Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Ana Petrovic - Investor Relations

Scott Drake - President and Chief Executive Officer

Guy Childs - Chief Financial Officer

Analysts

Jason Mills - Canaccord Genuity

Brooks West - Piper Jaffray

Chris Pasquale - JPMorgan

Rick Wise - Stifel

Charles Haff - Craig-Hallum

Larry Haimovitch - HMTC

Shagun Singh - CRT Capital

The Spectranetics Corporation (SPNC) Q4 2013 Earnings Conference Call February 27, 2014 4:30 PM ET

Operator

Good day, ladies and gentlemen and welcome to the Spectranetics Corporation 2013 Fourth Quarter Financial Results 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 would now like to introduce your host for today’s conference, Ana Petrovic. Please go ahead.

Ana Petrovic - Investor Relations

Thank you. This is Ana Petrovic 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 and year ended December 31, 2013. If you have 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 make 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 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, February 27, 2014.

I will now turn the call over to Scott Drake. Scott?

Scott Drake - President and Chief Executive Officer

Thanks Ana. Good afternoon everyone and thank you for joining our Q4 call. This quarter, we posted strong top line growth of 14% extending our track record of accelerating double-digit growth. Our performance and imminent top line catalyst put us on offensive footing for 2014. Our momentum continues to be driven by our focus areas of U.S. peripheral atherectomy lead management and global expansion.

This afternoon, we will breakdown our comments as follows. First, I will walk through the quarter’s financial performance for each segment. We will then discuss the significant progress we have made on our growth drivers and clinical programs in particular, EXCITE. Guy will go deeper into the financials and 2014 outlook and then we look forward to fielding your questions.

Before I delve into each business, I want to highlight again our laser placements this quarter. We installed 43 lasers to new customers continuing the string of very strong results. This steady increase in our installed base reflects the clinical value customers place on our technology and bodes well for sustained future growth. Our vascular intervention business delivered revenue of $20.6 million, an increase of 23% and U.S. peripheral atherectomy was up 35% over prior year. This growth was balanced across hospital and office-based labs and these results reflect increased traction on the sales execution side and the great opportunity we have in front of us.

On the lead management business, we achieved revenue of $16.3 million, a 5% constant currency increase. This performance is largely a consequence of a tough comp recalled at last year Q4 growth was 30%. Underlying market dynamics and trends remained very positive and growth will accelerate as the price impact of GlideLight anniversaries and our growth drivers bear fruit. Our international team posted revenue of $7.4 million, a 22% constant currency increase. Strength in Europe and robust growth in Japan highlight these results.

Gross margins were again strong at 75%, a 200 basis point improvement reflecting our ongoing margin expansion efforts. All of the right levers are driving these results, including production efficiencies, leverage of overhead, price and revenue mix. Our net income was $0.9 million or $0.02 a share.

Now, let’s turn to our growth drivers. As we have stated, growth in our vascular business is predicated upon three things, atherectomy penetration and share gains, capitalizing on the ISR opportunity, and expanding our product portfolio. As we have done consistently, we grew our U.S. atherectomy business faster than the market. Q4 growth was 35% driven by sales execution, new product growth and new account starts.

Our sales force expansion adds fuel to this fire. We have expanded our U.S. field team by about 40% and all territories have been filled. We are excited by the quality of talent our new teammates represent and feel the timing is perfect given the ISR opportunity. Speaking of ISR, we are pleased that we have achieved statistical success of our EXCITE adjunct analysis. We expect to submit the 510(k) within the next 45 days and average FDA review times for similar filings is about five months. We look forward to presenting the data at upcoming medical conferences, but are balancing the need to not get ahead of the FDA’s review of the data.

The big picture is to be the only company with an ISR indication. Note that our primary competitors are contraindicated have compelling clinical evidence that changes clinical practice. 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 the market. We are in an excellent position to capitalize on this $750 million opportunity. In summary, our vascular business is gaining momentum and we are poised for future success.

