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Edited Transcript of CSII earnings conference call or presentation 1-May-19 8:30pm GMT

Q3 2019 Cardiovascular Systems Inc Earnings Call

ST. PAUL May 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Cardiovascular Systems Inc earnings conference call or presentation Wednesday, May 1, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jack E. Nielsen

Cardiovascular Systems, Inc. - VP of IR & Corporate Communications

* Jeffrey S. Points

Cardiovascular Systems, Inc. - CFO

* Rhonda J. Robb

Cardiovascular Systems, Inc. - COO

* Scott Raymond Ward

Cardiovascular Systems, Inc. - Chairman, President & CEO

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Conference Call Participants

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* Brandon Vazquez

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

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst

* David Joshua Saxon

Needham & Company, LLC, Research Division - Associate

* Mathew Justin Blackman

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Robert Adam Hopkins

BofA Merrill Lynch, Research Division - MD of Equity Research

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Presentation

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Operator [1]

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Good afternoon. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cardiovascular Systems Fiscal Year 2019 Third Quarter Earnings Conference Call. (Operator Instructions) Thank you.

Jack Nielsen, Vice President, Investor Relations and Corporate Communications, you may begin your conference.

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

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Thank you, Emily. Good afternoon, and welcome to our fiscal 2019 third quarter conference call. With me today are Scott Ward, CSI Chairman, President and Chief Executive Officer; Rhonda Robb, Chief Operating Officer; Jeff Points, Chief Financial Officer; and Dr. Ryan Egeland, Vice President of Medical Affairs.

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 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, President & CEO [3]

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Thank you, Jack. Good afternoon, everyone, and thank you for joining us today. CSI continues to perform exceptionally well. Our third quarter was characterized by strong consistent growth in our domestic core atherectomy businesses, robust expansion in international markets and the disciplined execution of our key financial objectives. I'm pleased to report that CSI achieved double-digit growth for the fourth consecutive quarter with revenue of $63.3 million, representing nearly a 14% increase compared to last year.

Revenue growth was driven primarily by ongoing strength in our domestic atherectomy businesses where we continue to gain market share and achieve double-digit unit growth in both our Peripheral and Coronary franchises.

Notably, revenue in our domestic Coronary atherectomy business increased by 18%, powered by new product launches and exceptional customer support from our sales and clinical specialist teams. The commercial launch of orbital atherectomy in international markets continues to gain momentum. We achieved $2.4 million in international revenue in Q3, driven by the rapid cadence of product launches in Asia, the Middle East and Europe, and strong performance in Japan where we are now on pace to capture 20% market share within the next 12 months.

In addition to strong revenue growth, we are also executing on our key financial objectives. We were profitable again in Q3, and gross margin has remained strong at 81%. Our manufacturing operations teams continue to perform exceptionally well, delivering important cost reductions as we drive increased unit volumes.

CSI is a patient-centric and customer-focused organization, and we strive to be partners in health care, collaborating with our customers to deliver the high-quality products, services and relationships that are required to assure the best possible outcomes for our patients.

We are the market leader in Peripheral and Coronary atherectomy and together with over 2,000 physicians worldwide, we achieved a significant milestone in Q3, conducting over 20,000 orbital atherectomy cases and enabling physicians to enhance the quality of care for patients around the world.

In summary, Q3 was a straightforward quarter marked by strong growth and solid execution throughout our company. Rhonda will provide additional information regarding our key growth drivers and commercial progress in a few moments. But first, Jeff will now provide details on our Q3 results and discuss the 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. As Scott mentioned, third quarter revenue of $63.3 million represented a 14% increase compared to last year. It also represents sequential revenue growth of 5% compared to second quarter. In total, we sold over 20,000 orbital atherectomy devices during the quarter, representing a 17% increase compared to last year.

Worldwide Peripheral revenue increased 10% to $45.2 million. Our worldwide Peripheral units increased 16% compared to the prior year. Domestically, Peripheral unit volumes increased 14%. As anticipated, we experienced a mid-single-digit ASP decline, which is consistent with our expectations and recent periods.

Worldwide Coronary revenue increased 24% to approximately $18.2 million. Domestic Coronary revenues grew 18%, primarily driven by increased unit volumes. Coronary ASPs were flat with last year.

