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The Spectranetics Corporation (NASDAQ:SPNC)

Q2 2013 Results Earnings Call

July 24, 2013 11:00 AM ET

Executives

Lynn Pieper - Westwicke Partners, IR

Scott Drake - President and CEO

Guy Childs - CFO

Analysts

Jason Mills - Canaccord Genuity

Rick Wise - Stifel

Amit Bhalla - Citi

Brooks West - Piper Jaffray

Charles Haff - Craig-Hallum Capital

Suraj Kalia - Northland Securities

Larry Haimovitch - HMTC

Charley Jones - Barrington

Operator

Good day, ladies and gentlemen. And welcome to the Spectranetics Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions)

As a reminder, this call is being recorded. I’d now like to introduce your host for today’s conference, Lynn Pieper. Ma’am, you may begin.

Lynn Pieper

Thank you, [Sharda]. This is Lynn Pieper with Westwicke Partners. And thank you for participating in today’s Spectranetics second quarter call. Joining me from Spectranetics is President and Chief Executive Officer, Scott Drake; and Chief Financial Officer, Guy Childs.

Earlier today, Spectranetics released financial results for the quarter ended June 30, 2013. If you’ve not received this news release or if you’d like to be added to the company’s distribution list, please call Westwicke Partners at 415-202-5678.

Before we begin, I’d like to remind you, management will be making statements during this call that includes forward-looking statements within the meaning of federal securities laws.

These statements involve material risks and uncertainties that could cause actual results or events to be materially different from those anticipated. For a list and description of those risks and uncertainties, please see the company’s filings with the Securities and Exchange Commission.

Spectranetics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether as a result of new information, future events or otherwise.

Furthermore, this conference call contains time sensitive information and is accurate only as of the date of the live broadcast, July 24, 2013.

I’ll now turn the call over to Scott Drake.

Scott Drake

Thanks, Lynn. Good morning everyone. And thank you for joining us on our Q2 call. This quarter we posted strong topline growth of 13%. This is our third consecutive quarter at this growth rate and seven straight quarters of double-digit constant currency growth. Our momentum is being driven by our focused areas of lead management, U.S. peripheral atherectomy and our continued effort to expand globally.

This morning, I’ll breakdown my comments as follows. First, I’ll walk through the quarter’s financial performance for our Vascular, Lead Management and International businesses. I’ll then provide an update and highlight growth drivers for each segment. We’ll then discuss the significant progress we’ve made with our clinical programs. Guy will go deeper into the financials and we look forward to fielding your questions.

Before I delve into each business segment, I want to highlight our laser placements. We installed 48 lasers to new customers versus 28 the year ago period. This is an all time record for the company and the third consecutive quarter of robust placements.

Recall that Q4 of last year was our previous high watermark followed by a very strong Q1. This increase in our installed base reflects the clinical value customers place on our technology and bodes well for sustained future growth.

Separately, CMS recently announced proposed out patient reimbursement rates for 2014 that were mixed. For Lead Management, the changes were slightly positive. For VI, there are puts and takes in the form of proposed increases in the hospital out patients setting and reduced payments in the office space lab.

Proposed rules for coronary atherectomy were up meaningfully. CMS is now in a 60-day comment period, the final rules will be announced in November and go into effect January 1. Industry and physician societies are actively engaged and will update as appropriate.

Our Vascular Intervention business delivered $18.9 million, an increase of 9% on a constant currency basis. Our initiatives to drive PAD awareness and the office-based opportunity fueled 19% growth in U.S. peripheral atherectomy.

The lead management franchise achieved revenues of $15.1 million, an 11% increase. I will provide more color in a moment, but the punch line here is that this growth rate reflects the significant amount of time our U.S. field team spent converting smaller GlideLight accounts. Our international team posted revenue of $7.1 million, 22% constant currency increase. Strength in Europe and robust growth in Japan highlight these results.

Gross margins remain strong at 73% even in light of significant laser revenue mix in the quarter. Our margin expansion efforts are well underway and our team has traction. To provide context, our disposable margins today are 110 basis points higher than 12 months ago and we expect this improvement to continue.

Production efficiencies are allowing us to move from two to one shift, despite our growth, reducing our direct labor by approximately 20% on an annual basis.

Our net loss was $728,000 or $0.02 per share. This performance is right in line with our expectations and our outlook implies a return to profitability in the second half.

As we've previously highlighted, our Coronary business remains a headwind. The impact in Q2 was more muted than recent quarters at a 7% decline. We expect this trend to continue yet taper over the back half of the year.

