Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Laurence L. Betterley – Chief Financial Officer

David L. Martin – President, Chief Executive Officer and Director

Analysts

Deepak Chavlagai – Dougherty & Company LLC

Ben Andrew – William Blair & Company

Danielle Antalffy – Leerink Swann

Jose Haresco – JMP Securities

Ben Haynor – Feltl and Company, Inc.

James Terwilliger – The Benchmark Company

Cardiovascular Systems, Inc. (CSI) F2Q13 Earnings Call January 30, 2013 4:45 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Cardiovascular Systems Incorporated Earnings Conference Call. My name is Regina, and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. (Operator Instruction) As a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Larry Betterley, Chief Financial Officer. Please go ahead, Larry.

Laurence L. Betterley

Thank you, Regina. Good afternoon and welcome to our fiscal 2013 second quarter conference call. During the course of this call, we will make forward-looking statements. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding CSI’s future financial and operating results or other statements that are not historical facts.

Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. We will also refer to non-GAAP measures, because we believe they provide useful information for our investors. Today’s news release contains a reconciliation table to GAAP results.

I’ll now turn the call over to Dave Martin, CSI’s President and CEO for comments. Dave?

David L. Martin

Thank you, Larry, and hello to everyone. CSI delivered another strong quarter. Rapid adoption of our easy-to-use Stealth 360 continue with physicians who treat peripheral arterial disease or PAD, in both hospital and the office space lab setting.

Our technology is scientifically proven as the safe and effective treatment for PAD, especially in disease complicated by calcium. Our technology is the primary therapy to treat PAD. We’re also working in the secured indication to treat coronary calcium. This is a vastly underestimated problem in medicine today, with the market opportunity estimated to exceed $1.5 billion annually in the U.S. alone.

We’re making substantial progress on the coronary indication completing ORBIT II enrollment was a major milestone for the team in the second quarter. At TCT this year, Dr. Philippe Genereux presented new data proving with statistical significance that coronary patients with moderate to severe calcium were more likely to die and have major adverse coronary events than patients with mild or no calcium.

There’s a pressing need for a new solution to effectively fight coronary calcium. Moderate to severe calcium is present in nearly 40% of those treated for coronary artery disease or CAD. Moreover, it is present in about 65% of the 2.5 million diagnosed annually with PAD. Calcium can lead the poor outcomes and higher treatment costs in both coronary and peripheral intervention when traditional therapies are used. This is the CSI opportunity.

As a company, we have three goals; expand the use of our Stealth system is the primary option for treating calcified arteries in the PAD market, build on our base of scientific data that supports safety, effectiveness and economic benefit of our products, and obtain approval for coronary application which will allow us to address a large unmet need in treat calcified coronary arteries.

We advanced these goals during the fiscal second quarter, specifically revenues grew 28% year-over-year and 9% sequentially. Stealth 360 revenues grew to 93% of total device revenues, most of our customers are now converted to the new system. Office-based lab revenues continue to grow at a double-digit consecutive quarter rates. We are achieving success in both hospital and office-based lab settings.

We continue to expand on our wealth of clinical data with presentations at the medical conferences supporting the safety and efficacy of our technology and the dangers in complications of calcium and peripheral and coronary arteries. And as I mentioned, we completed enrollment in our highly anticipated ORBIT II coronary trial.

Now, Larry will provide more details in our financial results, and then I’ll come back for additional comments before we take your questions.

Laurence L. Betterley

Thank you, Dave. For the second quarter of fiscal 2013 compared to a year ago, revenues grew 28% to $25.3 million. Device revenues were 88% of the total. More than 7,000 devices were sold in the quarter bringing the life to-date total sold to more than 100,000.

Reorder revenues remained high at 97% of total revenue compared to 95% last year. We added 48 new accounts compared to 41 last year. All of the accounts added this quarter were Stealth accounts. Our Stealth 360 customer base grew 13% from the first quarter this year to nearly 900 accounts. Stealth now comprises 93% of our total device revenues. Device usage in Stealth accounts is nearly 30% greater than our overall average usage per account.

