The Spectranetics' CEO Discusses Q3 2013 Results - Earnings Call Transcript

Oct.24.13 | About: The Spectranetics (SPNC)

The Spectranetics Corporation (NASDAQ:SPNC)

Q3 2013 Earnings Conference Call

October 24, 2013 04:30 AM ET

Executives

Lynn C. Pieper – Investor Relations-Westwicke Partners LLC

Scott Drake – Chief Executive Officer

Guy A. Childs – Chief Financial Officer

Analysts

Jason R. Mills – Canaccord Genuity, Inc.

Chris T. Pasquale – JPMorgan Securities LLC

Miroslava Minkova – Stifel, Nicolaus & Co., Inc.

Brooks E. West – Piper Jaffray

Nicholas L. Nohling – Citigroup Global Markets Inc.

Charles E Haff – Craig-Hallum Capital Group LLC

Larry G. Haimovitch – Haimovitch Medical Technology Consultants

Operator

Good day, ladies and gentlemen and welcome to the Spectranetics Corporation 2013 Third Quarter Financial Results. 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 maybe recorded. I’d now like to introduce your host for today’s conference, Lynn Pieper. Please go ahead.

Lynn C. Pieper

Thank you, Danielle. This is Lynn Pieper with Westwicke Partners. Thank you for participating in today’s 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 September 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 that management will be making statements during this call that include 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 materially differ 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 because of new information, future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast, October 24, 2013.

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

Scott Drake

Thanks, Lynn. Good afternoon everyone and thank you for joining us on our Q3 call. This quarter, we posted strong top line growth of 13%, 12% on a constant currency basis. This is our fourth consecutive quarter at this growth rate and eight 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 global expansion.

This afternoon, I’ll break my comments down 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 discuss the significant progress we’ve made with our clinical programs. Guy will go deeper into the financials and then we look forward to fielding your questions.

Before I delve into each business segment, I want to highlight again our laser placements. We installed 40 lasers to new customers versus 30 in a year ago period. This is the fourth consecutive quarter of robust placements. This increase in our installed base, which is now over 1,100 units reflects the clinical value customers place in our technology and we believe bodes well for sustained future growth.

Our Vascular Intervention business delivered revenue of $19 million, an increase of 12% on a constant currency basis. U.S. peripheral atherectomy growth of 20% was balanced nice fully across hospitals and office-based labs and again fueled by our office and PAD initiatives.

The Lead Management business achieved revenue of $16.1 million, a 15% constant currency increase. This growth was nearly all volume based and balanced across global regions. Our international team posted revenue of $7.2 million, a 26% constant currency increase. Strength in Europe and robust growth in Japan highlight these results.

As we previously stated, our coronary business is not a focused area, yet we grew this segment 17% off a small revenue base. The growth reflects easier comps in the second half and strengthened Japan. But I’ll reiterate this is not a current focus area for us.

Gross margins were strong at 75% reflecting our on going margin expansion efforts. This is a 200 basis point improvement over last year. All of the right levers are driving these results including production efficiencies, leverage of overhead, price and revenue mix. Our net income was $434,000 or $0.01 per share right in line with our expectations.

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

For the ninth consecutive quarter, we've grown our U.S. atherectomy business faster than the market driven by our PAD awareness program in office-based initiative. Market dynamics are broadly favorable, office-based procedures continue to expand and our strength in the hospitals setting is evident.

We don’t have any meaningful update to office-based reimbursement we’ll see CMS’ final decision sometime in November and regardless of the outcome we’re bullish on our prospects.

On the in-stent restenosis front we’re making steady progress. 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 launched in the U.S.

For context, the ISR market is large and under served. There are approximately 250,000 procedures per year. About a $750 million market opportunity for us. Data continue to emerge, supporting our high hypothesis that laser atherectomy prior to drug delivery is critical for the vast majority of ISR patients.