Now let's turn to our growth drivers. As we've previously stated growth in our Vascular business is predicated upon three things, Atherectomy penetration in share gains, capitalizing on the ISR opportunity and the expanding of our product portfolio.

For the eight-consecutive quarter, we've grown our U.S. peripheral atherectomy business faster than the market, primarily driven by our PAD awareness and office-based lab initiatives, as well as growth in the hospital setting. Market dynamics are broadly favorable and the increase in office-based procedures continues.

On the in-stent restenosis front steady progress was made. Our goal is to achieve the ISR indication and demonstrate the clinical value of laser atherectomy both in the near-term and when drug-coated balloons launch in the U.S. The ISR market is very large and underserved, approximately 250,000 procedures per year, about $750 million market opportunity for us.

As Dr. Lawrence Garcia commented at the NCBH conference in May, "the laser is uniquely suited to treat ISR", we agree. We believe the benefit of debulking prior to drug treatment is especially relevant in patients with TASACA Class II and III lesions.

This hypothesis is reflected in the studies conducted by Doctors van den Berg and Gandini. As a reminder, these patients have more complex disease, longer lesions, and represent about 70% of the ISR population.

This quarter we made significant progress in our EXCITE study. Along with acceleration and enrollment, Dr. Carlos Mena from Yale performed the first live EXCITE case at NCCBH.

We now have 184 patients enrolled and our full allotment of 35 sites are active. This represents about 50% increase in our enrollment rate, driven primarily by our recent efforts in new motivated investigators.

Our partnership with the FDA yielded the finalization of our adjunct analysis in early May. The goal of this plan is to demonstrate statistically significant clinical superiority as quickly as possible. We continue to believe that our mid-14 timing is the correct assumption.

On the PHOTOPAC front, 48 patients are enrolled and we've increased the study size to 145 from the original 50 patients, expanding the trial as driven by our confidence in the outcome, our desire to change clinical practice and very much supported by thought leaders.

We're in the process of initiating several new European sites. The big picture is to be the only company with an indication have compelling clinical evidence and as drug-coated balloons enter U.S. labs, draft on the wheel of big companies that are spending hundreds of millions of dollars developing this market. In summary, our Vascular business is gaining momentum on the sales execution, clinical, and portfolio fronts.

Now, for Lead Management. Our mission is to provide great patient care. We focused our commercial programs, training and education efforts and new product development on this goal. We seek to ensure that every infected lead is safely extracted that all Class II leads are managed with the appropriate treatment and adverse events become a thing of the past.

Our growth is governed and directed by our dedication to this cause. While treatment of patients requiring lead extraction is climbing, the vast majority are still underserved and our efforts around responsible Lead Management will unlock this opportunity.

We grew 11% in Q2. While reflecting strength in the business, this growth rate was softer than previous quarters given our response to customer demand for GlideLight adoption. As we’ve highlighted in the past, GlideLight conversions are clinically intensive and time consuming.

The training requirements are relatively similar, regardless of procedural volume and since we’re deep into conversions, our teams spent time in smaller accounts. These activities were prudent given customer desire to adopt the technology.

We’re turning our attention to new market development initiatives in the second half of the year. Worldwide market dynamics remained strong and thought leaders are urging us to enable better Lead Management. Only a fraction of infected leads are being extracted, reflecting a patient base that is woefully underserved.

Growing interest in lead management was on full display at HRS in Europace in Q2. HRS 2013 may have been the best scientific meeting yet for Lead Management. A full day form was conducted for the first time and attendance required overflow rooms. On a year-over-year basis, Lead Management content increased more than 60% at this show. Lead Management has arrived as a central issue in the clinical community.

On the simulation validation front, significant progress has been made. We believe that simulator training has a significant positive impact on physician’s skills and patient care. We’ve initiated a study named STEEP with Dr. Larry Epstein to prove this hypothesis.

The study has designed a randomize fellows with no lead extraction experience into two groups. One receives only didactic instruction, while the other benefits from didactic and simulator training. The groups are then scored on their ability to perform lead extraction in a simulated environment.

Early results from the first 15 fellows were published by Dr. Melanie Matin at HRS this year. The study has already reached statistical significance on all three primary end points.

Practical skills, procedural complications and forces used. Our goal is to train physicians via simulation similar to the way pilots develop and sharpen skills. We strive to accelerate the learning curve, improve patient outcomes and validate this training platform.

Regarding our product pipeline, our mechanical device programs are progressing nicely. We saw extensive customer feedback and it has been overwhelmingly positive. We are enthusiastic that these tools enhance to maintain our customers need and enable leverage in our training and commercial investments.