Other product revenues grew at a higher rate than total revenue to $3.1 million or from $2.2 million, primarily due to strong Asahi wire sales. Gross profit margin was 76% similar to both last year and the first quarter of this year. A positive effect of higher production volumes was offset by the Stealth’s higher unit cost and additional costs for the ramp up of our facility in Texas for additional future capacity.

We expect engineering enhancements to Stealth and increasing production volumes to reduce unit costs in the future. However, costs incurred to prepare for our coronary launch may offset these gains in the near-term. As planned, operating expenses rose 30% to $24.5 million, approximately $4.7 million was for the ORBIT II trial and preparation for our coronary launch.

We also made investments for competitive enhancements to the sales and marketing and expansion of medical education programs to drive PAD adoption. All of these investments are geared towards generating higher future revenues. The 2.3% medical device tax became effective on January 1 and will be included in SG&A expense in future quarters.

Net other expense increased $169,000 to $645,000 due to evaluation changes of our debt conversion option and higher interest from higher debt levels. The resulting net loss of $5.8 million, or $0.28 per share was better than expected and compares to a loss of $4.1 million, or $0.23 last year.

The number of weighted average shares outstanding rose to $20.7 million from $17.8 million last year due to issuance of 1.8 million shares in our equity offering in the fourth quarter of fiscal 2012, the issuance of stock from employee stock plans and warned exercise.

Adjusted EBITDA calculated as loss from operations, less depreciation and amortization of stock-based compensation expense was a loss of $3.2 million compared to $2.2 million last year. The increase was driven by a higher operating loss partially offset by higher stock compensation expense.

Excluding investments for the coronary application, adjusted EBITDA was positive for the quarter. The first half of 2013 nears the second quarter performance for the six months ended December 31, 2012, compared to the prior year, revenues rose 27% to $48.6 million. Reorder revenues were 97% of total revenue compared to 95% last year.

The gross margin was comparable to the prior period at 77% for reasons similar to the quarter. Operating expenses increased 32% to $47.7 million again for reasons similar to the quarter and included $8.5 million for the ORBIT II trial and coronary launch preparation.

Interest in other expense was $649,000 versus $1.2 million last year, primarily as a result of conversion and evaluation changes related to our convertible debt. The year-to-date net loss totaled $11 million, or $0.53 per share compared to a loss of $8 million, or $0.45 per share last year.

The average shares outstanding grew by 2.9 million shares to $20.5 million due to the same factors noted for the quarter.

Adjusted EBITDA loss was $6.4 million versus $3.6 million last year, and again, it was positive excluding coronary investments. We finished the quarter with more than $29 million of cash. Repayment of term debt began in July 2012 at $400,000 per month. No draws have been made on our $15 million receivable line of credit.

I’ll now turn it back to Dave for further comments. Dave?

David L. Martin

Thanks, Larry. I’d like to detail the ongoing clinical progress we’re making and highlight key conference presentations both like CSI and to the leaders in the field.

As noted, we completed enrollment in our ORBIT II clinical trial in the second quarter. In total, 443 patients were enrolled. ORBIT II is evaluating the safety and effectiveness of CSI’s orbital atherectomy technology in treating severely calcified coronary arteries.

ORBIT II is the first trial designed to study these difficult to treat patients. We received approval from the FDA for the ORBIT II study in April of 2010, and 49 U.S. medical centers enrolled patients. The primary endpoints of ORBIT II are based on a 30-day patient follow-up post-procedure.

CSI and the FDA agreed to a modular PMA submission. To date, Modules 1, preclinical, and Modules 2, manufacturing quality systems have been submitted to the Agency and are currently under review. Our PMA will be final on submission of Module 3, which includes ORBIT II clinical data and proposed labeling. We are targeting to submit the third Module around March 31, 2013. Based on the exceptional results in treating calcified lesions and small arteries, and severely calcified coronary arteries, in our ORBIT I study, our orbital technology may be well suited for removing calcified plaque in coronary lesions.

