EV3, Inc. Q1 2009 Earnings Call Transcript

Apr.28.09 | About: ev3, Inc. (EVVV)

EV3, Inc. (EVVV) Q1 2009 Earnings Call April 28, 2009 8:30 AM ET

Executives

Julie Tracy – Chief Communications Officer

Robert Palmisano – President, Chief Executive Officer

Shawn McCormick – Chief Financial Officer

Analysts

Joanne Wuensch – BMO Capital Markets

Jason Mills – Canaccord Adams

Chris for Michael Weinstein – J.P. Morgan

Raj Denhoy – Thomas Weisel Partners

Thomas Gunderson – Piper Jaffray

David Lewis – Morgan Stanley

[Brian Kennedy – Jefferies & Company]

Joshua Zable – Natixis

Operator

Welcome to the first quarter 2009 EV3 Incorporated earnings conference call. (Operator Instructions) I would now like to turn the call over to Miss Julie Tracy.

Julie Tracy

Good morning everyone. Welcome to EV3's first quarter 2009 conference call. We appreciate you joining us. I'm Julie Tracy, EV3's Chief Communications Officer. With me on the call today are Bob Palmisano, EV3's President and Chief Executive Officer and Shawn McCormick, EV3's Chief Financial Officer.

We issued a press release this morning regarding our first quarter 2009 results. A copy of that press release along with an investor presentation summarizing our first quarter 2009 results is available on our website at www.ev3.net.

The agenda for this call will include a business update from Bob, a review of our first quarter financial results and guidance from Shawn followed by a question and answer session and closing comments from Bob.

Before we begin, I'd like to remind you that during the course of this conference call, we will make forward-looking statements regarding our future financial and operating results and our business plans, objectives and expectations. These forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and EV3 desires to avail itself of the protections of the safe harbor for these statements.

Please be advised that 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 annual report on Form 20-K. We suggest that you read this report and other future filings that we may make with the Securities and Exchange Commission. EV3 disclaims any duty to update or revise our forward-looking statements.

On this call today we will also disclose certain non-GAAP financial measures. We use non-GAAP financial measures as supplemental measures of performance and believe these measures provide useful information to investors in evaluating our operations period over period. For each non-GAAP financial measure that we use on this call, we have posted a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure on our corporate website at www.ev3.net under the sub section entitled non-GAAP measures under the investor relations section.

Please note that non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. With that, I'll now turn the call over to Bob for a business update.

Robert Palmisano

Good morning to everyone. This morning we reported net products sales for the first quarter of $100.4 million, an increase of 6% versus prior year quarter and 10% on a constant currency basis. Non-GAAP adjusted net earnings per share for the first quarter was $0.07 which is significantly better than the top end of the guidance we gave in February.

This earnings performance was primarily driven by strong revenue, gross margin improvements materializing faster than anticipated, strong expense control and foreign current exchange translation that was less negative than anticipated.

With our first quarter results, we delivered a strong start to 2009. We achieved sales growth across both our neurovascular and peripheral vascular segments and leveraged our business to report another quarter of solid earnings progress.

As expected, our atherectomy business declined in the first quarter, although we're beginning to see positive progress from the restructuring activities and strategic programs implemented during the quarter to improve our U.S. peripheral vascular sales force execution and productivity. I will discuss more of this in a moment.

In summary, I believe our first quarter 2009 results reflected an important action we have taken to penetrate our neurovascular and peripheral vascular markets and improve future performance in our atherectomy business and work towards our goal of achieving sustained profitability and cash generation.

Turning now to our neurovascular business performance, during the first quarter our neurovascular business grew 11% as we reported and 18% on a constant currency basis versus the prior year quarter. Within the neurovascular segment, products grew 17% on a constant currency basis led by the continued market penetration of our axiom coils and onyx liquid embolic.

Based on our progress, we believe axiom and onyx will continue to be the primary growth engines for our neurovascular business segment in 2009.

Building on the success to date we've had with our axiom coils, we are preparing to launch our axiom PGLA and axiom nylon microfilament coils which we expect to occur on a limited basis at the end of the second quarter with full launch during Q3. We believe these coils will be particularly appealing to neurovascular specialists who prefer a coil that combines the handling and long term implant stability of a bare metal coil with microfilament technology that may accelerate acute and long term healing and increase packing volume within the aneurism.