We anticipate Dr. Gandini’s work will be published later this quarter. According to the data, Dr. Gandini presented at EuroPCR we expect 6-month patency to be 92% for laser plus DEB and 58% for DEB alone. The 12-month patency was reported as 67% for laser plus DEB and 38% for DEB alone.

Important to note: these are very sick patients. All had critical limb ischemia and chronic total occlusions that average greater than 20 centimeters in length. These results support the work Dr. Van Den Berg published this past April in the journal of Vascular Surgery and signal success with PHOTOPAC.

As reported, we've expanded this study to incremental sites in 145 patients. We have 52 patients enrolled today in three centers and our focus is on site initiation. It’s too early to call a completion day.

Results from the patent registry the feasibility study that proceeded EXCITE have been submitted and we anticipate publication of this important work in Q4. In terms of achieving the ISR indication we remain on track. We now have 216 patients enrolled in our full allotment of 35 sites are active. This represents the continuation of the stepped up enrollment rate we highlighted last quarter.

We continue to believe we will achieve an indication in the mid-2014 timeframe and as we shared will update the Street upon FDA’s acceptances of our 510(k) submission.

This multi-throng plan clinical approach reflects the fundamental shift in the vascular space from brute force marketing to a clinically driven business. We believe this work will provide a meaningful, sustainable, competitive advantage. The big picture is to be the only company with an ISR 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.

Our confidence in the clinical data and the opportunity to capitalize on the indication has let us to initiate the significant expansion of our sales force. Our peripheral atherectomy business has grown substantially faster than the market for the past two years and we’ve done so with the team that’s significantly smaller than our competitors. We’ve been preparing for this move for the past three quarters and believe this added horsepower will help accelerate our top line and enhance leverage over time.

On the new product front we have traction, our vitality index is now 26% and our vascular business is starting to contribute with our 0.035 Turbo Elite, Quick-Access and Quick-Cross Capture products. The later we will highlight at this month at the VIVA conference in Las Vegas. Our Lunch Symposium was standing remotely with a 140 attendees. We were pleased by the interest and believe the retrograde approach in treating advanced CLI expands selling opportunities for our team. In summary, our vascular business is gaining momentum on the sales execution, clinical and portfolio fronts.

On the LM side of our business, we’re steadfast in our mission to provide great patient care and we’ve focused our commercial programs, training and education efforts and new product development on this goal.

The number of patients requiring lead extraction is climbing. The vast majority remain underserved, and we believe our efforts around responsible lead management will unlock this opportunity. This quarter we grew 15% constant currency reflecting strong unit volume growth. As we mentioned last quarter the GlideLight conversion is substantially complete and returning our attention to new market development initiatives. Recently we launched an infection awareness camping that highlights the underserved population of patients with infected leads.

As previously shared only about a third of infected leads are extracted in the U.S. market. Research shows that many physicians are unaware that infected leads are Class I indications. These patients are lost in the care pathway often with devastating consequences. As Dr. Roger Carrillo frequently says, infected leads are a lethal condition. Our recent study from the male clinic points out that CRM device patients with an infection are three times more likely to die if they don’t undergo complete system removal. We’ve also learned that improved referrals patterns are an important component to delivering better patient care.

We’ve identified ways we can positively impact physician and patient awareness. Care pathway can be substantially improved by having patients refereed to extracting centers from non-extractors and from extractors to high volume centers of excellence predicated upon physician comfort and case complexity.

Our message is simple; device plus infection equals extraction. This market development work is in its nascent stage, but we believe we are on the right track to drive improved patient care and unlock the market potential.

We also look forward to the launch of two mechanical tools programs in 2014. Physician feedback and support is evident, but we will conduct clinical preference testing prior to the full launch to ensure we have hit the mark with our product.

Just as on the vascular side, our confidence in our prospects has led to the decision to significantly increase the size of our sales force. For context, today, we only cover approximately 40% of CRM implant patients and we are planning to cover about 80% in early 2014. To be clear, the pace of hiring will be depended upon the talent pipeline, not the calendar.

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 continue to launch of our Quick-Cross product family in Japan, a meaningful component to expanding our portfolio.