On the lead management side, our efforts remain focused on penetrating class one indications, innovation and portfolio expansion, world class physician training and increasing our commercial footprint. This quarter we grew 5% largely due to a difficult comparison to Q4 last year and Q1 poses a similar challenge. While the comparison commentary is true, we are focused on driving procedural growth. As you will hear, our key initiatives are completely aligned to this goal.

We recently launched a robust market development campaign focused on the pervasive growth of cardiac device infections. Up to two-thirds of infected device patients are currently undertreated or not treated at all. Today, our message of device plus infection equals removal has reached hundreds of clinicians both in direct outreach and through our website deviceinfection.com. We are working aggressively with extracting champions to encourage protocol adoption that identifies and treats these patients early in the disease state.

On portfolio front we have submitted the 510(k) applications for both mechanical tools platforms. Building on our position as the market leader, these new products will provide our customers with the most comprehensive set of options for lead extraction. And we anticipate launch of these devices in mid-‘14. Our sales force expansion is also complete on the lead management side of our business. We now cover about 80% of implanting physicians versus 40% previously. Here too the quality of our new teammates bodes well for our complementary goals of enhancing patient care and driving increased growth. We are bullish on the lead management opportunity as market dynamics and trends are strong, our position is unparalleled and growth drivers are in place to unlock the $700 million market potential.

Internationally we continue to drive solid results in Europe and rapid growth in Japan. Highlighting recent accomplishments, first we continued to accelerate the pace of new laser installations in Japan and other key international market that will drive future growth. Second, we gained approval for our 50 patient peripheral atherectomy study in Japan. We are the first company to achieve this milestone and we are starting enrollment soon. Third, we continue to gain share in lead management, which is our primary driver of growth in Europe. To summarize, our new product and clinical pipeline is strong, commercial traction is solid and the future looks even brighter than the past.

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

Guy Childs - Chief Financial Officer

Thank you Scott and good afternoon everyone. During my prepared remarks I will review the details of our financial performance and provider our outlook for 2014. We achieved record revenue in the fourth quarter, our highest growth rate in over five years. Fourth quarter revenue of $41.9 million was an increase of 14%. Vascular intervention revenue up $20.6 million, increased 23% led by US peripheral atherectomy growth of 35%. Unit volume represented nearly all of the U.S. peripheral atherectomy growth supported by a single digit price increase in the U.S. Rounding out the VI discussion, crossing solutions revenue increased 4%, 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 was up 18%. Lead management revenue grew to $16.3 million, an increase of 6%, 5% constant currency, off of a very strong year ago Q4. Market trends continued to be favorable and we are looking forward to continuing growth in 2014 and beyond driven by our sales force expansion, market development work around infected devices, mechanical tools products launches and continued global expansion.

Laser system, service and other revenue increased 8% to $5.1 million, mostly due to strong laser system sales. On a geographic basis, revenue in the U.S was $34.5 million, an increase of 12%. International revenue was $7.4 million, up 25% as reported and 22% on a constant currency basis. We are encouraged by the consistent growth in Europe and excited by the growth in Japan where revenue was up over 100% in Q4.

Our gross margin was 75%, up 200 basis points from the fourth quarter last year. The improvement was led by production efficiencies and leverage of overhead followed by improved price and a favorable mix of higher margin disposable products. We are in the early stages of gross margin expansion and estimate at least a 100 basis point in 2014 over the 74% achieved in full year 2013.

Research, development and other technology expense was $5.8 million or 14% of revenue compared with $4.7 million or 13% of revenue in the prior year. This increase was planned as we ramp up our product development activities. We continue to anticipate the launch of mechanical tools in mid-2014 and have several other projects in the queue.

SG&A expenses of $23.7 million represented 56% of revenue compared with last year’s $21 million or 57% of revenue. The dollar increase was led by higher personnel cost associated with the divisionalization of our business units, modest additions to our fields sales team, higher sales based incentive cost and increased company wide incentive compensation as a result of exceeding our financial targets for the quarter and year.

