we think we’re in a good -- a great spot to be an asset. And as the primary therapy, we’re the first device used. One, it really sets up for a great outcome and a great case for the physician, and two, they’re at that -- they can make the choice then post Diamondback what to use and where. That’s how we view it and that’s been the initial experience that we’ve seen and that’s an example that we put in for Dr. Mustapha right out of the gate he had a patient that he enrolled in the Liberty 360. He was excited to treat calcium and remove the biggest impediment to a durable result and then apply the drug coated balloon. That might be a good recipe.

[Mike Matson:]

Okay. But I guess what I was getting at is, if the headlines kind of say atherectomy plus drug coated balloon work better than drug coated balloon alone. Do you think that will kind of benefit all the atherectomy players or?

[Dave Martin:]

All atherectomy clients. No. I don’t think so, because the mechanisms are completely different and if you walk right on down the line of the list of those things categorized as atherectomy they all work differently, and they don’t have access for example to calcium everywhere. And the larger part of the market which is those three tibial arteries in the cath so critical to outflow in a durable result as well as calcium behind the knee and in the thigh. So, if your device can't get there it can't prepare the vessels. So that’s one thing just getting to where the need is and where the disease is. The second is the mechanism of action. So what it is that the device does predictably or unpredictably. Ours is the only device that preserves the media that middle layer of the vessel and we leave a smooth tubular lumen with a native artery that is intact and ready for predictable uptake. So, we’re going to study it, put the science to it. We’re very optimistic that our mechanism of action is going to provide the biggest benefit for those DCB. It could help in general though. In general, I think overall the atherectomy category was a high grower and absolutely all tides could rise a little bit. The atherectomy category certainly won't be hurt.

[Mike Matson:]

Okay. And then I guess, just then given that you’ve been training some of the peripheral reps now on coronary. What steps are you taking either from a benefit perspective or other means to try to prevent them from focusing too much on coronary and dropping the ball on peripheral?

[Dave Martin:]

Yes, that is a balancing act and that’s something that we talk about and look at a lot on the pro side and benefit side a smaller territory allows for less travel time and more concentrated lab time. There also is the efficiency of seven out of ten of our current users doing both coronary and peripheral interventions in the same week. But we’ll have to manage that over time. It’s a good question.

[Larry Betterley:]

Yes, Mike they do -- the quotas do interact as well. So they can't favor one over the other. They do need to work with both.

[Mike Matson:]

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

[Operator:]

Our next question comes from the line of Bob Hopkins of Bank of America. Please go ahead.

[Robert Hopkins:]

Thanks very much. Can you hear me okay?

[Dave Martin:]

Sure. Hi, Bob.

[Robert Hopkins:]

Hey, great. Good afternoon. Couple of quick things. You talked a lot about reps in where you’re adding and you mentioned that you’re now in coronary. I think you have standalone 24 did you say, and I’m just curious, is that also a group that you’re adding to overtime and kind of where do you think you’ll be in six months?

[Dave Martin:]

Yes, it’s a great question. We’re not going to add to that coronary only group. A big thank you to them because of their outcomes and their dedication and how they setup our U.S. commercial output is outstanding. But over time we’ll evaluate whether or not they would become hybrids. We haven’t answered that question right now, but it’s what we’re looking at, but we won't be expanding that specialist group right now, no.

[Robert Hopkins:]

And is that because you’re just seeing more success or enough success out of the hybrid model or?

[Dave Martin:]

Yes, that’s true. We’re seeing efficiency and some validating metrics with the hybrid model. That’s exactly right.

[Robert Hopkins:]

Okay. And then, I’m just curious in coronary, at this point you’re couple of quarters in now, what's the type of account or the type of disease where this is being used. Just want to gauge your confidence in kind of where this coronary opportunity is going for you. I heard the guidance for next quarter but just want to get a little better sense as to where the product is being used and your enthusiasm for kind of rapid growth as we move around here over the next couple of quarters?

