Cardiovascular Systems, Inc.
Q4 2015 Earnings Call Transcript

Published: 6 Aug 2015

[Operator:]

Good afternoon. My name is Phoenix and I will be your conference operator today. At this time, I would like to welcome everyone to the Cardiovascular Systems Inc. Fourth Quarter Earnings Call. [Operator Instructions]. I would now like to turn call over to Jack Nielsen - Senior Director of Corporate Communications and Investor Relations. You may begin your conference.

[Jack Nielsen:]

Thank you, Phoenix. Good afternoon and welcome to our fiscal 2015 fourth quarter conference call. During this call, we will make forward-looking statements. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding CSI's future financial and operating results or other statements that are not historical facts. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q. CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. We will also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains a reconciliation table to GAAP results. I will now turn the call over now to CSI's President and CEO, David Martin. Dave?

[David Martin:]

Thank you, Jack. Hello everyone, we had a very such 2015 capped out by a productive fiscal fourth quarter. Let me share with you some of the highlights of the quarter. We continue to make progress on cross training RCL's force to sell both peripheral and coronary products. We trained an additional 25 professionals this quarter bringing the dual franchise sales professional total to over 140 and for context we had zero this time last year. Productivity goals were also achieved per representative further validating our dual application sales approach. In April we received FDA clearance for the new micro-invasive four French solid diamondback 360 PAD system. Our ongoing clinical trials ORBIT II, COAST and LIBERTY 360 are advancing on schedule. Finally we believe the reimbursement outlook will remain attractive for our products. We will discuss that in more detail, each of these points in our prepared remarks today. Sales productivity drove 22% year-over-year growth this quarter, however in average of nine open territories reduced fourth quarter revenue by about 1.5 million or 4% growth over the prior quarter. PAD revenue growth is also temporarily affected by our sales optimization as PAD selling time is reduced by four weeks of cross training and establishing initial sales at our new coronary accounts. Sales force expansion is back on track and as of today we have exceeded 50% of our hiring goals for the first quarter. We see a path that’s patient centric and will marry high growth with profit. As you’re aware we’re in the process of expanding our sales force while developing a dual franchise sales organization two big things. An 18 month plan that began at the beginning of fiscal 2015, once complete we believe this evolution of our organizational position CSI to drive the adoption of our platform technology and marry those two valuable things high growth and sustainable profit. At the end of calendar 2015 our clinically focused sales organization of 250 professionals will have the advantage of selling two high growth, high margin franchises in small span of controlled territories. The small span of control will allow us to be service intensive and relationship strong in every major domestic market. In the quarter we made significant progress by increasing the number of dual franchise representatives by 25, and completing the associated territory realignments. Dual franchise team met our productivity goals generating almost 300,000 per representative in the quarter at this early stage and they significantly outperformed our peripheral only reps by nearly 70%. We’re building the foundation for high growth and profit in two franchises for years to come. We’re in position to lead peripheral interventions to above 1 million annually and while simultaneously driving the amputation rate in the United States below a 100,000 annually. I will now turn the call over to Larry for review of our quarterly financial results and our guidance for our first fiscal quarter. Following his commentary I will address the often asked questions about competition from other treatment modalities, provide an update on our recent approvals, outline the progress of our trials and we will discuss reimbursement developments.

[Larry Betterley:]