We recorded $0.6 million related to the medical device excise tax, which became effective on January 1, 2013. We have added back these costs to calculate adjusted EBITDA primarily for comparability purposes versus last year. Now that the tax has anniversaried, we will continue to disclose it separately, but it will not be added back for adjusted EBITDA purposes in 2014. We also recorded contingent consideration expense and acquisition related amortization, which totaled $0.5 million in Q4. In addition, we recorded a net non-cash credit to operating expenses of $0.7 million, which consists of a $5.2 million reduction of the contingent consideration liability, offset by $4.5 million intangible asset impairment. These adjustments are associated with the Quick-Access and Quick-Cross Capture devices and reflect revisions to our initial estimates of revenue from these products.

Since a significant portion of the acquisition price was represented by earn-outs associated with revenue from 2014 to 2016, our liability was reduced more than the impairment of the acquired intangible assets resulting in the net credit to operating expenses. We remain committed to the retrograde access CTO market and the adjustment reflects the nation stage of the market and our commercial experience that points to further market development.

We recorded a provision for income taxes of $0.9 million in Q4, which brings our year-to-date tax expense to $0.8 million, consistent with guidance given in our third quarter call. In 2014, we expect income tax expense to be consistent with 2013 levels.

As expected, we remained profitable this quarter. Net income was $883,000 or $0.02 per diluted compared with net income of $673,000 or $0.02 per diluted share last year. Adjusted EBITDA was $4.6 million this quarter versus $3.8 million last year. Tables showing reconciliation of non-GAAP financial measures are provided in the press release. Cash and cash equivalents totaled $128.4 million as of December 31, 2013. We generated $4.8 million of total cash flow in the fourth quarter, which included $5 million of cash flow from operations.

Now, turning to our 2014 outlook, we project revenue to be in the range of $177.5 million to $180 million, an increase of 12% to 13%. No revenue is included in our outlook for mechanical tools or the ISR indication. The mechanical tools are pending FDA clearance and the 510(k) for the ISR indication will be submitted shortly.

Net loss is expected to be in the range of $3 million to $5 million or $0.07 to $0.12 per share. The investment in the field sales team expansion will contribute to a net loss in the first half of 2014, projected to be in the range of $8 million to $9 million. Adjusted EBITDA is anticipated to be in the range of $8 million to $10 million compared with $11.2 million in 2013. The medical device tax is included in both periods. While it is not our practice to provide our quarterly outlook, I would like to provide some guiding thoughts.

First, the timing of our growth drivers point to a stronger growth in the second half of the year versus the first half. Second, Q4 is seasonally strong and Q1 less so. We look forward to growth in the sales force expansion, but we are planning on some short-term disruption, which is inherent to the process. This was anticipated prior to the expansion due to new people, training and changes in account responsibilities. Third, we have enjoyed a strong year in terms of laser sales, which are difficult to forecast predictably. I would not be surprised if revenue from laser sales moderates from Q4 and full year 2013 levels. As a result, we are expecting a sequential decline in revenue during Q1 of 2014 with sequential improvement as the year progresses. Consistent with prior years, Q2 and Q4 tend to be a strongest quarters of the year.

I will turn a back to Scott for closing comments.

Scott Drake - President and Chief Executive Officer

So in summary, we are on solid footing and momentum is growing. 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 and clinical pipeline, market development work and global expansion efforts. This culminates in our goal to accelerate our growth rate, expand margins and achieve meaningful operating leverage over time.

We will now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Jason Mills from Canaccord Genuity. Please go ahead.

Jason Mills - Canaccord Genuity

Thanks Scott and Guy for taking the question. Can you hear me okay.

Scott Drake

We sure can. Hi, Jason.