For all of the right reasons we are spending above our R&D guidance. This acceleration reflects confidence in our team and very encouraging customer feedback. We anticipate product launches in 2014.

In summary, our GlideLight conversions are on track. We are focusing attention on market development, our organic pipeline is robust and our tech there work to eliminate adverse events in lead extraction is promising.

Internationally, we continue to drive solid results in Europe and rapid growth in Japan. Highlighting recent accomplishments, first we continue to accelerate the pace of new laser installations in Japan and other key international markets that will drive future growth.

Second, we received Japanese Quick-Cross Extreme and Select reimbursement approval in May. We continue to launch of our Quick-Cross product family, a meaningful component to expanding our portfolio.

Third, we are continuing our GlideLight conversions in Europe and concurrently gaining share in Lead Management. Germany and France delivered noteworthy performance as did markets where we've recently gone direct. We expect continued momentum in our existing business as we expand into new markets yielding sustainable, robust international growth.

I'll now turn the call over to Guy to provide more detail on the financials.

Guy Childs

Thank you, Scott, and good morning, everyone. It was another good quarter for SPNC with significant progress made on many fronts, including our strong financial performance. After reviewing the results, I’ll provide our outlook for the full year, which reflects higher revenue expectations.

Second quarter revenue of $39.5 million increased by 13%, both as reported and on a constant currency basis. Vascular Intervention revenue of $18.9 million increased 8%, 9% constant currency, led by U.S. peripheral atherectomy growth of 19%. Crossing solutions revenue increased 4%, aided by sales of the Quick-Access Needle Holder and Quick Capture guidewire retrieval products.

Coronary revenue from atherectomy and thrombectomy product sales decreased 7%. As mentioned on previous calls, the coronary market is not currently a strategic priority but it should be noted the comps in the second half are relatively easier than the first.

Lead Management revenue grew 11%, as we work through converting the remaining target accounts to GlideLight. We’re looking forward to continuing growth driven by increasing interest in Lead Management, GlideLight, market development focused on infected devices and mechanical tools in 2014.

Laser system, service and other revenue increased 34% to $5.5 million. Sales of laser systems were particularly strong this quarter and marks the second consecutive quarter of strength in this area. We would expect laser sales to moderate by at least $500,000 in the third quarter from these unprecedented levels.

Laser placements are a better indicator of the strength of customer demand than laser system sales. We're very pleased with 48 placements during the quarter, another record the tops 42 placements in Q4 of 2012.

On a geographic basis, revenue in the U.S. was $32.3 million, an increase of 11%. International revenue was $7.1 million, representing growth of 22% on both and as reported in constant currency basis.

Our gross margin was 73.1%, up 30 basis points from last year. Productivity gains were offset by the strong laser sales. We continue to target gross margin improvements of at least 50 basis points from the 73% during the full year 2012.

Research, development and other technology expense was $5.5 million or 14% of revenue, compared with $4.2 million or 12% of revenue last year. The increase was planned as we ramped our product development activities. We anticipate the launch of mechanical tools in 2014 and have several other projects in early stages.

SG&A expenses of $23.1 million represented 58% of revenue, compared with last year’s $20.4 million, also 58% of revenue. Although, flat as a percent of revenue, the increased spending was led by global field sales and marketing expenses.

We recorded $0.5 million related to the medical device excise tax, which became effective on January 1, 2013. We have excluded these costs from adjusted EBITDA, primarily for comparability purposes versus last year.

It will only be excluded from adjusted EBITDA for 2013. Once the tax anniversaries on January 1, 2014, we’ll continue to disclose it separately, but it will not be carved out for adjusted EBITDA purposes.

We also recorded contingent consideration expense and acquisition related amortization, which totaled $0.4 million. Since these costs are relative new to our P&L, I’ll briefly describe them.

Contingent consideration expense represents the accretion of the difference between the present value of milestone payments and the estimated payment of future milestones. If the actual milestone pay differ from the estimates made in January 2013, that difference will be recorded as contingent consideration expense or benefit in the future.

Acquisition related amortization expense represents the amortization of intangible assets acquired from Upstream Technologies. We recorded a provision for income taxes of $0.1 million in Q2, which brings our year-to-date tax benefit to $0.5 million.

Based on anticipated profitability for the full year, we project income tax expense of $0.6 million to $0.7 million, which implies income tax expense of $1.1 million to $1.2 million during the second half.

The tax provision or benefit is largely a non-cash item given our available net operating losses. However, the provision for income taxes is an important consideration for model updates.

Net loss for the second quarter was $728,000 or $0.02 per diluted share, compared with net income of $636,000 or $0.02 per diluted share last year.