Thank you, Dave. My prepared comments will focus on our fourth quarter results. I won't discuss details for the fiscal year but will be happy to answer questions during Q&A. compared to a year ago total revenues grew 22% to 48.5 million which is approximately 500,000 and 1% lower guidance range. Device revenues were 89% of the total. We sold nearly 14,000 devices bringing the live [ph] today total sold to almost 210,000. Devices sold include approximately 2400 coronary units, coronary revenue totaled 9.4 million. Reordered revenues remained high at 96% of total revenue. We added 45 new peripheral accounts and 71 new coronary accounts. Albeit four of our coronary accounts to-date are also PAD customers. ASPs for both the peripheral and coronary products are similar to prior periods with peripheral averaging just over 3000 per unit and coronary around 3700. Gross profit margin increased to 78% from 77% in the prior year quarter, the improvement was largely due to higher mix of coronary products during the fourth quarter of 2015 compared to the prior year. Gross margin was below guidance primarily due to cost incurred for the transition of manufacturing into our new facility in Minnesota. 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 keep gross margins in the upper 70% range. Operating expenses rose 15% over last year primarily from planned investments related to the sales force optimization and expansion and coronary commercial launch as well as expanded clinical studies and new product development. However fourth quarter expenses were lower than expected largely due to fewer sales representatives than planned. Net loss was 8.7 million or $0.27 per share compared to a loss of 9.6 million or $0.31 per share last year. Adjusted EBITDA was a loss of 4.1 million compared to a loss of 5.9 million last year, the decrease was from a smaller operating loss and higher stock compensation depreciation and amortization expense. At quarter end we had a cash balance of 84 million and 9.6 million usages this quarter includes final payments of about 2.6 million for our new Minnesota facility. The remaining usage was primarily for operations. Now I will discuss our financial outlook, please recall that our exclusive distribution agreement for Asahi Peripheral Guide Wires expired on June 30. Our revenue guidance reflects that termination. For the first quarter of fiscal 2016 we anticipate revenue growth of 23% to 27% over the first quarter of fiscal 2015. Excluding Asahi Guide wire sales in the prior period of 1.9 million to a range of 48.5 million to 50 million. This range includes coronary product revenue of about 10.5 million. We expect the gross profit margin of about 79%, operating expenses approximately 12% higher than the fourth quarter of fiscal '15 reflecting our sales force expansion and timing of sales meetings and training and net loss in the range of 12 million to 12.9 million, this equates to a loss per share of $0.40 to $0.40 based on 32 million average shares outstanding. Dave will now continue with additional commentary. Dave?

[David Martin:]