Speaking of future product launches, early results with our innovative solitaire platform look very promising. We plan to initiate a physician preference test in Europe using our solitaire device to assist in the treatment of aneurisms later in the second quarter. Additional solitaire sizes are in development and will follow later in the year.

We are also encouraged to see that the American Heart Association and American Stroke Association recently published a scientific statement on indications for performing endovascular procedures to treat aneurisms and other cerebral vascular disease such as acute ischemic stroke and arterial venus malformations.

With regard to aneurism, the statement indicates that coiling can be effective and is associated with greater reduction in procedural morbidity and mortality than surgical clipping in select cases. We believe that these guidelines along with the recent long term data from the ISA aneurism trial showing patients who's aneurisms are coiled instead of clipped, have better survival rate over five years will provide further evidence of support to continue conversion from surgical clipping and into endovascular coiling.

In summary, our neurovascular business is prepared to build upon its number two world wide revenue share position during the year ahead driven by continued penetration of our axiom coils and onyx liquid embolic new product introductions, expanded geographical presence and improved pricing.

Now turning to our peripheral vascular business, excluding atherectomy, our legacy peripheral vascular business grew 16% as reported and 20% on a constant currency basis. We saw strong sales growth in stents and embolic protection devices in the first quarter compared to the prior year quarter.

We continue to enroll patients in our durability two study with the objective of expanding our Ever Flex stents U.S. indication to include treatment of peripheral artery disease. The global launch of the Ever Cross and Antocross PTA balloons is progressing according to our plans. The products continue to be very well received and in fact, are considered higher performing than the product that we previously distributed.

Throughout 2009 we will be launching additional balloon sizes and expect to have a full compliment of balloon platforms by the end of the year.

With regard to our atherectomy business, as expected we continue to face competition and sales declined to $18.3 million in the first quarter versus $20.2 million in the fourth quarter of 2008. As we stated on our last call, our U.S. peripheral vascular sales team has been given a clear mandate to reinvigorate the Silverhawk business while continuing to leverage the power of our peripheral vascular portfolio.

During the first quarter, we implemented a number of proactive programs to improve our sales execution and productivity. These programs included the addition of dedicated Silverhawk specialists, consolidation of some smaller territories and certification of our entire U.S. peripheral vascular sales organization and management team.

Also in the first quarter, we hired 27 Silverhawk clinical specialists and now have approximately 120 U.S. peripheral vascular territory managers. We have initiated extensive training that will lead to certification of the entire U.S. sales team by the end of the second quarter. Additionally, we experienced turnover of less than 1% in our U.S. peripheral vascular sales organization in the first quarter.

We believe that the positive changes we have made in our U.S. peripheral vascular management along with supporting Silverhawk programs will continue to optimize territory and manager selling time and provide Silverhawk case support necessary to improve our performance in our atherectomy business.

You may recall that a year ago, our average annual peripheral vascular revenue was $1.3 million per territory. Since then we've made steady progress in raising our average revenue and are now at $1.6 million per territory. We are very confident that the programs we have put in place are working and expect to exit the year at our goal of $2 million per territory.

To continue to support more use of the Silverhawk plaque incision system, we continue to roll our definitive calcium U.S. clinical study and have recently enrolled our first patient in our definitive LE or lower extremity global study. We believe that the additional data generated by the definitive series will provide us with the clinical bridge to confirm the value of plaque excision will facilitate broader procedure adoption and establish Silverhawk atherectomy as a front line therapy.

I'm also delighted to report that EV3 was selected as the winner of the 2009 VHA service excellent award for Supplier of the Year. This award is presented annually by the VHA and Novation Hospital Purchasing Organization and recognizes EV3 for providing exceptional support and commitment toward helping VHA innovation member hospitals achieve their supply chain goals.

We are very pleased that our corporate accounts team has been recognized and we look forward to continuing to work with VHA innovation to further advance our corporate partnerships.

In summary, I'm confident we have the right alignment and strategic programs in place to achieve and sustain profitable growth, deliver further increases in operational efficiency and position us for future success in our business.

Shawn will now take us through a discussion of our first quarter financial results and guidance.

