Cardiovascular Systems, Inc.

Good morning. Welcome to today's Cardiovascular Systems Inc. Fiscal Year 2022 Second Quarter Earnings Conference Call. My name is Candice and I will be your operator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for question and answer at the end. If you would like to ask a question, please press start followed by one on your telephone keypad. I would now like to pass the conference over to our host, Jack Nielsen, Vice President of Investor Relations. Jack, please go ahead.

Thank you, Candace. Good morning, and welcome to our fiscal 22 second quarter conference call. With me today are Scott Ward, CSI Chairman, President, Chief Executive Officer, Rhonda Robb, Chief Operating Officer, and Jeff Points, Chief Financial Officer. Earlier this morning, we issued a press release announcing second quarter results. You may find a copy of this release on our investor relations section of our corporate website. Here you may also find an earnings supplement that includes additional details on our performance and outlook. During today's 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. In particular, the COVID-19 pandemic has created risks and uncertainties for our business, results of operations, financial conditions, and prospects, which we will discuss on this call. 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 press release contains a reconciliation to GAAP results. I will now turn the call over to Scott Ward.

Thank you, Jack. Good morning, everyone, and welcome to the call. Today, we reported Q2 worldwide revenue of $59.1 million, representing a 1.3% sequential increase but a decrease of 7.8% versus the prior year. This revenue performance reflects another quarter where our business continued to be pressured primarily by lower procedure volumes related to hospital capacity issues and staffing shortages caused by COVID-19. Our recovery from the Delta variant was suppressed by the arrival of Omicron in December. Consistent with past surges, the impact was more acute in the peripheral claudication segment of our business, which is deemed more deferable and is more susceptible to the long-term havoc created by COVID. We now know that staffing turnover and shortages caused by COVID have had a chronic dampening effect on the entire peripheral vessel preparation and atherectomy market. The latest market data from independent sources indicates that the peripheral Vessel preparation and atherectomy procedure volumes are down 10 to 12% versus the prior year. The good news is that we continue to believe this is temporary and that many of these procedures will be regained as the Omicron surge fades, the healthcare system recovers, and patients return to hospitals and clinics for long overdue interventions. It is difficult to predict the exact timing, but we expect a backlog of cases to gradually flow through our accounts at some point after this latest wave recedes. We are also encouraged that the fundamentals in our business, like new accounts, new customers trained, and new contracts, all improved sequentially in Q2, and we continue to gain share and achieve strong growth in our international markets. In addition, we achieved sequential growth in our U.S. coronary business in Q2, and we believe that we are recovering some market share. We expect this to continue as cath labs and physicians return to the consistent use of atherectomy in their standard daily clinical practice. We believe we have the preeminent sales force in the U.S. market. The work we do improves the quality of life, prevents amputations, and saves lives for thousands of patients every year. Our morale has remained strong, and our employees have diligently supported our customers and patients throughout this latest surge. So even though COVID has caused us to adjust our near-term outlook for this fiscal year, we are excited about our future and we expect to return to growth supported by improving market dynamics, our innovative product pipeline, and expansion in large and fast-growing markets. In a moment, Rhonda will provide additional information regarding our commercial progress. But first, Jeff will provide you with additional details regarding our second quarter financial results and our revised revenue guidance.