Jason Mills - Canaccord Genuity

Congrats on a good quarter and great year. I had two questions and then I can hop in queue, one on the lead management side, one on the VI side. Starting with lead management, Guy I appreciate the thoughts with respect to some quarterly cadence. And Scott, you mentioned that the comp in the first quarter was a bit tough as well, so as you think about your lead management business juxtaposed to your overall revenue growth guidance for 2014, where does lead management growth kind of fall again juxtaposed to the total revenue growth assumption?

Scott Drake

Yes, when you look at the full year Jason, I would say it’s in line with the overall growth that we project. We see strength in both businesses and as you know very well lumpiness in the lead management business is not new. When you launch a meaningful product like GlideLight that has not only the capability but also the price power, you enjoy that ride for a while and you know that you are going to end up on tough comps on the other side of it, but as we are through that and as our growth drivers really kick in, we see lead management growth being in line with our overall growth from a business perspective in full year ‘14.

Jason Mills - Canaccord Genuity

Okay, that’s helpful. And then with respect to VI it’s notable the guidance you are giving is excluding the in-stent restenosis indication. So perhaps you could just give us a sense for, if you do follow the normal average timeline for 510(k)s, you will be on the market sometime in the third quarter. What are your plans for rollout of the ISR indication from a marketing perspective and sort of what should we think about in terms of the potential for revenue acceleration from that indication if you are lucky enough to get it with sometime to spare in 2014?

Scott Drake

Yes. Jason, so the practice that we are going to continue to follow here just like a new product we want to have experience with the indication in the market before we are ready to tell the street what we anticipate it can mean to us from a revenue perspective. We are very bullish on the opportunity and we have done a lot of external work validating that the indication and the clinical data that we are building here will encourage and result in current customers doing more business with us and new customers doing new business with us. So, we are very confident in that. We are planning for the launch of the indication just as we would plan for a major product launch, but we think it’s prudent to have real experience with it before we really tip our hand to the street in terms of what we anticipate it could mean to us here. And as you know that’s the same practice we have had on new product launches.

Jason Mills - Canaccord Genuity

Yes, that’s helpful, Scott. Thank you very much. I will get back in queue.

Scott Drake

Thanks, Jason.

Operator

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

Brooks West - Piper Jaffray

Hi, can you hear me?

Scott Drake

We can Brooks.

Brooks West - Piper Jaffray

Thanks for taking the question. Scott, let me ask the lead management question a little bit differently, how should we think about the sustainable underlying growth in your core lead management business? And then should we look at the addition of mechanical tools then as the bump to get you backup maybe into the high teens? And I am thinking not just this year, but kind of sustainably looking forward.

Scott Drake

Yes. So Brooks, the way we look at it as is this. The underlying procedural growth in lead management continues to be pretty steady right around that 10% rate. And so that’s kind of the overall view of the marketplace. And I would imagine just like you said that mechanical tools, I would add the infection campaign and the sales force expansion to be catalyst for us. And our hope is, is that the combination of those things over time are really going to allow us to accelerate to treat a much larger market opportunity roughly $700 million versus the $90 million to $100 million served market today. It’s unclear to us when we might achieve that. So, I would think in terms of 10% growth as being par and then mechanical tools, infection campaign and sales force expansion should get us beyond that number.

Brooks West - Piper Jaffray

Got it, thank you. And then Guy, well on the U.S. atherectomy business, that’s a really big number in Q4. We have been having a lot of discussions with companies about is there increased seasonality in this Q4 pull forward from Q4, maybe it’s Affordable Care Act, maybe it’s something else? And then on the flipside of that, there has been a lot of discussion about potential interruptions from weather in this current quarter. Could you just comment on that and any kind of one-time things we should be thinking about?

Guy Childs

No, I don’t think there is. You asked specifically on the VI business, no evidence that the Affordable Care Act is impactful one way or the other at this point other than medical device tax of course. In Q1, I would make a seasonal comment, but it’s apart from whether and it just natural for us that Q1 is relatively weaker from a seasonal perspective and I made those comments in the script to that regard. So, I would expect a sequential decline that is exactly what we built into our outlook, it’s what we baked into our internal plan and other points of color there as we have had strong laser system sales in fourth quarter and the full year. So that may be a tough comp for us. So hopefully that addresses your question.