[Dave Martin:]

Yes, we’re nine months with the experience with some really big institutions with keep getting leaders and in fact faculty members, Columbia and Saint. Francis and Mount Sinai and they’re having a great experience starting with clinical outcomes, usage has been strong. We still have a lot of work to do in the Top 75 accounts in United States, we barely scratched the surface. And then the news of the outcomes have spread, so there is demand across the United States but we want to be really calculated and methodic about the way we train. We’ve been used in a patient specific kind of scenario. The toughest cases, I mean we have gotten some amazingly difficult cases that would not have been done with any other device, and the device performs. We’re growing a very great trust relationship with the physician. We would over time like to expand it beyond those “train wreck” cases and that’s an opportunity for the sales force at this stage.

[Robert Hopkins:]

And how many accounts are you in currently, I’m sorry if I missed that?

[Larry Betterley:]

We’re in total 150. I think we prefer to focus on select accounts and drive deeper in those. So, we may not continue to grow at that rate and our guidance reflects that.

[Robert Hopkins:]

And then Dave, from a big picture perspective, revenue growth at your company has accelerated now every quarter for the last four quarters and you approached 40% this quarter, and so, exceptional performance over the course of the last four quarters. And as we think about the next period forward and not just Q2 but looking forward a little bit further, as this has been mentioned you faced a little bit more competition, but then again you’re very early in coronary, drug coated balloon world is just starting. I’m just trying to get a sense for your confidence that you can keep the revenue growth of your company over 30% as you look forward the next year or two given some of the moving parts that you face over that time period?

[Dave Martin:]

Yes, it will be a challenge over time, but we’ll be a high growth company. The outcomes are great and the patient need is enormous. And that right there is going to make us double digit grower for a long period of time. But there’ll be issues and challenges going forward. I think the onus on us is to continue to put out that clinical proof. A big day for the company is the two year ORBIT II data. Right now the commercial experience has been great. One year data looks fantastic. The cases in Japan went great. But two years is important durability, important Liberty 360 also on its way into one, two and eventually five year clinical and economic results. I think it is scientific proof that ultimately is going to drive how long we’ll be a high growth company and we are very optimistic about that.

[Robert Hopkins:]

And just lastly on that same point though, I mean I was just curious and you may not be willing to disclose. But I’m just wondering is there, as we look forward over the next two years a growth rate that you’d be surprised to dip below for any meaningful period of time, is 20% a line in the sand? I’m just kind of curious how you’re thinking about all the moving parts?

[Dave Martin:]

Yes, in a healthy way we have not thought about line in the sands, its really been a patient outcomes based story. We’re working on our value proposition. Things will take care of itself if we take care of patient outcomes and if we service our customers better. We had great organic growth if you think about how shareholder friendly we’ve been with what we developed internally. I think we have an appetite to look outside the company for growth opportunities again in the category of those procedures and tools that were driver procedure that would lead to a better patient outcome and a better economic outcome. There’s a real need for that in United States. We are doing a great job so far at this very, very early stage. So, I think you’ll see more organic growth opportunities. I also think you’ll see the company look outside for other ways to accelerate that growth.

[Robert Hopkins:]

Got it. Thanks very much. I appreciate the time.

[Operator:]

Our next question comes from Ben Haynor from Feltl and Company. Please go ahead.

[Ben Haynor:]

Good afternoon, gentlemen. Thanks for taking the question.

[Dave Martin:]

Hello, Ben.

[Ben Haynor:]

First off, the number of coronary sites grew quite substantially this quarter. I guess, what's that reflection of? Is it sales force productivity? Is it more training, better training, just straight up demand, getting [ph] [docs] up to speed more quickly. What went on there?

[Dave Martin:]

It got into the -- more hands in our sales force. So, by training those hybrid representatives we expanded beyond the 20 plus coronary specialists and into some of our peripheral sales force. It was more hands, more accounts.

[Ben Haynor:]

Okay. That makes sense. And then kind of the same question on the peripheral side or similar anyway. I remember we used to talk about adding kind of about 40 accounts for the quarter roughly. It seems the last four quarters that’s run 50 or even above 50. Is that something that you think can continue and what's driving that? Is it the outcomes? Is it the data? Is it more sales guys?