Jeff. Thank you, Scott. Good morning, everyone. Financial results for Q2 were as follows. Worldwide coronary revenue increased over 4% sequentially to $20.2 million, while also increasing slightly from the prior year. In the U.S., coronary revenue grew sequentially 3% from Q1 and decreased 7% to $16.7 million over the prior year period. Outside the U.S., coronary revenue increased 60% over the prior year period to $3.6 million as a result of continued strength in Japan combined with the launch of coronary OAS in Europe. Worldwide peripheral revenues were flat sequentially at $38.9 million while decreasing 11% compared to the prior year. In the U.S., peripheral revenue was also flat sequentially while decreasing 12% compared to last year. Turning to expenses, gross margin was 69.4% for the quarter, excluding a one-time charge of $2.8 million related to the voluntary recall of our wire-on embolic protection system. Gross margin was 74.3%. Q2 gross margins also reflect lower OAS volumes and an increasing mix of ISD and international revenues. Operating expenses totaled $49.6 million, which was about flat with last year. Net loss was 9 million, or 23 cents per share. We ended the quarter with 176 million in cash and marketable securities and no long-term borrowings. Turning to our outlook, our sales have been constrained by Omicron since the surge began in December, and this trend has continued into February. Based upon forecasts from public health experts, we expect that hospital capacity constraints could begin to ease in late February and our procedure volumes may gradually begin to improve in mid-March. As a result, we expect domestic revenue to decline sequentially in the third quarter and gradually improve in fourth quarter. Although the timing and magnitude of the recovery is difficult to predict due to the dynamics introduced by labor shortages, WE DO EXPECT SEQUENTIAL GROWTH WE DO EXPECT SEQUENTIAL GROWTH WE DO EXPECT SEQUENTIAL GROWTH TO RESUME IN FOURTH QUARTER. TO RESUME IN FOURTH QUARTER. TO RESUME IN FOURTH QUARTER. TO ACCOMMODATE THE NEW CONSTRAINTS TO ACCOMMODATE THE NEW CONSTRAINTS TO ACCOMMODATE THE NEW CONSTRAINTS POSED BY OMICRON AND RELATED POSED BY OMICRON AND RELATED POSED BY OMICRON AND RELATED TO STAFFING SHORTAGES, TO STAFFING SHORTAGES, TO STAFFING SHORTAGES, WE ARE ADJUSTING OUR GUIDANCE WE ARE ADJUSTING OUR GUIDANCE WE ARE ADJUSTING OUR GUIDANCE FOR THE FISC and an adjusted EBITDA loss in a range of 4 to 7% of revenues. To close, we are hopeful that Omicron will be followed by a period where COVID is less disruptive and we will get back to consistent sequential growth. I will now turn the call over to Rhonda, who will provide our commercial update.