Scott Drake

Yes. I would add there, Brooks, really quickly that there are anecdotal and I would underline anecdotal procedures loss in the Southeast, Midwest, and Northeast primarily. It’s unclear if that’s going to have any kind of meaningful effect or if we are going to be able to get those patients in, in the quarter. So, I think it’s premature to see through that at least for us at this time. I know others have talked about it, but we are not ready to say that as yet.

Brooks West - Piper Jaffray

Fair enough. Thanks guys.

Scott Drake

Thank you.

Guy Childs

Thanks, Brooks.

Operator

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

Chris Pasquale - JPMorgan

Thanks. I just want to circle back on the vascular business to start off with and the strong performance there, do you think you benefited at all from the sales force expansion in this quarter, is that really something that is ahead of the strength that you saw here. I know before you talked about those folks probably taken six months, nine months to really get up the curve?

Scott Drake

Yes, Chris. We didn’t hire any of those folks. There was a recruiting activity in Q4, but the 55 or so new teammates that we hired, none of them started before the first business day of January. So there would have been no impact there. I really think you are seeing the effects of really solid commercial execution on the VI side. And I would add to that improved messaging, we kicked that off in the Q3 Q4 timeframe, where we are really beating the drum on using the right technology for the right morphology. It’s important to note that over 60% of patients have heavy calcium, but only about 10% of patients have heavy calcium in the intima. The punch line is that the laser should be used well beyond our current share and we think that, that message is sinking in. Dr. Gardy did a great job at Linc talking about that. And I would also add that new products are helping us there, the 035 product Quick-Access and Quick-Cross as well.

Chris Pasquale - JPMorgan

That’s helpful. Maybe could you just provide updates on the size of the two sales teams now that you have completed the expansion?

Scott Drake

Yes, sure. So the total add was about 55 people. Roughly two-thirds of that was on the VI side, about a third on the LM side and we did change around the configuration and ratios of clinicals to sales reps. So, we are looking today at something like mid 70s on the VI side of quota carrying reps and on the LM side, roughly 60 quota carrying reps, but we have got clinicals and managers supporting them as well.

Chris Pasquale - JPMorgan

Okay. And then maybe just one last quick one if I could, what’s the latest on PHOTOPAC in terms of enrollment?

Scott Drake

Yes. PHOTOPAC enrollment, I don’t have a number literally as of today, but it’s something like mid 50s patients as of right now. And we anticipate that it’s going to take us the full calendar year. I don’t want to get much more pointed than that, Chris, because a lot of our efforts are on getting new sites up and started as opposed to driving enrollment in the three active sites that we have today. So give us a little bit of breathing room there and we will probably be prepared to talk about that on the next call or certainly the one after that, in terms of when we think we will have enrollment complete and then that study has 12 month follow-up, not 6-month as EXCITE does.

Chris Pasquale - JPMorgan

Perfect, thanks Scott.

Scott Drake

Thank you, Chris.

Operator

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

Rick Wise - Stifel

Good afternoon. How are you doing?

Scott Drake

Hi, Rick. Doing good.

Rick Wise - Stifel

Yes, couple of things, on the ISR filing, it did come a tad later. Maybe just give us some perspective if you could Scott on when we might see the data and how you’re thinking about publishing and getting the specifics out there, when we might see it again, where we might see it? And maybe separate but related to that can you talk about how you’re preparing for the launch in terms of training and just some of the mechanics of training and educating docs and getting maybe KOLs on the team, on the training team, just any perspective there would be welcome as well?