Third, we are continuing our GlideLight conversions in Europe and concurrently gaining share in Lead Management. We expect continued momentum in our existing business as we expand into new markets yielding sustainable, robust international growth.

To summarize, our new products and clinical pipeline is strong, commercial traction is solid and the future looks even brighter than the past.

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

Guy A. Childs

Thank you, Scott, and good afternoon everyone. The third quarter marked another quarter of double digit growth with strong execution by the sales teams in all geographies and business units. Their performance has put us ahead of the aspiration goals we laid out at JPMorgan Conference in January of this year.

After I review the details of our financial performance, I will provide some color on how we see 2014 shaping up, in close with our revised outlooks for this year.

Third quarter revenue of $39.8 million increased by 13%, 12% constant currency. Vascular Intervention revenue of $19 million increased 13%, 12% constant currency, led by U.S. peripheral atherectomy growth of 20%. The vast majority of this growth was unit volume, supported by a single digit price increase in the U.S.

Rounding out the discussion, crossing solutions revenue was down 1%, as growth from Quick-Access and Quick Cross Capture devices was offset by a low single digit decline in support catheters. The slight decline in support catheters is in line with our expectations, given the heightened competition in this business over the last couple of years.

Coronary revenue from atherectomy and thrombectomy product sales were up 17% of off a small base. As mentioned previously, the coronary market is not currently a strategic priority, so despite this performance, we do not expect sustained growth at these levels.

Lead Management revenue grew to $16.1 million, an increase of 15% constant currency and was driven almost entirely by unit volumes. Notably, this growth is compared with the first full quarter of the GlideLight launch a year ago. In addition, last year’s third quarter included approximately $450,000 of inventory swap compared with virtually none in the current quarter.

We are looking forward to continuing growth in 2014 and beyond, driven by increasing interest in Lead Management, market development work around infected devices and mechanical tools, product launches.

Laser system, service and other revenue increased 5% to $4.7 million. The increase is in service revenue as a result of our growing installed base of laser systems. Offsetting this laser sales were flat with last year and declined sequentially by approximately $500,000 from record levels, consistent with expectations we highlighted on our last call.

On a geographic basis, revenue in the U.S was $32.5 million, an increase of 10%. International revenue was $7.2 million, up 29% as reported and 26% on a constant currency basis. We are encouraged by the consistent team’s growth in Europe and excited by the growth in Japan where revenue doubled.

Our gross margin was 75%, up 200 basis points from the third quarter last year. The improvement was led by production efficiencies and improved price. A favorable mix of higher margin disposable products also contributed.

Recall, we are targeting a full year gross margin in 2013 that is at least 50 basis points higher than the 73% during full year 2012. We are ahead of schedule and believe we can achieve gross margin of approximately 74% for the full year 2013 assuming Q4 gross margins at about the same level as this quarter.

Research, development and other technology expense is $5.7 million or 14% of revenue, compared with $4.2 million or 12% of revenue in the prior year. This increase was planned as we ramp up 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 $22.2 million represented 56% of revenue compared with last year’s $20.3 million at 58% of revenue. The dollar increase was led by business development and personnel-related G&A expenses. Marketing and sales expenses decreased by approximately 300 basis points as a percentage of revenue, providing evidence of leverage in the business model.

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. 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 $0.5 million.

We reported a provision for income taxes of $0.4 million in Q3, which brings our year-to-date tax benefit to $0.1 million. Income tax expense for the full year is expected to be $0.7 million and it’s relatively fixed for the year based on foreign, state and U.S deferred taxes. As a result, we project income tax expense of $0.8 million in the fourth quarter against our projected Q4 pre-tax income, an important consideration for model update.

As expected, we returned to profitability this quarter. Net income was $434,000 or $0.01 per diluted share compared with net income of $905,000 or $0.03 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 $4.3 million this quarter versus $3.6 million last year. Tables showing reconciliation of non-GAAP financial measures are provided in the press release. Cash and cash equivalent totaled $123.6 million as of September 30, 2013. During the quarter, we generated $4.2 million of cash flow, $3.5 million from operations.