We’re often asked about how our products will grow market opportunity or compete with other modalities. The introduction of drug coated balloons is the latest new and exciting technology in the vascular space. Consistent with what many of you have found through your surveys and your research those companies that feature solutions for soft plaque and large vessels are being affected by DCD [ph] usage. For the Diamondback 360 the only calcium everywhere device we’re observing synergy. In the fourth quarter we hired a third party to conduct a physician survey. Two of the key takeaways were that one current CSI users report no difference in atherectomy allocation post drug coated balloon availability. And two the majority of physician survey vessel preparation is more important with drug coated balloons and that’s in-line with the scientific evidence. Not all atherectomy is the same, our Diamondback treats calcium everywhere including below the knee. The survey results supports physician confidence, that calcium is the problem, vessel preparation is necessary and the drug coated balloons might be an exciting new technology that will help expand the international market. As a greater number of physicians learning the benefits of using orbital atherectomy as the primary treatment and the use of other adjunctive technologies they will readily expand their standard of practice to below the knee [Technical Difficulty] where it is sorely needed. Investigator such as Dr. Adelman have shown that using the Diamondback 360 prior to DCB improves drug uptake by 50% and it allows uniform circumferential uptick, benefits derived only from our unique orbital mechanism. Additionally, Dr. Tapea [ph] studied 91 drug coated balloon patients and concluded that the presence of calcium is the key indicator that whether drug coated balloons can be effective our not. We will look to build on this in similar studies next month as we launch our optimized study in Europe. The optimized study is designed to measure the drug coated balloon effectiveness in patients with moderate to severe calcium with and without orbital atherectomy. We anticipate that this study will help illustrate how physicians can best care for their patients with calcified lesions, calcified lesions account for about 2/3rds of the vascular interventional market. Turning to our current clinical trials we continue to make great progress during the fourth quarter. Enrollment in LIBERTY 360 has reached almost 1000 patients. We remain on track to complete enrollment in early calendar 2016, to recap this study is evaluating the acute and long term clinical and economic outcomes of our orbital atherectomy systems and other devices including PAD. There are over 500 [indiscernible] 4, 5 and 6 patients under study, 585 to be exact. This is remarkable for two reasons, one it represents millions of patients who are currently outside treatment norms and two succeeding with this patient population is the key to our CSI goal of driving amputations below 100,000 annually in the United States. It's also the first study to compare orbital atherectomy to all other PAD interventional treatment options. Last month we announced the enrollment of the 110th and final patient in our co-study taking place in 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 in treating severely calcified coronary lesions. Post is expected to build on our successful ORBIT II study as you recall we recently shared the ORBIT II, two year data revealing that the long term clinical and economic benefits of treating calcified coronary lesions with the Diamondback of note the two year patient and payer benefits included a 94% freedom from TLR, a cost savings of over $5000 per patient and a cost effectiveness savings of over $25,000 that’s extraordinary. Post has been conducted as a harmonization by doing study that’s the real term. This program is a cooperative effort between industry, academia and the government bodies in Japan and the U.S. and it's designed to promote global clinical trials and encourage timely approval of medical device solutions. This study will pave the way for approval of our 1.25 micro-crown in both the U.S. and Japanese markets. We expect commercialization of the micro-crown in Japan in fiscal 2018 although the approval window for best case scenario begins about a year from now. Thanks, Bob Thatcher, Paul Cain [ph] and the team who has gone overseas to do great work on behalf of those patients in need in Japan. CSI recently received FDA clearance for new technology in the U.S., in April we expanded our micro-invasive line of peripheral offerings with the FDA clearance of the four French 1.25 solid crown Diamondback 360. This 145 centimeter long device built on the previously approved 60 centimeter peripheral device. Physicians may now access peripheral lesions through the leg using four French accesses via the foot or the groin. This unique suite of products is patient and user friendly and reduces procedure times and complications significantly. In July, the FDA cleared our new ViperWire Advance Guide Wire with Flex Tip. This wire is easier to navigate and the softer more flexible tip provides physicians with more confidence when advancing the wire in distill and torturous vessels. In just a few weeks of introduction the feedback has been outstanding including that the wire has a great torque response and deliverability, a softer distil section improving maneuverability without sacrificial functional performance and even has the potential to be a primary wire. Our pipeline will continue to yield innovative products that benefit both patients and physicians. We are pursuing product improvements and evaluating new technologies to strengthen and broaden our product portfolio of powerful micro invasive tools to treat patients from heart to toe.. Regarding the reimbursement, we’re encouraged that the proposed 2016 reimbursement rates are largely unchanged from 2015. This was certainly welcome news but not surprising. Some view the announcement of the MedCap panel in treatment for lower extremity PAD as a warning that 2016 reimbursement might come under pressure. Two weeks ago the MedCap panel delivered a vote of confidence that evidence exists supporting intervention for intermittent quantification and CLI both key markets for CSI, as a result we believe it is highly unlikely it will result in a national coverage determination that would adversely affected reimbursement. Given our leadership at clinical data we were encouraged that the panel discussed to meet for clinical evidence and recognize the need to reduce amputation rates, we’re front and center on both. The timing is ideal at CSI is launching a new initiative to introduce amputation prevention programs in select hospitals nation-wide. Our mission is to increase awareness of PAD with specific focus on increasing the treatment of CLI and greatly reducing the number of amputations related to PAD, nearly a 175,000 amputations are estimated for this year. In addition to the pain, suffering and challenges that amputation is cast upon patients and their families, it is a massive burden to the U.S. healthcare system and tax payer. Larger than coronary artery disease, larger than cancer stroke and larger than congestive heart failure CLI is the most severe form of PAD leads to amputations which cost the U.S. healthcare system over $10 billion every year. We have already engaged with small number of physicians at high value amputation institutions with the goal of adopting a simple patient algorithm. We have also commissioned a report to study on how our plan and our technology drives economic benefits to participating hospitals. Once implemented we will track result to showing reduced the amputations, improve patient outcomes and lower hospital cost, when successful this is something that we will replicate across the country. In closing CSI is the clear leader in peripheral and coronary atherectomy, we develop outstanding products backed by strong clinical data marketed by highly trained sales team. Soon we will be in even better position to thoroughly cover a top coronary and peripheral institutions driving deeply into this high volume accounts. Our patient outcomes first and highly productive dual franchise sales professionals put CSI on track for continued strong double digit revenue growth and future profitability. The importance of calcium removal continues to gain mindshare in the medical community, the patient populations we treat are large and they are under served, 4 million patients with CLI and 400,000 coronary procedures through significant calcium presence are performed annually. The Diamondback 360 is the only treatment that delivers consistent durable outcomes with patients with calcified plaque, as more doctors and their patients experience firsthand the performance of the Diamondback 360 product line we’re highly confident that we will be able to capitalize on the enormous opportunity before us. That completes our prepared remarks. Operator we will now take questions.