Thank you, Jeff, and good morning, everyone. Today, I will provide my thoughts regarding Q2 and share some of the key performance drivers for the back half of fiscal 22. In the U.S., peripheral revenue declined 12%, and as Scott noted in opening comments, the entire market for vessel preparation has declined 10 to 12% versus last year. We believe that the market decline is due to patient behavior, incidental COVID, and chronic staffing issues. As a result, many patients are being medically managed for longer periods of time. As such, we believe, and our market research corroborates, that there is a backlog of patients that need to be treated. We do believe that some of these procedures will be recovered, and we are working with our customers to prepare for a rebound. However, the pace of the recovery is difficult to predict. The recovery is likely to progress more rapidly in our OBLs where the barriers to increasing procedure volume are much lower. Throughout the pandemic, the OBL site of service has proven to be more resilient than the hospital setting, and the migration of peripheral patients to the OBL site of service continued in the quarter. OBL volumes increased 7% sequentially and now represent 51% of our peripheral procedures. We are pleased that the market dynamics in the OBL setting have stabilized and our sales organization has recaptured market share since Q1. Although it is still early and OBLs are coping with COVID, We are not seeing much impact from the PFS changes implemented on January 1st. Our OBL customers are not happy about these changes, but they are striving to drive efficiencies and we're supporting them with a series of programs and initiatives that will build and support high volume OBL accounts that are focused on the care of critical limb ischemia and other forms of complex PAD. Our customized outpatient resources program will include procedural education, inventory management, volume-based pricing programs, clinical support, claims assistance, and other initiatives that will transcend future reimbursement changes and assure efficient and effective care for our patients in the OVL setting. Customer education has always been a key core competency at CSI, and we are focused on training new physicians and adding new accounts. In Q2, we trained 61 new physicians and 52 new peripheral accounts, adding to our future pipeline of OAS users in the US. Sales of our peripheral ISDs increased to 1.2 million in the quarter following the successful launch and adoption of the Jade balloons. We are launched into approximately 25% of our US PAD accounts and expect this to ramp considerably in the next two quarters given the significant number of large contracts secured and effective January 1st. Jade balloons represent a significant opportunity to increase our revenue per case to approximately $100 per OAS by the end of our fiscal year. Turning to coronary, our US coronary revenue grew sequentially 3.1% to 16.7 million. This is an important step up following the launch of coronary IVLs last February. Over the past year, A lot of cath labs began trialing IVLs to see where the device would fit in their treatment algorithm. And as that trialing is now drawing to a close, we are driving a rebound in our coronary business as cath labs resume the use of atherectomy for the treatment of lesions with intimal and nodular calcium, heavy stenosis, eccentric and diffuse lesions, and multivessel disease. Of course, these are typically OAS cases, and we are encouraged that our customers are returning to the consistent use of atherectomy in their standard daily clinical practice. We continue to serve a high demand for customer training in coronary atherectomy. In Q2, we began training over 200 fellows, certified 101 new users, and opened 11 new coronary accounts in the US. We look forward to working with these physicians to complete their certifications in the months ahead and are excited by the enthusiasm we are seeing in the expanded utilization of our products. Our training pipeline remains strong and is an important indicator of future growth. During Q2, we sold $751 of support products for every coronary OAS sold. This was roughly flat with Q1, but was over $200 higher than the prior year period. In total, sales of coronary support products were 2.7 million in the quarter. We still have a large opportunity here since this product group is relatively new and we continue to make our customer base more aware of our product offerings. We are also expanding our coronary ISD portfolio and following the recent FDA PMA approval, we are in the process of launching the SporeFlex NC scoring balloon in the United States. This balloon creates a focal stress pattern to facilitate safe and controlled plaque modification. SCORFLEX-NC has the highest rated burst pressure in the United States and is indicated for the dilatation of adenovo-stenotic coronary lesion and incident re-stenosis. Strength balloons represent a growing $50 million market in the U.S., and we believe SCORFLEX-NC, backed by compelling clinical data, will continue to be well-received. Turning to international, we are really pleased with our Q2 international results, with revenue growing 62%, to $3.7 million. We continue to gain share in competitive atherectomy and IVL accounts with strong progress in Japan and Europe. Like the U.S., we continue to serve strong demand for physician training and certification in our international markets. We certified over 70 coronary interventionalists outside the U.S. and launched our coronary device in six countries during Q2. And we remain on track to be commercial in over 30 countries by fiscal year end. During the back half of fiscal 22, we expect to continue strong revenue growth despite COVID as we drive adoption and launch OAS in several new countries. We are on pace to deliver $15 to $16 million in revenue in FY22. In closing for Q2, we strengthened the fundamentals of our business with strong progress in new customers trained, new accounts, new contracts, and new product launches. And of course, we're also pleased with our share gain recapture and strong growth in international markets. I'll now turn the call back over to Scott.