Before I provide our 2013 outlook, I would like to provide some high level commentary regarding preliminary expectations for 2014. We expect revenue growth in the low-teens compared with current 2013 guidance. This includes modest revenue from mechanical tools and no revenue from the ISR indication. This is consistent with our past practice of not including meaningful revenue from new products or indications until we have a few quarters of commercial experience.

Gross margin is anticipated to be around 75%. R&D expense is expected to be approximately 14% to 14.5% of revenue. The med device tax and acquisition cost are expected to be about 2.5% of revenue. SG&A expense excluding med device tax and acquisition-related cost will increase as a percentage of revenue based on our investment in our field sales team.

In Q1, we plan to significantly expand the sales organization by around 55 teammates, approximately two-thirds in VI and one-third in Lead Management. As a result, we expect a net loss for the year in the range of $3 million to $5 million. Revenue will be weighted towards the back half of the year and net losses towards the first half of the year given the productivity curve of the new sales hires.

We believe these investments are required to optimize our revenue growth in the midst of the significant opportunities ahead of us. We also believe this investment will enhance operating leverage in the future. These preliminary assumptions will be updated by our official 2014 guidance in February of next year, consistent with past practice.

In closing, I’ll update our outlook for 2013. Revenue is projected to be in the range of $157 million to $158 million, an increase from $155.5 million to $157.5 million previously projected, and represents an increase of 12% to 13% over 2012. Net income is expected to be approximately breakeven compared with previous projected outlook of breakeven to $0.5 million or zero to $0.01 per diluted share.

Adjusted EBITDA is unchanged and anticipated to be in the range of $13.5 million to $14.5 million, compared with $13.1 million in 2012. This non-GAAP measure 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

Thanks, Guy. We’ve recently announced the divisionalization of our two business units, which allows for increased customer focus and clear accountability. In line with this Kim Bridges, Senior Vice President of Sales and Marketing has been hired to lead our Vascular business. Donna Ford-Serbu has moved into a parallel role on the LM side of the business and Jason Hein is leading our Lead Management sales team. These moves are inline with our quest to attract, retain and develop the best talent on the planet and accelerate top line growth.

In closing, 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, expand margins and achieve meaningful operating leverage over time.

Danielle, let’s now open up the call for questions.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. (Operator Instructions) Our first question comes from Jason Mills from Canaccord Genuity. Your line is now open.

Scott Drake

Hi Jason.

Operator

Jason, please check your mute button.

Jason R. Mills – Canaccord Genuity, Inc.

Sorry about that, I was on mute. Can you hear me now?

Scott Drake

We sure can. How are you doing Jason.

Jason R. Mills – Canaccord Genuity, Inc.

Great, congratulations, on a great quarter. Good afternoon, it’s actually good morning, but now good afternoon, with the call on the afternoon now. First question Scott, you mentioned – gave us some good detail on the in-stent restenosis opportunity an important one for you, you that have held past sort of mid-2014 time line for approval [ph]. Perhaps you could give us essentially the next, I guess it’s nine months or so and the cadence of things we may expect from both the EXCITE trial as well as the discussions with FDA. What the typical timeline you might expect once they accept the filing et cetera.

And then also give us a sense or those of us who have followed us for this long as to what they might look for out of the date once they are either published or presented in some forum from the standpoint of what the trial is powered to show. I think, I get to the question those questions a lot of them could be a good forum. Now they just sort of educate everyone a little bit on that. Thanks.

Scott Drake

Yes, happy to Jason and thanks for the question. So a lot of very good moving pieces as it relates to the indications specifically and clinical work generally. The PATENT data and again DNA [ph] data anticipated a come out in Q4. We think it’s very meaningful for us. On thing I didn’t mentioned in the script, but you’re kind of drawing me to is we hope that Dr. Van Den Berg, we know he intend to do a follow-on publication some time next year. As his patients get further out, the data gets more and more compelling in terms of durability of laser atherectomy combined with drug-coated balloon.