Adjusted EBITDA, which excludes the medical device tax, amortization of acquired intangible assets and acquisition-related contingent consideration expense was $2.7 million versus $3.3 million last year.

This is consistent with our expectations and reflects our investment in research and development targeted at accelerating revenue growth. Tables showing reconciliation of non-GAAP financial measures are provided in the press release.

Cash and cash equivalents totaled $119.4 million as of June 30, 2013. We completed a successful financing in May resulting in net proceeds of $92 million to our balance sheet. Excluding the proceeds from the offering, we generated $2.1 million of cash flow, $2 million of which was from operations.

In closing, I’ll update our outlook for 2013. Revenue is projected to be in a range of $155.5 million to $157.5 million, an increase from $153 million to $155.5 million previously and represents an increase of 11% to 12% over 2012.

Net income for 2013 is unchanged and projected to be in the range of breakeven to $0.5 million or $0.00 to $0.01 per diluted share, including the impact of the medical device tax and estimated non-cash amortization in contingent consideration expenses.

Adjusted EBITDA is also unchanged and anticipated to be in the range of $13.5 million to $14.5 million in 2013, compared with $13.1 million in 2012. Adjusted EBITDA provides for comparability between periods and represents an additional measure of the operating performance of the business.

I’ll turn it back to Scott for closing comments.

Scott Drake

So in summary we’re on solid footing. The team is executing well on our growth drivers and we expect them to further expand over the mid and long-term as we feel the positive effects of the ISR opportunity, our new product pipeline, market development and global expansion efforts. This culminates in our goal to accelerate our growth rate long-term, expand margins and achieve meaningful operating leverage overtime.

Sharda, let’s open up the line to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Jason Mills with Canaccord Genuity. Your line is open.

Jason Mills - Canaccord Genuity

Thank you very much. Hi, Scott, Guy, thanks for taking the question. Congrats on another good quarter.

Scott Drake

Thank you.

Jason Mills - Canaccord Genuity

So, Scott, I wanted to go back to some of your comments about the outpatient reimbursement changes and specifically sort of juxtaposed to a couple of things. First, the strong growth you put up, somewhat surprising to us the growth you put up in peripheral atherectomy ahead of perhaps the biggest growth driver in that business, ISR still being roughly a year away. What would you think and then sort of it also in light of your PAD awareness program, so if you can sort of take all the dynamics in that market including the most recent changes on the reimbursement side and give us your updated thoughts about how you see both the market growing and you growing relative to the market both before and after your in-stent restenosis indication for a year from now, I think that would be helpful just to put that outpatient changes in context.

Scott Drake

Yes, Jason happy too. So I think we’re growing roughly two times the market rate. We continue to believe that the U.S. atherectomy market is growing in the high single digits to 10% range and as you see here in this score we are growing roughly twice that. And our performance bounces around a little bit but we’ve grown faster than the market now for eight quarters and I think there is three things that are primarily responsible for that.

Number one broadly, the team is just executing well, second, our focus on PAD awareness that you referenced and third, more recently here the increase in the office-based setting, really, really difficult to read through what will ultimately happen in terms of CMS’ proposed rules. At this point it’s really just not a ripe issue and there’s offsetting penalty so to speak to the good and to the bad on that front.

So very difficult at this time to provide too much color there but I believe the growth drivers that we have in that we’re focused on bridge us very nicely to the ISR opportunity. That is an enormous market that is under served and we believe the clinical data both in the form of EXCITE and PHOTOPAC put us in a great position to capitalize on that market.

So our belief is that over time that accelerates our growth rate in the Vascular business and we feel very good about our prospects there, along with expansion globally and in the U.S. commercial footprint and broadening the product portfolio and we’ve been a little bit opaque there for competitive reasons. But in sum, Jason, we like the way that that market sets up for us.

Jason Mills - Canaccord Genuity

Perfect. And your mention of EXCITE and PHOTOPAC a good segue into my follow-up which is, when do you expect that data will be ready to present at a medical meaning or we see that before an indication approval from FDA or do you have any sense for the venue that you’re targeting?

And then secondly, and I’ll get back in queue after this one, the market development initiatives that you mentioned in passing, that you planned to turn to in Lead Management in the second half. Perhaps if you could provide a bit more color there and sort of juxtapose your comments to the fact that you do have some difficult comps in that business in the second half as well. Thanks Scott.

Scott Drake

Absolutely. So Jason as it relates to the PHOTOPAC information, I believe we’re going to have a look when we get to the 50-patient number and I think that’s going to be in between the six and 12 month timeframe from now. Guy, the second part of his question, can you remind me?