Shawn McCormick

Good morning everyone. Total net sales were $100.4 million in the first quarter of 2009, decreasing 1% compared to $101.3 million for the first quarter of 2008. Excluding research collaboration revenue of $6.2 million in the first quarter of 2008, first quarter 2009 net product sales of $100.4 million were up 6% versus net product sales in the prior year quarter, an increased 10% on a constant currency basis.

Changes in foreign currency exchange rates had a negative impact of approximately $4.3 million on first quarter 2009 net sales compared to Q1 of '08.

On a business segment basis, net sales of peripheral vascular products increased 3% to $66.2 million for Q1 of '09. Net sales included $18.3 million of atherectomy products in Q1 2009 compared to $22.7 million for Q1 of '08.

Stents and embolic protection device sales led the growth in our peripheral vascular business. Stent sales grew 17%, 22% constant currency to $28.2 million in Q1 of '09 primarily due to our Ever Flex family of stents. Thrombectomy and embolic protection device sales were also strong, growing 35% to $8.0 million in Q1 of '09.

In the neurovascular business segment, net sales of neurovascular products increased 11% to $34.2 million for Q1 of '09 compared to Q1 of '08 despite a significant negative impact from foreign exchange rates. On a constant currency basis, neurovascular products in the first quarter increased 18% over the prior year quarter.

Embolic products sales increased 9% to $19.6 million driven primarily by our axiom coil and onyx liquid embolic. Sales of neuro access and delivery products also showed strong growth, increasing 12% to $14.6 million in the quarter.

In the first quarter of 2009 we achieved an overall consolidated gross margin of 69.1%, an improvement of 230 basis points over Q1 of 2008 and 190 basis points over Q4 of '08 as we realized manufacturing efficiencies in connection with the previously announced consolidation of our Redwood City manufacturing operations, margin improvements associated with selling our own line of FTA balloons, and general production improvement initiatives.

Operating expenses excluding product cost of goods sold declined $6.7 million to $73.1 million in the first quarter of '09 compared to the first quarter of '08. SG&A expenses as a percentage of net sales declined to 55% of sales in Q1 of '09, a decline of approximately 4% points compared to Q1 of '08. SG&A expenses in the first quarter of 2009 include $3.4 million of expense to increase our reserves on the vacated Fox Hollow leased facilities.

Our research and development expenses were 12% of sales, or $11.6 million in the first quarter of 2009 consistent with the first quarter of '08.

EV3's net loss for the first quarter of 2009 was $1.8 million or $0.02 per common share compared to a net loss of $9.8 million or $0.09 per common share for the first quarter of 2008.

In addition to the $3.4 million lease reserve adjustment noted above, the net loss for the first quarter of 2009 includes a gain of approximately $4.1 million related to the divestiture of non strategic investment assets.

On a non-GAAP basis, EV3's adjusted net income was $7.1 million for the first quarter of '09 compared to $3.2 million for the first quarter of 2008. Non-GAAP adjusted net earnings per share was a positive $0.07 per diluted share which exceeded the previous range of guidance of negative $0.03 to $0.00 per diluted share.

The better than expected non-GAAP adjusted earnings were driven by higher revenues, improved gross margins; cost controls and lower than anticipated foreign exchange transaction expense.

Our cash balance as of April 5, 2009 was $66.9 million reflecting an increase of $7.3 million from our balance as of December 31, 2008. This increase was due to another positive quarter of cash provided by our operating activities and was further augmented by the divestiture of the non strategic investment assets.

In summary, our first quarter performance demonstrated the leverage in our business model. The results showcase our top line growth and control over the cost structure can translate into stronger margins and higher levels of cash flow.

Let me turn now to the financial targets for the full year 2009. As detailed in this morning's press release, we are increasing the bottom end of our revenue estimate and expect our full year 2009 sales to be in the range of $420 million to $430 million compared to $402.2 million of product sales in 2008.

Our guidance represents full year product sales growth of 8% to 10% on a constant currency basis. We expect foreign exchange rate fluctuations to have a negative impact of 3% to 4% on revenue growth.

We are also increasing our earnings per share guidance to $0.06 to $0.11 on a GAAP basis and $0.40 to $0.45 on a non-GAAP as adjusted basis before amortization, stock based compensation and other one time items.

EV3's adjusted net earnings per share guidance excludes estimated amortization expense of approximately $21.8 million, non cash stock based compensation of approximately $14.5 million, vacant leased facility reserve expense of $3.4 million and gain on divestiture of non strategic investment assets of $4.1 million.