As it relates to EXCITE and the indications specifically as you know well the adjunct analysis that we agreed to in the May timeframe with the FDA allows us for looks at the data. As you also know we’re not commenting on whether or not we’ve had a look and rally don’t want to get ahead of the FDA at this point. We feel very good about the success – ultimate success of the study and the timing that we've shared and we will next time you’ll hear from us. It’s going to be when the FDA accepts our 510(k) submission.

Jason R. Mills – Canaccord Genuity, Inc.

Thank you for that, that’s helpful. I’ll move to Lead Management for my second – my follow-up question, Scott. Pretty impressive quarter given the comp. Guy, mentioned the comp that you faced it seem like apples-to-apples growth was perhaps 20% plus and you face another difficult comp in the fourth quarter. I guess, you’ve given the guidance for the fourth quarter, so the question really is are you seeing any evidence of the simulation and training programs that you’ve been, so are sort of putting into practice for the last two years coming fruition, can you give us any real world data points with respect to maybe what kind of an impact those programs are having and the confidence that may give you to – that you’ll see continued growth in this business as you entered 2014, 2015?

Scott Drake

Happy to, as you know Jason this business has performed very well over a very long period of time at 21% CAGR over six years and we’ll have quarter-to-quarter fluctuations. It was our point of view that some folks made a little more of the performance last quarter at a 11%.

So you will hear us being very steady, very minuteness, on the thought that this is going to be a growth business for us for a very long time going forward into the future, and we are not going to make too much or too little of great standout performance or less and stellar performance in any given quarter. And I think your point is dead on Jason, one of the things that separates us in the marketplace and why we grow pretty significantly faster than the overall market, is the training and education that we do. We take that opportunity and obligation very seriously.

And I think the next big thing that you’ll see on that front and I say this hopefully not a guarantee but hopefully we’ll see some work on the STEEP steady being presented on the podium at HRS coming in the May timeframe in 2014. So the investments continue there.

I think the work that the team has recently kicked off in the form of the infection market development work is really going to hopefully add fuel to that, but I don’t want to get ahead of ourselves on that front and then at the right point in time, you will see us doing similar kind of market development work on Class II indications, but not exactly sure when we’ll begin doing that.

Jason R. Mills – Canaccord Genuity, Inc.

Thanks, guys.

Scott Drake

Thanks Jason.

Operator

Thank you. And our next question comes from Chris Pasquale from JPMorgan. Please go ahead.

Chris T. Pasquale – JPMorgan Securities LLC

Thanks and congratulations on a nice quarter.

Scott Drake

Thank you Chris.

Chris T. Pasquale – JPMorgan Securities LLC

A couple of clarifications on EXCITE to start, first as we think about the timeline is it fair to assume that you need to have an accepted submission in place by early 2014 to stay on track for that mid-year approval?

Scott Drake

Yes, that’s right Chris, we need to submit and have an acceptance sometime in Q1 the earlier the better.

Chris T. Pasquale – JPMorgan Securities LLC

Okay, and then have you given any more thought to whether you’re going to share any top line results when you announce the filing has been accepted or whether will have to wait for that?

Scott Drake

I doubt it. I think we’ll just announce given the level of interest in the indication that will confirm that the FDA has indeed accepted it. I doubt that we’ll get granular there again that the watchword that we have is not getting ahead of the FDA and we might run that risk if we were able to do that.

Chris T. Pasquale – JPMorgan Securities LLC

Okay, makes sense and then I appreciate the early thoughts on 2014, within the sales guidance can you give any comments on growth expectations for the VI and MV management segments individually?

Scott Drake

No, we are going to leave it where it that for now we want to give that level of color especially in light of all of the different growth drivers that we have and the fact that we are making a pretty significant investment in the sales force the 55 or so new team mates the Guy had alluded to. So we thought it’s correct to give the street that level of visibility into our plans and really there was no stopping from top line all the way through bottom line as we went through it. So hopefully that’s helpful and we will get more granular in the February timeframe.

