Executives
Kim Sutton Golodetz – Investor Relations, Lippert/Heilshorn & Associates
Mark M. Sieczkarek – President & Chief Executive Officer
Gregory E. Lichtwardt – Chief Financial Officer, Executive Vice President & Treasurer
Analysts
Shawn Fitz – Stephens Inc.
Jayson Bedford – Raymond James
Eric Snyder – UBS
Jonathan Block – SunTrust Robinson Humphrey
Steve Brozak – WBB Securities
Amit Hazan – Oppenheimer
Conceptus, Inc. (CPTS) Q4 2008 Earnings Call Transcript February 17, 2009 4:30 PM ET
Operator
Welcome to the Conceptus fourth quarter 2008 financial results conference call. At this time, all participants are in a listen-only mode. Later instructions will be given for the question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded February 17, 2009.
I would now like to turn the conference over to Kim Golodetz. Please go ahead, ma'am.
Kim Sutton Golodetz
Thank you. This is Kim Golodetz with Lippert/Heilshorn and Associates. Thank you all for participating in today's call. Joining me this afternoon from Conceptus are Mark Sieczkarek, President and Chief Executive Officer and Greg Lichtwardt, Chief Financial Officer.
This call will follow the usual format, beginning with prepared remarks by management, and then we'll open the call up to your questions. In order to accommodate as many of you as possible, we ask that you limit your questions to one, plus one follow-up before rejoining the queue.
Earlier today, Conceptus issued financial results for the fourth quarter of 2008 and financial guidance for 2009. If you have not received this news release or if you would like to be added to the Company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with Cheryl Palazzo.
Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Conceptus that involve risks and uncertainties. I encourage you to review the Company's filings with the Securities and Exchange Commission, including without limitation the Company's Form 10-K and Forms 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.
These factors include strategic planning decisions by management, reallocation of internal resources, general recessionary pressures, decisions by public and private sector payers, scientific advances by third parties, an introduction of competitive products, among others.
Importantly, the content of this conference call contains time sensitive information that is accurate only as of the date of the live call, today, February 17, 2009. The Company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With that said, I would like to turn the call over to Mark Sieczkarek. Mark?
Mark Sieczkarek
Thank you, Kim, and good afternoon to everyone. Thanks for joining us today. In our prepared remarks, Greg and I will discuss the financial performance of Conceptus for the fourth quarter and full year fiscal year 2008, guidance for 2009, and then I’m going to update you on our important goals for next year and beyond and then, of course after that we'll take your question.
So let me start with the brief discussion about our 2008 financial performance and 2009 guidance before turning the call over to Greg. For the full year 2008, we recorded net sales growth of 58%. In addition to growing the business substantially during 2008 there were many important accomplishments and I’d like to list some of those for you right now.
First off, the European acquisition was highly successful. We continued to execute well against our plan and integrated the entity without a hitch.
Our third generation Essure product that was launched in late 2007 with nationwide and early 2008 to rave reviews by physician basically for its further improvements and ease of use. We also launched our direct to consumer program and achieved tremendous growth and objectively measured consumer awareness of the Essure while meeting our payback expectations through the end of the year.
We secured an advantageous Californian Medicaid coverage decision that will enable to save as much as $100 million annually for permanent birth control procedures. We improved sales force productivity by over 25% for the year, thereby improving our operating cost structure and expense ratios.
We continued our march to the office, despite a preference for patients and exited the year with 3400 physicians performing 59% of total Essure procedures in the office. No other advanced minimally invasive gynecological procedure had been able to be performed so successfully in the office to the benefit of patients, physicians, and the healthcare economy. We view that as a critical strategic accomplishment in the current economic environment with the near term increase scrutiny of healthcare cost, benefit ratios under the new administration.
During 2008, we added over 2000 new physicians to Essure training and certified over 2000 physician to perform Essure on their own, and now have over 9000 OB/GYNs using Essure. For many of these physicians, Essure has demonstrated that they can become proficient at using a hysteroscope in their practice. And as our enthusiastic endoscope partners have identified, Essure is truly the killer app for office-based hysteroscopy and is enabling a critical review of other procedures that might be able to be moved out of the high cost hospital environment to the physician office.
Fourth quarter net sales increased 54% year-over-year, while we recorded the largest growth in our tracked physician performance metrics, of any previous quarter in the company’s history. While we are very proud of the results we turned in for the year. The fourth quarter fell a little bit short of what we had hoped and planned to do and it’s important you understand the costs.
First the dollar strengthened very significantly against the euro, which resulted in a decrease of nearly $800,000 in the international net sales. Now our guidance anticipated a level of dollar strengthening but such an extreme movement of the dollar was unexpected.
Secondly, our U.S. business was lighter than expected by about 2 to 4%. We increased domestic sales quarter-to-quarter by 6% and year-over-year by 28%, which was not too dissimilar due to 30% growth in the first quarter of 2008.
Now importantly, when we reviewed our domestic business physician metrics, the followed docs, clinical training and true certification and then into the office, which are some of the most important future growth drivers of our business. We saw continued execution of our plan and anticipate that we’ll continue to drive the percentage of sales coming from minimal anesthesia site, which impacts not only growth but productivity and sales. So we are very comfortable that we are doing the right things for the long-term health of this business.
Now I know that all you want to know whether the Essure business is being impacted by the U.S. economy and while there is little doubt in our mind that the softness in our business is attributable to the overall state of the economy, it’s difficult to identify the exact mechanism. Certainly layoffs can create a problem for all medical procedures of unemployment is protracted and health insurance alike.