Thank you, Rhonda. We are obviously operating in a very dynamic environment, which is really so defined by COVID. But we are encouraged by our performance in Q2, as you just heard from Rhonda, with a lot of very favorable outcomes on many of our leading indicators. So despite all the chaos, we really do have some great opportunities, and we're making strong progress in our efforts to transform CSI into a multi-product, multinational company capable of delivering consistent and profitable growth. Looking forward, we will continue to protect and grow our core orbital atherectomy business while we expand globally and develop a robust portfolio of new products. Over the next 18 months, we plan to introduce new products to serve our customer base and drive higher revenue per procedure, and expand the use of orbital atherectomy. In the near term, we will launch the ScoreFlex NC, which will be the first non-compliant coronary scoring balloon in the U.S. And next fiscal year, the 2.0 Max, which is a large vessel crown that will expand our offering to treat soft and mixed plaque in the larger vessels above the knee. And we will also launch an innovative line of coronary microcatheters for accessing chronic total occlusions. Longer term, our pipeline includes several products representing some of the fastest growing segments in the market, including Everolimus drug-coated balloons for coronary and peripheral applications, a PVAD for high-risk PCI, and IVL balloons for peripheral and coronary artery disease. And I'm happy to report that we're making really great progress on each of these programs. Last quarter, we announced the first in-human experience for the coronary drug-coated balloon. Our R&D team recently completed several important development and preclinical milestones for our PBAD device, and we expect to conduct our first in-human clinical experience with that device in an OUS trial later this fiscal year. And most recently, we announced the development of IVL balloons for the treatment of peripheral and coronary artery disease. So I think you can see that we've assembled an impressive portfolio that diversifies our growth platforms and expands our total addressable market from about $1.8 billion today to over $12 billion in the future. We have a great team. Our greatest asset at CSI is our people, and we have made strong progress in the execution of our product pipeline. I'm confident that we will overcome our near-term challenges and restore growth to our business while we transform CSI to become a leading innovator in the care of patients with cardiovascular disease. I would like to thank our CSI employees for their continued resilience as we continue to deliver exceptional support to our customers and patients during this extraordinary time. I would also like to thank all of you for your continued interest in CSI, and we will now take your questions. So, Candice, if you would please repeat the instructions, that would be great. Thank you.

Thank you. If you would like to ask a question, please press Start followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press Start followed by 2. Again, to ask a question, it is Start followed by 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking the question. We will pause here briefly while questions are counted. Our first question is from Matthew Blackman from Stifle. Your line is now open. Please go ahead.

All right. Good morning, everybody. Thanks for taking my questions. I've got a few here. Maybe just to start, you've mentioned a couple of times that you think you regained share in the quarter versus the first quarter. Can you maybe just talk a little about the competitive environment in the second fiscal quarter and and how you thought about competitive headwinds in the new guidance range. And then I have a couple of follow-ups.

Yeah, thank you, Matt, and good morning. I think where we probably made the most important improvement is in our coronary business, where you noted that we grew sequentially quarter over quarter. We are also seeing that the trialing now of IVL balloons is increasing, really drawing to a close, and at least in many of our accounts. And I think in those accounts that trialed early in, let's say, the IVL launch, we now are beginning to see a recovery of our procedures in those accounts that is really coming back about to our normal pace. So we're excited about that. Our organization is doing a great job in continuing to work closely with our customers, educating them on THE PROPER LESIONS IN WHICH TO USE ORBITAL LATERECTOMY, AND WE'RE ALSO SEEING THE RESULTS OF THAT AS PHYSICIANS ARE RETURNING TO ADOPTING OUR DEVICE ON A REGULAR BASIS. SO GOOD NEWS THERE. I THINK AS WE LOOK FORWARD, WE DO EXPECT TO SEE CONTINUED IMPROVEMENT IN THAT CORONARY SEGMENT IN THE SECOND HALF OF THIS FISCAL YEAR. WE ARE, AS WE HAVE TALKED ABOUT BEFORE, We continue to anticipate some potential competitive headwind as it relates to the launch of IVLs for the above-the-knee segment in peripheral, although we now think that'll be fairly muted as we've got just a short amount of time. It's early days. But we haven't seen a large impact from IVL in the ATK segment. That may progress over the course of the second half. If it does, we don't think it'll be a large impact, but it is a change in the competitive dynamic. And I think that addresses your question, Matt. If I haven't fully addressed it, please ask a follow-up on that.

Yeah, no, I think you covered it, Scott. Appreciate it. And then maybe one for Jeff, and then I'll squeeze in one for Rhonda. Jeff, just on the P&L guidance, the full-year gross margin guide, at 73%. I don't think it implies you get back to the, what's called the mid-70s that you hit in the first quarter. So is that all volume headwinds as we think about the back half gross margin? Are you seeing any upward pressure on costs, supply chain, things like that? And then maybe sneak this one in for Rhonda on the large crown. It sounds like timing maybe slipped a bit into next fiscal year. I think you were previously saying later this fiscal year. So did I hear that right? And as we think about commercialization's so the commercialization of the large crown. Is that plug and play, or are accounts going to have to get recertified, retrained? Just any help on that front would be appreciated. Thanks. Great.