[Operator:]

[Operator Instructions]. Your first question comes from Brooks O’Neil of Dougherty & Company. Your line is now open.

[Brooks O’Neil:]

Just like to start off by seeing if you could give us a little more color the any issues that resulted in that short fall in hiring of the sales organization?

[David Martin:]

Yes there is a lot more training field representatives out in the field for four weeks. We reorganized a 100% of the territories this year, some of them are half a dozen times to get where we’re going. But there was a lot of disruption, thanks are due to the sales management team I mean they really hooked it. One area where they did not move their standard their higher standard was on hiring. We could have filled those spots but choose not to, we also could have changed our pace and outcomes oriented sales training but one we couldn’t find a good way that we are confident to reduce the four weeks out of the field to get someone up and running peripheral and then secondarily coronary. So the team worked hard, we made the right decisions for the long term, we did fall behind for the quarter but we are as we speak right now we’re back on schedule.

[Brooks O’Neil:]

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

[David Martin:]

So we’re interested in that answer too and we - not only did we do the survey by a third party operator a lot of us got out in the field and asked our faculty and our users what's going on and how they are incorporating. New technologies, it does leave me to conclude that our own distraction lost field days is the answer. We have got synergies certainly 7 out 10 doctors are cardiologist the same call point but to get someone up and running at CSI we have got a lot of new employees in general and 75 of them are in the field. We do take the time to train them on peripheral first then we put them in the territory that’s realigned and new to them and then we let them get peripheral success before we bring them back to coronary training. Coronary training takes them out of field for a couple of weeks and it includes proctoring a [indiscernible] just like we put our doctor through, but we were really validated, this quarter it was 75 new professionals led growth 22% quarter-over-quarter, they were alliance and the feedback from the doctors about the quality of the person that we’re putting in their lab is extraordinary. So hiring profile is great, but it does lead to less PAD attention, you know in addition to the time out of field for training, there is a real sales cycle of coronary even if the physician wants it as we all know half of the doctor's work for the hospital you got that administrative call. A lot of the hospitals are built kind of afford an on-slot new technology systems and sometimes you have wait for new products committee to meet and at most they meet monthly so basically a sales cycle and so there is especially getting those initial devices in that’s real. Another comparison that might help with that question it's a real good one, if you look at this the fourth quarter last year versus the fourth quarter this year, fourth quarter last year was our last quarter of pure play peripheral we had by objective measures the best sales force in the peripheral space. And then after that quarter we started the cross training, I estimate that that we may have gotten less peripheral sales calls in Q4 of 2015 than we did in Q4 of 2014 and it was exacerbated by falling behind on the heads. So there is natural distraction, we’re doing the right things because we see the productivity in those hybrid representatives and I did mention that those also led in addition to new employees newly trained having that 22% growth rate quarter-over-quarter, 300,000 per representative of sales productivity for those people who finally got to that great place where they had a sales territory of maybe six accounts and they were handling both franchises and obviously doing it very well. That’s the scratch of the surface, so we’re really excited about where this can go once we complete the project here and get to our 250. So long winded answer but I wanted to tackle a couple of those points, one final thing, I did sit down with the number of doctors. Dr. Ramadurai and Dr. Sherpa in Chicago, I sat down with Dr. Kim, and Dr. Fishcer, users - and this is more anecdotal from the survey but Dr. Sherpa used, and this is in the category of competitive technologies and are they may be affecting sales of this company. Of the 86 drug coated balloons that Dr. Ramadurai had done, every one of them, he started with Diamondback. When a physician recognizes calcium analytic due to an outcome, it's hard to - they will start with the Diamondback. Same with Dr. Sherpa, over 100 drug coated balloons, almost every one of them are those case that started with Diamondback. Dr. Fischer the same, Dr. Kim the same, another half a dozen doctors the same. So our Diamondbacker are solid, they like the new technology but the science in their experience is leading them to be more confident in using the Diamondback 360 first in order to clear out that calcium which is the biggest objective, or the biggest obstacle to a great results.