The revenue breakdown between U.S. and international was as follows: Total U.S. revenue increased 11% to $60.9 million, domestic Peripheral revenue increased 9% to $44.6 million and domestic Coronary revenue increased 18% to $16.3 million. International revenue totaled $2.4 million.

In Q3, gross profit margin remained strong at nearly 81%. We remain focused on achieving manufacturing efficiencies and product cost reductions to offset the impact of lower Peripheral domestic ASPs and the growth of lower-margin segments.

Operating expenses of $50.6 million increased about $5.5 million or 12% compared to last year. R&D expenses associated with investments in new product development and enrollment in the ECLIPSE clinical trial increased 27%. We are accelerating our investment in R&D to broaden our product offering, expand the use of orbital atherectomy and drive long-term value.

SG&A increased 9% due to physician training and medical education investments to support our international expansion. We were profitable again in the third quarter with net income of $672,000 or $0.02 per share.

Adjusted EBITDA increased to $4.1 million. We continue to maintain financial strength and flexibility, as evidenced by a cash balance of $115 million, no long-term debt and a line of credit in place for borrowings up to $40 million and a shelf registration in place to issue up to $350 million in equity.

This concludes my summary of our Q3 financial results. I will now discuss our updated annual guidance. With 2 months remaining in our fiscal year, we are tightening up our fiscal '19 financial guidance. For fiscal '19, we now anticipate revenues in the range of $245 million to $247 million, representing an annual revenue growth of 13% to 14%; gross profit margin of 80% to 81%; net loss between breakeven and 0.5% of revenue; and positive adjusted EBITDA.

Rhonda will now discuss our commercial developments. Rhonda?

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

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Thank you. As you just heard from Jeff, we again achieved strong financial performance in Q3. As we've demonstrated throughout fiscal '19, the key driver of our quarterly financial results has been the ongoing success of our domestic orbital atherectomy franchises. Bigger picture, our strategy to provide exceptional case support with deep clinical acumen, continuous innovation, medical education and growing medical evidence resonates with our customers.

We have sustained strong growth over the past 4 quarters, and we believe the momentum achieved in our core business in fiscal 2019 can be sustained in the future based on the following factors: First, our physicians increasingly turned to orbital atherectomy due to its ease-of-use and flexibility. Physicians can use one device to treat short and long lesions with moderate to severe calcification throughout the vasculature; second, orbital atherectomy is the only atherectomy product in the market supported by strong medical evidence, published in peer-reviewed journals that demonstrates safe and effective calcium removal, vessel preparation and improved patient outcomes; and finally, reimbursement and provider economics remains stable and supportive for atherectomy. In fact, CMS released a proposed rule for inpatient atherectomy reimbursement last week, and the proposed DRG rates for both Coronary and Peripheral atherectomy procedures improved slightly in 2020.

With those factors in mind, our worldwide Peripheral business grew over 10% in Q3, driven by 14% unit growth in the core domestic Peripheral atherectomy business.

We remain focused on several key initiatives that are delivering positive results. In Peripheral, growth was driven by market developments and continued success in the office-based lab market, execution of long-term volume-based contracts and increased case coverage, stable reimbursement and provider economics for atherectomy procedures, increased use of our new 5 French radial access device and medical education programs that generate new accounts and new users.

Last quarter, I detailed our strategy in the office-based lab or OBL market. OBLs are accelerating patient access to care and may account for approximately 50% of Peripheral atherectomy procedures today. For 6 quarters now, we have targeted high-volume OBL sites offering long-term volume-based contracts combined with increased procedure support. This strategy is working. And similar to Q2, our OBL revenues grew over 25% in Q3.

We also continue to win new Peripheral business in both the OBLs and hospitals. Compelling medical evidence is one way we win. Our ongoing investments in clinical trials help advance the body of evidence in support of the field and specifically, for orbital atherectomy. Our large sales channel can introduce our technology to new physicians by discussing peer-reviewed published data. This clearly differentiates CSI from our atherectomy peers. We added another publication in Q3 as the 1-year results of our LIBERTY 360° study were published in the Journal of Endovascular Therapy. We look to build on this landmark study in future quarters with new data that supports the clinical and economic benefits of orbital atherectomy.