For the second quarter of 2009, we expect net sales to be in the range of $102 million to $106 million compared to $101.5 million of product sales in the second quarter of 2008. We expect foreign exchange rates to have a negative impact of about $5 million to $6 million on sales compared to Q2 '08.

For the second quarter of 2009, we expect non-GAAP adjusted net earnings per share to be in the range of $0.06 to $0.09 per diluted share. On a quarterly basis, non-GAAP adjusted net earnings per share excludes estimates for amortization expense of approximately $5.7 million and non cash stock based compensation of approximately $3.6 million.

Our guidance is consistent with our previously stated goals to grow revenue at or slightly above market growth rates while achieving profitability and generating cash. With that update, we'd now like to open up the call to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first call comes from Joanne Wuensch – BMO Capital Markets.

Joanne Wuensch – BMO Capital Markets

Could we get into some fabulous gross margin expansion and pick through almost 300 basis points of expansion year over year, the sources of that. And you're guidance has been to reach at least 70% gross margins in 2009. It looks like you're well on your way there, maybe next quarter?

Robert Palmisano

I think the gross margin increase, what happened there is actually we got there a little bit quicker than we thought we were going to get there. We knew that we were well on our way. The elements that make that up really are about four things. One is the consolidation of our Redwood City facility into our Irvine facility and we had previously said that we expect that to be somewhere about $8 million to $10 million on an annualized basis. That's well on our way and we're getting the benefits of that.

Secondly is that the manufacturing of our own line of balloons rather than the previous distribution agreement we had with Invitech added to that. And thirdly, we've had a real good run in efficiencies in our manufacturing facility. And fourthly, I think some favorable product mix and geographical mix. Both played into that.

So we had said that, I remember saying a year ago when our margins were in the mid 60's that we anticipated getting to 70% and I think people thought we were a little bit crazy, but we think that we can get there and I would think that certainly by the end of the year, we should be hopefully slightly above the 70% level. So I think things are going well in that area.

Joanne Wuensch – BMO Capital Markets

My second question has to do with your neurovascular market share. You're clearly taking share. Can you give us an update on where you think those share gains are coming from and sort of the dynamics that will continue that momentum?

Robert Palmisano

It's hard to say. I think if you look at the market, by far Boston Scientific is the largest of the players and I think that when they reported, they actually said they lost some, so I think that we're probably getting some of that, but I think what's happened there is that the market dynamics are such that the axiom coil has really started to grab hold.

And it's really done, if I look at Q1 and axiom coil in the U.S. market has really done extremely well, and the U.S. market has always been a follower market to Europe in coiling. So I think that's really a good sign that the U.S. market is really picking up. I think that we have great products. We have new products in the pipeline that we're going to introduce at the end of Q2 that should further accelerate that.

Operator

Your next question comes from Jason Mills – Canaccord Adams.

Jason Mills – Canaccord Adams

I wanted to follow on Joanne's question which is a good one on gross margin expansion. I'm wondering those four things that you ticked off that you saw helped the gross margin expansion in the quarter, I'm wondering if you could give us a sense quantitatively of where you are in terms of exhausting the impact from those elements in terms of the Redwood City facility. Have you already reached that annualized run rate of $8 million to $10 million on an annual basis or do you have more blood to squeeze from that turnip? The same can be said about your balloon line given that you have not launched the full line of products. I'm wondering if you could just give us a bit more color on each of those elements and what contribution is still left to gain.

Robert Palmisano

I would say that in each one of those four things there is still more. How much more, as I said I think we could get to slightly above the 70% target by the end of the year. We also have I think some opportunities ahead of us in pricing that are out in front of us.

You always have to balance that out in making sure that as you introduce new products you don't build up obsolescence in your old products and those kinds of things. So we're not going to be too greedy here by any stretch of the imagination, but I do think of all the elements that go into gross margin, I think there are opportunities in all of them to grow gross margin even further.

Jason Mills – Canaccord Adams

You've been at EV3 a relatively short time and there's been a significant amount of progress in the middle of the P&L. It seems to me though based on your revenue run rate where your gross margins that you've been able to get them to over the course of the year, near 70% that there is still perhaps the most fat to trim in the middle of the P&L. Perhaps you could talk a bit about your expectations or your plans for the business as you look forward 12 to 18 months. Can we see this same sort of success in the middle of the P&L that you've been able to attain in a relatively short period of time on the gross margin line?

