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Executives

Dave Martin - President and CEO

Larry Betterley - Chief Financial Officer

Analysts

Danielle Antalffy - Leerink Swann

Jose Haresco - JMP Securities

Deepak Chavlagai - Dougherty

Ben Haynor - Feltl and Company

James Terwilliger - Benchmark Company

Cardiovascular Systems Inc. (CSII) F3Q2013 Results Earnings Call May 1, 2013 4:45 PM ET

Operator

Good day, ladies and gentlemen. And welcome to the Third Quarter 2013 Cardiovascular Systems Inc. Earnings Conference Call. At this time, all participants are in listen-only mode. Following the prepared remarks there will be a question-and-answer session. (Operator Instruction)

I would now like to turn the presentation over to Mr. Larry Betterley, Chief Financial Officer. Please proceed.

Larry Betterley

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

Actual results could differ materially from those stated or implied by our forward-looking statements, due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q. CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise.

We will also refer to non-GAAP measures, because we believe they provide useful information for our investors. Today’s news release contains a reconciliation table to GAAP results.

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

Dave Martin

Thanks, Larry, and hello, everyone. On the heels of our solid second quarter, we delivered another quarter of strong financial results and compelling clinical data. Our focused sales strategy and educational initiatives drove adoption of our easy-to-use technology with peripheral arterial disease or PAD. We drove adoption with physicians in both the hospital and the office-based settings.

The medical community is very excited about the data we represented from our ORBIT II study of severely calcified coronary lesions at the 2013 American College of Cardiology Conference or ACC.

Coronary calcium is an extremely underserved problem. Our 30-day ORBIT II results in this very challenging patient population demonstrate the outstanding potential of our technology.

Moderate to severe calcium is present in nearly 40% of those treated for coronary artery disease or CAD. Moreover, it is present in about 65% of the 2.5 million people diagnosed annually with PAD.

Calcium can lead to poor outcomes and higher treatment costs when traditional therapies are used. Our mission is to conquer calcified arterial disease in both legs and the heart. This is a large opportunity for CSI.

Building on that success, the ACC, we submitted a premarket approval, or PMA, application to the FDA for our orbital atherectomy system to treat calcified coronary arteries. This marks another major coronary milestone for CSI, as we drive for an application in this 1.5 billion market opportunity.

Briefly, I’d like to reiterate the three goals that drive us as the company, expand the use of our Stealth system as the first option for treating arteries, including calcified arteries in the peripheral market.

Build on our base of scientific data that supports the safety, effectiveness and economic benefit of our products. Obtain approval for coronary application which would allow us to address a large unmet need in treating calcified coronary arteries.

The CSI team further advanced these goals during the fiscal quarter, specifically revenues rose 25% year-over-year and 5%, sequentially. Stealth 360° revenues grew to more than 96% of total device revenues, most of our customers are now converted to the new system. Office-based lab revenues continue to grow demonstrating success at both hospital and office-based lab settings.

The ORBIT II data that we presented at ACC, show that our technology exceeded the trials to primary safety and efficacy end points, and by significant margin. We completed our PMA submission to treat coronary arterial disease on March 15th.

This was really a monumental effort from our entire team, special heart full of thanks to each and every CSI employee, every physician partner and their teams, and we successful closed our $38 million public stock offering, providing the funds needed to implement our growth strategies.

Now, Larry, will provide more details on our financial results and then I will come back to recap additional clinical and research activity before we take your questions.

Larry Betterley

Thank you, Dave. As Dave said, CSI reported a strong quarter. For the third quarter of fiscal 2013 compared to a year ago, revenues grew 25% to $26.5 million. This was at the top end of our guidance that we provided last quarter. Device revenues were 87% of the total. We sold more than 7,300 devices bringing the life-to-date total sold nearly 110,000.

Reorder revenues remained high at 96% of total revenue, compared to 97% last year. We added 50 new accounts compared to 41 in a year go period. Our Stealth 360° customer grew -- base grew 10% from the second quarter this year to nearly 1,000 accounts. Stealth now comprises 96% of our total device revenues.