Yeah, Matt, thanks for the question on gross margin. As we look to the back half of the year, that is really, if we compare to kind of the original guidance we provided, that difference is really all volumes at this point. If we get back to normal volumes, we would be kind of in that mid-70 range. And it'll be a little bit lower here in the back half, and that's just because of the lower volumes.

And Matt, thanks for the question. So for timing on the large vessel, now we're calling it the 20 max, we expect we're working very closely with the FDA, and that's going really well. We expect to have actually approval later in the quarter. So realistically, kind of the timing for launch will be kind of that early FY23 timeframe. So that's the status update there. And when you say plug and play, I mean, I think, yes, to a degree. You know, it will work with our existing handles. We will, of course, train and educate as we always do with that device, but I think it's going to be a really straightforward launch into a, you know, huge market that will give us, you know, access to ATK procedures, which are about 60% of the atherectomy procedures out there.

All right. Thank you so much.

Thank you. Our next question comes from Michael Mattson from Needham & Co. Michael, your line is now open. Please go ahead. Unfortunately, your question, there is no audio on your question. Can I ask you to re-register please, Matthew? Our next question is from Chris Pascal from Guggenheim Securities. Your line is now open. Please go ahead.

Thank you. Rhonda talked about the initiatives you guys have underway to help your OBL customers cope with reduced economics in that setting. With OBLs now accounting for the majority of your US PAD mix, what impact do you expect that to have on your own business? Should we assume some incremental pricing pressure over time as they take advantage of volume discounts and the like, or do you expect to be able to maintain stable trends even as you help them become more efficient?

Yeah, thanks, Chris, and good morning. I think that we expect now our OBLs to stay fairly consistent and actually to return to the good, strong growth rate that you've seen in the past. I would note that our OBL segment has always been, you know, had more difficult pricing pressures, and that most likely will continue. We've seen pricing erosion there in the mid-single digits typically, and I would anticipate that we'll continue to see that going forward.

Okay. And then keep us updated on the wire-on filter after the recent recall, but what's the path to getting that product back to the market? How should we think about timing there?

Yeah, so the timing on that is still a bit to be determined. We have now just completed the recall, or we're just about complete with it in terms of bringing back the devices. We will be making improvements in that device. We'll be improving the retrieval catheter and some of our use procedures. And as we assess that, we'll then be in a better place to give you a better sense of timing. We'll probably be able to do that next quarter. Thanks. Thank you.

Thank you. Our next question comes from Danielle Antofi from SUV LearLink. Hey, good morning, everyone.

Thank you. Hey, good morning, everyone. Thank you so much for taking the question. Rhonda, I have a question for you, and then Scott, a question for you. On the Max product, you know, ATK, I appreciate it's a large market opportunity, but also more competitive. And I guess just would love a little bit more color on the rationale behind investing in this product. Is it more about the breadth of the portfolio, strengthens your competitive positioning? Do you, you know, think this is a higher growth market, you know, than maybe I had been assuming? So just a little more color there would be great.

Sure, Deb. Yeah, thanks, Danielle, for the question. Much appreciated. I mean, it is a large market, and as I mentioned in my earlier comments, it constitutes about 60% of atherectomy procedures. We currently do perform procedures in ATK today. But with this device, we'll have better access to a new plaque morphology that we typically don't treat with OAS today, and that's soft and mixed plaque. So we're looking forward to it. It's going to be, you know, a new market. It leverages our existing platform. So it's actually really pretty efficient for us to develop this and get it launched because it does work with our existing handles. And so from that standpoint, it's really a cost-effective way for us to access a really big market.