Robert Palmisano

I think in our operating expenses actually in Q1 of this year are lower than they were in Q4 and we see a lot of opportunity there. I think that a year ago our SG&A expenses were in the high 50's and I think that by the end of this year they should be in the high 40's so I think that we do have opportunity there while still maintaining the other part of this, is that we want to grow revenue.

Our revenue targets are to grow at or slightly above market rates which we see in the neurovascular business about 15% annual and about the peripheral vascular about 6%. So we should be able to beat those revenue targets while at the same time bringing our operating expenses down and increasing our gross margins. That's what we're working on.

Jason Mills – Canaccord Adams

On peripheral vascular side, I'm wondering if you could help us out with what's going on in the referral streams specifically for peripheral artery disease procedures, what you're doing to instigate additional referrals in that referral stream. I believe you're working with a partner there. Maybe an update on that front would be helpful and then overall what you're seeing among your customers in terms of procedures for patients that come in and perhaps in the past would have definitely been directed for an atherectomy procedure. Are you still seeing growth in the atherectomy market? Are you still seeing growth in overall path procedures?

Robert Palmisano

I think that the atherectomy market is flat. I don't see that growing but I don't see it decreasing either. Recently we had a Board meeting and went into some detail as to what affect is the macro economic environment having on our business and there is some anecdotal stuff out there that maybe procedures in some practices or some hospitals may be slower. And maybe there's more anecdotes in Q1 than there was in Q4.

But I can't say that we have any hard data to indicate that procedures are in any way affected by the macro economics. I would say that atherectomy is flat. We expect however, our atherectomy business to pick up through the year. We said in Q4 we expected that in Q1 as we got reorganized here and re-emphasize atherectomy that the decline that we saw in the later part of '08 would continue.

We expect that to flatten out certainly in Q2 and then increase back up in Q3 and Q4. We've added 27 clinical specialists, Silverhawk specialists to help in procedures. So I think atherectomy currently is flat. We expect our business to be picking up from here on for the remainder of the year in atherectomy.

Regarding your question on referrals, it's pretty much constant. We continue to have a relationship with Biomedics although it's not certainly something that's driving that business we feel at this point. It's more still a physician led business than something we influence from the outside.

But overall, the peripheral market business has growth to it. On a world wide basis, if you look at it on a constant currency basis, we're looking at about a 10% or so which is pretty darn good. So I think in our atherectomy business we think is really showing some good signs.

One interesting fact in atherectomy in Q1, every single territory manager we had in the field actually sold atherectomy which is a big increase over where it was in Q4 of last year, so we're making progress.

Operator

Your next question comes from Chris for Michael Weinstein – J.P. Morgan.

Chris for Michael Weinstein – J.P. Morgan

Following up on some of Jason's questions, with the atherectomy segment and this specialty sales force that you're constructing, how is their comp going to be structured? How are you going to judge the success of this team six, twelve months from now?

Robert Palmisano

We have really revamped the comp program in our territory manager level. Previously, they were fairly indifferent as to whether or not which products they were selling. We certainly have revamped that and now really put more of the incentive towards atherectomy. Combining that with a lot of additional training that we think is necessary and put a certification program in place so that everyone now has to be certified to fully competent in atherectomy.

The 27 clinical specialists are part of that. They are really to help physicians do cases and help them in the labs themselves. So we previously had a group of about 10 people that tried to cover a lot of cases as well as territory managers. That took territory managers out of the field and put them in labs.

Now we're just having specialists do that. Having territory managers free to sell more and have more knowledge of atherectomy. So I think this is I think, we did a lot of research. We analyzed our business from top to bottom. We really knew where we were at the end of last year and what had happened to the business throughout the year, and we set up a whole series of things to reinvigorate the business that would take effect through 2009.

Q1 was where we actually put all those things into place and we think we'll be reaping the benefits of those throughout the year.

Chris for Michael Weinstein – J.P. Morgan

You talked a little bit about the seasonality through the year of that business. Now you expect it to flatten out and then ramp back up. On the 4Q call you had said that you expected overall for the year sales to be about flat with where they were in '08. Is that still a reasonable assumption?