Chris T. Pasquale – JPMorgan Securities LLC

Okay, thank you.

Operator

Thank you. And our next question comes from Rick Wise from Stifel. Please go ahead.

Miroslava Minkova – Stifel, Nicolaus & Co., Inc.

Hi Guy, hi Scott, it’s actually Miroslava for Rick today. Congratulations on a good quarter. And let me start with, just can you maybe remind us really quickly how big your current sales force is and how long it takes for you to get the rest from Board and for them to become productive.

Guy A. Childs

Yes, happy to. So on the vascular side of the business and just so everybody is clear these are U.S numbers. On the vascular side of the business, we’ve got about 75 teammates roughly 50 of them are quota-carrying reps. And on the lead management side of the business it’s about 50 teammates and 33 of them are quota-carrying reps.

So there will be some reallocation, for example in lead management of business development BDA’s becoming BDM’s. So we’re going to have even more sales reps and the number of ads indicates on the lead management side and on the VI side. I think in terms of going from roughly the 50 quota-carrying reps to about 75 quota-carrying reps on that side of the business.

We believe it will take us roughly three quarters, history supports this and it’s been reaffirmed pretty consistently that it’s roughly three quarters to have a sales rep up and paying for their expenses. And we believe it will take us about 18 months to 24 months to reach full productivity versus where our sales team is today versus where those brand new hires will be. So hopefully that gives you some color.

Miroslava Minkova – Stifel, Nicolaus & Co., Inc.

Yes it does. And separately the acceleration both on the lead management and on the vascular intervention side of the business it was nice to see particularly the unit growth in lead management maybe if you could give us a little bit more color. Are you doing anything differently, did you do anything differently this quarter and into 2014 to sustain this acceleration? And just quickly on the outside the U.S seems to be were lot of the strengths came from how sustainable is this.

Guy A. Childs

Yeah. So I will take those one at a time. On the lead management front, I would really say it was business as usual. That is pretty consistently the kind of growth rate we’ve been able to achieve. We’ve had higher quarters, we’ve had lower quarters. The one notable difference I would say in the quarter is that in the U.S. market specifically we spent less time converting GlideLight in Q3 than we did previously. And as we mentioned on our last call that really slowed us down a little bit, but we felt like responding to customer demand with was the right thing and sacrificing some top line growth in the spirit of customer service with the right decision to make.

So we feel very good about the quarter that we had and feel very strong about the growth prospects of that business as far as I can see. As it relates to the international business Europe continues to grow in a very positive way, very consistent teens growth there and we believe that it’s sustainably and the other international markets in particular the work that’s been done in Japan is really a highlight for us, that business will more than double for us this year. And we are opening up new markets as I think you were aware in the 2014 time frame specific examples include China and India. So we believe we do have a sustainable robust international growth business in front of us here again as far as I can see.

Miroslava Minkova – Stifel, Nicolaus & Co., Inc.

Okay, great. Thank you very much.

Operator

Thank you. And our next question comes from Brooks West from Piper Jaffray please go ahead.

Brooks E. West – Piper Jaffray

Thanks for taking the question. Can you hear me?

Scott Drake

We can Brooks, how are you doing?

Brooks E. West – Piper Jaffray

I’m doing well, just one question back on the revenue guidance for next year, you guys have been kind of trending at 12% to 13% this year. Is the message you are going to be flat from a revenue growth rate year-over-year? Are you kind of setting out of the base or how should we be thinking about that?

Scott Drake

Yeah, I don’t think we’re going to get any more granular now Brooks. We’re just saying low teens at this point, we’re comfortable saying that. And we’ve talked about the different growth drivers in our business including the market development work around lead management, the incremental mechanical tools that we’ll have in that bag. We are not taking anything into the vascular side yet for the ISR indication. We’re going to hold off on that for a bit. So we feel very comfortable and confident in what we’ve laid out there and I don’t think going any further than that is prudent at this point.