Got it. Okay, thanks for that. And then, Scott, question for you. Arvonda, maybe this is for you, too, on the coronary side of things. Great to hear that you're regaining share. I guess one of the things that we've been hearing in our due diligence here on vessel prep in general is that the market has been expanding. And now that the trialing seems to be coming to a close, at your accounts at least, what are you seeing from IVLs into the market from a market expansion perspective and just getting more patients to undergo vessel prep than prior to IVL. Anything of note there? I know COVID complicates things, but just curious even anecdotally what you're seeing. Thanks so much.

Yeah, thanks, Danielle. We are most definitely seeing IVLs expand the market. I think they are broadening to a completely different customer group that historically maybe has not treated calcium in the past. I think that is actually having a beneficial impact on the market as those efforts are raising the awareness of calcium and also making it evident that severely calcified and even moderately calcified lesions should be treated before stents are placed. And, you know, that hasn't always been the case. So definitely improved awareness, strong market expansion, out beyond the tertiary care centers now into more community hospitals and other areas. And also expanding the use of interventional procedures for treating calcium, let's say, to less severe lesions, which all of which has really been very beneficial and I think is an indication of things to come as we do expect that that market expansion will continue. and that IVLs, in particular in the treatment of coronary lesions, will continue to be adopted and done well. Having said that, I think we also are seeing that physicians recognize and understand in their own practice that when they come across severely calcified lesions where they have a high degree of stenosis or nodular lesions where there's a lot of intimal calcium, that these are cases where they really do need to use atherectomy. And we're seeing them come back to that in their more standard daily clinical practice, which is what we expected. This is happening as, you know, the trialing is kind of drawing to a close, and we see individual physicians and cath labs kind of returning to their more standard practice. So good news. for us, and we expect to see that trend continue now as we head into the second half of our fiscal year here.

Thank you.

Our next question comes from Mike Mattson from Needham & Co. Your line is now open. Please go ahead.

Okay. Can you guys hear me now?

Yes, we can, Mike. Thank you. Good morning.

Good morning. So, I wanted to follow up on Rhonda's comments on the OBL reimbursement changes. You know, I guess one concern that I had around that was that it could lead to more, you know, some increased incentive for the customers to maybe move some of the lower cost, you know, products out there. You did mention value-based pricing, which I think you have talked about in the past with the OBL setting. You know, can you just provide some more detail there? You know, is this something that's, you know, putting some additional price pressure on you?

No, I don't think it's putting additional price pressure on our business, Mike. I think we would expect to see that continue. And just recall, and you noted this, that about three years ago we changed our approach to office-based labs and began developing deep partnerships with select labs. where we do provide a wide range of support, including procedure support and inventory management, and we do volume-based pricing programs. So those initiatives have been in place. They're kind of built into our base, and I think that you can expect to see that continue going forward. So I don't really envision that the reimbursement changes in office-based labs will fundamentally change the business model that we have deployed to that site of service. I would say that probably one of the things that has been fairly encouraging to us over the course of the past month is that, you know, our OBL customers are not on salary. They're not on a hospital salary. So, you know, their procedure volumes is what determines how they do month to month. And we do expect to see the OBLs return to a stronger performance as Omicron recedes. And at least thus far, our customers are driving towards achieving higher volumes in their practices, and that is how they're responding to these pricing challenges. As Rhonda said, I don't think any of the customers are happy about it, but they're really striving to improve efficiencies in their practices. And, you know, we're in there working right alongside them and working with them to help them make that happen and to really increase their volumes as they deal with Omicron coming back as well as this pricing challenge at the same time. But early on, at least here in January, the indications are relatively positive that the office-based labs we work with will overcome these challenges.

Okay, got it. And then I just had a couple on the IVL news that you're developing a product there. So I guess, you know, my understanding is it took Shockwave about two years from their first inhuman to getting the product commercialized. So can you maybe comment on, you know, does that imply sort of like a fiscal 25, you know, launch? And is there any way to accelerate that? And then, you know, can you just talk about coronary versus peripheral? Are you going to go after both or going after one before the other?