[Larry Betterley:]

Yes, it’s more and more people. But I think also with the growing office based labs that’s added to our [ph] [ultimate third] quarter as well. So 50 is probably reasonable.

[Ben Haynor:]

Great. That’s all I had. Thank you very much gentlemen.

[Dave Martin:]

Thanks, Ben.

[Operator:]

Our next question comes from Edward White of Laidlaw & Company. Please go ahead.

[Edward White:]

Hi, Dave. Hi, Larry.

[Dave Martin:]

Hi, Ed.

[Edward White:]

Just a question on the building of the new manufacturing headquarters in Minnesota. CapEx was very high in the fourth quarter of last year and then you had a progress payment of $2.6 million in this quarter. How should we be thinking about CapEx in -- fiscal 2015? And then also just how is the new manufacturing going to impact gross margin in the long run and when can we see that coming online?

[Larry Betterley:]

Yes, I think the new facility is about $31 million roughly in total, we’re $17 million into that through the first quarter. So, we have the rest of that to go this fiscal year. I think it will be captured as far as the gross margin. I indicated, I believe we can stay in the high 70s with the projected cost we have per unit in our ASP. So, it should be fairly neutral in absorbing that number.

[Dave Martin:]

Yes, special thanks to you, to Paul Koehn, Heather McDonald, Lou Gilbert, Paul (indiscernible) and the team. They’ve really got that building up and running. That went from ground breaking to the walls up in a hurry. We’re going to have equipment in that building before year end, and we’re really excited about it. It is setup perfectly for honoring out commitments to physician training, top shelf blue chip engineering and manufacturing quality among other things.

[Edward White:]

Okay. Well, that’s all I had. Thanks a lot Dave and Larry.

[Larry Betterley:]

Thank you.

[Operator:]

Our next question comes from Jose Haresco from JMP Securities. Please go ahead.

[Dave Martin:]

Hello, Jose.

[Jose Haresco:]

Hi, guys. Good afternoon and congratulations on the quarter.

[Larry Betterley:]

Thanks.

[Dave Martin:]

Thanks.

[Jose Haresco:]

Just some quick housekeeping items in case I missed it. How many peripheral accounts are you guys in now, and how many did you add in the quarter and the same questions are for the coronary side.

[Larry Betterley:]

So the peripheral accounts in P80 life to date to just probably how you’re tracking it. We’re in about 1600. So the change from fourth quarter was 57. Coronary were in 150. The change from fourth quarter was 82. And they’re pretty much over lapsed. So we only had one coronary account that wasn’t also a peripheral customer.

[Jose Haresco:]

Okay. Thank you. And then you mentioned that the pace of -- I mean what's the right way to think about new account adds and that going forward there are obviously a lot more cath labs out there. Should we assume that you’ll eat into those 1600 accounts over time? 82 is a lot of add in the quarter, I’m just trying to figure out how to model this going forward?

[Larry Betterley:]

Yes, I would -- if you’re looking forward 82 is quite a bit and I think we had a lot of hybrids out there as we said. I would say somewhere around 50 P80, 40 coronary that’s probably a reasonable number.

[Jose Haresco:]

Okay. Thanks. For the folks who had the coronary device a lot, really earlier adopter so to speak. Are you -- within those types of accounts, whether it’s Mustapha or somebody else, are you starting to see it trend where as you mentioned earlier Dave, that you’re not getting the worst of the worst anymore. They’re treating the more average cases. Are you seeing, I guess, less (indiscernible) people move down that curve?

[Dave Martin:]

At this early stage we’re getting the worst of the worst.

[Jose Haresco:]

Okay.

[Dave Martin:]

It’s a compliment. The device is really easy to use and it’s extremely safe. And there has been some tear jerker stories about people who had no options and we saved them with the device and a willing superstar physician and staff. So it’s a great story and the business is very healthy. But I think people look for facts and data that MACE trial that we’re engaged in is proving that there is more calcium out there than physicians have recognized. And now that there is a tool that they can use, I think they’re a little more excited about looking at the facts and reducing cost and complications. I think ultimately and we’re not good at this yet, but there is a great payer story here. We got an opportunity over the next couple of years to form a relationship with the payers because our clinical and economic story is really, really great for patients that are in the charge of these big payer organizations. So, we’re excited about that. We need to build some programs and let the clinical data and economic data age a little bit but we’re getting closer.