[Brooks O’Neil:]

Great, that's very helpful. Just one last question, I listened to the mid-cap meeting, I thought it was very interesting and I definitely heard the concerns you articulated about reducing the amputations and the clinical needs that's out there in the marketplace. I was a little surprised, it didn't seem there was tremendous awareness of your clinical - proven clinical outcomes and/or the capabilities of your systems, and I guess I concluded from that the sky is the limit if these so called experts didn't even seem as knowledgeable but is that similar with your sort of observation, do you think there is still just tremendous opportunity for you to educate the marketplace about the capabilities of your systems?

[David Martin:]

Yes, I mean it's - calcium was never talked about until the CSI brought it and now it's a major source of topic in science in the category. I think that may - we brought them from 0 to 50, if you look at the presenters, those - as it turned out people with great familiarity with flow near mentioned and great similarity with the Diamondback, we had a chance to shine and put our best scientific foot forward, we had a number of key opinion leaders present on our behalf. And the evidence was overwhelming, even for a new group it was starting at zero, they voted strongly that evidence did exist for patients particularly those end stage diseases. And I think we did highlight that amputation and critical myskenia [ph] is an enormous problem in the US, approximately $10 billion a year. So I think awareness is going to drive support. I don't think it will do anything other than drive support and drive maybe even more quicker. The standard of care changing to root change treatment of below the knee vessels in calcium.

[Brooks O’Neil:]

Great, thanks a lot.

[Operator:]

Your next question comes from Danielle Antalffy of Leerink Partners. Your line is now open.

[Danielle Antalffy:]

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

[David Martin:]

Yes, thanks Danielle. They would have produced $1.5 million to $2 million revenue have we filled those spots. So if you're - with the difference between just missing the range and the high part of the range, so that was unfortunate. We made the right trade-offs, the sales management team was diligent in their quality hiring, we stayed on-track for putting the best representative, trade representative in front of the position in the path labs. So it was a trade-off, we are back up to hiring power right now as we speak and by quarter end, we'll be back on tracks, we've already of course corrected. And there is another piece fell that we didn't mention, and we look for those, we're in process, we trained 104 - cross trained 140 people which is an unbelievable commitment in an investment credit company in our people and it's going to pay out at stage for years to come. But there were a trailing group of 30 who were PAD only, and for those - that cohort of sales representatives, they didn't grow at all, they are minus 9%. The region started two-folds, one is in that group might have been a few people who aren't really excited about having to do a franchise, and maybe not excited about having a lower standard control, and then as just a few of them. But the evidence suggests that the excitement for the majority of the group is that when they get their corner A training, when they get their realigned territory, they are going to do the same extraordinary things that everyone else had done before them. So we'll get that done as well and that's ongoing.

[Operator:]

Your next question comes from Mike Matson of Needham and Company. Your line is now open.

[Mike Matson:]

Hi, thanks for taking my questions. I guess I was looking, if you can just comment on the guidance. It looks like - I think the 23% to 27% that you're guiding to back the impact of - or the sales that you have last year from out of the numbers, what is that correctly?

[Laurence Betterley:]

That's correct.