Robert Palmisano

Yes.

Chris for Michael Weinstein – J.P. Morgan

Touching on the gross margin improvement one more time, is Silverhawk still an above average gross margin product for the company and could that be a source of additional upside if that business gets back on track?

Robert Palmisano

Yes. Silverhawk is a high gross margin product and the more that mixes towards atherectomy, the better it is for us.

Operator

Your next question comes from Raj Denhoy – Thomas Weisel Partners.

Raj Denhoy – Thomas Weisel Partners

I'm wondering if I could ask about the U.S. versus international split in the quarter. It looks like the U.S. sales were only up approximately 2% and that's down significantly from what it was last quarter, I think it was 14%. International is quite strong but I'm curious what's going on in the U.S. market relative to international where that growth rate would diverge like that?

Shawn McCormick

It is only 2% in the U.S. and that's largely driven by the atherectomy being down. Peripheral vascular growth excluding atherectomy was up 16% overall and obviously the atherectomy business in primarily a U.S. business. I don't have the exact number of the U.S. excluding atherectomy but it's much better than the 2%.

Raj Denhoy – Thomas Weisel Partners

So that 2%, does that exclude the Merck royalty? Is that the difference there or does that still?

Shawn McCormick

Actually the 2% also includes the research collaboration.

Raj Denhoy – Thomas Weisel Partners

Perhaps I could ask about the balloon, the transition to your own balloon line. I don't think you gave us a number in the quarter for peripheral balloons. Can you give us some indication of how that's progressing?

Shawn McCormick

I would say we're not disclosing the balloon revenue per se but our plans on that transition to our own balloons is progressing very well and is on track versus our internal plans.

Robert Palmisano

Just a little color on that is that the big benefits there are two. First of all, margins are significantly higher with our own line of balloons and secondly, the ability to penetrate international markets that we did not have with our previous agreement are things that are driving that.

So I think all that's good and we should see when all that is in place and we have the full number of sized by the end of the year is that this is really a good news story for us.

Raj Denhoy – Thomas Weisel Partners

I think you mentioned that the peripheral vascular sales force, you only saw 1% turn over in that sales force in the quarter. Can you give us some context of what that had been running?

Robert Palmisano

That was a big issue with us last year when we lost, we had turnover of about 40% I think in our U.S. peripheral vascular sales team. A lot of those people were very, come from the former Fox Hollow company and were very good at selling atherectomy. They went to a competitor most of them and that played havoc with us last year, that turnover.

I think that's all stabilized now. We had turnover of less than 1% in the first quarter and we think that we're in good shape for the rest of the year there.

Operator

Your next question comes from Thomas Gunderson – Piper Jaffray.

Thomas Gunderson – Piper Jaffray

Let me follow up on Raj's question on balloons and see if we can just get some sort of milestone out there. Obviously as you go through this transition and it does have benefits but it takes a little time to make up the loss of the distributor. At what point in 2009 do you think you'll be back to a level of balloon revenues that you were at this time last year or mid year?

Robert Palmisano

I think by the end of the year we should be close to it. You have to add in the fact that we do have international sales coming in that we didn't have last year, so I would think our plans are that by the end of the year we should be back pretty much to where we were.

Thomas Gunderson – Piper Jaffray

The non strategic investment asset that you sold for a profit, what was that?

Shawn McCormick

We've agreed not to disclose the specifics of that asset. It was a non operating asset that's been on the balance sheet for awhile.

Thomas Gunderson – Piper Jaffray

On the axiom, you're obviously doing well with neurovascular. You're taking share. It's a nice business for you. I think you talked about in previous quarters about lowering the price or right sizing the price of axiom. Did that take place and when?

Robert Palmisano

Actually we think that there's pricing opportunities.

Thomas Gunderson – Piper Jaffray

I'm sorry. It was priced originally too low and you were going to upsize it.

Robert Palmisano

It was introduced than competitive coils. We took some steps last year to get that back where we thought it should be. I think there's still some opportunity that we can take this year. In general I think that we have been a little bit timid on our pricing and I think that we're not going to be greedy, but I think we should be getting better pricing and superior pricing where we have superior products.

Thomas Gunderson – Piper Jaffray

Do you a breakout of the neurovascular embolic gain split by units and price?

Shawn McCormick

The short answer to that is no I don't have a breakout between units and price in terms of the growth.

Thomas Gunderson – Piper Jaffray

Bard launched Life Stent and is rolling that out as we speak. They get to actively market an SFA stent. How have you changed your marketing tactics with not a new competitor but one that maybe has a competitive advantage from the labeling standpoint?

Robert Palmisano

We haven't seen much of an effect. Our business is up and doing well. We don't market our stents for SFA indication. They certainly can. We have a study going on and I certainly would rather be in a position once our study is done to be able to actively market.

I think the big advantage that Bard has is a pricing advantage quite frankly. I think that they've been pretty aggressive in their pricing.

Operator

Your next question comes from David Lewis – Morgan Stanley.

David Lewis – Morgan Stanley

This is the first time I've seen in the last three quarters that SG&A is actually up. What should we expect for the outlook here for 2009? Should we expect that this represents a new trend line for SG&A or do you still believe SG&A can trend down from these levels?

Shawn McCormick

First, I know it is up slightly but that includes the $3.4 million of additional lease reserve that gets us to about the 55% threshold. If you back that out we're at about 52% and that is, we're actually down in gross dollars, so that increase in percentage is driven by the lower revenue versus the fourth quarter.

We expect as Bob said earlier, we would expect as we go through the rest of the year here that we'll exit the year below 50%.

David Lewis – Morgan Stanley

On absolute basis, I was more interested in. When Bob was talking high 40's he meant percents? On an absolute basis should we expect something in the mid 50's to high 50's for SG&A?

Shawn McCormick

I'm not sure the mid 50's to high 50's.

David Lewis – Morgan Stanley

In the millions of dollars of SG&A.

Shawn McCormick

I think with where we're at in the quarter, the low to mid 50's in terms of gross dollars on a quarterly basis is a reasonable expectation.

David Lewis – Morgan Stanley

You talked about $1.6 million revenue per rep I believe on this call. Where can that number be by the end of the year?

Robert Palmisano

Our goal is $2 million. Right now we're saying we should be at that rate as we exit 2009.

David Lewis – Morgan Stanley

In terms of neurovascular business has been extremely strong. Maybe we saw some slight growth this quarter. What expectations have you made in the model in the back half of the year? I think one of your larger competitors you have been taking share from is going to re-launch a significant number of new products. How much conservatism is baked into the back half of the year for that competitor?

Robert Palmisano

We think that our neurovascular business will continue to grow at above market rates. We're looking at 15% plus growth rates in that business. We had a very strong quarter in the U.S. in Q1. Perhaps that might slow down slightly throughout the year, but we also have some additional new product launches that should help us in the back half of the year. So all in all, very, very bullish on the neuro business and our ability to continue our strong growth and continue to take market share.

David Lewis – Morgan Stanley

Over the last couple of years there's been a lot of pronouncements of sort of the trough of the Silverhawk business. It sounds like you believe, you're much more confident that trough is going to occur sometime here in the second quarter. Can you walk us through what provides you the confidence that the second quarter will likely prove a trough for that business?

Robert Palmisano

A couple of things; first of all is that the amount of energy that we have put into fully understanding that business, retraining the entire organization to make them clinically competent and being able to recommend Silverhawk as a front line therapy, the addition of 27 clinical specialists to be in cases day in and day out that we didn't have last year, revamping of our comp program to help us generate additional sales in that business.

And the signs are very strong right now. As I said the fact that every single territory manager actually sold Silverhawk in Q1 as opposed to about 60% in Q4, shows that the message is out there. People are being trained and being more comfortable. Our goal is to get back to where we were in the number of people who use Silverhawk a lot.

We don't have to increase the number of physicians that use Silverhawk. What we need to do is increase the number of times they use it and that's what fell off when we really analyzed last year. What feel off is that doctors who used it frequently were using it less frequently, and now we're back with them with a lot of support, clinical specialists to help them, and the signs are very good.

So I feel that we have reached that trough and that's why we feel confident that this business should be picking up throughout the end of the year.

Operator

Your next question comes from [Brian Kennedy – Jefferies & Company]

[Brian Kennedy – Jefferies & Company]

Has there been a change in the ASP on the Silverhawk?

Robert Palmisano

No. We have not had any major ASP changes in the Silverhawk or actually any other aspect of the business at this point.

[Brian Kennedy – Jefferies & Company]

What was the difference in selling days year over year? Do you have that there?

Shawn McCormick

We had three additional days in the first quarter of '09 versus '08. We actually don't believe though given when the holidays fell, we feel that the holiday schedule actually mitigated the impact of those additional days.

[Brian Kennedy – Jefferies & Company]

Going back to the earlier question about the U.S./International mix, what's a good percentage to think about for percentage of total revenue for the international business by year end or longer term?

Shawn McCormick

We're currently running about 60% U.S., 40% international, rough numbers. As we said previously we do feel that the international business will continue to grow strongly for us especially in the neurovascular side and so we expect that mix will increase slightly going forward.

Operator

Your next question comes from Joshua Zable – Natixis.

Joshua Zable – Natixis

In general, neuro market, you said neuro market growth is 15%, just want to confirm that and then also I know you made some comments about coiling versus clipping, at least a statement made and I know you also said you seem to be taking market share. Is the market in general kind of moving towards more coiling also? Is that kind of wind at your back or you haven't seen that yet?

Robert Palmisano

We do think the market is around 15%. This is not an exact science as you go around the world, but that's the best estimate we can get which is pretty good growth. So expect to grow at or above that.

Coiling seems like the predominant method of treating these hemorrhagic aneurisms in most of Europe and international markets. It's probably 50% or less than the market in the U.S. currently, although we think that that is changing and that's why I think we had a lot of strong growth in Q1. Our U.S. sales were up significantly versus a year ago and that's really coiling more than anything.

So we think that as more U.S. surgeons use coiling that will help us, although this is not an easy thing. It adds about two years of training to a surgeon to do coiling as opposed to clipping and so that it's not an overnight thing. It's more of a gradual thing, but the signs of the growth that we had in Q1 are very positive. So we do think that there's more coiling done now in the U.S. market than had been done previously.

Joshua Zable – Natixis

On atherectomy, I know you talked a lot about it. Just a little bit more color here, because I know nobody really talked about the competitive landscape. It seems like you're saying that your focus and your service and your better sales force are more prepared sales force and more focused sales force is the reason why you kind of believe you can grow this or trough it out here. Can you talk a little bit, maybe are you guys seeing competitive landscape changing in terms of getting back some share or anything else along those lines?

Robert Palmisano

It's a little bit early for that. Maybe at the end of the next call or two we'll be able to have a better fix on that. Our objective really was to get our atherectomy business headed up and as a result of the merger last year and a lot of turnover in our organization and perhaps not the attention that we should have paid atherectomy, our business declined.

We do have more competition for sure, but I feel really good about the fact that we really understand that business, that we put in place a lot of programs that are fundamentally sound and I feel very good about the fact that this business will be headed in the positive direction in the next couple of quarters.

Joshua Zable – Natixis

Can you give us an update on Rockhawk and then your ability to what the enrollment is?

Robert Palmisano

Rockhawk, the definitive trial is ongoing. I think it's progressing well. We expect that will probably be early 2010 approval as it now looks so I think we're right on track on that. That study is done in combination with Spider which we think is a big advantage by the way.

Secondly regarding durability, I think our enrollment has picked up quite a bit in the last quarter. I don't know the exact number of enrollees. That's still a major study, a lot of investment in that area and I think that we're targeting 2012 something like that for that approval, and we're still on track for that.

Operator

At this time there are no further questions in queue. I would now like to turn the call back over to Mr. Bob Palmisano for closing remarks.

Robert Palmisano

As you can probably tell from our tone, this is a very exciting time at EV3. We believe we have the people, products, process and passion to build EV3 into a powerful world wide endovascular company and increase our share in the $2 billion world wide market.

We will remain focused on achieving our annual financial goals which include achieving sustained profitability and intensifying our management processes. At the same time, we continue to invest in those vital few programs that we believe will give our company a solid competitive advantage over the long term and support the creation of superior, long term value for our shareholders.

Let me close by thanking the entire EV3 world wide team for their efforts during the first quarter as we work toward fulfilling our vision to be the best at identifying and treating lower extremity arterial neurovascular disease.

Thank you for listening today and for you interest in EV3. I look forward to reporting on our progress throughout the year. Thanks.

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