[Jose Haresco:]

Okay. Thank you. Do you have your visibility yet on what the next calendar years data flow could be from the major conference as for you guys?

[Dave Martin:]

The two year ORBIT II data is what our eyes are on right now. And Larry, do we have a date for that. That’s a big epic.

[Larry Betterley:]

No, we’re evaluating when -- where that will be released, could be in the Spring next year.

[Jose Haresco:]

Okay. All right. Thank you very much. Congratulations again.

[Larry Betterley:]

Thanks, Jose.

[Operator:]

Our next question comes from Jan Wald of the Benchmark Company. Please go ahead.

[Jan Wald:]

Hi. Good afternoon everyone, and congratulations on the quarter. I guess I have -- a lot of the questions I have is already been answered. But let me ask maybe a couple of things. In terms of Dave, I think you used the term optimal sales force a couple of times. And I guess, just you’ve got some experience with the hybrid model now. What are your thoughts about what would that optimal sales force would look like? It is going to include hybrid plus coronary plus peripheral. How do you see the sales force evolving over time?

[Dave Martin:]

Well we had hoped before we started the project that we could get 75% of the sales force to a hybrid position. And I think we assumed a front that we would always need some specialist in coronary and some specialist in peripheral. But in a good way we’re kind of rethinking that. So we don’t know yet. We’re going to have to look at it. It’s just that the hybrid model is patient outcome friendly, its physician and staff service friendly, its travel light. It parlays on a synergy that exists in our customer base of seven out of ten doing both peripheral and coronary interventions in the same week. And it’s a great path to profitability and independence on the go forward. So I think at this very early stage the metrics and the experiences with sales pros and physicians and their staffs are telling us that we’re going to achieve this 75% marker that we have. And I think you’ll just have to watch closely as to whether or not we keep decline or expand the specialist wins of the remaining 25%.

[Jan Wald:]

Okay. And I guess in terms of the clinical trials you have going. One of the more interesting ones is the Liberty 360 and its an all-comers trial, so who’s coming? What are you seeing as devices that are being used or the procedures that are being used that you’re comparing against now. What's the ratio?

[Dave Martin:]

It’s a really good question. It is right now over weighted with Diamondback and for a good reason. A lot of patients like Dr. Mustapha’s who are headed for the amputation are for the first time being exposed in the trial and we’re not only willing to do that, we’re excited about it. So we’re treating a lot of CLI patients. We’re treating a lot of Rutherford 4, 5 and 6, lot of calcium patients. These are patients that have been excluded from every trial ever. So it is over weighted with our device because our device works routinely there. But we have seen other device usage. And one kind of, maybe a follow-on to where I think you’re going is, so what will it prove if this trial proves that it can be done and it being routine treatment of those patients headed for surgery, amputation then that is one great answer that the market needs because we don’t in the United States routinely treat these patients. So it can be done and this Liberty 360 is setup rigger wise and over time wise and patient enrollment wise to answer that question. And the second question that I’ll answer is, should it be done? It is the freedom from complication and the durability and the clinical and economic outcome both of which we’re tracking up to five years. Will it tell us scientifically that it should be done? That every hospital should be, have an amputation prevention program that every physician has a routine part of their vascular intervention training should be trained on some of the new access points that we’ve enabled and some of the new disease and vascular places that we can go with out device that just haven’t routinely gone before. So, I think I’ll answer those two questions. But right now its primarily Diamondback with some other but just in lower numbers with some other devices also.

[Jan Wald:]

And just one last question on the COAST study. I recognize that a part of it is going on in Japan and there’s going to be approval, it’s going to happen over there and that will take some time, but when do you think the data from the COAST trial will be able to report. And I know Greg Stone is doing something here in the U.S. When do you think the data is going to be ready to be (indiscernible) year or two or.