Scott Drake

Yes, happy too. So chronologically as you know Rick we’ll be submitting the 510(k) in the next 45 days and you’re right. It did take us a bit longer I would say 45 days or so longer than we anticipated. We went through a spell of really consistent activity but a greater fallout rate from the study than we had experienced I would say in the last six months. So that was the real primary reason there. And after we submit the 510(k) we’re going to give the FDA a period of time to contemplate that data and then as soon as they’ve had that time and it’s – that’s ill-defined at this moment, I don’t think it will be terribly long. We will look at the conference schedule and figure out how we want to get this information on the podium. We have looked at the calendar and one of the bigger shows in that kind of timeframe is NCVH will see if we’re able to achieve that, I’m not exactly sure.

And then as it relates to the launch itself I think it’s fair to say that it will be launched as if it’s Spectranetics biggest product launch of all time. We’ve done work externally and internally over a long period of time preparing for the launch. There will be very thoughtful podium strategy in terms of the clinicians that will be talking about the data and the market development work to change clinical practice. Our research indicates that something like 90% of ISR cases are done with balloon angioplasty alone, that’s a rough number, but it’s roughly right. So there is very little off-label usage both of our devices or any atherectomy device and it’s going to take some work to change that clinical practice. And as I said earlier the indication and the clinical data our research indicates will move the needle but it will take us sometime to capitalize on that. So hopefully that context is helpful for you.

Rick Wise - Stifel

That’s very helpful. I was at a medical meeting over the weekend and one of the doctors stepped from the podium that he thought that you are about to enroll the last patient if I understood him correctly. Does that have any helpful implications as well if all patients are done in place with this process?

Scott Drake

Yes. I’m not sure what he was referring to. I was not at that conference. So he may have been indicating that it was the last patient required to achieve statistical success and if that were what he intended to say than he would have been accurate. We’re going to continue to enroll patients certainly through the time that we achieved the indication and at that time we will determine whether we want to continue to enroll or not. The guiding principle for us is we will have clinical data that will change clinical practice, that’s going to be the guiding premise for our decisions as we go forward.

Rick Wise - Stifel

And one last question and I apologize if misremembering the language here. If I’m remembering correctly the guide that preliminary 2014 guidance you gave in the third quarter call was low teens with modest revenue contribution from mechanical. And if I’m understanding you are saying 12 to 13 now was nothing for mechanical, why roll out back the sales expectations for mechanical, is it the process of filing is taking longer or just any – if I’m remembering correctly any perspective would be welcomed? Thank you.

Guy Childs

Yes, Rick. It’s very simple and it’s we just don’t want to have – the outlook doesn’t factored in because it’s depending on a future FDA approval, there is no specific information relative to the filing or no risk of this changed in our mind relative to mechanical tools. It’s really just trying to be stay in the right side of conservative relative to our outlook.

Rick Wise - Stifel

Very helpful. Thank you.

Scott Drake

Thanks, Rick.

Operator

Thank you. And our next question comes from Charles Haff from Craig-Hallum. Please go ahead.

Charles Haff - Craig-Hallum

Hi, thanks and congratulations on a good quarter.

Scott Drake

Thank you, Charles

Charles Haff - Craig-Hallum

I had a question on GlideLight, what was the approximate penetration of GlideLight this quarter?

Scott Drake

Yes, when you look at the total percentage of sheaths, I don’t have the number. We don’t track it nearly as closely as we used to. But I think it’s in the three quarters range, I would say 75% to 80% slightly higher in the U.S. than it is in Europe. Hopefully, that’s detailed enough for you.

Charles Haff - Craig-Hallum

Okay. And do you expect that to get to 100% in 2014 or will there still be the SLS being used?

Scott Drake

I think SLS will continue to be used. In fact, I know it will be because in certain markets GlideLight is not approved, so no doubt in mind that there will still be SLS 2 utilization going on in the world. And on our sales reps as you know Charles are kind at their own discretion in terms of how they handle future conversions from SLS to GlideLight. They are being prudent in terms of their utilization of time. It takes a lot of time to convert those accounts and they have got a lot of other things to do startup new programs and drive deeper penetration in current account. So whatever happens there, happens, we are not all that concerned about it on that front. We believe GlideLight was a very successful product launch there continues to be customer pull and conversions, but not nearly at the rate that we saw over the last 12 plus months.