Other product revenues rose at a higher rate than total revenue to $3.3 million from $2.2 million last quarter -- last year, primarily due to strong Asahi Wire sales.

Gross profit margin was 76% similar to both last year and to the second quarter of this year. The positive effect of higher production volumes was partially offset by the Stealth’s higher unit costs and additional costs incurred this year to ramp up CSI’s manufacturing facility in Texas for additional future capacity. The margin was also affected by a slightly lower ASP.

We expect engineering enhancements to Stealth and increasing production volumes to reduce unit costs in the future. However, manufacturing and investments to prepare for our coronary launch are expected to offset these gains in the near-term.

Operating expenses rose 30% over last year, slightly less than planned. Approximately, $4.1 million was for the ORBIT II trial and preparation for coronary launch. We also made investments this year for competitive enhancements to sales and marketing, and expansion of medical education programs to drive PAD adoption. All of these investments are geared towards generating higher future revenues.

The medical device tax also became effective on January 1, and expense of $466,000 is included in SG&A for the quarter.

Net other expense increased $338,000 to $808,000 mainly due to cost associated with $4.5 million of debt conversions and valuation changes in the related conversion option asset. The resulting net loss of $6.2 million or $0.29 per share was better than our guidance and compares to a loss of $4.2 million or $0.23 per share last year.

In the third quarter, we raised approximately $38 million in a public offering of common stock and $4.5 million redraws on our convertible debt line, proceeds will be used to fund growth investments in coronary launch preparation, clinical studies and international expansion, as well as in sale and marketing professionals, clinical studies and education programs to further drive PAD adoption. Result was the cash of nearly $70 million at quarter end which is sufficient to fund our current growth strategies.

The number of weighted average shares outstanding rose to 21.5 million from 18 million last year. This is due to equity offering issuances of 1.8 million shares in the fourth quarter of fiscal ‘12 and 2.3 million shares in the recently completed quarter, as well as the issuance of stock from debt conversions employee stock plans and warrant exercises.

Adjusted EBITDA calculated as loss from operations, less depreciation and amortization of stock-based compensation expense was a loss of $3.3 million, compared to $2.3 million last year. The increase was driven by higher operating loss partially offset by higher stock compensation expense. Excluding investments for the coronary application of about $4.1 million, adjusted EBITDA for the PAD business was positive for the quarter.

For the nine months ended March 31, 2013, compared to the prior year revenues rose 26% to $75.1 million, reorder revenues were 97% of total revenue, compared to 95% last year. The gross margin was comparable to the prior year at 77% for reasons similar to the quarter. Operating expenses increased 31% to $73.4 million again for reason similar to the quarter and included $12.6 million for the ORBIT II trial and coronary launch preparation.

Interest and other expense was similar to last year $1.5 million. The year-to-date net loss totaled $17.2 million, or $0.82 per share, compared to a loss of $12.2 million or $0.69 per share last year. The average shares outstanding grew by 3.1 million shares to 20.9 million due to the same factors noted for the quarter.

Adjusted EBITDA loss was $9.7 million versus $5.9 million last year and again, was positive for the PAD business, excluding the coronary investments of $12.6 million.

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

Dave Martin

Thanks Larry. I’d like to detail the ongoing clinical progress we're making and this really centers around two key events. The 30-day ORBIT II data we presented at the ACC and our recent PMA submission.

First, ORBIT II, as you all know we completed ORBIT II enrollment of 443 patients at 49 U.S. medical centers in November of 2012. The study itself is evaluating the safety and effectiveness of CSI’s orbital atherectomy technology in treating patients with severely calcified coronary lesions.

This the first Investigational Device Exemption study in history to evaluate this problematic subset of patients. Past studies have not attempted to treat severely calcified lesions and it’s due to the challenge, particularly the challenge of meeting end points in overall treatment success.