Guy Childs

LM, the second half.

Scott Drake

Yeah. LM second half growth, I think of few things on that front, Jason. First of all, very strong market dynamics. We expect that continue -- to continue. Growth in that business, as you know bounces around, given how closely you follow the stock now for a long period of time.

I would restate that the time that the U.S. team spent in smaller GlideLight accounts we believe very much red on the growth rate in the U.S. market in specific territories, where activity was more "normal". Our growth was more in the range of what you've seen here lately and that’s true as well in Europe.

We believe it was still prudent to do that, given customer demand. But we’re now we’re more focused on market expansion there. And I think the guidance that we’ve provided, kind of is instructive in terms of how we’re thinking about it. But that said, we always want to stay on the right side of guidance as you know.

Jason Mills - Canaccord Genuity

Makes sense. Thanks, Scott.

Scott Drake

Thank you.

Operator

Our next question comes from the line of Rick Wise with Stifel. Your line is open.

Rick Wise - Stifel

Good morning, Scott. Good morning, Guy.

Guy Childs

Good morning.

Rick Wise - Stifel

Turning to, just a bigger picture first. I mean, obviously, very impressive three quarters in a row of 13% topline growth. That’s nicely ahead of your intermediate, if I’m remembering correctly, 10%, 12% growth goal. I guess, given that, is it fair, should we expect that you’re ahead of, you are moving faster through your growth acceleration arc than you laid out in appropriately conservative ways?

And maybe to follow-up on that, you know when I look at your guidance, I appreciate you are increasing it -- the midpoint of the guidance would suggest still 11.5% growth for the year. Help us understand in bar terms why the implied second half slowed down? I noticed some comp issues and some various moving pieces but just that bigger picture first? Thanks.

Scott Drake

Yes. Happy too, Rick, and good morning. I think as you point out, solid performance now three quarters in a row of 13% growth, seven double-digit quarters of constant currency growth. A little bit more narrowly we believe that the laser revenue is going to taper, we just don't think it's sustainable at the rate that it is.

I would say that our, in terms of the pace that we are going through our growth drivers, we are pleased with it. We think we are on track to achieve that mid range and long-term growth goals that we've set out. And we think current performance bridges very nicely to the ISR opportunity, market development, lead management, mechanical tools, global expansion, even increasing the U.S. commercial footprint. So it’d be nice to pull in some of the timing expectations.

We’re not ready to do that yet, we’ll contemplate that when we get to setting guidance for 2014. So I would say that we’re pleased with where we’re at. We don't think the laser revenue is sustainable. And it's tough to predict exactly when those incremental growth drivers are going to hit. So again, we just want to stay on the right side of guidance.

Rick Wise - Stifel

Yeah. It makes sense. I want to turn it back to the Lead Management question that Jason was asking. I want to make sure I understand your comments. I appreciate the -- your comments about the smaller accounts and time it takes on GlideLight. Is it possible to say, are you a 100% done with that conversion, maybe when are you done, where are you now and so we should feel better about second half, Lead Management growth, what's the message?

Scott Drake

Yeah. I think the way to think about it, Rick, we were very prescriptive with our launch in the U.S. market. And I would say the really prescriptive launch of the device is substantially complete. But we still have roughly a third of our laser sheet volume globally in SLSII.

So, there is a very natural pull but we're being less prescriptive in terms of how our field team spends their time. And given that they spend their time in more “normal ways,” we believe they are going to have more activity in higher accounts and more activity opening up new programs.

We believe fundamentally that better patient care is predicated upon our growth in that business. But as you know we govern that closely to make sure that we're delivering great patient outcomes. So, we feel just very good about that market both in the short terms and longer term as we execute on those other platforms that I've mentioned.

Operator

Our next question comes from the line of Amit Bhalla with Citi. Your line is open.

Amit Bhalla - Citi

Thanks. Good morning, Guy and Scott. On SLSII, can you just give us a sense for how you're thinking about the future of that product? How long do you continue to plan on selling SLSII in the market?

Scott Drake

Yeah. Amit, good morning. No real specific decisions made there in terms of that. I feel zero pressure on that front. It feels like we have a nice tearing of products with different levels of flexibility, different levels of benefits and commensurate different levels of pricing.

So, I don’t feel like we’re in need of around the cusp above any kind of announcement there on SLSII. And from a regulatory standpoint, in different countries around the world, it would take sometime to get GlideLight approved anyway. So, don’t feel any need to force anything there.