Charles Haff - Craig-Hallum

Okay, great. And then a question for Guy, Guy are there are any anomalies or anything we should be thinking about for 2014 in terms of number of selling days in the quarters as they pace out versus 2013?

Guy Childs

On a quarter-to-quarter basis, there may be 1Z sort of differences, but I don’t have those at my finger tips nothing major.

Charles Haff - Craig-Hallum

Okay. And then my last question is regarding HRS, any highlights that we should be looking for or are things that you think will be good presentations or noteworthy at HRS?

Scott Drake

Yes. There is a few things that I would highlight Charles. The first is there is going to be a real focus on infection. Our medical advisory board is very supportive and excited about what we are doing on the infection campaign. So I would keep my eyes out for presentations and content on that front. Secondarily, I think you will see some information on simulation validation at the meeting, which is very exciting work that’s coming along nicely for us. And hard to know whether or not we will have any success at that point in time from the 510(k) clearance standpoint. (Knock Wood), it’s a wonderful place and time to launch products. And certainly we would not call for that but that’s a worthy goal for us.

Charles Haff - Craig-Hallum

Okay, great. Look forward to seeing you there.

Scott Drake

Thank you, Charles. Likewise.

Operator

Thank you. And our next question comes from Shagun Singh from Crt Capital Group. Please go ahead. Hello. Please check your mute button. And we will move on to the next question Larry Haimovitch from HMTC. Please go ahead.

Larry Haimovitch - HMTC

Good afternoon gentlemen.

Scott Drake

Larry, how are you?

Guy Childs

Hi, Larry.

Larry Haimovitch - HMTC

Terrific, terrific, congratulations on a great quarter and a great year. One question on the ISR indications, are there any reimbursement challenges or issues, Scott. That is to say is there a current code or will it sit under an existing code and how will you handle that?

Scott Drake

Yes, Larry on reimbursement, there is very good, I would say current reimbursement that’s relevant for ISR, that’s true in the hospital environment and it’s incrementally more true in the office based environment. So with no changes there, we feel very comfortable. There may be an opportunity for differential reimbursement. I wouldn’t call for that, nor would I expect it. And frankly, I would expect us to be successful without it, but it is something that we are contemplating.

Larry Haimovitch - HMTC

So I have a question for Guy. Guy, you have been with the company a lot longer than Scott, so I ask you this question. Would you say that the ISR approval that’s hopefully coming pretty quickly is going to be as important of an event or the most important event you can recall in the company’s good days, positive days?

Guy Childs

Unequivocally, yes, Larry. It’s been a long road, even predating EXCITE. When the company considered doing a trial and the FDA asked us to just randomize against an unacceptable control group, this is back in the 90s. And it’s been a long journey to get to this point. The EXCITE trial has been done with ultra-clinical rigor and it’s very gratifying to see it come to this fruition and couldn’t be more excited about the impact of the business going forward.

Larry Haimovitch - HMTC

Terrific. Okay, thanks guys.

Scott Drake

Thanks, Larry.

Guy Childs

Thank you, Larry.

Operator

Thank you. And our next question comes from Shagun Singh from CRT Capital. Please go ahead.

Shagun Singh - CRT Capital

Thank you. I am sorry about that. I have a question on gross margins. Your goal was to be at about 75% in 2014, you are already at that level. I was just wondering how much upside do you see from here? And then separately can you comment on the pricing environment versus your competitors in the atherectomy? Thank you.