At the American College of Cardiology meeting lead investigator Jeffrey Chambers -- Dr. Jeffrey Chambers of the Metropolitan Heart and Vascular Institute in Minneapolis presented our ORBIT II data.

This data show that our technology achieved a 30-day freedom from major adverse cardiac events at a rate of 90%. We achieved less than 50% residual stenosis, 99% of the time and we achieved the success -- a successful stent delivery rate of 98%.

According to Dr. Chambers, while treatment of severely calcified coronary arteries remains a challenge, 30-day ORBIT results demonstrate that CSI’s orbital atherectomy system maybe a significant treatment advance for this patient population.

Following the release of our pivotal ORBIT II data we submitted our PMA application to the FDA. The FDA agreed to a modular PMA process that allowed us to submit the first two modules covering preclinical data and manufacturing quality systems, while still collecting, compiling and analyzing the clinical data. We have now submitted the third and final PMA application module, as well as responses to FDA comments on the first two models, which were submitted in late 2012.

The medical community and everyone at CSI is very excited about the ORBIT II results and our PMA application. We look forward to working with the FDA on the potential coronary indication for this most challenging, underserved and large patient population.

We are frequently asked what -- when do you expect FDA approval and when we can launch our products in the coronary market. If the FDA does not require panel we may have approval by the beginning of calendar 2014.

In the meantime, we are hard at work running the organization for the support move and we are educating physicians on dangers of arterial calcium for patient outcomes.

Now, I’d like to detail our outlook for the fiscal fourth quarter ending June 30, 2013. We anticipate revenue to be in the range of $26.7 million to $27.7 million, representing year-over-year growth of 17% to 21%.

CSI’s gross profit as a percentage of revenue should be similar to the third quarter of fiscal 2013. While we expect to see improvement in Stealth 360° component costs and increased utilization of our manufacturing facility, these improvements will be offset by cost to prepare for coronary launch.

We anticipate operating expenses to grow 7% to 8% over the third quarter fiscal 2013. We are investing about $4.5 million in ORBIT II trial and preparation for the coronary launch. We are also in physician and sales education.

Interest and other expense should be about $325,000, excluding the effect of debt conversions or valuation changes of the related conversion option asset.

Resulting net loss are expected to be in the range of $6.8 million to $7.4 million or loss per common share ranging from $0.28 to $0.31. This assumes 24.2 million average shares outstanding and again this excludes potential effect of conversions or valuation changes related to that to our convertible debt.

To conclude, we continue to make growth investments in the coronary launch preparation and the studies, as well as the clinical programs and education programs to further drive preferred option. Investing in these opportunities will help us realize the full potential of our technology, support ongoing attractive revenue growth and lead us to profitability over the long-term.

Thanks for participating in today's call. Operator, we would now like to take questions from the participants.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Danielle Antalffy with Leerink Swann. Please proceed.

Danielle Antalffy - Leerink Swann

Hi guys. Can you hear me okay?

Larry Betterley

We can Danielle.

Dave Martin

We can Danielle.

Danielle Antalffy - Leerink Swann

Great. Thank you so much and congrats on a great quarter. It might be a little bit early to ask it but let’s try anyway and this kind of thing developed on the fiscal 2014 outlook understanding that you can provide third guidance yet. But obviously 2013 has been a year of very strong growth but at least half of fiscal 2014, you’re unlikely that you have the incremental indications approved. So just directionally speaking from a growth perspective, can you walk us through the drivers of 2014 growth and how we should be thinking about it versus 2013?

Dave Martin

Sure. I start maybe, Larry will finish. We’ve got a really healthy preferred business. Our execution in the field are delivering our value proposition. We just set up technology, the ability to treat multiple lesions per device including the most difficult lesions and CALCIUM and small vessel, treating those vessels that are critical to outflow and a great result. And most of our safety profile?

Driving those technology attributes with education of our sales force and physicians and continued clinical proof sources. That will be the driver for 2014 while we invest in coronary. So we do have some timing, risk with the coronary but we’re very confident that we will be strong double-digit growers based on the peripheral alone in 2014.