Brooks E. West – Piper Jaffray

So kind of low teens with upside from ISR upside from mechanical and obviously upside from better performance is the way to think about that?

Scott Drake

I think that’s right.

Brooks E. West – Piper Jaffray

And then Guy, did you say that you took a price increase in vascular, was that atherectomy or where was that? And kind of speak to further pricing opportunities there?

Guy A. Childs

Yeah, Brooks. In Q2 we did implement a modest price increase in our Turbo lead line. And in the current quarter it amounted to single-digit contribution to peripheral atherectomy growth.

Brooks E. West – Piper Jaffray

Thanks. That’s it from me guys. Thank you very much.

Guy A. Childs

Thanks Brooks.

Operator

Thank you. And our next question comes from Amit Bhalla from Citi. Please go ahead.

Nicholas L. Nohling – Citigroup Global Markets Inc.

Hi, good afternoon. This is Nick Nohling in for Amit. Maybe first off just talk about the development trends within lead management in the marketing side. I think last quarter we talked about it was more focused on smaller accounts in the second half or is going to get back to the larger accounts there. Could you talk about that dynamics there and the sense of what those conversations were like in any new initiatives and the dynamics within the market developing?

Guy A. Childs

Yes, happy to Nick. I think the punch line is its business is usual in Q3. We had done really all the heavy lifting in both large and small accounts for the most part as it related to GlideLight. So Q3 activity was – I think best described as kind of business as usual. The market development work that we’ve been alluding to here focusing first on infections is something that the team is just kicked off.

So no impact from that and I would keep expectations relatively modest there. As I said in the prepared remarks this market development work is really just in the nascent stage and we will see what kind of impact we can have but we anticipate that we’ll have very solid growth in lead management as we go forward.

Nicholas L. Nohling – Citigroup Global Markets Inc.

And then, when we think about 2014, you did mention second half acceleration or revenue weighted towards that. Can you provide any color and a sense of is this marketing development that’s currently in nascent stage coming through in the back half of 2014, is this the new sales force coming online, is this new products like the mechanical tools, can you provide any color behind what’s the most near-term drivers in a sense what we should be looking for there?

Scott Drake

Yes. The short answer is yes. It’s all about stuff, right. We have market development work that we kicked off. So it’s really the first thing that we’ll see having an impact in the business. Chronologically we’ll then have the new sales force expansions happening on both sides of the business, starting roughly in the January timeframe.

We’ve not called for timing on the launch of mechanical tools and we are going to stop short of that and roughly what we believe to be true on the ISR indication front. So, as all of those things take hold and traction happens, we can anticipate acceleration on the revenue line. So I think you are thinking about it exactly the right way.

Operator

Thank you. And our next question comes from Charles Haff from Craig-Hallum. Your line is now open.

Charles E Haff – Craig-Hallum Capital Group LLC

Hi. Nice quarter. Thanks for taking my questions.

Scott Drake

Hey, Charles, thank you.

Charles E Haff – Craig-Hallum Capital Group LLC

Yes, a couple of questions. I was toggling back and forth between different earnings calls. Did you say there are two sets of mechanical tools that you are working on or did I misunderstand you there?

Scott Drake

No, you understand it exactly right. There are two sets of tools. One set, kind of think higher level and other set more simple tools that we’ll be launching, but two sets of new mechanical products we anticipate we’ll be launching in 2014.

Charles E Haff – Craig-Hallum Capital Group LLC

Okay. And you mentioned clinical preference testing. I’m not familiar with that too much. Could you kind of explain how long that takes, what’s basically involved there?

Scott Drake

Yes, happy to. So first, obviously get the approval from the FDA and then we’ll go into what we call clinical preference testing with a handful of physicians that will be selected very intentionally. It won’t just be key opinion leaders. It will be to get a broad cross section view of how the products are viewed and how we anticipate that they will be adopted.