Amit Bhalla - Citi

And then just a follow-up here just on Lead Management again. As you look to the third quarter, the comp you're facing is similarly tough as to what you just faced this quarter, but you also have seasonality that place through in 3Q. Are you expecting absolutely revenue in Lead Management to grow sequentially for 3Q?

Scott Drake

I might ask for some of Guy’s help here. I would say a few things, Amit that will -- that maybe helpful to you. Q3 is always a quarter given vacations and procedural volume that gives us applause every year. This year is no exception to that. It’s always interesting to see what happens in Q3 and particular in Europe.

And there’s two other dynamics in play, number one, last year we had a smaller percentage of our accounts that were GlideLight versus this year. So you are going to have a tailwind there benefiting us from GlideLight ASP. On the other hand, you are not going to -- we are not going to benefit from the product swaps that we benefited from in Q3 of last year.

So you have kind of offsetting components from an LM perspective but we believe that you know continued double-digit growth in this business is reasonable. Anything you want to add to that, Guy.

Guy Childs

Yeah. Just from a seasonality perspective, historically -- the historical trends would tell us that seasonality is more pronounced on the eye side of the business but in years where we’ve grown sequentially Q3 versus Q2, it’s certainly a lot less than some of the other quarters, so important to keep in mind.

Amit Bhalla - Citi

And just a additional one just on laser placements, you highlighted that the record net of placements in total your buybacks or returns were also much higher. I guess past few quarters they have been trending in this low 20 range. How are you thinking about laser buyback returns for the next few quarters?

Guy Childs

Yeah. We actually got a lot tougher on that. We’ve taken lasers out of accounts that have proportionally more volume recently than we did previously given the need to get lasers and the customers that we believe will have more productive utilization of the lasers. The way I look at that Amit is that those gross placements that we have given that we’ve raised the bar on accounts where we have taken lasers out is indeed a good indicator of future sustained growth in the business.

Operator

Our next question comes from the line of Brooks West with Piper Jaffray. Your line is open.

Brooks West - Piper Jaffray

Thank you. Good morning.

Scott Drake

Hey Brooks, good morning.

Guy Childs

Good morning.

Brooks West - Piper Jaffray

I wanted to start with hopefully some more detail around the laser placements. Scott, can you talk about generally the split to where those are being placed in terms of intended use between Lead Management and atherectomy?

Scott Drake

Yeah happy to Brooks. The laser placement is pretty steady in terms of the split between VI and LM as to what it’s been over the past few quarters and also the mix of U.S. and international placements. The one caveat I would put there is that we continue to have accelerated placements in Japan. So pretty consistent with what we’ve seen the last few quarters.

Brooks West - Piper Jaffray

And then Scott, how should we think about the utilization ramp of a placed unit. And obviously there is going to be some difference between accounts, but is it six months to ramp up, is it a year? How do you think about becoming the contribution of those new placed units?

Scott Drake

Yeah. Broadly, obviously new accounts that we opened grow more rapidly given that you are comparing to a lower base and often you have a very motivated customer there. And the way we look at it is in terms of laser productivity. And we continue to see very positive trends in terms of laser productivity generally and specifically with new laser placements like I said you have higher growth rates.

Brooks West - Piper Jaffray

Okay. And then one on atherectomy for me, I'm wondering what you are doing in terms of market development in the international markets specifically around reimbursement in Europe? And then secondly, Bard has a recently launched it Lutonix balloon in Europe, I think, focusing on below the knee. But I am wondering if you have any anecdotal evidence of kind of pull through for your procedure with that? Thanks.

Scott Drake

Yeah, absolutely. Thank you, Brooks. Let me ask Shahriar to comment on that question.

Shahriar Matin

Sure. Hi, Brooks. Let me start with Lutonix. Generally, just to give you a macro view, we're not seeing Lutonix very much in many accounts. It will be interesting to see how they do with it the KOL that we've spoken to really have an affinity the Medtronic drug eluting balloon and not so much on Lutonix.

I think the next couple of quarters will really let us know if their major players or they need to publish more clinical evidence before KOL, really get on board with their balloon. Also their infrastructure is not as developed as Medtronic so that might be part of the reason why we don't see them as much as we see Medtronic’s presence throughout Europe.

With respect to reimbursement, we're actively working on reimbursement. I’d say Germany is where we have favorable reimbursement on most of our products. France, we've put some efforts in there as well as the U.K. We're doing that via consultants and really looking at the big five markets and just continuously steadily making progress. Some countries take a lot longer. In France, we may need a clinical study for peripheral atherectomy for lead management we are doing well.

We have reimbursement. We are also actively looking at how we can increase it. So there is a lot of work being done on many fronts. And we think over the coming years it will come to fruition and help drive our continued growth.