Danielle Antalffy - Leerink Swann

Okay. Okay. That’s great. And then my second question is related to coronary, if you guys were to have a panel. Are you -- how much incremental costs would that be and how do we think about timing for the panel. Any sense sort of FDA conversations should be? What -- whether you are leading one way or another, I know you talked in the past, you said you didn’t think that they were actually the panel?

Dave Martin

Yeah. We aren’t expecting a panel but we don’t know that for sure. There is a 100 day meeting with the FDA scheduled for the end of June. And we should get an indication than whether we would go to panel router or not. As far as cost go, we have to see what the questions are and what we need to do to prepare for that. So I don't really have an estimate at this point. Panel could take longer. I think on average with panel is 320 days versus the 180 that we've been discussing without panel because those are averages and there is quite a variation in those numbers.

Danielle Antalffy - Leerink Swann

Right. Okay. And one last question, we’re using the ORBIT coronary indication, the only other competitor in that space would be Rotablator, a cheaper device. How do we think about the Stealth versus Rotablator. Obviously Stealth is better but from a competitive positioning standpoint, how do we think about that?

Dave Martin

Yeah. It’s completely different. There has never been an orbiting technology with the utility of our device in the safety profile. And that’s the reason that over a very long period of time, over a couple of decades, that old device which has its highly different attributes and a different safety profile. It hasn’t been able to penetrate this market the way that we will.

Danielle Antalffy - Leerink Swann

Okay. Perfect. Thanks guys.

Operator

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

Jose Haresco - JMP Securities

Hi guys. Good afternoon.

Dave Martin

Hey, Jose.

Larry Betterley

Hey, Jose.

Jose Haresco - JMP securities

Can you hear me okay?

Dave Martin

Yeah, we can.

Larry Betterley

Yeah, we can.

Jose Haresco - JMP securities

A couple of housekeeping questions. You added 50 new accounts in the quarter. That’s up from 48 but again higher than we had thought of. Is that 50 -- should we think about 50 as kind of the new run rate here for new accounts added in many given quarter?

Larry Betterley

We still target around 40 with office base labs, we are generating a few more than we had in the past. But I’d say somewhere in that 40 range.

Jose Haresco - JMP securities

Okay.

Larry Betterley

As you know, anywhere from something in the 30s to the 50s. So I wouldn’t say this is abnormal just a little more in the high end of our normal range.

Jose Haresco - JMP Securities

Okay. Larry mentioned that ASPs were down a little bit in the quarter. Could you give us a number and then how was that compared to last quarter?

Larry Betterley

Yeah. Our ASP for the quarter in total was $3163 and that’s 1% decline from where it was last year this time. Again, earlier this year, we had been gaining because we’re getting a higher mix at Stealth which was premium priced. Now we’re substantially all Stealth. So you’re going to see some variability in that quarter to quarter…

Jose Haresco - JMP securities

But -- and the second quarter results were on 31,00?

Larry Betterley

It was actually increased about 1% from the second quarter. It was 31 to 39.

Jose Haresco - JMP securities

Okay. The other product revenue was higher than expected because of the Asahi wires. What led to the strength in the quarter? Is there some sort of growth, and actually when you start taking into consideration of that line item?

Dave Martin

Yeah. It’s great market expansion. Asahi makes great wires. They go a lot of places and there is more physicians doing tibial and [atpha] work that work in small vessels below the knee that previous to our ORBIT technology, just wasn’t being done. So that’s what we see as expanded usage of our device for having that great wire in the tibial and [atpha] orders.

Jose Haresco - JMP securities

Okay. Got it. Again right now, we think we are not giving guidance for next year. How should we think about the M&A spend for ‘14 as you start to build up that infrastructure?

Dave Martin

Could you repeat that -- the question, Jose, I didn’t hear it?

Jose Haresco - JMP securities

Sure. Sorry about that. How should we think about the MD&A line for next year?

Dave Martin

I got a little bit interference there. Please try one more time?