Thanks, Mike. We will be pursuing both coronary and peripheral IVL balloons. We would anticipate our peripheral launch to occur probably late FY23 or early FY24. So that is out, let's say, 18 to 24 months from now. You made a note of the timing from First in Human. Of course, we have the benefit now of being second coming into this market. And recall that the peripheral approval is a 510 approval. We are working with the FDA now on what requirements they will see as being important for that launch. And then we'll be able to be more specific about the timing as we get greater clarity from the FDA. The coronary clinical trial requirements, that coronary approval is a PMA approval, as you know, and that will likely be FY25, FY26 before we see approval for that coronary segment. We may launch outside the United States earlier than that, but that's what we would anticipate in the U.S. Okay, got it. Thank you.

Thank you. Our next question is from Siraj. Your line is now open. Please go ahead.

Morning, everyone. Can you hear me all right?

Yes, we can, Suraj. Thank you.

Perfect. So, Scott, a couple of questions. The first one, either for you or for Jeff, so the updated guide is approximately 20% lower than your original guide. Can you give us a breakdown of the relative impact of COVID versus IVL so that as we structure the remaining two quarters and the outlook over this calendar year, we can put the different pieces together?

Yeah, Suraj, thank you for that question. The vast majority of the impact is Omicron and the related vaccines. staffing shortages and labor shortages that are impacting the market broadly. I think as we look at our performance in January and now into early February, as you've heard from many companies reporting, we are seeing reduced procedure volumes, largely due to the acute impact of Omicron. We do expect in our markets that we will see some restoration of normal commercial activities, probably beginning in the mid-March timeframe. And then we are anticipating that we will see a slow and gradual recovery after that. It will be slower than what we've seen in the past. If you recall last year, when we had that January outbreak, the market actually recovered fairly fast. And in March and April, there was a backlog of patients that were rapidly treated. And what's different this year is that hospitals are dealing with these staffing shortages. And we find that in many cases, hospitals are triaging cases. They're coming back and doing their most severe cases first. And frankly, you know, the treatment of patients with intermittent claudication are not arriving on the high end of that priority list. So we are expecting that that will result in a slow and gradual recovery of in our peripheral hospital segment, and that would largely be the patients that have intermittent claudication. So that is some of the, basically the rationale for that guide. Naturally, if the Omicron wave recedes more quickly or If these staffing shortages are addressed more rapidly, we would anticipate that our guidance may improve. I have to say, though, Suraj, at this point, you know, our conclusion is there's not strong evidence that this staffing shortage and the labor shortage that is impacting hospitals in particular, we don't think that's going to resolve quickly. We think that this is going to take some time to recover. So I hope that helps in regards to your question.

Got it. Scott, my second question, I'll just position it for you or Rhonda, and it's a two-part question. First, what percent of your cases are being done independently on site, i.e., just to give us an idea in terms of leverageability once Omicron disappears. And the second thing, to the extent that you can, Rhonda, you or Scott can talk about this, on your IVL approach, what is the specific competitive attribute that you all are targeting? Is it emitters per catheter, number of pulses per catheter, deliverability or size limitations? Because these are issues in the current platforms. I'd love to get, again, any color you could share. Thank you for taking my questions.

Yeah, thanks, Suraj. About two-thirds of our cases, we cover about two-thirds of our cases, so about one-third are conducted independent. Now, as we have been impacted by Omicron and our reps have not had easy access to our accounts over the course of really the past couple of months, That number has reduced pretty significantly, so we're not covering two-thirds of our cases at this point. However, our sales teams have been collaborating very closely with our customers during this time, working to identify where the backlogs exist, getting prepared, and really interacting with our customers to understand how can we help them best if and when this volume comes back. There are many issues in these hospitals. For example, the technicians that support cases in cath labs, we have seen a fair amount of turnover in that particular part of the workforce. We've got to get back in, train and educate those cath lab techs. We've got to train and educate others in the support and care network there so that they know how to manage patients that have been treated, let's say, with orbital arthrectomy or, frankly, that are just being treated for intermittent claudication or CLI or coronary lesions. So our field sales organization and the fact that we have a substantial organization actually positions us very well to provide outstanding support to our customers in conducting these cases, but also training and educating their new staff as they're dealing with the turnover that they're experiencing. So I think we're well prepared to deal with this. We've done it before. And if and when this wave comes back through, we'll be in a good place to manage it. In terms of the competitive attributes of the IVL, Yeah, our IVL will address some of the limitations of the product that are currently in the market. We will be talking more about that as we get closer to commercial launch, but I think that you articulated quite well some of the key areas that need to be addressed and the areas that we will be addressing in our product.