Scott Drake

Yeah. I just want to make one more point Brooks on your question. I think the broader picture here is the interesting part for us. We have gone very deep into what’s happening at the tissue level with Dr. Virmani, absolutely the world’s leader in understanding what’s happening at the tissue level and believe very strongly that in those Class II and III, patients which is 70% of the market de-bulking prior to drug delivery is important and that part of our story born out of the studies that Dr. Gandini and Van Den Berg have done is really the punch line for us in that market overtime agnostic to what specific balloon -- drug coated balloon is being used.

Operator

Our next question comes from the line of Charles Haff with Craig-Hallum Capital. Your line is open.

Charles Haff - Craig-Hallum Capital

Hi. Good morning. Thanks for taking my question.

Scott Drake

Morning Charles.

Charles Haff - Craig-Hallum Capital

Morning. First question is on the CMS reimbursement side. I realize this is just a proposed rule or proposed reimbursement now. But if it does go final, you mentioned this quarter you had a shift from hospital continuing to go to the office. Do you feel like that would shift back to the hospital? And if you could give us some sense for how you would manage that or would we see any hiccups in kind of the income statement from that or is that a fairly smooth transition if it did happen?

Scott Drake

Yeah. Again, I just want to reinforce here that it’s so hard to predict what CMS will do, really evidence by the proposal that they’ve come out with to put that in context. Since 1991, they’ve been using the same methodology on their relative value system. And this for the first time ever is a departure for that. And we understand from very good sources that there’s even kind of conflicting views inside of CMS. So I think it’s important that we all understand how dynamic this is.

But to really attempt to answer your question Charles, if everything stuck as it is now, I would say a few things. Number one, these patients need to be treated unequivocally independent of what setting there’ in. Number two, I believe that even with the proposed -- even with the proposal, its quite possible that physicians in the office base setting would increase their volume, if possible maybe have another physician join them to makeup for any shortfall in terms of their income.

Third, there could indeed be a shift from the office to the outpatient setting that would be smooth for us and actually have an increased ASP affect as hospital pricing tend to be more stable and higher than the OBL setting. And it’s also possible that we could see increased atherectomy combined with stenting utilization given what they proposed. So that’s reading through whole bunch of hypothetical there but that’s our current point of view on the issue.

Charles Haff - Craig-Hallum Capital

Okay. Great. And my last question is regarding cash, the $92 million of net proceeds that you raised from the recent equity offering and you have positive operating cash flow this quarter. I know you have needs possibly from growing your sales force on the vascular side and it advances the ISR label expansion. And you have simulators that you may want to add, but that’s a ton of cash.

Just wondering if you could kind of give us a sense for tuck-in acquisitions that you are seeing or is there a pretty good pipeline relative to the past or any uses of cash that we should be seeing in the future?

Scott Drake

Yeah. Firstly, you touched on some good ones there. And I would add to it along with expanding the sales force in the U.S. and globally and doing maybe even more aggressive training work that you mentioned.

The other things that we have going on are the R&D portfolio expansion efforts in market development work. But regarding your point on the business development front, I would say if anything we’re more active I think the clarity of our strategy is such that it’s put us in a position to dig very deeply across the businesses, across the globe, looking at things that would make sense.

It would be great to have the right kind of complimentary acquisition leveraging call points and putting something very logical and differentiated in our bag. I would say that if you take a look at our balance sheet relative to our revenues, we're in a pretty normal range there.

We don’t feel as though we have cash burning hole in our pocket. So we will not be at all imprudent as it relates to acquisitions. But we are interested in -- and as we know we don't get any partial credit for looking. So, we'll keep you updated as material things happen.

Charles Haff - Craig-Hallum Capital

Okay. And one quick follow-up there in terms of size as of acquisition, is there any guidance you can give us there. I know there has been some concern in the market in terms of what size of acquisitions that you may consider, any thoughts you would like to share there?

Scott Drake

It's just so hard to comment on that. We've been very clear that we love our organic path and we have a lot of confidence in it. We also are very confident in our performance, I think, reinforced by what we've done now for seven, eight quarters in a row.

So, we don't feel any impatience. And we're going to be very opportunistic as it relates to business development. It's just hard to do more justice to the question as you can appreciate. So, we're looking, we are interested but we are not at all going to be imprudent in our approach.

Operator

Our next question comes from the line of Suraj Kalia with Northland Securities. Your line is open.

Suraj Kalia - Northland Securities

Good morning, Scott and Guy.

Scott Drake

Good morning, Suraj.