Jose Haresco - JMP securities

Sorry, about that. Okay. I’ll try to say again. How should we think about op -- the SG&A expenses for next year?

Dave Martin

I don’t know if it’s our line or yours but I think you said how should we think about expenses for next year.

Jose Haresco - JMP securities

Yeah. The SG&A for sales and marketing.

Dave Martin

Yeah. We’re going to have a little ramp up, maybe increased over this year in that period before quarterly clearance. And what we’re doing is hiring those 20 individuals that will start us off in the limited coronary launch host clearance. We will also be working on a follow-on study, the technique optimization study.

In addition on the peripheral side, we will be starting the livery study which has been a long-term in planning and we are very anxious. We’ve actually slept for first 10 sites for that as well as other education in both physician and employee in advance of the coronary clearance.

Jose Haresco - JMP securities

Okay. Great. Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Deepak Chavlagai with Dougherty. Please proceed.

Deepak Chavlagai - Dougherty

Good afternoon, guys.

Dave Martin

Hey, Deepak.

Deepak Chavlagai - Dougherty

Thank you for taking my questions. So the growth in the PAD business, that has been pretty strong in the last four, five quarters. Has it still continued to be on the office-based labs side? What’s the segmentation there?

Dave Martin

Yeah, it’s both. It’s both the hospitals and we got great utility and a great story there. But we cannot treat a great expensive vessel runway and that’s good for clinical outcomes and because we could treat multiple lesions in those most difficult to treat lesions and we could that safety.

We just have a fantastic economic source. We estimate good growth in the hospital and then the office-based labs, which is just a tremendous opportunity for patients and their families to get treatment in different sites and more local sites in a really friendly environment.

We are behind that 100%. We had growth in that segment. Again, we will continue to have growth. In overtime, you will see CSI focus on program specific to that site and the need for that site and patients who go to the office-based labs as well as new products and other streamline things to enable more treatment for peripheral arterial release at the office-based labs.

Deepak Chavlagai - Dougherty

Okay. And on the CAD side you said, obviously you are hiring a dedicated sales force. Are you still focused on select accounts to begin with and go from there? If you could just give us any thought on the sort of the rollout strategy that certainly would be helpful?

Dave Martin

Yeah. That’s great question. It’s going to be focused. We are going to focus on the top institutions in the U.S., 75 or less over the first couple quarters. We are going to do that with a dedicated team of 20 individuals to start at least half of those will be some of our top guns from our very successful peripheral team. We will be looking to optimize techniques and to have a real quality experience out of the gate. We will have follow-on studies in mind, so it would be a very focused but high quality long strategy in the first four quarters with some intensity on those first two.

Deepak Chavlagai - Dougherty

And so will you replace the half that you bring from your current team or…?

Dave Martin

Yeah.

Deepak Chavlagai - Dougherty

Okay. Sounds good. One last, when you think of the timeline based on your meetings with the FDA, if there wasn’t the panel meeting, do you still expect to go to next year or do you think that could be an approval late this year.

Dave Martin

Well, we have to get ready for approval late this year. That would be good news that we are all anxious to get. It’s a range as you know and we don’t really know. But we’ll have to get approval and calendar 2013 will be ready for that. We are warming up and investing right now in every which way and it comes a bit later. The good thing about our focus strategy is that wealthy of our key tips with expenses. So we think we’ve got measured approach that allows for good news and eating a little bit of the delay, good news.

Deepak Chavlagai - Dougherty

Okay. I guess one last one. When you launch your PAD business, obviously you didn't have the sales structure of the caliber that you have today, the maturity et cetera. And I believe you had more than $5 million in quarterly revenue. Now that you have identified the target market, which is roughly 70% of your existing clients and you have a professional sales force. How should we think about the revenue ramp? Whichever quarter you get the approval, how should we think about revenue ramp in the first four quarters?

Dave Martin

Yeah. Deepak, we did go quite broad when we launched PAD. We are going to -- as we’ve said we are going to focus on fewer accounts and drive adoption in those accounts. So, I would say initially, the ramp would be slower than it was when we launched in PAD.