We would like to revisit some critical clinical data surrounding the latest findings in concrete coronary arterial calcium. This was presented at the TCT in October. An analysis of approximately 19,000 patients presented by Dr. Philippe Genereux demonstrated that moderate to severe calcium is associated with worse outcomes after drug-eluting stents use, including a significantly higher occurrence of death and major adverse coronary events.

Despite advanced stent technology, moderate to severe calcium remains a real treatment challenge and there is a pressing need for new therapeutic approach. Dr. Jeff Chambers presented preliminary results from our 50-patient ORBIT I coronary feasibility trial, his analysis shows that using CSI’s Orbital Atherectomy Technology to treat calcified coronary arteries before stenting achieved procedural success and compelling long-term clinical outcomes.

On the PAD front, late breaking data from our confirm study series and 12-month results from our calcium 360 study were presented last week at the 25th Annual International Symposium on Endovascular Therapy or ISET Conference. The confirmed study series evaluated the safety and procedural effectiveness of the CSI Orbital Atherectomy system to treat PAD, and is the largest atherectomy data set ever for that disease.

It addresses lesions throughout the leg in a real world population of patients with no exclusions. 81% of the lesions had severe or moderate calcification. The study shows that CSI’s Orbital Atherectomy system safely removes plaque with 99% freedom from perforation and 98% freedom from distal embolization.

Results also demonstrate improved lesion compliance with a low mean inflation for adjunctive balloon therapy. Safe and effective results are achieved in office space lab settings or the hospital. 12-month results in the CALCIUM 360 study treating calcified lesions in patients with critical limb ischemia show that our orbital atherectomy system followed by PTA provides a significantly higher rate of freedom from major serious adverse events at a rate of 93% compared to 58% for PTA alone, [perhaps], the detailed, our outlook for the fiscal third quarter ending March 31, 2013. We anticipate revenue to be in the range of $25.5 million to $26.5 million, representing year-over-year growth of 20% to 25%. CSI’s gross profit as a percentage of revenue should be similar to the second quarter of fiscal 2013.

Improvements in the Stealth 360 component costs and increased utilization of our manufacturing facilities will be offset by the cost to prepare for a coronary launch. Operating expenses are expected to grow 8% to 9% over the second quarter of fiscal 2013. We’re investing about $4.5 million in the order of over two trial and preparation for the coronary launch and also in physician and field education.

The increase also includes approximately $0.5 million related to the new medical device tax. We anticipate interest and other expense to be about 350,000, excluding the effect of debt conversions or valuation changes of the related debt conversion option asset.

Resulting net loss is expected to be in the range of $6.6 million to $7.2 million, or loss per common share ranging from $0.31 to $0.34. This assumes $21.2 million average shares outstanding, again this excludes the potential effect of conversions or valuation changes related to our convertible debt.

To conclude, we continue to make great progress toward our goals of establishing CSI’s orbital technology as the primary treatment option for treating calcified arteries in the PAD market, building on our wealth of scientific data supporting the safety, effectiveness, and economic benefit of our products and obtaining approval for coronary applications. Investing in these opportunities will help us realize the full potential of our technology, support ongoing attractive revenue growth, and lead us to profitability over the long-term.

Thank you for participating in today’s call. Operator, we would now like to take question from the participants.

Question-and-Answer-Session

Operator

(Operator Instruction) And your first question today comes from the line of Deepak Chavlagai with Dougherty & Company.

Deepak Chavlagai – Dougherty & Company LLC

Good afternoon, guys. Thank you for taking my questions. Quickly on the PAD business which has been obviously strong, particularly the device usage and as it remains stable or even slightly grown sequentially because of the new Stealth, should we expect usage to stay around that level and perhaps grow or how should we think about it going forward?

David L. Martin

Yeah. It has been growing. We just see a pretty significant increase in usage for our comp in the second quarter, and in our Stealth accounts particularly it’s about 30% higher than our overall average. And we should see that growing going forward, not only into the enhanced use of the Stealth, but also are focused on driving adoption in accounts or limit the number of accounts we had probably to around 40 per quarter and the rest of our results is going to be really be increasing that usage for accounts.