[Mike Matson:]

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

[Laurence Betterley:]

You're right Mike, that would give us growth in the 280 side of 10% to 14%, again backing out the effect. And as Dave said earlier, really a lot of the confidence is around seeing the productivity in the fully trained and fully staffed territories and knowing that we're filling the void right now. So that's what gives us confidence, we can move forward.

[Mike Matson:]

Okay, all right. And then Dave, I understand that the comments around the survey that you did and it's consistent with what I've heard out there and when I was horizons, there is a lot to talk about, that's what put up with [ph]. I guess one thing that I've been wondering about, we've heard Specter Analytics [ph] make some comments on their call about us. To degree that they are - these physicians are doing more directly before they do the drug coated balloons, do you think some of that additional volumes being picked up by Medtronic and Boston Scientific because they are making a pretty hard push to kind of bundle the products together. I don't know if they are bundling from a pricing strategy, but at least they are marketing them together. And so do you think that there is some sort of a competitive impact there so the net increase to volumes are benefiting them more than you guys.

[David Martin:]

Yes, it's hard to tell but the device has this limitation. So Dr. Ram [ph] back that he was a jet stream user and I asked him if he would ever pick it up again. He said, no, that technology, that mechanism can't do with ARS does, he's trying to eliminate the calcium, and there is only one device that does that and does that certainly. But I think we're solid - we've got a great base of business, we've got some really active excited users, it's fantastic. They are out there with the footprint, are they getting to some new prospects before we are there, that could be true. We've realigned 100% of our territories, some of them half a dozen times this year. So it's been pretty busy and they brought him first at the handshake. But there is no doubt with our mechanism and our science, we'll get every one of them. So if there is a slowdown and they are making an inroad, we're going right behind them and take that business back. But we don't see a ton of evidence of that but it could be happening.

[Mike Matson:]

Interest with the cost involvement, can you give update on when you expect to get them [ph]?

[David Martin:]

Yes, the team, we had so many people Minnesota fly to Japan to cover cases and make sure things went right. We just have three executives get off the plane a few days ago. The team has done a great job, we're on a fast track. We expect in fiscal '18 to have approval but CSI's got a reputation for accelerating regulatory approvals for clearance and we think the window for good news opens this time next year, that's when the window opens but realistically based on other submissions and other data, non-CSI, fiscal '18 is one where looking at that.

[Mike Matson:]

So if we're hearing you correctly, you're implying the trend potentially latest was called '17 but your official guidance was for '18?

[David Martin:]

Yes, we're hoping for ORBIT II like results, we've got good news about nine months early but yes, reasonably from all other data you would have to see that the model is for fiscal '18.

[Mike Matson:]

Alright, thank you, that's fair.

[Operator:]

Your next question comes from Ben Andrew of William Blair. Your line is now open.

[Scott Schaper:]

Good afternoon, this is actually Scott Schaper in for Ben. My understanding with couple of questions on salesforce for the nine open spots that you mentioned on average in the quarter that were open, were those productive reps that perhaps lacked and were being placed over those new territories and new reps that you didn't sell as part of the expansion process that you guys are doing. And if it's the later, I guess it will - what do you normally expected on new rep to produce in the first quarter after being hired?

[David Martin:]

Yes, I'll start that question and Larry to finish it. It was a mix, six of them were open off quarter long, and most of those in major metropolitan area. So, this is tough, we've got over 30 hiring regional managers and so if half of them have one open spot, you could see how this could happen, sneak up on here, and it did on us. There were a couple of people who liked the way it was, they liked their large 22 account for a full territory, they did not want their dire cut, and they choose to move on. And that's fair, those people did great for us, and we need excited people about handling dual franchise and getting more intense relationships in fewer accounts, that's going to really be patient centric and great for the franchises. That's the front part, maybe Larry can talk about numbers.

[Laurence Betterley:]

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

[Scott Schaper:]

Okay, that's all for it. But - I also wanted to confirm something, it's on the productivity from per rep, the 22% growth number you were talking about, those are just new reps or are those one ever existing reps entering the quarter?