I think it will grow quite rapidly after the first few quarters. But initially rather than going broad, we are going to take the time, drive deep in accounts, get good outcomes and make sure we understand any nuances to the procedure before we broadened it out to a broader customer base.

Deepak Chavlagai - Dougherty

Sounds good. Thank you.

Dave Martin

Thanks, Deepak.

Operator

Your question comes from the line of Ben Haynor with Feltl and Company. Please proceed.

Ben Haynor - Feltl and Company

Good afternoon, gentlemen.

Dave Martin

Hey, Ben.

Ben Haynor - Feltl and Company

Thanks for taking my other question. I guess I only have one left, while the comps are just covered. But following-on your response to the -- I guess Asahi question with regard to the pedal and the tibial artery access is one Loblaw the cowbird covered with you on on your response to the you I guess Asahi question all with regard to the people and tibial artery. Does it seem like this has become a much bigger deal amongst surgeons existing new accounts of late?

Dave Martin

Yeah. It does. We’ve really seen progress with vascular surgeons. They know their anatomy. You could imagine, as the surgeons have seen it, touched and manipulated it. They’ve got a really unique and strong appreciation for calcified plaque and what it does to prevent great outcomes. So we’ve had great uptick with the vascular surgeons in particular and the vascular surgeon in the office-based labs, so it’s been really super.

Now the cardiologists too are seeing the benefit and I do think there is some confidence that comes with our ACC announcements with the safety of our device. In the coronary arteries, there is a bit of a growth. Certainly that supports our large 3,500 patient study population and you add in what we’ve done with the coronary, both the ORBIT I 50 being over to 443 patients. So, I think people are getting increasingly comfortable with taking our device into those outflow vessels that are so critical to getting a great result.

Ben Haynor - Feltl and Company

Great. During ORBIT II, where number of those done radially or not?

Dave Martin

Well, that’s good question. Certainly, there would be nothing to prevent it because our profile of our devices is so rusty and uniquely low profile. But I would go back to check the statistics to find out, if and how many where radial approach? It’s a great question.

Ben Haynor - Feltl and Company

Thank you all and that’s exciting. That’s all I have. Thank you, gentlemen.

Dave Martin

Thank you.

Operator

And the final question will come from the line of James Terwilliger with Benchmark Company. Please proceed.

James Terwilliger - Benchmark Company

Yeah. Hey, guys. Can you hear me?

Dave Martin

We can, James.

Larry Betterley

Hi, James.

James Terwilliger - Benchmark Company

Hi, guys. First of all, thanks for taking my question. Great quarter, great guidance for the next quarter. But I’ve got a couple of questions. They’ve kind of been asked prior, but I’m going to ask in a different way. For both of you, is it fair to assume a coronary launch in fiscal Q3 of 2014, is that a safe assumption?

David Martin

Well, we don’t control the FDA but everything that we’ve got control over is super high quality and we’ve worked at pace. So, I think we’ve given ourselves a great chance to be cleared in the early part of the window, which might start in this calendar year. But we just don’t know, right with the FDA.

James Terwilliger - Benchmark Company

But that would be a safe -- one would say that would be safe assumption, but how long the FDA takes to review a process and other…

David Martin

Okay. Yeah, that would be safe and we hope conservative.

James Terwilliger - Benchmark Company

Okay. And then the second question would be if that is true, then is it fair to assume that that the coronary launch would be similar to the launch in the PAD market when you first came out with this device, or should we be looking at maybe a faster ramp due to the number of years it’s been out there and the sales force and the relationship with doctors and hospitals?

David Martin

Yeah, we’ve got kind a ton of synergies and everybody sees, with trained sales force and 70% of our customers overlapping the critical need, the great results in ORBIT I, ORBIT II. You could see a fast result, but we do understand the benefits of staying home and focused, optimizing this technique is a great long-term strategy for great results and value creation.