Families that are shifting from private insurance to Medicaid because of a job loss probably represent a more difficult proposition for us as our coverage is not as good under Medicaid excluding California but at the same time we believe these factors have balanced somewhat by families who may feel compelled by the worsening economy to make quickly the permanent birth control decision that they have been considering. An unplanned pregnancy in difficult economic times is arguably even more of a burden than usual on family.
Now we believe the direct to consumer campaign by making women aware Essure’s rapid recovery, swift return to work may have helped to bloat the effect of the economy than impacted so many other medical device companies in 2008.
Now remember over 90% of Essure patients returned to work the day following the procedure, so we remain heartened by the relatively minimal impact of the economy that as of now was confined to the fourth quarter. Now that said, this is the time for conservatism. If Greenspan didn’t see it coming how can we call it.
In developing our 2009 guidance, we wanted to reflect an our appropriate amount of conservatism with respect to the worsening economy, the potential of a stronger dollar, the annual resetting of insurance deductibles in the first quarter and the potential that out first competitor may enter the market in 2009.
In order to accommodate all of these uncertainties, we've widened our net sales guidance range. At the upper end, the implied year-over-year growth of 32% reflects a smaller reduction in growth as compared to the real growth we achieved in 2008 of 37%. Now this seems appropriate given that most [pundits] are predicting a lengthy recession with a very high unemployment rate.
At the bottom end, we have tried to encompass the potential downside as we see them today. Of course, our job as the management team would be to maximize the growth potential of the business and we are optimistic that the programs we have in place during 2009 can continue to drive the business to the upper end of this net sales guidance range.
However, we are going to start off the year with toughest quarters due to both resetting in deductibles, which always encourages families to delay medical procedures any worsening in unpredictable economy. As we recall in the past, the start of every calendar year means the insurance deductibles reset to zero for U.S. families and is our belief that they naturally will defer non-urgent care procedures until their deductibles have been met with more urgent medical care.
Usually we have seen this in the past. It takes about 90 days and such that our second quarter is always the strongest quarter-to-quarter growth because there is catchup going on as the first quarter deferred procedures plus the second quarter procedures are completed. It's important to remember that the first quarter is not necessarily a good indicator of the full year. Historically, even in years when we’ve had a soft first quarter we have gone on to post very strong full year net sales growth. So we are not discouraged and are going to work hard to maximize results.
Now with that I’m going to ask Greg to comment in more detail on the financial results for the third quarter. Greg?
Gregory Lichtwardt
Thank you Mark, and good afternoon everyone. As I customarily do, I’m going to take a few minutes to provide some additional figures and commentary to our financial results, past and future our expectations as reported in today's press release.
Starting with the fourth quarter year-over-year results reflected a healthy growth rate. Overall sales of $28.5 million represents a 54% growth from the fourth quarter of 2007 as reported. Based on a consistent direct sales basis for the international business, the real growth on net sales was 29% in the fourth quarter.
Domestic sales increased 28% to $22.6 million and international sales increased 537% to $5.9 million in the fourth quarter. On a consistent direct sales basis, the international growth was 36%. But due to the much stronger dollar, the growth rate was down about 10 percentage points from what we have said to you in previous quarter are the real growth rates for the international business.
Total sales for the fourth quarter represented quarter-to-quarter net sales growth of approximately 7%. Domestic sales grew 6% sequentially, while international sales grew 10% sequentially. The full year 2008 sales were $102 million. This represents year-over-year sales growth of 58% as reported and 37% if international sales where on a consistent direct sales basis.
On a unit basis, we shipped approximately 25,400 units during the fourth quarter of which the U.S. accounted for 67% and international for 33%. International average selling prices decreased to around $700 from $800 in the previous two quarters, which reflects the strengthening of the U.S. dollar and the negative impact on our sales in the fourth quarter of 2008 as I just indicated. Domestic average selling prices remain above $1300.
With respect to domestic position metrics during the quarter, as mentioned in our press release we experienced another record high performing above our expectations. In the quarter we had 618 physicians performing their first preceptored case, 659 physicians becoming certified and 500 physicians transitioning to the office. This is by far our best quarter in regards to all three of those physician metrics.
This is important as the ongoing movement of physicians to the certified and the in-office categories represents our highest utilization group while it is also the preferred side of service that offers the most convenient and satisfaction to our patients. 59% of procedures were performed at a minimal anesthesia site of service compared with 46% at the end of 2007 and 55% in the immediately preceding quarter.
At the end of the fourth quarter, we had approximately 3300 physicians in preceptorship, 2300 physicians certified and performing in the hospital and 3400 physicians certified and performing in the office. The latter metric represents a remarkable 17% increase from the immediately preceding quarter and demonstrates the traction we are getting with our various initiatives in this area. At the end of the fourth quarter approximately 9000 U.S. physicians had performed at least one Essure procedure.
Overall, our utilization rates continue to be consistent with recent quarters. It remains our belief that overall rates will increase in time as physicians mature in their respective categories of hospital and office certified. Right now though we are seeing those categories being somewhat flooded with newer physicians who because Essure is not yet integrated into their practices, have impacted the category utilization rates, thereby preventing a favorable mix effect of more physicians in-office from increasing our overall rates.
Gross profit margin for the fourth quarter was 79% as compared with 76% in the previous year period, and 81% in the immediately preceding quarter. The year-over-year gross margin increase reflects the benefits from the higher average selling prices associated with our acquisition of Conceptus SAS, production cost reductions related to the third generation device and volume increases. On a sequential basis, margins were negatively impacted by average selling price declines in international sales resulting from the unexpected stronger dollar.