Deepak Chavlagai – Dougherty & Company LLC

That makes sense. And in terms of your office-based lab business that has grown nicely in the last few quarter. David, I know, had focused on that with some of the sales and marketing leadership restructuring. You are comfortable with that now the way it’s been growing strongly in the last few quarter, or should we expect that trend to continue?

David L. Martin

We’re real comfortable. It’s so patient centric in the office and if you step into one of these, they’re just a great place for someone to go in need. And the safety of our device really unlocks the ability of the physician to do cases in their office. Safety is critical for a good clinical and economic outcome and it’s also when you’re away from the hospital, it’s just a great place to use our technology and proliferate.

So for the patients it’s more access points than ever. Some of the busiest and more dedicated physicians are moving into the office space, and we’ve got a great support system for them. Medical education continues to improve in both the frequency of events and the quality of events and the office space lab physician has been taking the advantage of that, CSI education.

The team, the commercial team is executing with every activity with more frequency and more quality and we are serving that part of our customer base, the office space physician, very well now. I do see this trend continuing. It’s really healthy for the healthcare systems. It could be a real improvement for outcomes for the PAD patient.

Deepak Chavlagai – Dougherty & Company LLC

Sure. And then your coronary trial, you said in your prepared remarks, you expect to file the clinical trials data sometime by the end of March 31. Could you walk us through the potential timeline and when you could hear back from the SDA and potentially could launch a commercial launch in the U.S.?

David L. Martin

Yeah, the team is really swamped the detail and they’ve done a great job of closing out the sites and work with the FDA and we put in two quality submissions, modules one and two with three on the build here, which is just great. The beginning of the window for that good news for the clearance or for the ability of us to start treating patients in need in the coronary space, might be fall to late fall, late in this calendar year would be the early part of the window. There is the FDA and plenty of companies have been disappointed with timing, so that’s the beginning of the window.

We think because the ORBIT I results, so we work closely with the FDA and we’ve got some great results in that ORBIT I that we would qualify for the early part of the window, but it certainly could be longer. The average post-submission could be well over 200 days and that clock would start once we submit Module 3.

Deepak Chavlagai – Dougherty & Company LLC

Sure. And since you have – continue to invest and educating your sales and marketing and since the customer base is, there is a big overlap in the customer base. Is there anything else you need to do or from now until whenever if and when the FDA approves, it just cleaning your sales force and doing and those kind of things rather than anticipating and expanding your sales force?

David L. Martin

Well, there are great synergies for the company in almost every department, marketing, development and manufacturing. But what’s happening right now is actually happening from the podium at some other meetings. The 19,000 patient database, the CRF database really has been quite defined and helping to create awareness in the market for the prevalence of the disease over a 40% of the patients treat right now have moderate to severe calcium. And that’s a much larger for larger markets and people maybe had thought previously without knowing that there was a tool that could treat this prolifically and safely.

So people starting to think about that market in a new way, and then ask me, what if I have this device that produced a great result in ORBIT I and how might that improve outcomes. So from the podium most recently at TCT with Philippe Genereux, and he is talking about the prevalent, I think you are going to hear a lot more about that it’s captivating both private practice physician and academic physician alone. And 19,000 patients is an incredible size with which the mine for data and these findings, I think are new and eye opening.

Deepak Chavlagai – Dougherty & Company LLC

Thank you, and congratulations on a very good quarter.

David L. Martin

Thank you.

Laurence L. Betterley

Thanks, Deepak.

Operator

Our next question is from the line of Ben Andrew with William Blair.

Ben Andrew – William Blair & Company

Good afternoon, Dave and Larry.

David L. Martin

Hey, Ben.

Ben Andrew – William Blair & Company

So if you’re hoping to file on the 31, when might or by the 31, when might we see the data and what are you hoping for in the results as a starting point?