So we’re going to be measured. We want to capture all that can be captured in those initial six months to the benefit of the patients and to company and to shareholder returns. So we will be measured and what all the synergies exist and we’ll take advantage of them, including those manufacturing and our wonderful orbiting devices. This coronary clearance will certainly put us on a great path to real profitability as well, but we’ll stay home in those initial quarters in order to make this a sweet long-term story.

James Terwilliger - Benchmark Company

Excellent answer. I think if you make a mistake that sets you back much more than what’s a controlled launch. My next question from a management perspective would be, how do you maintain your focus on the significant growth, 20 plus percent in the PAD market, also with your focus on launching in the coronary market.

David Martin

Yeah. Well, one is we’ve been dreaming about this problem for a long time. So what we do, we get great management. We’ve hired in some spectacular management in every department. I mean really across the board, one of the things that we’ve done with our investment opportunities is filled in that middle layer of management and that executive management with people who know it looks like to scale and the scale of quality. I just can’t say enough about the CSI team and they are hiring phenomenal people and company is backing that hiring with employee trading.

And just one example is we use to struggle to afford ourselves just one national sales meeting a year during the financial crisis and now we are committed to two and the quality of these two. I mean, people are educated in a high-quality way and they are really delivering that impact to the physicians and the physicians are talking about it. There has been a substantial upgrade at the company.

We didn’t have a clinical department headed by [Katherine Kumar] and now we do so that went from off to on, and we’ve got a number of wonderful people doing great clinical work. And the physicians are really appreciating, enlightening what they do on a day-to-day basis, and then supporting them with clinical resources and portals.

So it’s been great. We’re really looking forward to it. I would say if anything we’re overeager and we manage that right. So we’ve been dreaming about this path to independence and this wonderful opportunity for such a long time.

Larry Betterley

James, as we said earlier, we intent to have a small specialized force to do the initial launch on it so that we don’t distract the PAD sales force from their good work and the growth they’ve been doing at PAD initially.

James Terwilliger - The Benchmark Company

Now, does that sales force come from coronary or cardiology specialists in the field from other companies or is that sales force come from current reps that are well-trained on the PAD market?

Dave Martin

If the initial rep will be split but the good news is we’ve got a rich reservoir of captive individuals now in our own sales force. I would say a very high percentage of qualified right now with some training, an additional group of people would be qualified. So we’ll able to enjoy that synergy over time but in a very calculated way. We’re going to specialize upfront half of these from outside the company, half of these from inside the company, and that’s the way we’ll make our first step into the commercial operation.

James Terwilliger - The Benchmark Company

Then lastly, I’ll jump back in queue and thank you for all of your time and again congratulations on a great quarter. I know this is difficult to answer, but I am under the impression that module 1, module 2 has already been sent to the FDA. They’ve come back with questions. You’ve answered those questions. Would you feel comfortable that there is no open issues to a degree with module 1 and module 2?

Dave Martin

We feel great about it. Everything is in our control. We just want to with the quality. We didn’t think the questions were particularly tough. A lot of the answers were already in the document. We put it that out. We’re happy to respond and help facilitate. So everything in our control, we just feel super about it.

James Terwilliger - The Benchmark Company

Excellent. So you are just waiting on their review of module 3, is that fair?

Dave Martin

Yeah.

Larry Betterley

Fair.

James Terwilliger - The Benchmark Company

Okay. That’s enough for me guys, again thanks for taking my questions. A great quarter, great guidance, keep it up. Thank you.

David Martin

Okay. Thanks.

Larry Betterley

Thanks James

Operator

Ladies and gentlemen, that concludes the question-and-answer session. I’ll turn the call back over to Mr. Dave Martin, Chief Executive Officer, for closing remarks. Please proceed.

Dave Martin

Thank you. It’s an exciting time at CSI. We hope that you share our enthusiasm. We are focused on executing on the large opportunities in front of us and we’re realizing the full potential of our wonderful orbital technology. Thanks for joining us today and we look forward to updating you on our progress next quarter.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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