Suraj Kalia - Northland Securities

So Scott, few questions. Let me start out with your commentary on office base procedures. Forgive me, I'm not sure I understood it completely. So last six quarters or so, most of the growth in VI has come from office based procedures and our understanding is this primarily because of favorable reimbursement relative to hospitals. So, if the same as proposal comes true and reimbursement goes down, it is unclear to me, how business would move back to the hospitals, because the laser is the same, patient dynamics and reimbursement is the same for hospital base, somewhat along the line I haven't followed the logic was one if you could walk me through that?

Scott Drake

Yeah. Happy to. I am not sure I can do much better than what I did when Charles asked the question, Suraj. But again, fundamentally these patients need treatment. So I think that's independent of what care setting they are in. I agree with you that the move to the outpatients setting has been instigated by the office based reimbursement that went into affect in January of '11.

And to us it was very clear at least it appear to be that CMS wanted to move procedures from the hospital setting to the office based setting, right. They put very good reimbursement into effect in '11. They increased it slightly in '12, increased it slightly in '13 and the proposed rule is a bit of a change there. But it doesn't change the fact that patients need to be treated, nor does it change the fact that physicians make still with the proposed reimbursement significant money.

So, if there were to be a shift, how would that happen to your more pointed question. It could happen in a couple of ways. Hospitals could acquire those physicians that have gone out in the office based setting. We've seen that trend previously. That could happen here. Hard to know more than what I’ve shared I think at this point.

Suraj Kalia - Northland Securities

Okay. Scott, on the lead removal business obviously a lot has been asked and forgive me if my understanding is wrong here. So I think, so I heard 70% of the customers in lead removal are close that also have been converted to GlideLight. And you know you look at lead removal business for this quarter, sequentially its flat. I mean almost for the last three quarters its flat and the comps are going to get tougher. My understanding was GlideLight is priced at a premium. So if 70% of the customers have been converted over, the net effect was still flattish so to speak even though it was priced at a premium, maybe some procedures were lost or some sales were disrupted. Is my logic flawed there?

Guy Childs

Suraj, just to may be add-on to what Scott said previously, the incremental impact of the training in clinical and service for GlideLight this quarter is just muted because of -- the time commitment is the same. The volume of accounts that we’re focusing on was relatively lower volume. So you also have the tough comp relative to inventory swap outs given at the lower volume accounts.

So now going forward, I think it will be more normalized relative to focus on GlideLight conversions and you have some offsetting things including the strengths of laser placements that we’ve enjoyed over the last several quarters.

So, lots going on there, combined with the fact that this business and you’ve followed us the long time and you’ve seen certain quarters that are outside of the historical trends. And we don’t believe there is anything fundamentally changed in the market or in our business fundamentals. And we looked forward to continue growth in this business.

Operator

(Operator Instructions) Our next question comes from the line of Larry Haimovitch with HMTC. Your line is open.

Larry Haimovitch - HMTC

Good morning, Scott. Good morning, Guy.

Scott Drake

Good morning, Larry.

Guy Childs

Good morning.

Larry Haimovitch - HMTC

Actually lot of the questions that I had has been long ago answered. So I’ll just back in the queue and look forward to seeing you in Boston in a few weeks.

Scott Drake

All right. Great. Thanks, Larry.

Operator

Our next question comes from the line of Charley Jones with Barrington. Your line is open.

Charley Jones - Barrington

Hey, just quick one to follow-up. Would you mind breaking up for us a little bit the split between price and volume across any of your businesses, if you won't mind, please?

Scott Drake

Maybe a couple of points, I’d make generally. The growth in the business is globally driven by volume. We have very modest price contribution in the (inaudible) (53:31) business very small and more so in the GlideLight as we talked previously. Going deeper than that, Charley, is probably not anything. We’re comfortable doing at this point but hopefully provide some color.

Charley Jones - Barrington

Maybe I can just add some follow-up then. I appreciate that. But sequentially I understand that, but year-over-year I guess I would think that we would see some fairly significant price on GlideLight year-over-year. Am I missing something about the timing or?

Scott Drake

Yeah. It was more pronounced….

Charley Jones - Barrington

I think it would be ….

Scott Drake

…on the GlideLight front, we've talked that in some length in previous calls, so it's meaningful.

Operator

At this time, I'm not showing any further questions in queue. I would now like to turn the call back over to Mr. Drake.

Scott Drake

All right. Great. Thanks for your day and thanks everyone for joining us on our Q2 call. We look forward to updating you in 90 days and seeing many of you at investor events between now and then. Thanks so much.

Operator

Ladies and gentlemen, thanks for participating in today's conference. This does concludes today program. You may all disconnect and everyone have a great day.

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