Executives
Kim Golodetz - Lippert-Heilshorn & Associates
Mark Sieczkarek - President and Chief Executive Officer
Greg Lichtwardt - Chief Financial Officer
Analysts
Shawn Fitz - Stephens Incorporated
Eli Kammerman - Cowen
Amit Hazan - Oppenheimer
Anthony Ostrea - JMP Securities
Jonathan Block - SunTrust
Jayson Bedford - Raymond James
Conceptus Inc. (CPTS) Q1 2008 Earnings Call May 6, 2008 4:30 PM ET
Operator
Welcome to the Conceptus Incorporated First Quarter 2008 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (Operator Instructions). As a reminder, this conference is being recorded today, May 6, 2008.
I would now like to turn the conference over to Kim Golodetz. Please go ahead, ma'am.
Kim Golodetz - Lippert-Heilshorn & Associates
Thank you. This is Kim Golodetz with Lippert-Heilshorn & Associates. Thank you all for participating in today's call.
Joining me this afternoon from Conceptus are Mark Sieczkarek, President and Chief Executive Officer, and Greg Lichtwardt, Chief Financial Officer. This call will follow the usual format, beginning with prepared remarks by management, and then we'll open the call up to your questions. In order to accommodate as many of you as possible, we ask that you limit your questions to one, plus one follow-up, before rejoining the queue.
Earlier today Conceptus issued financial results for the first quarter of 2008. If you have not released this news release or if you would like to be added to the company's distribution list, please call Lippert-Heilshorn in New York at 212-838-3777 and speak with Cheryl Pillotso.
Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Conceptus that involve risks and uncertainties. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Form 10-K and Forms 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.
These factors include strategic planning decisions by management, reallocation of internal resources, decisions by public and private sector payers, scientific advances by third-parties and introduction of competitive products among others. Importantly, the content of this conference call contains time sensitive information that is accurate only as of the date of the live call, today, May 6, 2008.
The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With that said, I would like to turn the call over to Mark Sieczkarek. Mark.
Mark Sieczkarek - President and Chief Executive Officer
Thank you, Kim and good afternoon to everyone. Thanks for joining us. Greg and I are actually speaking to from New Orleans, where we are participating in the Annual Clinical Meeting of the American Colleges of Obstetricians and Gynecologists. In our prepared remarks today, we'll discuss our financial performance for the first quarter of 2008 and then I'll update you on the progress we are making in our DTC program and other key goals for 2008. And then of course after that we'll take your questions.
So let me start with the discussion about our first quarter sales results before turning the call over to Greg. The first quarter of 2008 was a challenging one as you have heard from the Meditech companies that have report financial results over the last week. I am pleased to report that despite the challenges of the quarter most of which we believed to exsanguinate to our business. We continue to grow the business significantly. Drivers of future growth remains strong and we are very optimistic about full year 2008 growth.
First quarter net sales increased 53%, year-over-year to 21.1 million, which was within our guidance range. This result includes the impact of our acquisition of Conceptus SAS. The key metric of real growth in Europe sales to end users increase 41% year-over-year in constant currencies, as indicative of the strong opportunity, we already told you we have in this sector.
Now after spending last week in Europe with our people, some of the key distributors and physicians, I am even more convinced of the growing opportunity we have in that part of the world.
Now getting back to domestic sales, I was encouraged by our year-on-year growth of 31% in the quarter. Although we did have a quarter-to-quarter decline in our US business caused by the same softness in gynecological procedures that have been confirmed by physicians and others in the woman's health industry. Now based on our historical growth rate, the guidance of 21 to 22 million anticipated some of the softness that’s certainly still worth noting.
Now results from surveying our physicians in the field and direct inquiries to physician's advisory panel yielded a consistent report than office and hospital practice volumes over a broad range of procedures were down significantly in the first quarter. On the flipside the same physicians have recently indicated that the practice volumes have come back early in the second quarter. The consensus of physicians we have surveyed is that the first quarter slowness was due to a combination of a greater proliferation of higher deductible Health Care plans such as HSAs and potentially the broader economic challenges in the US economy.
Now given these facts however for the full year, we remained very confident about our ability to achieve our net sales guidance of 102 to 105 million given our physician feedback in our demand generating plans. It is important to note, however, that we have not marketed or shown time of serious economic downturn and cannot predict the impact should that occur. But we do have great visibility to the impact of our growth strategy and tactics and the key metrics that we again met or surpassed in the first quarter. Specifically we are most exited by the continued strength in our physician metrics and our drive to the office.
Now with these comments I am going to ask Greg to comment on the financial results for the first quarter. Greg?
Greg Lichtwardt - Chief Financial Officer
Thank you, Mark. As I customarily do, I would like to take a few minutes to provide some additional commentary to our financial results for the first quarter, as well as to make a few comments on our financial guidance for the second quarter and full year as reported in today's press release.
With respect to first quarter net sales, domestic sale of $16.4 million are up 31% and international sales of $4.7 million are up to 285%. International net sales as reported benefits from the impact of our capture or direct sales following our acquisition of Conceptus SAS on January 7th of this year. If we compare international unit volume for the current year to prior year based on direct or end user sales, the actual unit volume growth for the first quarter is 41% year-over-year as mentioned by Mark.
On a unit basis, we shipped over 18,150 units of which the US accounted for 67% and international for 33% of total units. Domestic average selling prices have risen to $1,330 and international average selling prices are $793 overall and $825 in Europe. On a constant rate of exchange from last year first quarter, international ASP of 793 would have been approximately 715.
With respect to domestic physician metrics we see continued strength in the numbers during the quarter with 484 physicians performing their first precepted case the same rate as last quarter. However, we had a significant jump over last quarter in the number of physicians completing certification of 442 and the number of physicians transitioning to the office setting of 472.
Also at the end of quarter we had 3,208 physicians in preceptorship of which 611 are performing their cases in the office and 2,149 are certified and performing in the hospital and 1,898 are certified and performing in the office. At the end of the first quarter 7,255 US physicians had used Essure.
As continues to be the case, only 14% of our sales come from the doctors and preceptorship and 86% come from physicians who are certified. As I said before, the significant growth in the number of certified physicians, as well as those certified and performing in the office continued to be the drivers of the business.
Sales from the office channel held constant from the fourth quarter as 46% of total sales, but are up considerably from the first quarter 2007 at 36%. After increasing utilization rates in the fourth quarter due to environmental factors cited by Mark, utilization rates across all segments in the United States did decline in the first quarter with the office sector remaining our highest utilizations site of service at a rate that is generally closed to two times our hospital certified group.
Turning back to our financial performance for the first quarter of 2008. Gross profit margin for the quarter of 74% was consistent with the immediately preceding quarter although lower than guidance and is largely explainable by the one-time adjustment opining inventory values at Conceptus SAS for acquisition accounting.
Although the guidance that we gave you incorporated an expected mark-up of this inventory levels that Conceptus SAS were higher than we expected and the mark-up turned out to be higher per unit price than we had estimated due to higher average selling prices in Europe.
Fortunately the entire inventory position acquired was turned over in the first quarter and there is no ongoing affect from this accounting treatment. Excluding this mark-up gross profit margin would have been 80% for the first quarter, which compares very favorably with gross margin of 74% in the immediately preceding quarter and 73% for the prior year first quarter. We expected margins in the first quarter of 2008 to increase due to the launch of our lower cost third generation Essure system in the fourth quarter of 2007 and lower cost per unit on higher production volume partially offset by a higher royalty rates on license technology.
Total operating expenses of $22 million for the first quarter, inline with our guidance compares with $14.7 million in the previous year's first quarter and $17.6 million in fourth quarter of 2007. This year-over-year increase is comprised of $3.5 million for the direct-to-consumer advertising campaign, $1.9 million for international operating expenses attributable to the acquisition of Conceptus SAS and $1.7 million for the expansion of the US sales force. All other expenditure categories declined or registered very modest increase.
Total operating expenses of $22 million for the first quarter as compared to the $17.6 million of the immediately preceding quarter showed increases in the same categories of $1.8 million for the DTC campaign, $1.6 million for international, and $400,000 for the US sales force expansion.
For the first quarter our total operating expenses were inline with our guidance, we spent less on DTC and more on selling expenses than planned. The DTC expenditures are related only to timing, which will mean that our second quarter marketing expenses will be slightly higher than originally expected.
Our net loss for the first quarter of 2008 was $6.4 million, as compared to $4.1 million for the prior year first quarter and a guidance range loss of 4.4 to $5.3 million. The reported net loss exceeded guidance due to three factors: First and most significant is the impact on gross margins from the Conceptus SAS acquisition already discussed. Second, is the US dollar of forward currency contract put into place by Conceptus SAS last year to cover this year's purchases by Conceptus SAS from the US company. That hedge is unfavorable right now due to the continued weakening of the dollar to the euro which has caused us to book a loss of approximately $400,000 on the entire hedge.
Going forward if the dollar continues to weaken we will taken additional losses, but if the dollar strengthens, as it has here in April we will take gains. Considering the very significant movement in the dollar/euro exchange rate from the beginning of the year to the end of the first quarter we are not expecting that future gains or losses will be as large. And third is the impact of lower interest rates unexpected on invested cash due to the overall credit crunch and the factors attributable to our investments in auction rate securities which together amounts to approximately $250,000.
With respect to the balance sheet we ended the first quarter with cash at $18.2 million and long-term investments in auction rate securities with the per value of $48.5 million, which represents a combined usage of cash of $27 million from the prior quarter end. Of this amount the acquisition of Conceptus SAS accounted for $24.3 million.
Capital expenditures during the first quarter of $800,000 primarily associated with our continued capital investments to support in-office hysteroscopy and increase physician utilization. This was offset by cash increases from the exercises of stock options by employees of $1.1 million. Cash used in the quarter excluding the acquisition of Conceptus SAS was significantly less than our net loss due in part to the fact that much of the DTC activity in the first quarter was paid in the fourth quarter.
Worldwide accounts receivable or DSO of 52 is up slightly from 50 at the end of the fourth quarter. US DSO remains at a favorable 46 days. Inventory of $3.7 million is an increase from $2.6 million at the end of the fourth quarter and is attributable almost entirely to the inventory we acquired at Conceptus SAS.
Okay, moving on to the financial guidance, we are reaffirming full year sales and net income guidance. We will accomplish in light of the first quarter results by managing our operating expenses. We have identified reductions and reflected them in our revised operating expenses guidance of 76 million to $77 million down from our previous guidance of approximately $80 million. We identified cuts are across the board, but do not affect the DTC campaign expenditures for the first two quarters. For the second quarter the net sales range we are expecting is 25 to $26 million, which would give us a year-over-year growth rate of 60 to 66% in total.
Gross margin is expected to be between 79% and 80% in the second quarter and for the remainder of the year benefiting primarily from the SAS acquisition and the lower cost associated with the third generation device and volume. We are guiding to a operating expenses of 21 to $22 million for the second quarter, this is a bit higher than what we are expecting earlier due to the shifting of some of the DTC expenditures in the second quarter, but this is timing only.
The second quarter net loss is therefore expected to be between 500,000 and $1.5 million or $0.02 to $0.05 per share on a weighted average shares outstanding of 30 million. The other income and expense we are currently assuming that we'll earn about 3.5% interest on our invested capital and have made no specific allowance for the movement of the dollar against this hedge that we have.
One final remark before I turn the call back over to Mark. With regards to our position in auction rate securities, we're continuing to hold $48.5 million of AAA rated student-loan-backed securities for which there have been no auctions for the better part in three months. We recently undertook a valuation of these securities and that provided for a reserve against there value of approximately 4.8% due to the lack of liquidity. This reserve is considered temporary and therefore it does not impact our income statement performance for now.
If over the course of the next several months the liquidity potential for these securities decreases, there is a possibility that the impairment reserve maybe considered other than temporary and therefore impact the income statement. Although we are not forecasting that event. According to our financial advisors achieving liquidity is based on the expectation that either the investment banks that were involved in the auctions would be able to refinance or repackage these student-loan issues or that the Federal Government will step in, in some fashion to provide liquidity for the vendors or indicating that they do not have the ability to lend to students as a result of this situation.
It is our understanding that in just the past two weeks there have been two very large student-loan-backed auction rate issues that have been refinanced although not ones that we hold, but nonetheless it is very comforting, if this is happening in the sector of our investment. At this point in time, these securities remain AAA rated by two major credit rating agencies and the collateral and reserves underlying the securities are considered by the rating agencies to be very strong. Most of the issues we hold are 100% in the Federal program, so we continue to believe the liquidity is a matter of time only.
Okay, that concludes my remarks. I hope that was helpful and now I would like to turn the call back over to Mark.
Mark Sieczkarek - President and Chief Executive Officer
Thanks Greg. I would like to use this time to discuss our two main thrusts for growing our business. Number one, physician transitioning to the in-office procedure and the DTC campaign.
Our focus since the FDA approval of Essure six years ago has largely been on the physicians in driving awareness and usage of the Essure procedure. We've remained focused on utilization in a multi planned step centered around the expansion of our field sales force, as they support the movement of physicians into and through preceptorship through the transition away from the hospitals and into the office environment.
Now in particular as we noted before the transition to the office very labor-intensive as we help doctors establish all the elements that go into a successful experience for the patient including office staff training, equipment selection, and other procedure room infrastructure, physician counseling skills, reimbursement, and referral network building.
Now this year, our focus is primarily in the area supporting this physician movement into the office environment, where we're seeing consistently higher rates of utilization owing to the fact that this is the more satisfying and economical location for patients, physicians, and payers.
Now moving on to our direct-to-consumer program. Let me first remind you that we are doing this campaign because consumer awareness of Essure is minimal and our physicians have now consistently demonstrated the ability to proactively consult with patients about Essure.
Now indeed our physicians tell us that it is our role to educate patients on the benefits and drive them to the physician's office asking for Essure. In the selected metropolitan areas we've targeted, we believe we have developed a physician office market adequately to make direct-to-consumer advertising cost effective. And we are certainly confident that a consumer who is informed of her permanent birth control options will chose Essure.
This 2008 campaign is designed to give us the basis for understanding the optimal media mix and spending levels for a given geographic area, which will then enable us to judiciously roll off the program in the future.
Now our campaign is designed to reach our primary end customer with multiple touch points, TV, radio, magazine ads, newspaper inserts, direct mail and more. We are advertising in eight cities that have been selected on a hurdle rate penetration of in-office physicians, adequate reimbursement sales support, and the ability to extrapolate appropriately to predict national results related to various submarket attributes. The eight cities total about 16 million Americans and we believe roughly represent between 37, 000 and 42,000 tubal ligations on an annual basis.
So as I have said before, based on our advertising experiences to-date, we do not expect to see an impact on sales from this program for about six to 12 months given that the call to action is related to such an important personal decision as ending child bearing. Now this expectation is also based on our experience with smaller tests we have conducted in the past.
Having said that, we are seeing many early diagnostic indicators from this program that are dynamic and exciting and give us continued confidence in our message and our approach. For example, a unique essure.com website visits are up 135% since the start of the campaign in February 2008. To put that in perspective, that's an increase of over 3,000 hits per day.
Questions on the [Ob/Gyn] feature are up 200% since the start of the campaign, which means that women are exploring our site even more than they used to. And relative to calls, call center are conversion to referral is an all-time high.
So furthermore and somewhat surprising, we have also taken numerous calls from physicians in these markets they either performed their Essure procedures in the hospital and wan to transition to the office or physicians who do not perform Essure and now want to get trained because both are taking calls from women who have seen our ads, been to our website and want to learn more about Essure from their doctor. Actual numbers regarding the growth of physicians in these markets can be communicated next quarter as it is still too early to measure this now. Although we recently held a training class attended by over 70 physicians in one of the track cities and have many more scheduled.
So in closing, the time is right for Conceptus to launch a consumer advertising initiative that speaks to the broader audience and our work is consistent with industry leadership. Our strong and building office presence with more than 2,500 physicians already in-office and nearly 4,000 physicians certified in total has made this type of campaigns viable and we believe the deeper patient awareness that campaign will create will further fuel our physicians move to the office.
So to summarize our accomplishments this quarter, we include the following. First, solid integration performance from our international business. Again, I visited there a couple of weeks ago and very thrilled with the people and place and basically the transition of the business certainly to Conceptus. Number two have been meeting surpassing objectives of our certified in-office and new physicians. Third on the list is certainly solid year-on-year net sales growth despite reported reduction of gynecological procedures by physicians. And fourth is certainly the reiteration of our full year revenue and profitability guidance. Lastly, we are very very encouraged by the early diagnostics that we have seen on the DTC campaign.
So, with that commentary, I would like to open the call up to your questions. Operator?
Question-and-Answer Session
Operator
(Operators Instructions). Your first question is from the line of Shawn Fitz with Stephens Incorporated.
Shawn Fitz
Hey Mark and Greg, good afternoon. Thanks for taking the question.
Mark Sieczkarek
Hi Shawn.
Gregory Lichtwardt
Hi Shawn.
Shawn Fitz
Just as we think about a bit of the seasonality and maybe some of the macro economic headwinds you all are facing. As we think about the second quarter guidance are you essentially assuming that that you see an improvement in your domestic revenues? Or are you basically kind of assuming that international is going to grow maybe faster than you might have originally expected there by offsetting some of the lower domestic revenue trends?
Gregory Lichtwardt
John this is Greg. Well certainly international is more than likely going to do better than what we had initially thought. And I would say that’s both going be in terms of unit volume real growth and exchange rate. Specifically for the second quarter we are looking at a very decent growth in our domestic revenues probably around 2.5 to $3.5 million higher than the first quarter level with the reminder to get to our 25 to 26 million overall guidance coming from the international growth. So that would be about $6 million in the second quarter for international.
Shawn Fitz
Okay, great. And I guess, just as we interact with some of the folks on the healthcare services side we have heard some pretty positive commentary about procedure volumes in April, maybe up as much as 10% in some of the best case scenarios compared to March. Could you all provide some commentary in terms of what you have seen from a procedural volume standpoint early in the second quarter and maybe a little commentary just in terms of utilization rates at present, compared to what you saw on a first quarter or pre-first quarter basis?
Mark Sieczkarek
Yeah Shawn, I don't want to turn this into a second quarter call. So we are not going to give specific guidance that you want on April. But I think, I even said in my prepared remarks that our physicians are certainly reporting a high number of specifically Essure cases and more generally elective surgeries as well. So again they deduce that basically that first quarter slow down, which they said they have seen in the past with the little bit more problematic, as we are seeing more and more of these high deductible plans come into play. But that being said, once that high deductible is eaten up people go back. Specifically one of the things that they have reported back to us was that they were getting a high level of actually cancellations, a higher level of cancellation on Essure specifically. And when talking to their patients about reason for, a lot came back down to this deductibility issues. So they weren't necessarily cancelled forever, but just put off. And again, as I said at the beginning of this comment they are reporting now on higher number of Essure cases.
Shawn Fitz
Okay, great. And Mark last question, just on the DTC front. As you all kind of gauge the success and the traction of your advertising campaign. I think you kind of said 6 to 12 months before you will start to see any results. Can you maybe just talk in the boarder sense as to what the metric are that you are going to use to a gauge a success and kind of what the hurdle rate maybe for you all to decide to the continuous campaign into 2009?
Mark Sieczkarek
Yeah, I guess in one word Shawn, its going to be sales. I think there is a lot of things leading up to it. Yeah, when we laid out some of those diagnostic that we are seeing going up dramatically. And I wonder it was a little bit surprising to us though and unlike other campaigns that we have had is again the number of calls we got specifically from doctors, who quite frankly in some cases said they are overwhelmed by calls to their office from some of their current patients and they wanted training.
So I think that’s one of the things that as I said in my prepared remarks, we will be able to communicate little bit more maybe number structure around it next quarter. But ultimately the piece of DTC that’s most important to each and everyone kind of this is sales. And the early signs right now that they certainly will be there. And given the respectable than ROI on that DTC spend that will determine the program going forward.
Shawn Fitz
Okay. Mark and Greg, thanks for your time.
Mark Sieczkarek
Thank you Shawn.
Operator
You next question is from Eli Kammerman with Cowen.
Eli Kammerman
Thank you. Good afternoon.
Mark Sieczkarek
Hi Eli.
Eli Kammerman
First question is, what would be the most recent to watch the nation for the large jump in certified docs in the quarter, compared to the prior quarter?
Gregory Lichtwardt
Continued execution by the sales force. I think they certainly understand that every time they move a doctor through each one of these stages towards brining them into their office that they see a significant jump in utilization rates from that doctors. So again going back to what I have said many times, a doctor that is certified and performing in the hospital is doing three times as many cases as the doctors who is in preceptorship and then the doctor that has transitioned his business into the office is doing roughly two times as many procedures among the doctors that’s certified in the hospital. So I think there is definitely a consciousness -- conscious part on the sales force to get these doctors through their training and get them into the office ultimately.
Mark Sieczkarek
Eli, just to polishing Greg's remarks. We put more of a premium if you will and certainly have talked to the sales force over the past couple of years, but maybe more so this year and we are seeing in the execution where doctors that come on board we ask them to put together three to five patients. So we can train them basically in a day. As we have noted before, our issue is these preceptor doctors who come on with three to four cases in a year and it’s obvious that we have to go back for every one of those cases and it’s a drag on certainly sales time. And I think now we are seeing a lot more of these cases being stacked up. And that’s a combination of higher consumer demand, as well as again maybe I will call it a little bit more pressure from the sales people to their doctors to line up these stacked cases as we call them.
Eli Kammerman
Okay. That’s helpful to hear. And my other question is, what is your timetable for filing the PMA supplement to get the expanded label for compatibility with NovaSure Endometrial Ablation?
Mark Sieczkarek
We filed that and when I say, I believe it’s three, four weeks ago Greg.
Gregory Lichtwardt
Yeah, very close to the end of the first quarter.
Mark Sieczkarek
Yeah. So that’s file delay.
Eli Kammerman
Thanks very much.
Mark Sieczkarek
Thank you.
Operator
Your next question is from Amit Hazan with Oppenheimer.
Amit Hazan
I wanted to and I am sorry I know, you said you don’t want to make this a Q2 call, but I feel like I have to ask. The number that you gave, if we just look at the US kind of the growth you are expecting in 2Q, I mean sequentially that would be a greater increase than we have seen I think, if I am not mistaken over the last 5, 6, 7 quarters. So I am wondering, in the current environment, if you can specify exactly what your thoughts are and how the economy is going to impact 2Q and how you are going to get to that greater sequential growth than you had any time over the last year and half?
Mark Sieczkarek
Well, I think again I need to begin with you know, as I mentioned to Eli's question, we have certainly momentum or awareness out there. You would anticipate just given that that’s going to contribute to it. And I think when we take a look certainly and firmly in our business the second quarter growth is fairly dramatic. And given if you will this -- I will call it somewhat of a slump in the first quarter in gynecological procedures and the fact and as I mentioned before the cancellations that doctors are saying are coming back we would than anticipate a little bit higher growth rate and maybe historically that we have seen in the past. But again don’t lose sight of the fact that you know, if can't just look at quarter to quarter, as they exist in the calendar, you will almost have to look, going back historically to second quarter over first quarter and I don’t think it certainly outlined with our historical growth rates.
Amit Hazan
Well, I guess, just a follow-up on that would be, do you believe you have accounted for the economic weakness that we have seen so far in the second quarter? And then separately just another question. Around ACOG, I think, once a year were kind of reminded to ask you because we don’t very often about IUDs and what you are seeing there and how you think about those competitively? We have seen bear with Morena that the growth there has been I think over 100% here in 2007. And I am wondering if you can help us characterize whether that is something that is competitive to tubals and to you guys or if you still view that as entirely a different market or how you think about that?
Mark Sieczkarek
Okay. The second one was so long, I almost forgot what the first one was. You are going to have to remind me of the first question.
Amit Hazan
The first one was that I am wondering if you can just -- I just want to get a sense from you, if you have accounted for the current economic situation in 2Q?
Mark Sieczkarek
Yeah, I think once again as we talk through these physicians and as we have heard them also talk through the month of April, their primary reason that they stay with the level high deductible plans that have really starting to take over the US healthcare scene. You see a continuing shift of burden of healthcare cost to the consumer through increasing deductibles and of course these things are reset each January. So there really is steep hill for families decline before their insurance coverage kicks in. Now in addition, if you are looking on a macro basis, the Health Savings Accounts or HSAs, have also kicked in to a higher degree and basically consumers are deferring non-urgent medical procedures until they can build up their savings before tax dollars. So we don’t look at those as a long term detriment to the growth of Essure even in this year, but they view and they are creating I think more of a seasonal effect to those of us who market non-urgent care products and again that’s more of a timing issue than a long term issue. As I said in my comments as well, in terms of a longer term protection based on the economy, we have never marketed in that before. We don’t necessarily have the experience. But I think we did a pretty good job of seeking out the fact to make sure that it wasn't more of that the former impact of deductibles.
Now going back to your second question, which I remember clearly, on the Morena. Morena is very interesting product, a good product. But let me start by saying that if you look at INDs throughout the world and again we are studying this birth control market, know it quite well. They take up about 20% of the temporary birth control market in the world, have been running about 5% in the US and that goes all the way back to Delcon Shield days and the problems that we had with the Delcon Shield and physicians have a long memory that way. And I think what's happening now is you got a fairly good product out there in this Morena IUD and so they are building up if you will their market share and growth within that category. That being said, they are also certainly marketing the IUD in terms of -- think about it as potentially as longer term birth control and they are also marketing pretty heavily the claims of bleeding. We don’t necessarily look at them as specific competition because in talking to our doctors they certainly place a bunch of Morena. The issue or these doctors is when a women is hesitant about permanent birth control, the first alternative is an IUD and that makes total sense to us, okay. We don’t look at it as a replacement for sterilization. We haven't really seen that and as a matter of fact we look at Morena as an opportunity because it's fairly well documented that 75,000 women a year come out of Morena as well. And if you think of the continuing of birth control and Morena being the second from last step before sterilization that creates an opportunity for us to market currently to those women, if you will, who are coming out of IUDs on a yearly basis. So rather that, I think it's good for our industry that certainly we're out there, Morena is out there, other people are out there, advertising relative to the alternatives to birth control, and we look at that actually, and are encouraged by it rather than feel that we're being hurt by competitive threat.
Amit Hazan
Okay, it is very good. Thanks very much guys.
Mark Sieczkarek
Thank you.
Operator
Your next question is from Anthony Ostrea with JMP Securities.
Anthony Ostrea
Hey Mark and Greg. Good afternoon.
Mark Sieczkarek
Hey Anthony.
Gregory Lichtwardt
Hi Anthony.
Anthony Ostrea
First question international, you had characterized there the growth as being stronger than what you had anticipated. Can you maybe just talk or give us a little more color on where you are seeing the growth in terms of units, maybe just talk a little about pricing as well. Just looking for a sense essentially in that business and what has changed for the better since you last gave guidance?
Mark Sieczkarek
Good question. Anthony, overall we did about 6000 units internationally and as we pointed out, that's same basis growth of 41% and that doesn't include currency gains. So from specific standpoint, France makes up about half of our sales and remains a very promising growth opportunity and that being because all the restrictions on the Essure procedure have been removed last year. So Essure is now really the default position for – in the public marketplace in France.
Given that, we've actually hired some additional sales personnel specifically in France and are working to exploit this opportunity very aggressively. And again, almost all of our outside sales are in Europe. We do have some in Canada, Australia, Puerto Rico but the majority of the growth came from Europe and France specifically.
Anthony Ostrea
Okay. And then just my second question is just a follow-up, again on the trends you have been seeing post Q1. Maybe if I can just ask the question a little differently, if you look at the second quarter and maybe the this cut between the three months there, are you seeing -- and Greg essentially gave a number in terms of 2.5 to 3.5 million in US sales above Q1. Are you seeing -- does that 2.5 to 3.5, in order to hit that number, do you have to see more improvement in the moths of May and June versus April. Does that make sense?
Mark Sieczkarek
Yeah, once again, we don't want to get really specific on what we're seeing other than like I said, doctors are telling us that their business is picking up. What we have seen historically Anthony through the second quarter is the April building momentum, May being a very, very good month and a good half of June being solid, then you start to tend to get into the doldrums if you will of late June and July and then typically your business starts to pick up in later August again. So, I don’t know if that answers your question in terms of how we trend through the second quarter and I also gave you an idea of how we trend to the third quarter as well. But yeah, we would anticipate that we have some more momentum certainly in May and part of June.
Anthony Ostrea
Great, thank you.
Mark Sieczkarek
Thank you.
Operator
Your next question is from Jonathan Block with SunTrust.
Jonathan Block
Hey guys, good afternoon.
Mark Sieczkarek
Hi Jonathan.
Jonathan Block
Just first, I don't want to beat on guys, but maybe Greg if you can help us out a bit, it does seem like some sort of a pick-up here in the US, so said in a different way, can you just maybe break out in 2008, what percent of your sales, roughly you're expecting from the domestic markets versus that of international?
Greg Lichtwardt
You're asking for the full year?
Jonathan Block
Yeah full year, I mean we've got obviously 1Q, you gave us some body language on 2Q, so full year, and this way maybe we can see what seems to be implied in the pickup from the direct-to-consumer
Greg Lichtwardt
Okay. Well, I would say at the low end of the guidance it is basically 82 million domestic and 20 million international and high end would be 85 million domestic, same 20 million international.
Jonathan Block
Okay, perfect. And then just turning back to the first quarter, I think you mentioned some operating expenses cuts to make up for the gross margin right up from internationals. So can you give us some granularity, I think you said it would not impact direct-to-consumer, where is it coming from, is it just streamline and R&D or is it getting pushing out some of the headcounts?
Mark Sieczkarek
You know, we have already looked at everything that we have, there is personnel cost involved, there is discretionary dollars for certain projects that we didn’t feel are, you know, I would say fundamentally since we have identified a little less than 5%, these are not deep cuts that affect our ability to generate sales and market the product appropriately. These are amounts that are well within what we can manage from a discretionary stand point.
Jonathan Block
Okay, great. May one last one if I can, international you highlighted the areas of strength I think on future one it’s always been a big opportunity has been the UK, so maybe where we stand with NICE approval?
Mark Sieczkarek
Yeah we are basically Jonathan in discussions with the people there. I think we've said kind of even in our last call that we would anticipate something positive coming out of NICE this year. With that being said, I think that’s about as specific as we can get. Whenever it’s comes to these regulatory types of agencies you know, its very, very hard to predict when they turn the light switch one. But we've had some very productive discussions with them.
Jonathan Block
Okay, great. Thanks guys.
Mark Sieczkarek
Thank you,
Gregory Lichtwardt
Thanks Jonathan.
Operator
(Operators Instructions). Your next question is from Jayson Bedford with Raymond James.
Jayson Bedford
Hi, good afternoon guys. I just have a couple of quick questions for you. First on sale force focus, it seems like a derivative outcome of the DTC campaign is you guys generating new physician interest in being trained. And I am just wondering, you seemed to be doing a good job of bring new physicians in the folds, but utilization suffered a little bit. I am just wondering if the sales force is more aligned to deriving utilization or bring new physicians into the preceptorship program?
Mark Sieczkarek
Good question Jayson. And we have a little bit of both and we have a slight bifurcation in our sale force that addresses both those issues. I think our day to day people certainly are focused and talking care of new doctors that step up with the plate. We also have the in-office specialty force that when we do sign up doctors works them not only in training staff, helping with you know, create a referral network, but also just helps them generally in the office relative to marketing et cetera. So their goal and if you will their pay is based on driving utilization in those offices. And the former group that I talk about which makes up the majority still of our sales force hedge goals relative to both penetration, as well as utilization. So a little bit of both and again we have kind of specialized it as well. So we do have certainly some work in the utilization piece.
Jayson Bedford
Okay. And do you see -- historically have you seen a little bit of disruption as physicians move from the hospital to the office or has it been pretty seamless?
Mark Sieczkarek
No. I think, we've talked about this before and it was one of the things that surprised us. I think last year when we really made a hard push, often time is bringing a doctor from the hospital back into the office environment was almost like retraining. And it took, off a lot of time and effort in order to do that. And that’s one of the reasons that as we learned that lesson certainly with new doctors, we are getting the majority of them focused right in the office. And to make them comfortable doing we often times invite them or other doctors invite them to see the procedure being performed in offices to increase their comfort level. So that cuts off that whole step of first training in the hospital, having all the support group around you then you've got to go into the office and train their staff and everything else. So, again that was that was the lesson that we learned last year and I think we are much more efficient as we go into this year.
Jayson Bedford
Okay, that's helpful. And then just lastly a bit of a clarification, the in-office procedure, is that 46% of total sales, maybe 46% of the [20.11] that you reported?
Mark Sieczkarek
Its on the domestic number, so it support the 16.4 million.
Jayson Bedford
Okay, that's helpful. Thank you.
Mark Sieczkarek
Yeah.
Operator
There are no further questions at this time. Please proceed with your presentation or any closing remarks.
Mark Sieczkarek
With that, I'd like to thank you all for your excellent questions. We appreciate you joining us on the call. We look forward certainly to speaking with you again for our second quarter conference call. And I expect to have more interesting points of forward movement in the business to discuss with you. So, talk to you soon. Thanks again.
Operator
Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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