Finally, as we add new support devices to our offering, we are gaining traction with our radial access portfolio. In Q3, we launched the Peripheral ViperWire Flex Tip and the VIPERCATH XC exchange catheter. This is the only 200-centimeter catheter on the market. Since the launch of the VIPERCATH in March, we have experienced an acceleration in radial revenue. With 40% of coronary procedures performed using a radial access, we believe physicians will also increasingly embrace radial access for their peripheral procedures. CSI is the only atherectomy company offering a low-spoke 5 French profile extended legs device that can accommodate radial access and effectively treat lesions in large vessels above the knee.

On to Coronary, our worldwide business grew 24% with strong growth in the core domestic business. Our strength in Coronary stems from the strategies we initiated last year, including dedicated Coronary sales representatives, investments in expanding medical education programs, the commercial launch of our complex Coronary toolkit and international growth.

As you recall, in certain high-volume Coronary markets, we direct our dedicated Coronary sales reps to drive adoption in existing accounts. We're finding that the complex Coronary patients that we help to treat are increasingly aggregating at centers of excellence.

For this reason, it make sense to have dedicated Coronary reps and clinical support specialists supporting these high-volume accounts and providing exceptional customer and procedure support in the cath lab every day. In addition, providing medical education for new users in these locations increases penetration within current accounts.

We also continue to receive a positive market response to our emerging Coronary toolkit. Together this kit, which currently includes the 1.0-millimeter Sapphire angioplasty balloon, the Q3 launch of the Teleport Microcatheter and Diamondback with the GlideAssist feature improves the deliverability of the Diamondback crown to the lesion site. In some cases, these products are enabling physicians to treat patients that were previously not candidates for an atherectomy procedure due to their complicated anatomy. We are now seeing over 33% of our Coronary cases incorporate at least one of our balloons or catheters.

Turning to international. Orbital atherectomy continues to receive an enthusiastic reception worldwide. In just over 1 year, we have now launched orbital atherectomy in 9 countries across Asia, Europe and the Middle East. At the end of Q3, we had over 80 physicians outside the U.S. certified to use orbital atherectomy, and we are on track to have over 100 certified by the end of June.

In Japan, the Q3 launch of Coronary classic with the ViperWire Advance Flex Tip is receiving rave reviews from physicians, and our growth continues to accelerate in this important market.

Before discussing our Q4 drivers, I will just quickly mention that we continue to make progress on our critical R&D initiatives. In February, we had a very constructive pre-submission meeting with the FDA to discuss the preclinical and clinical requirements for our mechanical hemodynamic support device. We continue to target fiscal '21 for first-in-human.

ECLIPSE enrollment is now over 800 patients, and we are thankful to our investigators for their continued strong execution of the ECLIPSE trial. This is an important trial for CSI and for the market. We intend to produce other evidence required to change guidelines and establish orbital atherectomy as the standard of care for patients with calcific coronary artery disease. And we are excited to announce that we are expanding ECLIPSE globally, and we plan to add new sites in Japan and also in Europe upon receipt of CE mark.

And finally, we look forward to the LIBERTY 360° economic data presentation at the New Cardiovascular Horizons conference later this month.

Looking ahead to Q4, incremental growth drivers will include our core atherectomy business, including medical education driving higher case volumes, along with increased case support; Coronary support device sales led by Teleport and the Sapphire 1.0-millimeter balloon, and in Peripheral, the VIPERCATH XC and radial expansion; and finally, continued traction internationally, especially in Japan and an expected CE mark for Coronary in Europe.

That concludes my prepared remarks. I'll be happy to address your questions after Scott provides his closing thoughts.

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

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Great. Thank you, Rhonda. As we conclude now our prepared remarks, I want to emphasize just a few key points. First, I think we've done a great job executing our plan. We have successfully accelerated revenue growth. And during the first 9 months of fiscal 2019, revenues have increased 13.9% versus 3.9% during the comparable period 1 year ago. Consistent with that plan, CSI employees delivered strong performance in Q3 with double-digit revenue growth, profitability and the successful execution of key operating objectives across our organization. Importantly, we entered Q4 with momentum and financial strength.

Second, the transformation of CSI from a single-technology, single-geography company to an innovative leader with worldwide reach is well underway. I am pleased that we are successfully executing our key growth initiatives by driving market-leading performance with orbital atherectomy, expanding into new geographic markets, launching new products and developing an innovative portfolio of new devices that will propel our growth for years to come.

We are pleased that our efforts to deliver strong and steady growth, combined with financial discipline, have now been recognized by the broader equity markets. In March, CSI was added to the S&P SmallCap 600. This index includes small cap financially strong companies that are recognized as some of the fastest-growing emerging companies in the U.S. equity market.

Finally, I would like to thank all of our CSI employees for their extraordinary dedication and commitment to our mission and the patients that we serve. Our employees are excited and motivated to build this company and to collaborate with our customers as we improve the quality of care for patients with cardiovascular disease around the world.

Thank you for your continued interest in CSI. We look forward to updating you on our progress. We will now take your questions. So Emily, if you would please repeat the instructions? Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Mathew Blackman with Stifel.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [2]

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Maybe to start on paclitaxel, I don't know Scott or Rhonda, any anecdotal feedback from the field on the impact of maybe starting on referrals and interventions? But I guess atherectomy volumes just in general?

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

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Yes. I'll take that, Matt, and good afternoon. First, I would say that the effect of the paclitaxel drug-coated balloon issues have really probably been neutral to maybe a little bit positive for us at this point in time. We aren't really seeing much of an impact in our marketplace. This came out in really the first week of March. So we're about 6 weeks into this new environment now and I think it's continuing to evolve. So we will see how this changes the market over the course of the next several months. For CSI, the reason I say it's probably neutral for our company is that the paradigm for treating these patients really has not changed. As you'll recall, patients receive an atherectomy, then they are ballooned, the lesion is checked and a physician may or may not place a stent. That basic paradigm really hasn't changed. The use of a drug-coated balloon or a plain old balloon angioplasty device is now interchangeable there but otherwise, we don't really see much of an impact on that.

The other thing is that really probably 60%-plus of our Peripheral business is below-the-knee where drug-coated balloons have not been approved for use and are not widely used in the United States. Also 25% of our Peripheral business is in the OBL setting where drug-coated balloons have not been reimbursed and are not widely used. So probably a bit of long answer for you, but that gives you some explanation of why we think it's -- right now, it's probably neutral and we'll just see how this evolves over time.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [4]

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Okay. I appreciate the long answer. Just a quick -- a couple of quick follow-ups. Again, Scott, Rhonda, either one. Just if you can comment just broadly on the Peripheral atherectomy competitive landscape? And any notable changes in just market dynamics? And I think most important, have you seen a big change in your rep attrition rate above and beyond normal levels? And then I have a quick follow-up for Jeff.

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

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Okay, good. So in terms of the Peripheral competitive landscape, it obviously hasn't really changed. I think at this point, it's become a bit of a dynamic environment, somewhat driven by the impact from the drug-coated balloons. We'll see how -- remember, we compete against these large companies, we compete against Medtronic and Boston Scientific and Philips, and these happen to all be companies also at least have a drug-coated balloon or had one in their pipeline. So we are yet to see how they react to the gaps in their pipeline now and that has the potential to change the competitive environment going forward. There are, of course, smaller players and emerging players that are coming into this market segment. We are not seeing much of an impact from any of those companies at this point in time. This is a large and rapidly growing market so we do expect to see competition coming in the future. But at this stage, we really -- our competitive landscape is fairly stable. In terms of our sales attrition, really no difference. Our sales rep attrition stays really quite stable and is consistent with where we've been in years past. So we continue to do very well there in terms of sales rep retention. And I would say that our sales reps are very motivated and excited, not only by the performance of the company thus far, but also by the future vision for our company and where we're headed. And I think you may have had one more question for Jeff?

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [6]

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Yes. One for Jeff. I think Rhonda said the OBL growth was at a 20% or 25%, can you just clarify that? And either way, I think that math backs into in-hospital growth still in the double-digits. Is that -- am I doing that right?

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Jeffrey S. Points, Cardiovascular Systems, Inc. - CFO [7]

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Yes, Matt. Thanks for the question. So our OBL growth, as Rhonda stated, was above 25% again for the second consecutive quarter. We did still grow the hospital site service as well year-over-year. And so both were healthy growth rates.

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Operator [8]

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Your next question comes from the line of Danielle Antalffy with SVB Leerink.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [9]

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Congrats on a good quarter. Just you mentioned -- you guys talked about the incremental in Coronary over 33% of the cases using at least 1 balloon or catheter. Can you talk at a higher level how revenue per procedure has changed over the last few quarters in both the Peripheral and Coronary as you've added some of these ancillary devices?

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

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Yes, I think it's still a little bit early. We launched our support devices now about a year ago and I think that we're really fully launched in our first quarter of this fiscal year. So it's still a bit early, but we are pleased with the uptake in Coronary.

Now our Coronary business is where we have a full balloon line. We also have the catheter line out there. And so we've got the kind of the full product line there, Danielle. And I think you can see with the 33% penetration now, the uptake is good. We're doing well there. We do run up against challenges because, obviously, there's limited space in cath labs. And so getting our balloon, our full balloon line into these accounts can be difficult, and it does take time, but we're making progress. Now as we look at our Peripheral line, we will add Peripheral balloons late next fiscal year, and so peripheral is a little bit slower and it's coming online perhaps a little bit slower than Coronary has, but we would anticipate that as we head through next fiscal year, we'll continue to see progress with our support devices. And in particular, incremental growth then coming from the Peripheral segment.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [11]

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Got it. That's very helpful. And then just a follow-up on the OBL growth. Still lots of momentum there. I think last quarter, it was 28%. This quarter, you're saying 25% plus. Can you talk about the Peripheral mix shift there between above- and below-the-knee because it does seem like logically in the OBLs, it would be less -- fewer CLI occasions, for example, but your brand better is really below-the-knee. So just trying to get a sense of the mix shift of types of procedures in the OBL, how that's changing and how you're attacking that?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, President & CEO [12]

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Yes. Thanks, Danielle. I think as we spoke about last quarter, and just to just kind of remind you and remind everybody, our approach here is really to work with physicians that are treating CLI patients and really complex Peripheral cases. So what we're doing is physicians who are performing these procedures in hospital, as they are moving out to the OBL setting and are beginning to adopt, let's say, the care of these more complex patients, we're following with them, we're putting in place these contracts and we're supporting them with greater procedure support. Really, I think, overall, the segmentation of cases has remained about the same at 60-40. Our OBL caseload is also probably consistent with that at 60% below-the-knee and 40% above-the-knee. So not much difference there, and I think that's largely because we're kind of tracking right with our customers who are performing these procedures now in the OBL segment. So I hope that answers your question.

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Operator [13]

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

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David Joshua Saxon, Needham & Company, LLC, Research Division - Associate [14]

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This is David on for Mike. First, just on radial, just wondering what it will take for radial to become the standard of care in Peripheral? And what you think is missing to drive faster adoption?

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [15]

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Yes. I'll take that. Thanks for the question. It's a really important one. We're excited by the progress. And as I have mentioned in my comments, today, in the United States, it represents about 40% of Coronary procedures. In other parts of the world, it's even higher than that. Primarily, due to the reduction in complications and improved ambulation that patients get with that route of access. And we're pleased with the uptake. We consider it still relatively early. The launch of the

VIPERCATH exchange catheter has been an important catalyst to help us take that lunch further. But there are additional support devices, longer wires, longer balloons and shapes that are going to be needed, ultimately, for I think, this route of access to ultimately realize the size of the Coronary route of access. But we anticipate those products to be coming on the market over the course of the next 12 to 18 months, and we'll continue to make progress with the existing products that we have available to date.

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David Joshua Saxon, Needham & Company, LLC, Research Division - Associate [16]

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Okay. And can you just give an update on the pipeline and if there have been any significant changes since, I guess, last summer's Analyst Day?

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [17]

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No. I mean the -- we are executing per plan to the portfolio and timing expectations that were communicated last summer. So I think the big updates this quarter that we wanted to make sure that we articulated was the meeting with the FDA on the hemodynamic support pump, and we were exceptionally pleased with how that meeting went. It's early days and there's a lot more work to do, but that's really kind of the biggest update this quarter, but everything else is on track.

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Operator [18]

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Your next question comes from the line of 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 [19]

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Congratulations on a great quarter and thank you for the much more robust review in your prepared remarks over -- across all your various initiatives. That was helpful. The one thing I'm not sure or one thing I'm not sure I heard much about was the relationship with OrbusNeich and how that's going? Obviously, you're seeing some uptake, but can you just comment on that specifically?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, President & CEO [20]

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Yes, sure. OrbusNeich is our distributor outside of the United States and outside of Japan, and our relationship there is going exceptionally well. OrbusNeich is doing a great job for us. I think as we've described, now, we have launched in a very short period of time, really since August of last year, we have launched our business in Asia, Middle East and in Europe. Quite frankly, that just could not have been done without as strong a partner as we have in OrbusNeich. So they have an excellent global infrastructure. We are leveraging that. We, of course, continue to provide the medical education and training for physicians who are adopting our orbital atherectomy procedures, and we're collaborating with OrbusNeich for the sale and the physical distribution of the product. So continues to grow -- go exceptionally well, we're looking forward now to the approval for Coronary in Europe. And along with OrbusNeich, we're preparing to make that happen and make that a great success as well. So the OrbusNeich collaboration continues to go exceptionally well.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [21]

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Great. And then you mentioned the competitive environment, and I appreciate those comments. I noticed that a little company, I guess, Shockwave, seems to be getting a lot of investor attention. I'm curious if you've seen much of them in your markets?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, President & CEO [22]

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We really don't see them in the markets. Yes. They've been in the commercial market in the United States in the Peripheral segment for a couple of years and we -- they have not affected our growth or our market share, as you can tell from our results, in particular, over the course of the past year. So no, we really haven't had much of an impact from Shockwave at this point.

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Operator [23]

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Your next question comes from the line of Margaret Kaczor with William Blair.

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Brandon Vazquez, William Blair & Company L.L.C., Research Division - Associate [24]

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This is Brandon on for Margaret. First, I just wanted to focus on more of a high level for looking at the OAS business, which is doing -- continue its momentum, it's doing really well. Can you just talk about where you're seeing pockets of strength there? And particularly, do you feel like things are going well there more in terms of the execution on your own internal plans? Or is kind of the market there growing on its own and starting to realize more of the benefits of vessel prep?

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [25]

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Yes. I'll go ahead and take that. I think there's different dynamics taking place between the Peripheral and the Coronary business. And I think as we articulated in the comments, our unit growth was 14%. So we're doing really well in the Peripheral market. And it really gets back to market development. I think that the emergence of the office-based lab is really driving more patients to receive care. So that's a very positive dynamic. And of course, our presence, significant presence in the 2 sites of service, both of the hospital as well as the office-based lab, the volume-based contracts that we've put in place, the people that we've put in place to support case coverage really has positively affected our ability, not only to grow with the market, but to capture share in that segment. And I think additionally, we discussed the concept of stable reimbursement. The recent information that just came out suggest that, that's going to continue to be very stable, if not even more positive moving forward. So I think it's really a combination of a lot of things but clearly, there's a lot more to do in that market due to the significant underpenetration of the Peripheral market and the degree to which amputations still occur.

Coronary strength is also really exceptional this quarter and I think there, the strategy has been a little bit different. We see these large centers of excellence really taking on more complex procedures. And that's exactly where we have our dedicated Coronary sales representatives and clinical specialists planted to work with those physicians on their cases. And that, combined with the differentiation and focus of our medical education in addition to the launch of this Coronary toolkit, have really put us in a strong position there. And then we mentioned later on, international on top of that, so those are really kind of the dynamics in the Coronary segment.

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Brandon Vazquez, William Blair & Company L.L.C., Research Division - Associate [26]

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Great. And then in terms of OBL that you were touching on in the prepared remarks, you've mentioned 50% of all Peripheral cases are in the OBL setting now. Where do you guys envision that market going to? Does it stay at 50%? Is it growing? And if it's growing, what's kind of the growth rate of the OBL market? And another good quarter of 25%-plus growth there. Are you guys seeing growth from more opening new centers and getting new OBL accounts or from account penetration or maybe a mix of the 2?

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

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Yes. Great question. So I do think we're going to continue to see growth preferentially in the OBL segment. I think there's limited access or limited capacity really, in the in-hospital segment. And as Rhonda mentioned in the United States and perhaps around the world, we're really facing an epidemic of PAD and critical limb ischemia. And the only way that can be managed is by having more physicians who can care for these patients. If we look at the United States alone, it's estimated that there's 2 million CLI patients. So there has to be an alternative mechanism for managing the care of these patients, and I think the OBL segment is where this is going to continue to go to.

Now what we're seeing and where we come into play here, is when physicians in that OBL segment decide to treat patients that have a higher burden of disease. That is the circumstance where we can get involved and where we collaborate more closely with those accounts. So that's really where we're focused. And I would say that over the course of probably the past couple of quarters, most of our growth in the OBLs has come from going deeper or having deeper penetration in our existing accounts. And that's largely because we've put out a fair amount of -- a large number of clinical specialists, and we provide procedure support in these accounts in order to assure the proper use of our device and good outcomes for our patients. So I guess that's a pretty good summary. We do expect to see continued strong growth in that OBL segment over time.

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Operator [28]

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Your last question comes from the line of Bob Hopkins with Bank of America.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [29]

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Congrats on a really solid quarter. I guess I just wanted to ask 2 questions. One, I appreciate the update on the pump. But can you just remind me, what was the purpose of the meeting with the FDA? And then maybe just from a big picture perspective, like, what are the key things that need to happen with the technology from here? We're still kind of in the early design phase? Or just anything from a big picture perspective that you'd be willing to disclose would be helpful.

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, President & CEO [30]

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Sure. Thanks, Bob. So just as a reminder, and we indicated this in our call last quarter, we had our first pre-submission meeting with the FDA to review our preclinical and clinical plans. We took them through the design of the device, the features of the device, the preclinical work that we had done, the validation testing that we intend to do, the animal research that we intend to do and then we introduced our clinical research program to them. Had very good feedback, very collaborative meeting as is always the case in these pre-sub meetings. And so we were really pleased with the outcome. Right now, I think, Bob, the thing to focus on is first-in-human, and we are continuing to be on track, as Rhonda indicated, to achieve our first-in-human use in 2021. So I think that's really the next key objective to look at and at this point, it's not that far away.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [31]

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Okay. And then so is the next major step in the process then going into animals?

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Scott Raymond Ward, Cardiovascular Systems, Inc. - Chairman, President & CEO [32]

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We are in animals now. So we're basically entering into the phase where we are performing a design work, a design validation and animal testing. And obviously, that is -- those things all go hand-in-hand. We've not yet started GLP animal testing, and we would anticipate doing that in the near future.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [33]

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Great. That super helpful. And then, Scott, I'm looking here from a big picture perspective, obviously, the business has good momentum, you guys are executing well on your plan. Can you just talk at maybe high level about your confidence in being able to sustain and maintain the momentum in the business and the double-digit revenue growth that you guys have been delivering of late into next year and beyond?

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

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Yes. I mean it's a little bit hard for me to project into next year and beyond, but I think you know from our strategic plan that we presented last year that we are projecting that by leveraging our international expansion, our new product pipeline and continued strength in our core business, that we can deliver growth in the mid-teen range. And that's what we continue to drive towards. We have delivered on that this year. We go into Q4 with good strong momentum. And as we've said, I think we're doing a good job in executing against our internal milestones, and our sales organization is just doing a great job executing our key programs. The combined impact, as Rhonda spoke about, the combined impact of customer service, customer support, the really solid medical evidence that we have and the unique mode of action of orbital atherectomy just continues to provide great strength to our sales in the marketplace. I think those are probably the key factors. And right now, we are executing extremely well. I'm really proud of where we're at.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [35]

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And then maybe lastly, Rhonda, on the radial side. What's the right way to think about that? Is that -- could you mention that early days but start to see some good results maybe late in the quarter. Is that incremental business or -- I mean, obviously, just as an alternative path to get to the same place, but would you look at that as kind of an incremental growth opportunity to the growth you're driving today?

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Rhonda J. Robb, Cardiovascular Systems, Inc. - COO [36]

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Well, I would just, again, point back to the 14% unit growth in the core Peripheral business that we saw. We see radial as a contributor to that. Obviously, there are lots of factors in the peripheral market contributing to our success, but radial is one of those. And I just look to the Coronary segment of being like 40% of coronary procedures in the United States. So being the only company that really can offer radial at this point in time, it's a significant differentiator. But I think again, a ways to go in terms of having a full complement of products to fully support the radial procedure, but we've been pretty pleased with the uptake so far.

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Operator [37]

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We have no further questions at this time. I would now turn the call back over to Scott Ward for his final comments.

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

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Great. Thank you very much, and thanks, everybody, for your continued interest in CSI. We look forward to updating you again next quarter. Have a great day.

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Operator [39]

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This concludes today's conference. You may now disconnect. Have a great day.