We will do that for a period of time and then once we have confidence in what we’ll be able to achieve with the devices, then we will be more over in terms of what kind of revenue impact we think we’ll have with those products and you’ve seen that behavior out of us now for a bit. So that’s roughly the chronology and then after we get through that we will go to a full launch and know what the positioning and have a good idea of what the impact is going to be from a financial perspective.

Charles E Haff – Craig-Hallum Capital Group LLC

Okay. And does clinical preference testing in this situation usually take a quarter or a multiple quarters or how should we think about that?

Scott Drake

Yes, it varies by product and so it depends on which one we would launch first. If it’s the simpler one, I would anticipate that that would be a relatively shorter period of time than the more complex device that we’ll be launching. So it varies, but I would think in terms of a few months on the simpler devices and maybe slightly longer on the more complex devices.

Charles E Haff – Craig-Hallum Capital Group LLC

Okay. And my last question is on definitive AR. So Covidien released some results at the VIVA meeting. I’m wondering if you can comment on how that maybe impacts your business, increases awareness and so forth.

Scott Drake

Yes, I think they’ve done good work. I’ve said that many times before from a de novo perspective and I obviously think the work we’re doing is excellent on the ISR front. I think it’s a little bit early to comment too much on the AR results given that it’s only out 30 days. So I think we have to wait and see what the broader clinical impact is, but I anticipate, but that will be helpful to atherectomy generally and I think the work that we’re doing will be specifically helpful to us given that the competition is contraindicated in ISR.

Operator

Thank you. And our next question comes from Suraj Kalia from Northland Securities. Please go ahead. (Operator Instructions)

Scott Drake

Suraj, we can’t hear you.

Operator

And our next question comes form Larry Haimovitch from HMTC. Please go ahead.

Larry G. Haimovitch – Haimovitch Medical Technology Consultants

Good afternoon and congrats on another great quarter.

Scott Drake

Thank you, Larry. How are you?

Larry G. Haimovitch – Haimovitch Medical Technology Consultants

Perfect. How are you?

Scott Drake

Great. Thanks.

Larry G. Haimovitch – Haimovitch Medical Technology Consultants

Scott, when we met last you talked about some reorganizational changes you made and I know you’re spending a lot of time on that and I was hoping you might make some comments specifically about some of the people you’ve brought on board, because I know you are quite excited about the upgrade and the improvements in the organization.

Scott Drake

Yes. Thanks, Larry. So little bit of more granularity on that front. First, I think it’s the best leading indicator of success in a business and we’re awfully pleased to have got some excellent talent and incremental focus to the business. I highlighted Kim Bridges joining our organization.

She comes to us by way of just an incredible Board member. Maria Sainz who was nice enough introduced us to Kim and Kim is one of the best leaders that Maria has ever worked with before and we’re excited to have Kim join us and we also have a gentleman named Nick [indiscernible] who comes to us by way of another Board member who will be leading our marketing effort on the VI side, just incredible expedience. He starts with us next week and we’re awfully excited for that to happen.

Down further in the organization, Larry really across the board, we’ve been very fortunate to have excellent teammates join us across all functions of the organization and frankly what we’ve heard from a lot of people is that being a part of a real growth company and something that has excellent prospects going out into the future and if I’d say humbly of an excellent culture is what we’ve heard from the team. So we’re pleased to be where we’re at, at this point in time and excited about what that means to continued success in the business.

Larry G. Haimovitch – Haimovitch Medical Technology Consultants

Thanks. But you’re coming on to TCT’s call?

Scott Drake

We’ll be. Yes.

Larry G. Haimovitch – Haimovitch Medical Technology Consultants

Thanks. Okay hope to see you there.

Scott Drake

Thanks, Larry

Larry G. Haimovitch – Haimovitch Medical Technology Consultants

Okay. It’s fine.

Operator

Thank you. And I’m not showing any further questions. I would now like to turn the call back to Scott Drake any further remarks.

Scott Drake

All right. Thanks, Daniel and thank you everybody for joining us this afternoon or this evening. We appreciate you spending time and we look forward to another update in 90 days.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day.

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