[Dave Martin:]

Yes, we don’t have a day or a month for you to point out right now. But our focus has been on getting those, first few patients treated and often running which happened on Tuesday of this week. Bob Thatcher, Paul Koehn, a number of others are overdoing some great work over there, we got great patient outcomes. We’ll definitely report when we do have a quarter or a time period with which to point you to at presentation we’ll do that maybe in the next couple of earning calls.

[Jan Wald:]

Okay. Thank you. I was actually looking for a year, but that’s okay. Thanks a lot

[Operator:]

Our next question comes from James Terwilliger from Newport Coast Securities. Please go ahead.

[James Terwilliger:]

Hi, guys. Can you hear me?

[Dave Martin:]

Yes.

[Larry Betterley:]

Hi, James.

[James Terwilliger:]

Congratulations on a nice quarter. Real quick just on housekeeping, I missed some of this. You said you have 24 specialists in the coronary market, 60 cross-trained, and was it a 107 in the PAD market?

[Larry Betterley:]

That’s correct, going into the second quarter, that’s right.

[James Terwilliger:]

Okay. So then the second question, and maybe this is -- the second question is, can you walk me very quickly through kind of what is the cross-training process in terms of how does it work and then pulling of the person off of the focus on PAD cross-training and into the coronary market and how big would the class be or and how long does it take to get that person cross-trained. I think its fabulous that you’re doing that but there is also a risk element in loosing focus on the peripheral market and maybe not being as astute as possible going into the coronary market?

[Dave Martin:]

Yes, I mean that true. That is a risk and we’re keenly aware of that. The training is focused on having an expert in that cath lab for the very first case, very attendant to patient outcomes and the trust relationship with the doctor. So, it’s a multi-step training process. Jim Breidenstein and team have done a great job running a disciplined process. We do pull and there is risk here. We do pull those hybrid candidates out of the field for up to two weeks for some intensive training and testing. There is a hold process and system for pre-training before they get there. There is a ton of testing and role play in the classroom factor and then there is, we do have some great regional sales managers and sales directors to follow-up with the infield training. We also got t training department, not to support it and a clinical department and we’ve been really great at transmitting information expertise to these people so that we can continue the great track record of patient outcomes, but that needs to be attended to every class. The class size ranges from 88 to 22 and that’s -- we’ve had the capability to get that done so far. But we’ll have to stay on top of that over time.

[James Terwilliger:]

Well you guys know, David, I’ve spoke to you before, you know how important everyone’s clinical reputation is and you guys seem to be executing very well on this, in this cross training and I think anyone should be excited because its really going to have tremendous benefits one to two years out once you continue to have the momentum in the cross training. Another quick question for me is more on the R&D. We had a little bit of a jump in terms of total R&D expenditures year-to-year and I just wanted to know if you guys could comment a little bit on what's going on within the R&D pipeline?

[Dave Martin:]

Yes, we’re building out. There is short-term, mid term and long-term R&D pipeline. Its -- I think you’ve seen evidence now that’s rich with the coronary and the tibial launches and we’ve got a capability. We’re hiring the right intellect in order to incorporate the drug opportunity. We think that’s a wide open field for contribution and after the Diamondback that may add to durability and efficacy. So we’ve got some intellect in-house now that can work on that. We’ve also got some line extensions and new products that we’re working on as well.

[Larry Betterley:]

And then we have studies of course in place with the COAST and the MACE study which we talk about and which is evaluating the complications and costs of calcium is out there as well and of course LIBERTY 360 and those are driving increases in -- the clinical costs within R&D.

[James Terwilliger:]

Okay, guys. Thanks for taking my question, and again congratulations on a great quarter. Thanks guys.

[Dave Martin:]

Thanks, James.

[Larry Betterley:]

Thank you.

[Operator:]

And I show no further questions at this time. I’d like to turn it back to Dave Martin for closing remarks.

[Dave Martin:]

Thanks everybody. We’re growing our -- the market, the vascular intervention market by providing physicians with the safe effective tool in alternative access sites allowing them to treat calcified lesions throughout the body. We look forward to updating you on our market expansion efforts in the next quarter. Thanks again.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you for your attendance. You may now disconnect. Everyone have a great day.