[Laurence Betterley:]

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

[Scott Schaper:]

Okay. So that was in product number?

[Laurence Betterley:]

Yes, it is a cohort, it's a cohort of new representatives who are hired in the last 12 months. We trained them for the franchises and they did grow over 20% quarter-to-quarter. That cohort was really exciting, the other exciting cohort of sales growth was the one's that overall better in annual who have both franchises in optimized territory, optimized generally means six accounts will last. And those are ones we quoted having $300,000 in the quarter of revenue productivity. So great dimension from where we're going. If you missed it then, the two disappointments were; one, it was very measurable having on average, nine open territory, six for the entire quarter, most of those are major metropolitan areas. But those people we haven't trained yet, there is 30 - 27 to be exact, PAD only territories, and those territories hadn't been realigned, it just had one franchise in that as a group, as a Board anchor as well. And we pulled them into the training schedule and most of those are really excited about getting the coronary training and the reduced size territory.

[Scott Schaper:]

Okay. But in terms of average productivity per rep, I'll compare that to last quarter if the existing reps not counting the nine that were open, or not counting [ph], so the productive reps per - the average productivity compared to last quarter was it the same or did it accelerate?

[David Martin:]

Compared to third quarter?

[Scott Schaper:]

Yes.

[David Martin:]

I'd say it went up a little bit, it was about little less than $230,000 last quarter. This quarter when I factor in the average open territories, it was about closer to 40.

[Scott Schaper:]

Okay. And I just have two more quick ones if I could. The hybrid training, and now you said you guys are on-track to hire the one's that you are planning out but in terms of hiring or cross training at all 200, is that still on-track to be complete about the end of the calendar year?

[David Martin:]

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

[Scott Schaper:]

Okay. And then my last one, in terms of the peripheral volume, do you guys see a similar spread this quarter between - like $60 to $40, between above the knee and then below the knee. And then do the above really accelerate from last quarter, I know we're talking about last quarter that was - slowed from the 15% historical growth. I mean it just grew a little bit last quarter, do you see that accelerate or that's still kind of lower single digits?

[David Martin:]

On the above the knee I was well single digit growth and below the knee was higher. The mix -

[Scott Schaper:]

Presumably split?

[David Martin:]

The mix is similar.

[Scott Schaper:]

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

[David Martin:]

I would expect that once we are able to get through the transition, the optimization, I would expect that to regain some steam. Two way sales back, we'll have less traction, more dedicated sales days as we go. That will help.

[Scott Schaper:]

Great, that's it. Thanks guys.

[Operator:]

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

[Bob Hopkins:]

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

[David Martin:]

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

[Bob Hopkins:]

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

[David Martin:]

No, probably a little more awaited above the knee but since there wasn't - people selling into those territories that affected both.

[Bob Hopkins:]

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

[David Martin:]

It was probably a little above industry standard. We've definitely raised the bar on hiring, and we need to, right, putting in someone in the case - in the coronary case, we wanted to succeed from day one. So it's intense. The industry is around 10%, we're probably little bit above that. That helps?

[Bob Hopkins:]

Yes, I know I'm just curious but did that change this quarter relatively to last couple?

[David Martin:]

That was a little higher in fourth quarter and some of it is driven by the transition to the new franchise, everybody is going to be suitable for that.

[Bob Hopkins:]

Okay, alright, thank you.

[Operator:]

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

[Jan Wald:]

Good afternoon. I guess a couple of questions left. In the coronaries, I guess what I guess I'm interested in is, I've heard from sources I guess that there - people with acquisitions are interested in doing more complex cases and patients with higher ability. Do you think that helps you? Is that a trend that's not support higher growth potential in coronary franchise, do you think?

[David Martin:]

Yes, for sure, that's very insightful. In fact, the ForeTech and Aviamet [ph], they had a population that is severely compromised and they are finding that a lot of times those patients benefit from the Diamondback where the safest device in those situations. So there is - one technology does not rely on the other but that severely compromised patient benefit from air technologies and ours. So there has been a lot of really natural field synergy helping those physicians in Cap labs, manage that really difficult, to treat patients. And I also think that trends, demographics, that we're going to see more and more and more sick patients. In fact the incidence of calcium continues to grow with the aging population, demographics like obesity and compromised patient like the diabetic. So I think that is a significant market, it's a growing market and in you're seeing other companies take off in it like Thor Tech and like Avial Net [ph].

[Jan Wald:]

Okay. And I guess I have another question on peripheral atherectomy market. I guess the thing that we've heard a number of times is that, there is sort of an algorithm that's being developed - and if nothing in principal, it's not in track as to how to treat patients which recorded balloons and the more several no classified patients and things like that. Do you think - do you see that kind of algorithm sorting out and being developed? And if you do, where do you think you fit in to an algorithm like that?

[David Martin:]

Yes, thanks, great question. When there is calcium present, we're the first device used. And 90 second to standing, you could normalize that situation and then that's a great pathway for technology including drive by the balloons. In fact we know from the Medtronic trial, they went and try to primarily DCB in small classified vessels, that in ore they had to stop the trial because they were actually doing harm. That trial was stopped. Now we know, Dr. Tepe knows, Dr. Alderman, all the scientists and CSI back be know that if you remember the impediment, which is calcium, the biggest impediment to a great outcome. First, literally 90 second withstanding, then you could avail the patient of the benefits of drug therapy. So we're excited for the small balloons to come and other adjunct therapy that might help those patients because right now treating globally is not the standard care but we at CSIR are quickly proving the data and safety and great results that it should be. I think that's one algorithm. I do see - to be fair, we also see those doctors who have FSA practices, they only treat inflow that can cause spot well as I would say in the larger vessels. They are for the time being validated by DCB if there were balloons before. The DCB is not changing their practice/habits at all. They are still - even other DCB first, and then no matter what happens to the vessel, and dissection happens quite a bit, I mean even trying to exclude and minimize dissections in the two DCB studies that we see, your dissection rate is well over 60%. I think it's higher in practice but if you really get the outstanding debt in the SFA. For those doctors that are away, I think the outcome there, the clinical outcome is not good. And I think overtime we'll shine the light on that and we will get people to complete revascularization eliminating calcium, and avoiding dissection in harm [ph].

[Jan Wald:]

Thank you very much.

[Operator:]

And your last question comes from Ben Haynor of Feltl and Company. Your line is now open.

[Ben Haynor:]

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

[David Martin:]

Yes, we changed our strategy a little bit based on success and safety in the opening two quarters. We started - once we got approved, we wanted to go very deep in just a selected few institutions at the time, we are very successful at some of the largest institutions in the world including St. Francis and Columbia. But when we found out the one that device it better in the clinical setting and even did in our external results and that would get cost strained, we expanded and widened down our coronary offerings. So it's had the effect of maybe less more accounts than we originally anticipated but in a good way, we're having great results. It is sticky because we're producing a great result in the opening case but it will be great to finish our balancing act and get people interested in 6-5-4 count territories that we can have a daily lab presence and go little deeper in those accounts. So I would say at this point in time we've had a great clinical outcomes in the accounts that we had, started but we haven't had the time at this stage to concentrate on getting to this new 2-3-4-5-6 going.

[Laurence Betterley:]

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

[Ben Haynor:]

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

[Laurence Betterley:]

The 140 is as of today. [Cross talks]. Depreciation and amortization was $900,000 for the quarter.

[Ben Haynor:]

Okay, great. Thank you very much gentlemen, that's all I have.

[David Martin:]

Thank you.

[Operator:]

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

[David Martin:]

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

[Operator:]

Thank you for joining today's conference call. And reply will be made available approximately two hours from now. You can access the reply by dialing toll free 1855-859-2056 and conference ID 77041031. You may also dial 404-537-3406 and again reference CID 77041031. This concludes today's conference call. You may now disconnect.