David L. Martin

Yeah, the data we presented in the ACC, we’ve been accepted to sell it there. So that will be our first exposure in March, which we’re really excited about. We just got that news a couple of days ago. So that would be the first time we’ll be able to let people look at it and see how it compares to ORBIT I.

Ben Andrew – William Blair & Company

Okay, great. And is there any reason to think you might end up having to go to panel David, [an effort] to talk about that, just curious?

David L. Martin

Maybe. We don’t know – we’ve looked at it in every which way and it’s hard to define. But we’ll be ready for both. We really feel like we’ve crossed that season (inaudible) and everything that is in our control. We controlled and we’ve got no reason to believe that this study wouldn’t produce the same great result as ORBIT I. So we’re – the enthusiasm here both from the physician community and in the company is really high. But with the regulatory piece, we just don’t know.

Ben Andrew – William Blair & Company

Okay, fair enough. And Larry, I was doing a little math in the quarter. It looks like device pricing went down maybe $55 to $60 a unit this quarter. Was there anything there, was it mix, was there some new pressure, am I doing the math wrong?

Laurence L. Betterley

No, you’re right. We did have a slight decline by 5.5% from the first quarter fairly flat maybe 11% from last year. Part of it, it could be that we’re getting the higher mix of the office-based labs in terms of pricing there as a little more favorable to prior pricing.

Ben Andrew – William Blair & Company

Okay. It was remodel and maybe assuming that penetration keeps going up either hold pricing steady or gradually eroded from here?

Laurence L. Betterley

There maybe a slight decline, but it’s been fairly stable, there is really a modest decline.

Ben Andrew – William Blair & Company

Okay, fair enough. And then David, maybe couple things on the field organization. Can you remind us ballpark, what percent of your cases today? You think you’re being done by, what you might classify as a cardiologist versus a peripheralist and that even, I know it’s hard to draw that line. And what that might imply for needs in the field organization as you look to 2014?

David L. Martin

Yes, the mix of customer is at three, the interventional cardiologist, vascular surgeon, and interventional radiologist. It’s still primarily cardiology. We’ve had some strength though in vascular surgery with recent investments for the first time gone to some of the vascular surgery meetings like VEITH or cadaver lab, which is part of CSI IQ or medical education training program is really well suited for the vascular surgeon and this really been loving it.

And some of the vascular surgeons are running the top office-based labs out there in the field. But the mix hasn’t changed too much. I think the quality of the mix has changed. I think the usage rates and the increase in productivity per representative speak to the path that we’re working with more of the top cardiologists and top vascular surgeons that I think continued on that path on the peripheral and then we’ll also look to target those cardiologists, we’ll also do coronary in advanced of clearance at some point in time commercializing the coronary opportunity.

Ben Andrew – William Blair & Company

Okay. And then you still have a few guys not using the new version of the product, the electric version. Is there any particular reason given for that, or is that just kind of habit and eventually you’ll shutdown that piece of the business to simplify? Thanks.

David L. Martin

Yeah, it’s a small piece of the business now. It’s either accounts for the physician or move that are so small, we just haven’t targeted them to make the conversion. And there is a couple of accounts who have that old device. They’ve gotten great results from it, because in the body portion never changed. And they like their pricing on it. So they’re sticking with it.

In addition, there’s some high usage on a side-by-side basis for AV grafts. And they like that device and the price point for treating AV fistulas.

Ben Andrew – William Blair & Company

Okay great. Thank you.

Operator

Your next question is from the line of Danielle Antalffy with Leerink Swann.

Danielle Antalffy – Leerink Swann

Hey, guys. Thanks so much for taking the question and congrats on a great quarter.

David L. Martin

Thanks, Danielle.

Danielle Antalffy – Leerink Swann

Just a question on ORBIT, or I should say on the coronary launch, I’m jumping the gun here a little bit. But, I was wondering if you could give any clarity around how a central launch would look? Who you’re targeting exactly? Are you going to target sort of current users and key thought leaders in this space? Any color on that would be great.

David L. Martin

Yeah, we certainly have some current users and institutions who do tremendous amount of coronary intervention and that would be a national target. Some of the sites we used for the ORBIT II study are anxious to get that product. And then in a great and opportunistic way, there are a few sites that do a tremendous volume of coronary, we’re not penetrated. And we’re equally excited to get into those new accounts.

So it will be a mix, we will take a targeted approach. We’re going to feature quality, usage and installation at some of the highest volume centers in the U.S. to start and I think you can anticipate a stair step approach that focuses on quality in a targeted way.

Danielle Antalffy – Leerink Swann

Okay, that’s helpful. And then it seems like you guys are really picking up momentum here. I wondered if you could talk about the sustainability and sort of sales growth acceleration in the PAD business and what you’re seeing in that mix makes you confident. You’re guiding to acceleration again in the third quarter, so any color there?

David L. Martin

Is the question is to why we’re growing so rapidly?

Danielle Antalffy – Leerink Swann

Yeah, well and how you feel about the sustainability of that in continuing to drive sales growth acceleration quarter-to-quarter?

David L. Martin

Yeah, it starts with the technology and the people introducing it. The technology is just great. We studied it and it’s in safe. There is more calcium and more arteries than we’ll ever get to. I think we’re really opening some eyes in terms of outflow. There’s three vessels below the knee that needs to be cleaned out and revascularized in order to get a great long-term durable outcome and people see that.

Now for the first time with this technology, you can treat that. So that’s going to be an area of growth. That one is supporting our growth right now. But for years to come, we will be dedicated to outflow and calcium with our wonderful tool. But the people make the difference. The installation of some key management and some of the things, the systems and programs and process that we’ve installed over the last six quarters, this team continues to gain ahead of steam, the enthusiasm is high. And the competence has never been as high, both on the clinical and economic outcomes that we can provide, the way we’re targeting physicians and using our valuable limited resource of time.

So it’s really – it has grown every quarter. The team does more and more with the quality every quarter, and that’s true I think around the company, this was the best managed quarter we’ve ever had and that is sustainable. I think that’s a great indicator that as we scale, we could handle the responsibility and continue the great results.

Danielle Antalffy – Leerink Swann

All right. Thanks so much, guys.

Operator

Your next question comes from the line of Jose Haresco with JMP Securities.

Jose Haresco – JMP Securities

Hi, guys. Good afternoon.

David L. Martin

Hi, Jose.

Laurence L. Betterley

Hi, Jose.

Jose Haresco – JMP Securities

First of all, I’m going to echo everybody’s sentiment here through the equation of a really very good quarter. I wanted to understand first of all, on the other revenue Larry, you said that was primarily due to sales of more wires. Is that a sustainable growth trajectory, or is it just – that was kind of another stair step up to 3 million and it will little hug around there from for four sometime, or is that – should we be looking that as a growth category now? That’s it.

David L. Martin

Yeah, it’s a typically gross – it’s typically in that 10% to 12% of revenue range and it does tend to grow with the growth in devices. The last few quarters, it’s grown at a higher rate, because we added some new Asahi wire lines and to have put some emphasis on selling the Asahi wire is a very good wire. If you can wire, you can treat it with our device. So that’s been a good product emphasis for us and that has accelerated growth and other revenue. But I would say it’s about 12% of revenue. That’s a reasonable level going forward.

Jose Haresco – JMP Securities

Okay, thank you. I noticed that the reorder rate did kick up in the quarter as for hovering around, coming for a 96%. Could you – is there a difference between an account that have the Stealth versus the one that don’t, or is everybody ordering at that rate?

David L. Martin

There was a dramatic difference between Stealth and the old products. It’s night and day.

Laurence L. Betterley

A couple ways to look at that, the reorder rate – really when you look at new account revenue, we’re going to stay around that 40 – third quarter. It’s going to fluctuate. This quarter is 48. A quarter ago, it was a little lower. So that’s fairly constant and as revenue grows and the reorder will go higher. Regarding usage for account sold, we have seen a nice increase as customers convert to sell, that tend to have a higher usage rate. And as I said, it was 30% greater than the overall and the remaining Diamondback accounts are fairly low usage.

Jose Haresco – JMP Securities

I’m sorry if I missed this, but what percentage of your accounts right now are still on the older device?

Laurence L. Betterley

885 of about 1,200 accounts life to date are now Stealth.

Jose Haresco – JMP Securities

Okay. And I guess, is your goal, all you do is calculate inflammation and moving to the new device or is it in the absence of you pushing it or are they pretty stubborn?

David L. Martin

Well, eventually we’ll move them all. There are a few high volume accounts that always love that device. If don’t need the change to be in the body portion, it produces the same rate results as our new product. But over time, they’ll convert and there are some using the old four – for AV fistulas in some high volume practices that specialized in that. But the majority of them are maybe non-targeted accounts, low volume, physicians have moved. And our targeted approach has been very successful at focusing our limited recourses in the right direction. I think we will phase out the old product over time. But there won’t be any push to go to all 400 of those remaining accounts. We’ll go to a targeted subset of that.

Jose Haresco – JMP Securities

Thank you. And then I guess lastly, what are you seeing on the competitive front last year you are dealing a lot of price pressure from some sort of competitor is out there, or how it might behave in these days?

David L. Martin

Aggressive, the preferable market continues to be super aggressive, both big company and small want to get in there and get the business and they want to take our business. But the substance that our device goes where other device don’t go, we’re the only way to safely treat calcium. Calcium is everywhere, particularly in those three arteries below, the need that are so critical to an outflow in a great clinical and economic outcome.

The technology and the substance of our clinical data and the real hustle and competence of our sales and marketing team have been successful in beating it back. So I don’t see it’s going to go away, I think it will be highly competitive going forward. We’ll just have to continue to execute.

Jose Haresco – JMP Securities

All right. Now, and you said you’ve gotten nervous that you were accepted at ACC, is this a podium presentation, or is this is a poster, or is it a – what you will be looking for?

David L. Martin

It’s a podium presentation.

Jose Haresco – JMP Securities

Okay, great. Thanks very much.

David L. Martin

Sure.

Operator

Your next question is from the line of Ben Haynor with Feltl and Company.

Ben Haynor – Feltl and Company, Inc.

Good afternoon, gentlemen.

David L. Martin

Hey, Ben.

Laurence L. Betterley

Hi, Ben.

Ben Haynor – Feltl and Company, Inc.

Could you talk a bit about the competitive enhancement to sales and marketing? Are these replacements of existing personnel, or is this additional sales assets that you’re putting down on the ground?

David L. Martin

Yeah, we’ve got the same size commercial team. Relatively, we haven’t put a lot more fees in the ground. In fact, they haven’t put anymore fees on the ground. The enhancements really, we installed new management starting with Kevin Kenny about a year and a half ago and then he is putting systems and process for management training and field sales training and every specific aspect of what we need to do in the adoption curve. Medical education has been a big hit. That was new. We didn’t have it and then we had it. And Angelo Giovanis came over from Johnson and Johnson and helped start a real fantastic program.

So those two things are converging, execution, competence, capability and new programs to produce a more predictable result.

Ben Haynor – Feltl and Company, Inc.

Okay great. And then on the medical education programs, is there anything new and exciting in that that you find as really effective?

David L. Martin

Yeah, one of the things that’s really creating great enthusiasm and excitement for what the physician can do in the office of a hospital as our low profile wispy wire like device with a crown on the end of it, you can enter the body and get to the disease from the fetal arteries, the tibial arteries. And so uniquely, we can get there from above. And if above is difficult which it is sometimes, we’ll treat patients with advanced disease. We can get there from below.

And that’s exciting. You get there safely and quickly. The biggest buzz I would argue in the last six moths directly rated medical education as our cadaver lab that under ultrasound, so without radiation, under ultra sound physicians are accessing small arteries, fetal arteries, tibial arteries in less than 10 minutes and advancing our device to the lesions and that’s really exciting.

And that’s something that can happen in the hospital or in the office-based lab and it’s really – it’s patient centric because the entrance site is low. It’s patient centric because it gives the physician another chance to succeed against difficult disease. It’s physician centric because you don’t need radiation or ultra sound. It’s pretty easy to use and access these vessels. So there’s a ton of benefits to this. And I see this as one of the areas that we’ll be able to proliferate without using technology and sustaining the growth going forward.

Ben Haynor – Feltl and Company, Inc.

It sounds like some exciting stuff.

David L. Martin

You bet.

Ben Haynor – Feltl and Company, Inc.

Excellent, that’s all I have. Thank you very much guys.

Operator

(Operator Instruction) Your next question comes from the line of James Terwilliger with The Benchmark Company

James Terwilliger – The Benchmark Company

Hi David, hi Larry, can you hear me?

David L. Martin

We can, James.

James Terwilliger – The Benchmark Company

Great job on the revenue, in that 28% growth for the current quarter and the revenue guidance going forward; most of my questions have been answered. But I’ve got two quick questions. The first one, Larry, it might be more centered towards you.

When I look at the gross margins, can you quantify at a high level to drag or the impact on the gross margins from the facility in Texas, because you’ve got some unused capacity down there. And does this facility support all of your needs for the coronary launch? And then lastly, at what would you need to expand your current manufacturing capacity after the coronary launch?

Laurence L. Betterley

I don’t have exact numbers for Texas. But if you go back a year-over-year, our indirect cost has probably gone up, I’d say about $0.5 million. So that has some impact. A good chuck of that is going to be from the Texas facility. As far as the facility standpoint, we have enough capacities for the foreseeable future, and it’s a very large plant down there. All you have to add the certain level of equipment and of course continue to add direct labor to increase your capacity.

But I’d say all-in, we’re in that 15% utilization range from the facility capacity standpoint, when you consider multiple ships, potential (inaudible). So we’re well set in Texas. We’ll get that certified for the upcoming coronary launch and we’ll have ample capacity going forward to the earnings.

James Terwilliger – The Benchmark Company

Okay, thank you. And secondly, this question is probably for David and Larry. If I look at the R&D expenses, how should we think about R&D going forward? It seems logical that this number should kind of trend down in terms of actual dollars. So is that the case and what are you currently working on and what else you’re going to be working on in that R&D department.

David L. Martin

Well, we’ve got two pipelines now, one for coronary and one for peripheral. So we couldn’t be more excited about that. And with the advent of new access points, there is a chance to do some really new things for physicians and for the calcified patients over time. So that’s great and even better if the fact that it’s at wonderful crown, we don’t have to reinvent the wheel, so to speak because we’ve got the mechanism of action that really works against plaque. But it’s nice to be anatomy. So I’ll let Larry speak to the expenses over time, but the production at R&D is exciting over the next 6 to 12 quarters.

Laurence L. Betterley

Yeah, James I don’t think the R&D in total will come down. We’ll have some – obviously the ORBIT II will land. We’ve talked about (inaudible) and 360 before that we have put on hold a bit because we want to focus on ORBIT II. That will be starting to launch when we get the bandwidth to do that. And we’ll continue enhance the Stealth and the coronary products as well. So I don’t see it really coming down going forward. The mix might change, but it’s probably going to continued to be a significant investment.

James Terwilliger – The Benchmark Company

All right guys, thanks for taking my questions and again, great job on the revenue that you post for this quarter and the revenue guidance you gave for next quarter. Thanks guys.

Laurence L. Betterley

Thanks, James.

Operator

Ladies and gentlemen, this does conclude the question-and-answer portion of today’s event. I’d like to turn the call back over to management for any closing remarks they’d like to make.

Laurence L. Betterley

We look forward to executing on the large opportunities in front of us and relighting the full potential of our technology. Thank you again for joining us today. We look forward to updating you on our progress next quarter.

Operator

Ladies and gentlemen, thank you so much for your participation in today’s teleconference. This does conclude the presentation and you may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cardiovascular Systems' CEO Discusses F2Q13 Results - Earnings Call Transcript
This Transcript
All Transcripts