Operator, I think we're ready for the next question.

Thank you. Our next question comes, our final question comes from Brandon Vasquez from William Blair's. Your line is now open. Please go ahead.

Hi, everyone. Thanks for taking the question. First, just wanted to follow up on kind of the backlog that we're talking about here. I appreciate the color around it. I know that staffing shortages can impact the market's ability to treat this backlog. I would think maybe the OBLs could maybe be a source of alleviating that backlog. a fair statement? And if so, it seems like you guys might be in a good position to kind of benefit from that backlog coming in. So kind of curious, is that a fair statement? And then is that kind of benefit potentially baked into guidance or not? Or could that be a little upside as we move through the year?

Yeah, I think that the OBLs usually do bounce back more quickly, largely because the barriers to patient care and their ability to increase their volumes quickly are there. The barriers are much lower. So we may see that happen in the office-based labs. We, in our current guidance, are anticipating that the Omicron impact will really impact nearly all sites of service through that March 15th timeframe. And then after that, we will see some recovery begin. I think Geographically, this will be asymmetric across the United States. So in the South, where office-based labs are more prevalent, we may see the office-based labs in, let's say, Florida, Texas, that those parts of the country rebound more quickly than other parts of the country. So that is most definitely an opportunity, and we're prepared to address that there, Brendan. Did you have another follow-up question on that?

No, that was good on that. I did have one follow-up separate to that, but appreciate the call there. It looks like international was a big market for you guys, and obviously COVID delayed that for a while. It seems like this may be the first quarter where you're starting to dip your toe back into the international markets. Can you just talk a little bit about where you're kind of seeing some early momentum there, and where are you making investments in the international markets that'll drive growth in the next 12 to 18 months? Thanks.

Yeah, thank you for that question. Our international markets actually have been growing nicely despite COVID, even over the course of really the past four quarters. So we're really pleased with our launch of our business outside the United States, where we are taking share from IVLs. We're taking share from from other azurectomy devices as well, mainly in the coronary segment. So we focus principally in coronary outside the United States. We have gained really strong share in Japan and our launch in Europe, our coronary launch in Europe has also progressed very well. So, you know, we now are launched in 22 countries and we expect by the end of this fiscal year, we will get to about 30 countries. So, you know, here is a circumstance where We have a marketplace that has never had access to orbital arthrectomy before, and we're able to now engage with our customers there, train and educate them on the use of this technology. They see the benefits of this technology in the care for their patients. They adopt it and incorporate it into their daily practice. So we're excited about that. And, you know, we did this quarter with very strong growth there, about 62% year over year and about 3.7 million patients. We are expecting to continue on about that run rate, and that would lead us to probably having $15 to $16 million of revenue in our international segment of our business this fiscal year, which would be obviously very strong growth. And we're not done there. We expect that to continue going forward as we launch into these new markets and continue to grow our business there.

Great. Thank you.

Excellent. Thank you, Brenda.

Thank you. There are no additional questions waiting at this time, so I'll pass the conference over to the management team for closing remarks.

Excellent. Thank you very much, and thanks, everybody, for your continued interest in CSI. We look forward to giving you another update next quarter, and with that, we'll conclude our call. Thank you.

That concludes today's conference call. You may now disconnect your lines.