Scott Drake

Yes, happy to. So I will take those in order. On the gross margin side, you are absolutely right, that we achieved 75% in the quarter. And as we look at gross margins, if you take the full year point of view in 2013, we were at 74% and for our full year in 2014, we are very comfortable calling for 75%. I would anticipate that we will be exiting 2014 above 75%, but I think keeping our guidance where it’s at is prudent and the work that the team is doing is excellent. As it relates to what does that picture look like over time, we believe there is significant headroom above that 75%. I am not anxious to call a number at this point, but we see significant opportunity above 75%.

Your second question as it relates to pricing in the atherectomy market, we have been prudently taking price now over the last three quarters. And the majority of that impact has been felt on the hospital side of our business although we have taken price on the office-based side as well. We have had a pretty significant delta. We have been lower priced than our two primary competitors and we are thoughtfully closing that gap. I don’t want to reveal much more about our strategy here, but we have prudently and carefully filled that gap. And we will continue to look for opportunities to do that as we go forward.

Shagun Singh - CRT Capital

Thank you. That’s helpful. And then on EXCITE ISR and the opportunity there, can you remind us of your prior comments regarding getting to 20% penetration in the ISR market? Was that over a two to three-year period or perhaps a three to five-year period?

Scott Drake

Yes. We didn’t call exactly what kind of timeframe there, but we were trying to help the street think through the opportunity. And so we framed it up in terms of 250,000 procedures worldwide, at times roughly $3,000 gets us to $750 million market opportunity. And if we were only able to achieve our current share, which is roughly 20%, you get to that $150 million opportunity or roughly a doubling of the size of the total company. So, we were really just trying to provide context in a reasonable way to look at it. We did not call specifically for a timeframe. And I think after we achieved the indication and we have some experience with it in the marketplace, we will then be in a position to provide hopefully some credible guidance in terms of what we can do with the indication.

Shagun Singh - CRT Capital

Okay, great. And then would it be fair to assume a one quarter ramp up period for the ISR indication?

Scott Drake

No, I think it’s much longer than that. I don’t think this is going to – I don’t think we are going to change medical practice worldwide in one quarter. And I think it’s going to remain to be seen how quickly we can do it and again after we have it in the market for a while, we will be happy to provide our thoughts at the that time.

Shagun Singh - CRT Capital

Okay. And then just one last question, if you don’t mind, I just wanted to touch on the geographic expansion comment that you made. Can you discuss the opportunity in Japan and like can you remind us what percentage of international mix is it and how big the market size is? And then I think you had also mentioned that you plan to be in India and China in the second half of 2014, just wondering how that was going? And thank you, that’s all.

Scott Drake

Yes, absolutely. So I will provide some broader context here. The international opportunity for us is excellent. If you look back 10 years, the international revenue represented about 9% of our sales and today it’s 18%. So it’s double than that period of time. And it’s been growing significantly faster than the U.S. market now for a pretty significant amount of time. The good news is that now the U.S. is challenging a bit that international growth rate, but Shar and I have targeted getting the international team to be roughly 25% of our revenue growth in the not-too-distant future, I won’t call specifically for when, not a lot of gain in that, but we would like to have that as a first stop. We think are peer group, those at the very top end of our peer group have those kind of separation between U.S. and international business. We don’t intend to stop there. We will continue to move on, but we think that’s our next stop.

The Japanese market is a wonderful one for us. We more than doubled our revenue in 2013 in Japan. And over the next two, three years, we see the opportunity to do that again maybe a couple of times over if we are lucky with the peripheral atherectomy study in expanding our portfolio in Japan. It’s the second or third largest medical market in the world and we are very, very excited in terms of the opportunity. That’s there. And your memory is very good on India and China. We will be entering those markets sometime in 2014. The regulatory work has been done and done successfully, more of that continues obviously. And now we are in the process of selecting our distribution partners in those countries. And as time unfolds, we will share with you what we have done and what we anticipate being able to do in those markets.

Operator

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back to Scott Drake for any closing remarks.

Scott Drake - President and Chief Executive Officer

Danielle, thank you. And I would like to thank everybody for joining us here this evening and we look forward to our next quarterly call.

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.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: The Spectranetics' CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts