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Edited Transcript of CSII earnings conference call or presentation 2-May-18 8:45pm GMT

Q3 2018 Cardiovascular Systems Inc Earnings Call

ST. PAUL May 7, 2018 (Thomson StreetEvents) -- Edited Transcript of Cardiovascular Systems Inc earnings conference call or presentation Wednesday, May 2, 2018 at 8:45:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jack E. Nielsen

Cardiovascular Systems, Inc. - Senior Director of Corporate Communications & IR

* Jeffrey S. Points

Cardiovascular Systems, Inc. - CFO

* Rhonda J. Robb

Cardiovascular Systems, Inc. - COO

* Scott Raymond Ward

Cardiovascular Systems, Inc. - Chairman, CEO and President

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Conference Call Participants

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* Alexa Desai

William Blair & Company L.L.C., Research Division - Associate

* Brooks Gregory O'Neil

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Danielle Joy Antalffy

Leerink Partners LLC, Research Division - MD, Medical Supplies and Devices

* Michael Stephen Matson

Needham & Company, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cardiovascular Systems' Fiscal 2018 Third Quarter Earnings Conference Call. (Operator Instructions) Thank you.

Jack Nielsen, Senior Director, Investor Relations and Corporate Communications, you may begin the conference.

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Jack E. Nielsen, Cardiovascular Systems, Inc. - Senior Director of Corporate Communications & IR [2]

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Thank you, Chris. Good afternoon, and welcome to our fiscal 2018 third quarter conference call. With me today are, Scott Ward; CSI Chairman, President and Chief Executive Officer; Rhonda Robb, Chief Operating Officer; and Jeff Points, Chief Financial Officer. During this call, we will make forward-looking statements. These forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding CSI's future financial and operating results or other statements that are not historical facts. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Form 10-K and subsequent quarterly reports on Form 10-Q. CSI disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. We will also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains a reconciliation table to GAAP results.

I will now turn the call over to Scott Ward.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [3]

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Thank you, Jack. Good afternoon, everyone, and thank you for joining us today. I am pleased to announce that CSI is continuing to gain momentum and that we achieved strong financial results in Q3. Third quarter revenue results were in line with our expectations at $55.6 million, increasing 6% compared to second quarter and 7% year-over-year.

CSI was profitable in Q3, with net income of $365,000, and favorable adjusted EBITDA of $3.6 million. Our manufacturing operations continue to perform exceptionally well, delivering important cost reductions as we drive increased unit volumes. As a result, our gross margin has remained strong at 82% and we ended the quarter with $109 million of cash and no long-term debt. We are encouraged by the progress we are achieving across our company. Following the commercial launch of our coronary franchise in Japan, the expansion of our business to international markets is now well underway. New product launches including the Sapphire II PRO and other coronary angioplasty balloons as well as our ZILIENT peripheral guidewires are also progressing well.

Our R&D teams are developing exciting new solutions for the treatment of complex coronary and peripheral artery disease. Our clinical programs are ahead of schedule and our sales team is delivering solid growth while controlling expense and gaining leverage.

In Q3, we delivered strong sales performance in the peripheral franchise, sustained our momentum in coronary and added a new revenue stream from Japan. In our peripheral franchise, revenue of $41 million increased 5% versus last quarter and was up 6% versus last year, driven primarily by continued strength in the hospital setting. The hospital-based segment of the peripheral market represents approximately 80% of our peripheral franchise revenue. The office-based lab or OBL segment of our peripheral franchise also grew sequentially in the quarter. During Q3, we launched commercial programs that addressed the specific needs of our OBL customers including long-term contracts, the volume-based discounts and increased case support. Over time, these programs are designed to increase market share and secure our position in labs that perform a high volume of calcified peripheral procedures. In the coronary franchise, revenue of $14.6 million increased 9% quarter-over-quarter, and 8% versus last year. Coronary growth in the U.S. was driven by new accounts and by new physicians adopting orbital atherectomy in our existing accounts. Sales productivity in coronary continue to improve, as you will recall, our U.S. coronary franchise grew 17% quarter-over-quarter in Q2. And we added 3% sequential growth in Q3. With our dedicated coronary reps once again driving above-average revenue growth. Of course, our commercial launch in Japan is a key growth driver for our coronary business. And we fulfilled initial stocking orders to our distributor in Q3. We are building a strong foundation in Japan, and I am pleased that we are exceeding our goals for customer training, new account adoption and atherectomy procedures. In summary, CSI delivered a very solid Q3 with strong sequential growth, profitability and the execution of key operating objectives in international, manufacturing, product development and clinical research. Importantly, we enter Q4 with some momentum and financial strength. Rhonda will provide additional updates regarding our commercial progress in a few moments.

But first, Jeff will now provide detailed results and discuss Q3 and our outlook for Q4. Jeff?

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Jeffrey S. Points, Cardiovascular Systems, Inc. - CFO [4]

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Thank you, Scott, and good afternoon, everyone. I will now share some details on our Q3 progress and sales performance in our peripheral and coronary franchises. Third quarter revenue of $55.6 million represented a 7% increase compared to last year and a 6% sequential increase compared to second quarter. This was near the middle of our guidance range. We sold approximately 17,600 devices during the quarter, generated 92% of revenues. Reorder rates remained very strong, increasing to 99% during the current quarter. Peripheral revenues increased 6% to $41 million. Our peripheral hospital revenues experienced strong year-over-year and sequential growth. Our peripheral OBL revenues stabilized and grew sequentially during Q3 as a result of successfully negotiating long-term contracts that include volume-based discounts along with providing increased case support. As expected, ASP has declined more significantly in our OBL accounts as a result of the successful execution of a large amount of long-term contracts, some of which involved competitive conversions. On a blended basis peripheral units increased 10% and were partially offset by a low to mid-single-digit ASP decline. Below the knee product mix was about 61% of peripheral revenue. Coronary revenue increased 8% to $14.6 million. In the U.S., coronary units sold increased 5%, partially offset by a low-single-digit ASP decline. As mentioned, this growth was primarily due to productivity improvements across our hybrid and dedicated coronary reps. In Japan, coronary revenue from the initial stocking order was about $800,000 in line with our forecast. In total, the modest ASP declines noted were consistent with our expectations and broader market trends. Despite the decline in ASPs our gross margin remains strong due to our ongoing focus on increasing manufacturing efficiencies and targeted product cost reductions along with higher production volumes. Gross profit margin was 82.1% in the quarter compared to 78.6% last year. We call that our gross margin in a year ago period was reduced by $1.5 million or 2.9% due to cost associated with the voluntary recall of our saline pump. Operating expenses of $45 million increased $2.4 million or about 5.5%. The increase was primarily due to higher R&D expenses associated with both new product development and our ECLIPSE clinical trial. We expect to continue to significantly invest in product and clinical initiatives in the future and was trying to broaden our product offerings while expanding the use of orbital atherectomy. SG&A expenses increased about 1% versus revenue growth of 7%. We plan to grow revenue on a faster rate in SG&A going forward. In total, operating expenses were about $400,000 lower than forecast. As a result, third quarter net income of $365,000 or $0.01 per share was favorable to our guidance range. Adjusted EBITDA remain positive at $3.6 million. At quarter end, our cash balance remain strong at $109 million, an increase of approximately $2 million during the quarter. We continue to have no long-term debt and maintain a line of credit in place for borrowings up to $40 million as needed for future financial flexibility.

I will now discuss our financial outlook. Looking ahead, there are several catalysts that we believe will drive higher revenue growth in Q4 and beyond. We forecast continued improvement in sales rep productivity. During Q3, territory supported by clinical specialists saw a significantly higher growth in territories without clinical support. We expect this trend to continue into Q4 and beyond as our clinical specialists gain CSI experience and provide increased case coverage. When our reps and specialists are present during the case, we can help treat more patients with orbital atherectomy. Rep productivity should also receive them a modest boost from the limited market release of OrbusNeich coronary angioplasty balloons and our ZILIENT peripheral guidewires. Finally, revenues in Q4 will also benefit from an additional plant stocking order of approximately $900,000 to support the commercial launch of the Diamondback in Japan. Taking these revenue drivers into consideration, for the fourth quarter of fiscal 2018, we anticipate revenues in the range of $57.5 million to $59 million, representing a year-over-year growth rate of 9% to 11%.

(technical difficulty)

For 2018, narrows to a range of $215.4 million to $216.9 million. Rhonda will now provide commentary on our commercial and clinical developments. Rhonda?

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [5]

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Thank you, Jeff. I just want to start by saying how excited I am to be at CSI at this important time. And I'm incredibly impressed with the tremendous opportunity that CSI has with its strong base of differentiated orbital lateral atherectomy technology, it's clear innovation foundation and focus, growth drivers for the future and especially the strength of the people at CSI to fulfill division for the growth that Scott and leadership team have set forth. Today, I'll highlight some additional details on the growth drivers for the quarter in the categories of new products and evidence, new markets, and productivity.

But first our new products. We had several important launches in the quarter. Continuous innovation in our core technology is a priority at CSI, and we recently launched a new handle for the Diamondback 360 with a feature called GlideAssist into the coronary segment. This is an important development that enables smoother tracking, with removal and repositioning especially in complex PCI patients that are increasingly being treated by centers of excellence. This approval came quickly and we are thrilled with early feedback, which is yielding significant benefits and procedural ease of use. We also introduced our Diamondback 360 extended length, which allows physicians the ability to treat above the knee lesions using a radial access point and, we are the only company with the smallest profile and working length to do this. Accessing the vascular through the blood vessels in the wrist requires a very small device and due to Diamondbacks low-profile length and the unique orbital mechanism of action, we have a significant competitive advantage here. We're also very optimistic about the value proposition here to enable greater efficiencies in patient workflows, given the ability to emulate patients faster and potentially reduce complications in length of stay. We also continue to compile and share clinical evidence that supports the use of orbital atherectomy. With the targeted enrollments of 2,000 patients, our ECLIPSE study is currently the largest active randomized controlled trial in the coronary market. We currently have over 280 patients enrolled and we continue to forecast about 100 sites enrolling by early in our new fiscal year.

On the peripheral side, 18 months data from our LIBERTY 360°study was recently presented at CRT, and not surprisingly, patient study have continued to show high freedom from major adverse events across Rutherford classes 2-3, 6.

A sub-analysis that LIBERTY 360° showed a high freedom from major amputation across all Rutherford classes, including a freedom from major amputation of 91.6% in the most complexed Rutherford 6 patients. We strongly believe that this evidence demonstrates the peripheral interventions have a positive impact on patients suffering from peripheral disease. We look forward to sharing a 2-year outcome from this study in the fall and an economic analysis on PAD-related healthcare cost towards the end of the calendar year. In Q3, we also began to broaden our product portfolio with a limited market launches of the OrbusNeich Sapphire coronary angioplasty balloons and our ZILIENT peripheral guidewires. To that end, we were thrilled that shortly after we initiated the market release of the Sapphire balloons, FDA cleared the 1 millimeter Sapphire II PRO, the only 1 millimeter coronary balloon in the United States.

It is uniquely suited to cross a very tight occlusions and improve access to complex coronary lesions. In mid-March, we worked with Mount Sinai Hospital in New York to complete the first cases with this unique device, we're very encouraged by the early receptions of Sapphire balloons, particularly the 1 millimeter balloon. We're similarly encouraged by the reception to our new ZILIENT peripheral guidewires and first commercial cases were completed at Arkansas Heart in mid-March.

During the early phases of the news release, we are gathering feedback and learnings and are preparing for full market launch in early FY '19. This quarter was an important one for CSI to expand our portfolio. We will continue to build on our market-leading position in atherectomy by offering physicians high-quality products that complements our core technology in coronary and peripheral interventions.

Another significant accomplishment in the quarter was to launch outside U.S. In February, we received reimbursement approval for coronary orbital atherectomy in Japan, as we indicated previously, we began shipping stocking orders, so our launch is now underway and on plan. We are taking a very deliberate and controlled approach in Japan and applying the same training rigor that we have used to date in the United States. The training of physicians and the enrollment of new centers in Japan requires physician peer-to-peer training and will result in a gradual rate of adoption over time. To-date, physicians in Japan have completed nearly 100 cases using Diamondback, at the end of March, 10 accounts have been trained and, we continue to forecast that an additional 5 accounts will be established by the end of June with a total of 18 physicians certified.

While the revenue impact of our geographic and product expansion will be modest initially, introducing orbital atherectomy to international markets while broadening our product offering will become important drivers of attractive and sustainable revenue growth for CSI.

Lastly, on productivity, we now have about 20 of our U.S. sales reps dedicated to the coronary franchise. These reps focus on high-volume PCI accounts that specialize in the international treatment of patients with complex coronary artery disease, and they delivered above-average revenue growth in Q3. We are so well positioned in this market segment. We already have the strongest medical evidence and our clinical trial is recognized as an important study that has the potential to change the standard of care. We have the best customer support and with the launch of our 1 millimeter Sapphire balloon, and the GlideAssist future we are continuously improving the ease of use of our products and extending our competitive advantage.

Before we open up the call for questions, Scott will now provide closing out.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [6]

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Great. Thank you, Rhonda. Well, I think as you can tell, this was really an important quarter for CSI in so many ways. Most notably, we remained focused on our mission to save limbs and lives every day with purpose and great success. Selling nearly 18,000 orbital atherectomy devices during the March quarter puts CSI on a run rate to help treat over 70,000 patients in calendar year 2018. CSI is indeed a strong company with a proven and profitable market-leading technology, a solid balance sheet, and most importantly, passionate employees who are excited and motivated to build this company and to collaborate with our customers as we improve quality of care for patients with Cardiovascular disease. We have continuously strengthened our leadership, and we have now assembled the management team that is capable of running a much larger multinational company with a broadening product portfolio. Recent announcements regarding our senior management, new product introductions and our first international expansion are the preliminary with crucial first steps in the evolution of our company. So this is really an exciting time for us, the transformation of CSI from a single technology, a single geography company to an innovative leader with worldwide reach is well underway. On the morning of July 31, we will host our first Analyst Day at NASDAQ headquarters in Times Square. During this meeting, we will introduce our strategies to build on our strengths and broaden our value streams with growth drivers from new products, new markets and new geographies. We will highlight our investments and research and development, provide an overview of our new product pipeline and outline our international expansion plans. We believe that investors will come away from this meeting with a better understanding of our plans to drive attractive sustainable long-term growth with strong gross margins and profitability over the next 5 years. Further details regarding this meeting will be forthcoming. Thank you for your continued support and interest in CSI. We will now take your questions.

So Chris, if you could please repeat the instructions, we'll move to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Brooks O'Neil with Lake Street Capital.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

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The one thing that clearly leaps out to me today's guide is increased focus on additional products and your commentary about the potential for international expansion, obviously, led by Japan. Can you say, sort of, in a qualitative, sort of, way how fast you expect these 2 significant strategic moves to impact revenue growth and profitability at CSI?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [3]

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Brooks, I think it's a little bit hard to state that qualitatively as you describe. I think that as we have described before, our focus up until now, has really been on the treatment of complexed coronary and peripheral patients. And what we're really doing now, is when our sales rep is present and our customers are present, treating that particular patient, we are really trying to gain leverage by introducing more products that can be used to improve the quality of care during that episode. And as a result, we're leveraging the channel that we had in the U.S., for example, to just pull more revenue out of each of these cases, so great example of that obviously is the introduction of our balloons, and if we look at a product like the Sapphire II balloon, which is a very novel 1.0 millimeter balloon that's used in these CTO coronary lesions, we find that a product like that actually opens doors for us and can be a means for our sales reps to be in cases and to be present. And during those cases, calcium is identified and the physician commits to vessel prep. So it's those types of improvements that we think will allow us to accelerate our growth in the United States, and we'll continue adding more products like that, that'll be synergistic during that episode of care. As we look at Japan, and as Rhonda remarked during her comments, we are really trying to build a strong foundation in Japan, and as we've talked about before, we're dependent in Japan on peer-to-peer training. Customers really need to train each other there, our sales reps are not allowed in cath labs. We can't provide the same level of customer support that we would here. So we expect Japan to be more of a, kind of, a really more of a geometric pattern as you think about growth, starting out small peer-to-peer training, training more customers, training more customers. And over the course of, let's say, the next probably 12 to 24 months, we'll continue to see just strong steady growth coming from Japan. As I said in my remarks however, Japan really becomes our first market now outside the United States, and we're leveraging that revenue stream and profit stream now to continue to broaden our company on a global scale. And so we'll begin now moving to other international markets where we just have great opportunity to expand the use of our Diamondback and expand the use of atherectomy globally. So that is, I guess, the best I can do qualitatively. We'll provide you with more description on that as we get together in July.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4]

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Great. I'll just ask one more for now. Obviously, you had commented previously about the pricing pressure in the office-based labs. I heard all your commentary about the steps you've taken to try to address that. Would you just give us a sense for what the environment out there is like now? And to what extent do you think the initiatives you've taken have been successful at spending off that pricing competition? Or is it just going to be an ongoing battle?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [5]

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Well our peripheral ASP declined at a level that was consistent with what we had described before. We anticipate that low to mid-single-digit ASP erosion across our business and we've always projected that. I think we'll continue to see price erosion as we've talked about before. We'll continue to see that throughout our market and I think over time, just in this healthcare environment, we'll continue to see that. The price competition in the OBL segment continues to be fierce. I think our approach for long-term volume-based contracts with customers that perform a high-volume of orbital atherectomy and calcified lesions has worked for us. I think it is a really good approach, it's a way for us to secure business and really to manage our business overtime. So it's working, that combined with a strong case support, I think is really continuing to help us drive growth in our OBL segment and also to sustain those customer relationships over time. But I guess, in a quick summary to your question, yes, we expect to see continued strong price competition in that OBL segment over time.

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Operator [6]

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Your next question comes from Danielle Antalffy with Leerink Partners.

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Danielle Joy Antalffy, Leerink Partners LLC, Research Division - MD, Medical Supplies and Devices [7]

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First question is for Rhonda. Rhonda, I'd love to hear, sort of, what you've learned in your first full quarter at CSI? What surprised you to the positive? And where you think you can have the most impact there in your new role? I know that's a big question, but just would love to get some qualitative commentary there.

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [8]

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Yes, I mean, first of all, quarter was -- It was a huge quarter for CSI with a lot of important launches and the team has just done an amazing job with a lot of first time expanding the products in the bag, first time launching internationally, first time launching alternate access, so it's just been really great. And I've been focusing my time certainly learning about our people here, about the business, about the customer. And I think, initial observations, this is a really an incredibly strong team. Highly motivated, ambitious and people working in a high fast-paced environment. My focus has been on really kind of assimilating the work that Scott on the team have done on the strategic plan, and there's just really a pretty ambitious growth plan that you'll all hear about in July for the future. So that entails new products, global growth, new segments. And I'm really just working with the leadership team to build in and set ourselves up for execution. Looking at systems, resources, competencies in place to ensure that we have to expand our portfolio and drive that global growth. So that's been the way I'm -- been spending my time and what I anticipate doing moving forward, and we're just getting ready to unveil more in July.

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Danielle Joy Antalffy, Leerink Partners LLC, Research Division - MD, Medical Supplies and Devices [9]

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Awesome. And I'm very excited about the Analyst Meeting. Just a question, if you look into fiscal '19, and not trying to front-run guidance but I guess, as we think about all the moving pieces here, all the strategic moves you guys have made the additions to the sales force, should we be thinking about fiscal '19 as the year of growth acceleration. Just I don't -- any color you can give on the different drivers going into fiscal '19 would be helpful.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [10]

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Yes, we really -- first of all, thanks, Danielle, I think you've really done a nice job at characterizing why we're optimistic and why we do look to the future with a great sense of confidence here. I would say, however, that I probably have to ask you to wait until our July Analyst Meeting before I can give you much sense of what we anticipate for growth or any forward-looking guidance.

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Operator [11]

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Your next question comes from Robert Hopkins with Bank of America Merrill Lynch.

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Unidentified Analyst, [12]

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This is [Vishnu and Bob sitting] on for Bob. I have two quick ones. So the first one I had was on 2018 guidance and by my math, the 2018 growth implied by the Q4 guidance, came down about a point on the top end from 5% to 7% to about 5% to 6% I'm calculating. And I was curious as to what drove that decrease on the top end? And what gives you confidence that being able to achieve that topline growth guidance?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [13]

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I think your math is correct. They're -- rate does now reflect that to 5% to 6%, we think that, that is within the range of what we had talked about before it, it also is consistent now with what we believe we can achieve over the course of the fourth quarter. And does require us to continue strong growth in our peripheral and coronary franchise and also reflects the additional revenue coming from Japan.

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Unidentified Analyst, [14]

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Got it. And then one more on coronary. So it looks like coronary growth slowed sequentially from Q1 and Q2, where it was 17%, I believe now it's about 9%. I was curious as to what contributed to that, whether that was a longer ramp-up for the clinical specialist side? Or was it something more structural in the coronary market? Or just your thoughts on that generally?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [15]

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I think you're referring to -- well, I know we have strange quarters. But you're referring to Q2 to Q3, I assume?

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Unidentified Analyst, [16]

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Right, yes, sorry.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [17]

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Yes, okay. So anyway, just -- you have to remember that in Q2 we had growth of almost 17% sequentially, quarter-over-quarter. So Q1 to Q2 grew almost 17%, and we actually felt very good that we were able to sustain that momentum and good strong growth into Q3. And we are now seeing meaningful contributions coming from our focused coronary sales reps. Our hybrid ups continue to do a great job and the addition now of our case support with additional clinical specialists out there is beginning to get some traction. So we feel pretty good about where our coronary franchise is in United States.

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Operator [18]

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Your next question comes from Mike Matson with Needham & Company.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [19]

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Just wanted to ask a few questions on the radial access and extended length product. So first of all, are you going to be able to get a price premium for this product? Or I guess is it something where you have a competitive advantage, because of the size of your [vise], maybe the competitors just are too large to offer radial access capability? In other words, how is this going to contribute to your growth I guess that's what I'm trying to get at?

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [20]

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I'll go ahead and take that. I mean, I think first we're going to be launching at parity with our existing pricing. But it is, as we've said before, an important growth driver moving forward. We do have a very clear size advantage in terms of the 4 French device and now with the extended length. So customers may be able to even treat more patients with this unique approach. But I think the main point of differentiation I'm going to come down to, we have to look to the coronary segment in terms of how radial has taken off. In the coronary segment in the United States, about 40% of procedures now are being done radially. Because of some clear patient benefits in terms of decreased complications, improved length of stay and improve the ambulation. And so there's a broader radial movement, of the which the societies are also very, very supportive. So we are going after the differentiation move here, and that's going to be our growth driver.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [21]

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One thing that I would add Mike, and we mentioned this last quarter. We are a bit dependent on others companies supplying the support products that are required for radial. So the longer length wires, catheters and so on, they are required for the radial access for peripheral procedures. And we were pleased now here in the first half of 2018, we're seeing at least 1 company beginning to make progress in hospital. But I think over time, we'll see more companies now launching these -- the support products that are necessary. As those products come to market, I think that will also serve as an important catalyst to drive the adoption of the radial side of access.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [22]

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Okay. But I guess with your competitors, I mean, if they're 6, 7 French and up, I mean is that -- is it possible for them to convert their systems just by adding longer lengths to work for radial approach or is it just too large of a device?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [23]

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Well, I think it's just too large of a device. Generally speaking, those will just be too large for the radial side of access. So now this is really a unique competitive advantage of ours. I mean, it does come from our mode of action, because this is an orbital atherectomy device, we can use a really low-profile crown and gain access to small vessels. And as a result, we can do the radial, we can perform radial cases where others really can't.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [24]

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Okay, so that'll be the real opportunity there, is that the market -- if the peripheral market really starts to shift to radial and then you'll have one of only or if not the only device that can be used in those types of procedures, correct?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [25]

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Yes, that's correct. And that's well stated. And that's the reason we highlighted is we do think we have a very unique competitive advantage here.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [26]

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Okay, all right, that helps clarify things. And then just on the support products, how should we think about, how that kind of ramps over time? I mean, I know it's not expected to a lot kind of in fiscal '18 but?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [27]

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Well, we talked about this last quarter. And without getting into real specifics, the revenue pull-through opportunity here is probably on the order of $600, $700 per case. If think just about all the balloons, the wires the catheters that are used, if they used our balloons, wires and catheters in every case, that's about what could be achieved. We don't anticipate that all of our products will be used in all of our cases. We don't anticipate that our products will be used in all cases. There will be some sub-segmentation going on. But early results have been very positive, the 1.0 millimeter balloon from the Sapphire II from OrbusNeich is a very competitive product. This is the smallest balloon out there for coronary use. And as a result, when physicians come across these chronic total inclusions, often times, they'll just reach for the smallest balloon they have. And that's how we get our product on the shelf. And how we gain share with this product. So it's interesting how having a balloon, having a novel balloon like that actually allows us to increase our pull-through of orbital atherectomy. We had always often been looking at this as orbital atherectomy, enabling the pull-through balloon and catheters. But a novel balloon like the one our actually opens doors for us that we didn't quite anticipate.

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Jeffrey S. Points, Cardiovascular Systems, Inc. - CFO [28]

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All right, one thing to add to that is our support products or supplemental products have always been around 8% of total revenues. We can see that get into the low-double digits over the next couple of years.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [29]

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Okay. And so I mean I guess if it's, say, $600, $700 potential per case. Let's say that you got $50 to $100 of that on average, we're looking at something that could add may be a couple of points to your revenue growth I guess. Is that reasonable or?

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Jeffrey S. Points, Cardiovascular Systems, Inc. - CFO [30]

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Yes, that seems reasonable. I mean, it's the chance to add a couple of hundred dollars per case revenue and it's at the same call point. So it's definitely upside.

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Operator [31]

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Next question comes from Malgorzata Kaczor with William Blair.

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Alexa Desai, William Blair & Company L.L.C., Research Division - Associate [32]

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This is actually Alexa in for Margaret. So first, peripheral device growth has been strong and accelerating each quarter, so I was actually hoping you could talk a little bit on your updated thoughts on the referral patterns in this business. And has the long-term LIBERTY 360° data helped you actually further push for better alignment amongst referring and treating physicians? And how should we think about the market development of the peripheral segment over the next call it 2 or 3 years so?

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [33]

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On market development I think, there's definitely been a big educational push by CSI. And we've had a number of educational programs working with physician leaders throughout the country, very engaged with the societies. I think that having a study like LIBERTY 360 has been incredibly important in terms of really bringing visibility to the benefits that this technology can provide, particularly in the more sick Rutherford patients, these are patients who -- physicians would historically have done amputations and that is starting to change. So I think all those things combined in addition to the ACCHA updating our 2016 guideline have all given a tremendous amount of visibility, awareness amongst physicians, the referral physician as well as patients who now are increasingly looking at options to avoid an amputation. So I really think that's what's happening. And Scott, may be you have additional insight. But just as I've kind of come in to this company and looked at what the big tailwinds are in the peripheral market. That is really I think what's happening.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [34]

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Well, I think you are right, Alexa. We sustained good strong growth in our peripheral business over time. And as Rhonda has said, the underlying driver of that is unfortunately, we just have a -- an epidemic of peripheral vascular disease in this country and around the world. And there just aren't many disease stage there that are growing at a double-digit rate and that is the case for peripheral. Unfortunately, we continue to see high-single digit, low-double-digit growth in that segment. And so we continue to benefit from that. We grow at or above that rate, and we're pretty pleased about that. The referring physicians now are becoming increasingly interested in really what's being called as fan and paint procedure, I don't really like the name. But it's where you remove the calcium, you then use a drug code of balloon to treat the lesion. And then you don't leave anything behind. And that has been really attractive to a lot of referring physicians. I think that they are much more likely to refer their patients when they have confidence that they will prevent a future amputation, prevent future occlusions. And that type of approach of using atherectomy in combination with the drug code of balloon, I think has been encouraging to many of the referring physicians. So I think that's probably one of the underlying factors that's been driving the adoption.

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Alexa Desai, William Blair & Company L.L.C., Research Division - Associate [35]

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That's helpful. And then just one more question for me. Could you comment on maybe how your new clinical specialist are coming up the curve and if their productivity is tracking to that expectation you laid out last quarter about taking about 3 to 4 quarters to ramp? And then as a follow-on to that, what are the nuances we should be aware of in regards to how they go about establishing their relationships with physicians before they can begin to drive even further increased utilization?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [36]

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Yes, it's a great question. And we spent a fair amount of time on that last quarter. And I think we are -- we now are seeing a good strong impact from our clinical specialists. Case support has continued to rise steadily. And as I've said on many occasions, an important part of our competitive advantage in this market is that we are present in cases, our sales reps, our clinical specialists are present when patients are being treated. And we can really improve the quality of care by being present. So our clinical specialists, we're deliberately hiring clinical specialists that have deep clinical acumen that come from cath labs. And we -- it is -- it took a bit longer than we anticipated to see their impact. But now as we head into Q3, we were very pleased with the level of case support and case coverage that was achieved. And now we're beginning to move towards leveraging that, not only in having them presenting cases but freeing our sales reps then to go and train and educate other physicians in accounts as well as opening up other new accounts. So yes, I think we're -- I feel pretty good about where we're at right now. And the case support strategy that we have rolled out is starting to really pay dividends for us.

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Operator [37]

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This concludes the Q&A session for the conference. I now like to turn it back to Scott for any closing remarks.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, CEO and President [38]

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Thank you. And that will conclude today's call. So thank you, everyone, for joining us. We appreciate your continued interest in CSI. And we look forward to updating you on our progress in New York City at the end of July. Thanks, everyone.

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Operator [39]

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This concludes today's conference call. You may now disconnect.