We were successful in keeping total operating expenses to $17.7 million in the fourth quarter, which was below our forecast of $18.3 million to $18.5 million. This reflects a conscious effort to reduce operating expenses due to the shortfall in expected net sales for the quarter. Operating expenses are only up slightly from $17.6 million in the previous year’s fourth quarter, yet are down by $200,000 from the third quarter of 2008.
Our operating expenses continued to demonstrate the leverage of the business as we experienced 54% revenue growth on relatively flat operating expenses comparing Q4, 2007 to Q4 2008. On our full year basis, total operating expenses were $79.5 million, which compares with $62 million for the full year and 2007. Again this represents 28% operating expense growth with a 58% revenue growth, all while embarking on an aggressive DTC campaign in fiscal 2008 and absorbing the operating expenses of the Conceptus SAS entity acquired in early January.
Other income and expense for the fourth quarter of 2008 was $200,000 expense and it can be summarized as follows. $400,000 in interest income, $700,000 in interest expense, and debt issuance amortization, $200,000 currency gain from the transaction effects of our intercompany accounts, and $100,000 net loss on our put option and position in auction rate securities, which I will further explain next.
In comparing this $200,000 net expense in the fourth quarter to the $700,000 net income in the fourth quarter of 2007, the primary difference is in interest income due to lower rates. In comparing the $200,000 net expense for the fourth quarter of 2008 with the $500,000 expense in the third quarter of 2008, the primary difference is that we experienced a net transaction gain on our intercompany accounts due to the weakening of the dollar in the final weeks of the quarter.
With regards to our auction rate securities, we continue to hold 48.5 million as student loan backed securities, for which there have been no auctions for the better part of 2008.
In October 2008, UBS, which holds 100% of our auction rate securities offered and we entered into a series C2 auction rate security rate, which is basically a put option that allows us to sell our auction rate securities back to UBS at full par value by June of 2010 unless they are redeemed by the issuer sooner. Our holding of series C2 rates is classified as a long-term asset on our balance sheet and valued at $5.2 million. This has correspondingly been recorded as a gain in other income in the fourth quarter of 2008.
Offsetting that gain and in connection with the UBS settlement agreement, we have concluded that we no longer have the intent to hold our auction rate securities until maturity as we plan to redeem them at full par value in June 2010 if not sooner. And therefore we are required under U.S. GAAP to book any changes in the fair value of our auction rate securities, and our income statement as a permanent impairment.
You will recall that we have been taking this as a temporary impairment charge against other comprehensive income and equity up to this point. As such, we recorded an impairment charge of $5.3 million in other expense in the fourth quarter of 2008 representing the current difference between par and fair value of the auction rate securities. In the future, we expect immaterial changes in the fair value of our auction rate securities to be offset in part by changes in the fair value of our put option with UBS as just occurred in the fourth quarter with the $5.3 million impairment charge being offset by the $5.2 million establishment of the put option asset.
Also in November 2008, we entered into a credit line agreement with UBS where we borrowed $30 million under a credit line. The line is intended to be a no net cost loan and is fully collateralized by our auction rate security. The line of credit will be repaid to UBS when our auction rate securities or either redeemed by the issuer or put back to UBS under the settlement agreement in June 2010.
In the fourth quarter of 2008, we also recorded a net tax benefit of $300,000. The benefit is due to tax purchase accounting rules for our intangible assets and the step up in basis of inventory values in connection with the finalization of goodwill for the Conceptus SAS acquisition earlier in the year. This adjustment basically negates the tax provision we have been building during the year although they are two different entries.
Non-GAAP net income for the fourth quarter of 2008 was $6.5 million, or $0.21 per fully diluted share. The fourth quarter of 2008 non-GAAP net income excludes $1.3 million of stock-based compensation, $200,000 in intangibles amortization and $200,000 in debt issuance cost. Non-GAAP earnings per share was $0.23 for all of 2008 as compared to a loss of $0.15 per share in all of 2007 and that has shown in more detail on the table through our financial statements.
With respect to the balance sheet, we ended the fourth quarter with cash of $54.7 million, which was an increase of $30.9 million over cash of $23.8 million at the end of the third quarter. We generated $2.4 million in cash flow from operations, which includes a cash outflow for 2009 DTC expenditures of close to $6 million.
In addition, we borrowed $30 million in proceeds under our line of credit with UBS, received $600,000 for stock option exercises and used another $1.6 million for capital expenditures primarily in support of our in-office hysteroscopy placement program.
Domestic accounts receivable days outstanding are in an all time low of 36 days and worldwide DSOs remain healthy at 42 days as compared to 39 days at the end of the third quarter. Inventory of $3.8 million is down from $4.7 million at the end of the third quarter and is now at planned level.
Okay, moving on to financial guidance. As reported in our press release, for the first quarter we are guiding to a revenue range of $26 million to $27 million, reflecting not only the usual seasonality associated with resetting deductibles on family insurance plans but also the overall down economy. Gross profit margins are expected to be between 79% and 80% in the first quarter given where the U.S. dollar and the euro currently are trading.
We expect total operating expenses of approximately $25 million. This would result in a non-GAAP loss per share range of $0.06 to $0.09 for the quarter. For the full year, we are guiding to a range of $125 million to $135 million in net sales. Total gross margins for the full year are anticipated to be 80% to 82% and operating expenses are forecasted to be approximately $90 million to $92 million.
On a non-GAAP basis, we are guiding to an earnings per share range of $0.48 to $0.67. The non-GAAP guidance reflects $11.4 million amount of adjustments relating primarily to stock-based compensation, amortization of intangibles and debt issuance costs and increased interest expense under Rule 14.1 in accounting for our convertible debt. On this latter point, the total Rule 14.1 impact is approximately $4.2 million and will represent an ongoing differential in our other income and expense line in 2009 in comparison with prior years.
Okay, that concludes my remarks. So I will turn the call back over to Mark. Mark?
Mark Sieczkarek
Okay, thanks Greg. I would like to use next part of our prepared remarks to discuss our main initiatives for 2009, and there are going to be four important areas I’m going to address. First, our further drive to office adoption, secondly, building further consumer and physician awareness and third place here we got expanding our presence in targeted international markets. And lastly, submitting our fourth generation delivery system to the FDA.
I’m also going to give you an update on some of the other important projects we are working on for future growth. First, let me address our drive to office based procedures. As I believe, many of you know performing Essure in office means several important things. Most importantly, it is where the patient prefers to have the procedure done because it is the more comfortable and anxiety free location.
Fundamentally, it means physician is using minimal anesthesia, usually only low concentration. The office also represents the location where the physician earns a greater part of the total reimbursement and is much efficient in scheduling appointment than if they go to the hospital. The office is also the lowest cost site of service for both the insurance payer and for the patient with many procedures being little more than a small co-pay.
The office will prove to be a major advantage for the Essure procedure as competition enters this market. We designed Essure to be the optimal permanent birth control product for office use. Our purely mechanical mechanism of action does not rely on thermal injury with its attendant patient discomfort, pain management requirements and safety concern, all of which are troublesome to manage in the office environment.
While four years ago, very little hysteroscopy was being done in the office environment, and with many skeptics telling us it could not be done, it's very gratifying to us that our leadership efforts in this area has [moved] medicine so profoundly to this better site of service not just for the procedure but many other hysteroscopic procedures as well.
I can only think that the original consumer test program that we launched in Chicago years ago and how we were told at time by the physicians that they could not and would not perform Essure in their office. Today all those same doctors are happily performing Essure in the office.
As Greg reported, today we have 3,400 physicians and have obtained hysteroscopic equipment and are safely and effectively delivering the Essure procedure in an office setting.
Our programs in conjunction with our strategic partners has doubled the amount of physicians now doing hysteroscopy. This group of physicians now accounts for 59% of our procedures and a large percentage of these doctors perform over three procedures a month.
Now not only this is healthy for our business, but more importantly this provides for better healthcare and diagnosis for women. We provide many programs in the compelling environment for physicians who now see office hysteroscopy built around the Essure procedure as a significant improvement in care for their patients.
We train and provide programs and all the elements that go into successful experience by the patient, including office staff training, equipment selection and other procedure room infrastructure, physician counseling skills, reimbursement and referral network building. Now these programs will continue into 2009 and will be supplemented by new program to keep the momentum going. We met our in-office goals in 2008 and I would expect that we can add at least another 10 percentage points to our current 59% by year end 2009.
And our second major initiative for 2009 is continuing down the path of creating consumer awareness. Now this involves making both non-Essure physicians and patients aware of a safer path to more effective permanent birth control option as well as building our professional and patient brand identity around Essure and all the collateral material.
Now although the initiatives and most of you are interested in building a patient awareness, we do spend a large amount of effort on physician awareness, articularly in 2009, our non-OB/GYN physicians that refer patients for permanent birth control procedures.
As per the patient awareness initiatives, we have many programs planned for 2009 not the least of which is an expansion of our domestic direct-to-consumer effort that we launched successfully in 2008.
Last year we began television, radio, print, and direct mail advertisements to families in eight cites that totaled about 5% of the U.S. population. For 2009, our efforts will increase and include an additional 15 cities, totaling another 10% of the U.S. population. That program is [sold in the] way that are similar to the 2008 program, while we continue to test new features of our advertising to optimize future scaling of this program.
The ad started just yesterday, Presidents Day, just as they did last year and will run for different length of times in different cities. The shortest run will be four months. The longest will be eight months. And for competitive reasons, we are not giving out the list of cities in which we are advertising, but I can tell you there are a few large cities in the top tier.
In total for 2009, we intend to spend up to $13 million on this program and expect proportional results with leading indicators starting this month and net sales starting in the April timeframe.
Our financial payback expectation is in the 18 to 30-month timeframe, very similar to what we experienced in the original eight cities to-date. I should just add that after one day our website hits actually doubled from last week’s average, so just in one day’s on airtime, we are already seeing an impact.
Now in addition to DTC, we are continuing our investment in cooperative awareness programs with domestic physicians putting in a new online initiative and beginning to test an international venue awareness program. Now all these initiatives are aimed at enabling us to compete for a larger share of $7.6 million U.S. families who have stated that their families are complete, but remain on temporary forms of birth control.
The third initiative for 2009 is the expansion of our business in targeted international markets and I do have some new news for you today. First, we have obtained the Brazilian National Health Regulatory approval that enables us to market our product there. Now with distribution already in place, we are prepared to hit the ground running. The Brazilian market with 190 million people, roughly two-thirds the size of the U.S. could represent many procedures overtime.
Secondly, we have decided to establish a direct presence in the United Kingdom given the likelihood of approval for Essure from the National Institute of Clinical Excellence, otherwise known as NICE. We've already added people on the ground there. The United Kingdom market we believe supports over 60,000 cases of permanent birth control between tubal ligation and vasectomies on an annual basis.
We believe that both the U.K. and Brazil opportunities will overtime build into a sizable book of business. Now elsewhere internationally, we are planning to achieve product registration and the higher distribution in up to five large Asian markets. There is no doubt in our mind that while today international represents about 20% of our net sales, as the potential is there for a much larger contribution and our plan for 2009 is to step up the effort that was started in 2008.
Lastly, our fourth initiative for 2009 is the submission of our fourth generation Essure delivery systems to the FDA. We are currently performing limited clinical studies on this product improvement, which makes certain ease of view changes for the physicians that will again further speed up an already fast procedure time and simplify while making more precise the deployment of the device.
This represents the tremendous piece of work by our engineering staff and we expect to file with the FDA sometime around midyear. We feel the fourth generation device will further solidify our market leadership position in 2010.
Additionally, we continue to move forward with our fifth generation product. We believe that fifth generation is currently conceived, can allow us to leverage the extensive physician training, consumer and professional branch creation that we have accomplished, while continuing to stay in front of any potential competitor and be a game changing as our introduction in 2002 of the first non-incisional permanent female birth control procedure was.
In other areas, we continue to make progress with validating a second manufacturing outsource company in order to diversify risk and add to our capacity and we expect loss or lower our cost for years to come.
Also we remain under review with the FDA on an expanded label claim for the use of the Essure with NovaSure. We are seeking a similar claim to what we already have regarding compatibility with the Thermachoice and HDA, the other two major endometrial ablation procedures. As we have indicated to you in the past we have already obtained that compatibility claim in our European and Canadian labels.
Not only are we seeing an increasing number of papers and physicians who are giving great results with Essure and endometrial ablation, but there is a large and growing body of anecdotal and clinical study evidence of successful use of Essure to manage the risk of ectopic pregnancy after global endometrial ablation procedure and also as the precursor of the successful IVF procedures.
So, in summary the highlights for the just completed fourth quarter are, 54% domestic in foreign sales growth, all time record physician metrics and preceptorship certification and transfers to the office, healthy consumer awareness results enabling us to roll the program out in more cities in 2009, positive net income totaling $4.9 million, we've proven that this business even as a one product company can generate cash and profitability growth, while continuing to support investment programs that assure future revenue growth and consumer awareness.
Now the highlights as we look towards '09 include continued strong revenue growth and strong non-GAAP EPS growth of over a 100% to 200% versus '08 despite a high investment in awareness. So, in ending this I’ll also talk about the fact that we've now performed 260,000 procedures since approval with most of the recent procedures coming from the office environment.
With 9000 U.S. physicians having used Essure, we’ve reached nearly one-third of all practicing OB/GYNs in this country and with the investment in building patient awareness showing positive signs that educated patients will choose a less costly, non-invasive Essure method in a way that allows us to generate profitable net sales growth, we are extremely excited about the future of our Company.
With that commentary, I would like to open the call up to your questions. Operator?
Question-and-Answer Session
Operator
(Operator Instructions) Our first question is from Shawn Fitz with Stephens Inc., please go ahead with your question.
Shawn Fitz – Stephens Inc.
Hey Mark and Greg, good afternoon. Thanks for taking the questions here. First just as we look at the year and the fourth quarter in particular, given the very strong doc training and certification trends that we've seen, and in addition of that really the DTC campaign, I guess trying to understand the under performance domestically gets a little more difficult. So, could you just talk, Mark, a little bit if you could about trends that you saw during the fourth quarter on kind of a month-over-month basis and maybe provide little more commentary in terms of what you saw there?
Mark Sieczkarek
Yeah, I think, Shawn, if you take a look at the total, a good portion of our shortfalls we referred to it, it was really the international dollar aspect of it. In the U.S., what we ended up seeing when we really got in and annualized the data, talked to our reps as well as our doctors, we saw a little bit of geographic impact and it was quite frankly, we saw areas for instance in the Rust Belt that slowdown. And I don’t think it’s a mere coincidence that those were some of the geographic areas hit hardest by the recession. Quite frankly beyond that I wouldn't call it, I wouldn't even refer to it as a general flowing, but we were able to just isolate the impact in an area that seems to have gotten hit quite hard by the recession and lost some healthcare coverage. So I think to your earlier point though, and our physicians metrics are so strong coming out of 2008 and as you can see we're picking up so much momentum relative to this ultimately becoming standard of care that certainly we are very, very still bullish on 2009. But we're also being somewhat realistic that the healthcare dollar and Essure is certainly not immune if you will from the recessionary impact and I think that is reflected in our range in the guidance numbers.
Shawn Fitz – Stephens Inc.
Okay. So Mark if we look at the cities where you all advertised I would guess most of those where not inside kind of the Rust Belt geographies or even some of these other geographies on, maybe some of that you disclosed might have been more impacted by the macro economic situation. If you look at the cities you advertised in, could you provide some data points in terms of trends in general there relative to some of your other marketplaces?
Mark Sieczkarek
Well, it’s just generally speaking I think the metrics we've talked about a longer way and we've talked about things like web hits in terms of awareness. In some of those cities, awareness levels where we went in were about 2% to 3% and on average we drove those awareness to 30%. In overall in those cities doubled our market share versus national averages with cities where we didn’t advertise, and we also were able to maintain that market share even when we went black in terms of the advertising, when we shut it down. And then thirdly, I think the key was our payback expectations where we basically met an [X and Y]. We were simply bullish going forward with the program. Now, that being said we did do a couple of cities if you will in those Rush Belt territories, and we saw a little bit of drop even in those cities in the fourth quarter not enough to get concerned about, still maintaining those nice averages that we just talked about but as we move forward into 2009, we are certainly going to continue to be aggressive in educating patients in terms of their alternatives because quite frankly, Shawn, even if people choose for economic reasons to put this off for now ultimately they will come back and this is a once for lifetime procedure.
Shawn Fitz – Stephens Inc.
Okay great. Mark, last question, I think you talked about on the awareness in DTC side. You mentioned a number of $13 million in spending. Is that an incremental $13 million on top of what you spent in 2008 or is that’s the total spend?
Mark Sieczkarek
That's the total spend.
Shawn Fitz – Stephens Inc.
So if on an incremental basis then you’re kind of flat with what you spent last year. Is that the right way to think about that Mark?
Mark Sieczkarek
No. We had basically doubled our spending from last year.
Shawn Fitz – Stephens Inc.
Okay. Thanks.
Operator
Our next question is from Jayson Bedford with Raymond James. Please go ahead with your question.
Jayson Bedford – Raymond James
Hi, good afternoon. Just have a couple of questions. I guess first for Greg. The ASP internationally, do we use 700 going forward?
Gregory Lichtwardt
I think that's a definitely closer to reality at this point and at these exchange rates than where we were at 800. So yes.
Jayson Bedford – Raymond James
Okay. And then what's the level of stock-based compensation assumed in your guidance for ’09?
Gregory Lichtwardt
It's about $5.6 million.
Jayson Bedford – Raymond James
Okay. And then I guess looking at the physician metrics. They were strong in the quarter. Was the sales force incentivized differently in anyway? Shift the focus on getting these folks in the program versus just utilization amongst already certified docs?
Gregory Lichtwardt
No, Jayson. They really weren’t I think but to be fair, a lot of our drivers throughout the year were based on utilization and on our site of service, issues. So but nothing really changed in the fourth quarter just the continuation and I think what you are seeing there remember we pointed out earlier in DTC cities, we saw a surge in new physician interest and signups. And if you look at the metrics that wants to get it, no coincidence that they got stronger as the year went on and lot of that had to do with the fact that our signups in those DTC cities were about twice that as the national average.
Jayson Bedford – Raymond James
Okay. And then just lastly for me and then I'll get back in queue. In terms of the DTC spend in 2009, how was it going to be more efficient or what do you guys going to do differently, or I guess simply what have you've learnt from 2008?
Gregory Lichtwardt
Jayson, one of the things that we played with [if you want test it] were media mix and also spend levels. And so we are able to be a little bit more concise in terms of what it takes in terms of incremental dollars or even in the media mix and what is more effective. And so as we continue on the program in '09, we are a little bit more specific in those two areas: media mix and spending. But we're also testing some other concepts in terms of spreading, for instance, our advertising more evenly throughout the year-end in certain cities as well. So you're always playing if you will with some of the parameters around advertising. But all in all I would say certainly our dollars were spent very efficiently, and our aim is to use those dollars even more efficiently in '09 and moving forward.
Jayson Bedford – Raymond James
Okay thanks. I'll get back in queue.
Operator
Our next question is from Eric Snyder with UBS. Please go ahead with your question.
Eric Snyder – UBS
Hi. Good afternoon Greg and Mark. Just on the DTC advertising. Since you are spending a little bit in '09 and you've described the payback as so far achieving payback really within the first year and then looking at a longer tail than that. [stretching] out now I think you said the 30 months. Our math suggests that every million dollars of spending should equate to within 12 months to get that payback at least a 1,000 units incremental of what would you expected before. Is that too aggressive or too conservative?
Gregory Lichtwardt
Well the math part is correct. But our expectations have really never been to see a return within a 12-month period. I think we’ve in our minds pretty consistently thought that we would realize those 1000 units over 18 to 30-month period of time.
Mark Sieczkarek
Eric I said the little bit differently and maybe this is where your getting a little bit confused is after the first 12 months, we are tracking to that 18 to 30-month payback.
Eric Snyder – UBS
Okay and you think it's relatively even over that 18 to 30-month period of time, it’s not front-end unloaded like the web traffic that you are seeing?
Mark Sieczkarek
No, it's not, my one comment in that remarks where the fact that we are even when we went dark. We're able to maintain that market share of leverage that we got. And just consider this makes an ARPU on the sense. Combined with the fact that I said we're basically on a run in terms of signing up new physicians and moving them in office in these territories. That marketing is obviously working virally even amongst physicians and referring physicians. And obviously than the more physicians we get signed up ultimately they will continue to hold on to the market share that has been created through the advertising. So it's kind of, like a ball gaining momentum throughout all the metrics.
Eric Snyder – UBS
And just finally what backed into your expectations regarding Adiana launch timing?
Mark Sieczkarek
It would be sometime in the second quarter of this fiscal year, which I think is pretty consistent with what our logic is saying. Of course the product is already launched internationally with CE mark approval.
Eric Snyder – UBS
Great thank you.
Mark Sieczkarek
Thanks Eric.
Operator
(Operator Instructions). Our next question is from Jonathan Block with SunTrust Robinson. Please go ahead with your question.
Jonathan Block – SunTrust Robinson Humphrey
Thank you and good afternoon guys. First question, just have to do with the direct-to-consumer. I guess main question here is should we view the $13 million as set in stone. In other words, Mark you talked that they're does seem to be some impact from the economy. As things worsen materially from here is there any flexibility do you spend a little less? I would love to hear your thoughts there?
Mark Sieczkarek
That’s a great question, Jonathan. You got to consider we’ve had obviously in 2009 DTC program offer successful program in '08 and there is really I guess one reason we wouldn’t produce proportional results you kind of hit on it and that’s because of the economy. You got to understand there is a balance here. Consumer awareness is a strategic program. The fact that we've raised awareness amongst consumers today and steadily going into the 2% level and as I mentioned to you in those cities we got over 30% awareness. We thought to add people I will tell you that’s amazing build-up of awareness. This is a product that I guess used over a period of time. So we’ve educated people even in 2008 and let's say even in a slow economy in 2009. They may put off the procedure, the immediacy of the procedure. But they will necessarily put off the procedure ultimately. And I think it’s really important strategically that we get to the hearts and minds of people now that they understand that there is an alternative to tubal ligation and vasectomy. And just remember there is still 1.1 million families a year that make that choice for permanency. It may not be necessarily a recession proof but I think you are also seeing lately in the news quite a bit of discussion about people ramping up their birth control because the last thing you need is unplanned child in this economy. So that being said, we certainly are going to look at direct-to-consumer and our spend relative to our performance overall as an organization. We certainly have the ability and the flexibility to move on it bear at back or move forward faster as if we see the need. But I think we kind have proven this year that we're also going to be fiscally responsible and make sure that we deliver on the bottom what we told we're going to deliver. So, again the key point there is just remember DTC and the consumer awareness isn’t necessarily all equated to what we get in this period. It’s all about long-term revenue growth and strategy as well.
Jonathan Block – SunTrust Robinson Humphrey
Okay and thank you but maybe just one followup on direct-to-consumer. Then I have just got one other. Specific to the ramp and spend Greg, we assume the $13 million of that [scenario] where we sort to go 5, 7 and then 1 and maintenance in the back half of the year. Can you help us out with a little bit of how we ramped out throughout '09?
Gregory Lichtwardt
Okay, that’s pretty close, Jonathan. So of the $13 million, 10 will come in the first half of the year, spread pretty equally between Q1 and Q2 and then the remaining $3 million in the back half of the year spread pretty equally between Q3 and Q4.
Jonathan Block – SunTrust Robinson Humphrey
Okay great. And then last one on the guidance. By look back in '07 and in '08 1Q revs and then accounting for about 21% of your total sales for the year. And if I run a similar scenario through this year, I get to about right around 126 for '09. So, within your guidance but then again, Greg as you said, you would assume Adiana would be there beginning around 2Q. So, some thoughts there that Adiana, but you also be the beneficiary of the large direct-to-consumer. Is that the thought there?
Gregory Lichtwardt
No, what we think is that Jonathan, I think if we do that mental math you just went through I think I come out with a number between 130 and 135. And I think I should point out to we talked about the resetting as deductibles and every year remember we talked about this last first quarter. We track women's healthcare over the past three years in terms of some of the bigger companies. And like two, three years ago you saw a sequential decrease of about 3%, in the following year it went up to about 8 and then a 11%. So, it has been rising as these higher deductible or HSA plans come into play. So, again it’s a little bit of an unknown, Jonathan in terms of how much more those will impact and if there is a spread how much of that is the high deductible programs versus the economy, just to play with it. But I think your math for the most part is right on.
Jonathan Block – SunTrust Robinson Humphrey
Okay thanks guys.
Operator
Our next question is from Steve Brozak with WBB Securities. Please go ahead with your question.
Steve Brozak – WBB Securities
Thanks for taking the call. I’m looking at a couple of things the first one, two actually. The first one is, unfortunately this will be the first quarter that you guys have had where sequentially it will be a down quarter in terms of revenue that pretty much is, there hasn’t been a quarter like that before. Is that accurate?
Gregory Lichtwardt
That's accurate.
Steve Brozak – WBB Securities
Okay. Second question on the fourth quarter, we noticed some trends in terms of both men and women that we’re losing their healthcare. We're trying to get in under the wire in terms of what they're going to do because it was either used or lose it. Did you do any kind of demographics study or any kind of study that basically said these were people that were “going to be covered” but as of January 1, were not going to be covered. And did you do anything like mapping in terms of this last quarter on days that you would not normally expect like today after Thanksgiving. Did you detect any kind of data from that in this quarter as to lead you to believe that people were basically trying to get stuffy and under the wire?
Gregory Lichtwardt
There was really nothing that would indicate specifically your point to that was happening. And talking to some of our physicians, normally you do have some people who are trying to they have a safe points trying to get procedures done under the wire, so to deduct it from those plans and use up that money. And that's happened again in the fourth quarter and that’s a natural phenomena. In the longer term, one of the pieces that is a little bit confusing is why are these people are losing their healthcare, are still being picked up as you were on COBRA's. And so they still have that healthcare carryover for a period of time, certainly into 2009. And then with the stimulus plan as well, there is some dollars being spent on some of those people who have lost their healthcare benefit. So that remains to be seen in terms of how it's going to map out. The specifics that you've talked to in terms of some of that tracking, whatever we try to do quite honestly we couldn't make rational sense out of the data that we are seeing that would lead us to believe some of the things that you came up with.
Steve Brozak – WBB Securities
Okay and in terms there is obviously the stimulus bill though has the difference in terms of COBRA, so it will be as big a bite as COBRA currently is so and we probably could model that out. Lastly, I will switch over to the demographics. I mean you guys have always being advocating in-office procedure as being the best compensation. But there is obviously going to be a core of physicians that really are frankly just suited for they want to do in a surgery center or a hospital. What are the demographics or the specifics about these physicians? Are they are specific age? How do they distribute themselves and what are your plans for dealing with these people because there is going to be some core that you've probably never going to get but it's still business that you really want in the long run. What are your plans for them?
Gregory Lichtwardt
Yeah, Steve, I think we've talked about this on past calls as well. When people are asking about procedures in the office and where they are going to matched out and where we've talked about probably somewhere between 70% and 80% exactly to your point. There are for a variety of reasons and in some cases like you've said physicians just not willing to move. By the way those tend to be in older demographic. Number one, it's just changing habits and old habits die hard. And the second issue around that is hospitals and some cases use the fact that they do assuring a, let’s say a clinical setting as kind of marketing that they are on the edge of certainly new birth control technology. And some of those will never move to a pure office setting as we referred to it. But it’s there in an outpatient center or in a clinical studying with minimal sedation. You are almost 90% of the way there anyway and I agree with you we'll never get to if you will match the way we look at in-office but nonetheless even at those places, if we're getting them to the clinical or outpatient setting, we’re accomplishing ultimately our goal.
Steve Brozak – WBB Securities
Great, thanks for answering the questions. I'll jump back in the queue.
Gregory Lichtwardt
Thanks Steve.
Operator
Our next question is from Shawn Fitz with Stephens Inc., please go ahead with your question.
Shawn Fitz - Stephens Inc.
Hi, Mark and Greg. Just a couple of quick followups. Given the really robust docs training and certification numbers, I would guess that’s been a significant focus to the sales force for the last year or two years. At what point do you feel like the focus shifts away from getting that incremental new doctor in the fold and more towards a drive on increasing utilization with your existing group of physicians?
Gregory Lichtwardt
Hey, Shawn, it's an interesting question. We're actually trying to drive that way as we speak. The interesting dynamic is certainly as we’ve created more awareness, we’ve a lot of doctors calling us and certainly from a customer service standpoint, we don’t leave them behind. But our focus in ’08 and continuing in ’09 is really on as you put it increasing utilization. I think we shared some of the numbers around utilization. For instance, the in-office utilization is about double that of the certified doctor. When you get into DTC area, it doubles once again. So the focus to your point is increasing if you will same-store sales and as we move forward as not as much building new stores as you would put it. So our incentives at least certainly to our sales force are probably more reflective in '09 of that movement.
Shawn Fitz – Stephens Inc.
Okay, great. Thanks Mark. And then last Greg just on the guidance for 2009 on the revenue side. Do you have any incremental revenue from either the United Kingdom or Brazil baked into your guidance?
Gregory Lichtwardt
Sure. It's in the guidance. They're obviously relatively small numbers because we're just getting started. I think our goal for each one of those would be a couple of thousand units and that’s basically yet for the year.
Shawn Fitz – Stephens Inc.
Okay, thanks and then Greg, just as we try to build our models out for 2009. Could you give us some bookings, on kind of what to expect within that full year revenue number as it relates to mix U.S. versus [O.U.S.]?
Gregory Lichtwardt
Okay, sure. So the 23% to 32% overall growth would be broken down. Domestic growth rate of 25% to 35% and of course the upper-end of that range is really capturing while our growth rate was in 2008 and then for international, we would expect to see our revenue growth of 15% to 25% with a unit growth up 25% to 30%. So in another words we're forecasting basically year-over-year hit due to exchange rates of about 10 percentage points.
Shawn Fitz – Stephens Inc.
Okay, hey Greg and Mark, thanks to letting me take the followups.
Gregory Lichtwardt
Thanks Shawn.
Operator
And I'm showing that we only have time for one more question. Our next question is from Amit Hazan with Oppenheimer. Please go ahead with your question.
Amit Hazan – Oppenheimer
Thanks. Hey good afternoon guys. Just a couple of questions to ask really. On the exchange rate, Greg, can you give us the assumed exchange rate you have on the euro for 2009?
Gregory Lichtwardt
We’re going to use above 35 to the euro.
Amit Hazan – Oppenheimer
Above 35 okay. And then Adiana, what type of market shares lastly you expect in 2009 from them?
Gregory Lichtwardt
I mean we're not going to specifically callout the exact market share that we would anticipate giving up, obviously as we talked to our sales force didn’t give up any market share. But we're also dealing with the reality of that as well. I think as we get into the latter half of this year and they are just going to be making their [entrée] of the market. Certainly, we're more vulnerable if you well, we have the same customer, the customer for instance doing in NovaSure. And that’s one of the reasons I think it's fairly obvious why we're doing the compatibility piece with the FDA. In terms of specifically giving you some guidance in terms of what we anticipate losing I guess the purpose of this one called zero.
Amit Hazan – Oppenheimer
Okay and then, Greg, on ASPs in the U.S. Should we model those flat or are you taking ASP increases this year?
Gregory Lichtwardt
No we did raise prices in late January but because of mixed changes within our business there will be fairly minimal impact on our average selling price of just a couple of percentage points, as compared to 2008.
Amit Hazan – Oppenheimer
Tougher percentage points up …
Gregory Lichtwardt
Yeah, in the average, yep.
Amit Hazan – Oppenheimer
Great, thanks guys.
Gregory Lichtwardt
Thank you, Amit.
Operator
And there are no further questions at this time. Please proceed with your presentation or any closing remarks.
Mark Sieczkarek
Okay, well I just like to thank you all for your excellent questions, and we do appreciate you joining us on this call. We look forward to speaking with you again after the first quarter call. And I expect to have certainly more interesting points as we move forward within the momentum of this business and talk to you about then and talk to you soon. Thanks again. Bye now.
Operator
Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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