Cardiovascular Systems, Inc. (CSI) (Nasdaq: CSII), a medical
device company developing and commercializing innovative
interventional treatment systems for vascular disease, today
reported financial results for its fourth quarter and fiscal year
ended June 30, 2009.
CSI’s revenue in the fourth quarter of fiscal 2009 rose to $15.7
million, a 59-percent increase over revenue of $9.9 million in the
fourth quarter of last fiscal year. The net loss improved 50
percent to $(5.6) million, or $(0.40) per basic and diluted share,
in the fourth quarter, from $(11.3) million, or $(2.34) per basic
and diluted share, in the year-ago period. Adjusted EBITDA,
calculated as loss from operations, less depreciation and
amortization and stock-based compensation expense, also improved by
64 percent to a loss of $(3.6) million versus $(10.0) million in
the year-ago period. The number of weighted average common shares
outstanding increased to 14.0 million from 8.3 million in the third
quarter of fiscal 2009 and 4.9 million in the last quarter of
fiscal 2008, primarily due to the February 2009 completion of the
reverse merger with Replidyne, Inc. Cash and cash equivalents
remained strong at $33.4 million, declining only $4.4 million from
the end of the third quarter of fiscal 2009.
David L. Martin, CSI president and chief executive officer,
said: “We’ve made significant progress toward our goal to achieve
profitability. We have limited operating expense growth, which has
improved the bottom line dramatically, and continued to grow our
revenue sequentially each quarter. Investments have focused on new
procedure and product training for our commercial team, clinical
studies to provide useful data to physicians, and product
development to expand our peripheral and coronary product
portfolios.”
CSI’s primary product is the Diamondback 360o® Peripheral
Arterial Disease System, a minimally invasive catheter system for
treating peripheral arterial disease (PAD) in leg arteries. The
Diamondback 360º removes calcified and fibrotic plaque in just a
few minutes of treatment time. Significant blood flow improvements
are achieved using the Diamondback 360º alone or with adjunctive
use of low-pressure balloon inflation (i.e. three atmospheres of
pressure) after vessel compliance has been changed with the
Diamondback 360º. An unprecedented safety profile has driven
procedures to date to over 15,000 in leading institutions across
the United States.
The number of hospitals using the Diamondback 360º rose to 556
by the end of the fiscal 2009 fourth quarter, up sequentially from
487 at the end of the third quarter 2009 and up from 183 at the end
of the fiscal 2008 fourth quarter. Sales of disposable device units
also grew, with nearly 4,700 units sold in the fourth quarter, up
sequentially from 4,600 units sold in the third quarter this fiscal
year, and 3,000 units in the fourth quarter of last fiscal year.
Both the 90-day reorder rate and the percentage of revenue
generated from reorders were strong at nearly 90 percent for the
quarter.
The fiscal fourth-quarter gross margin increased to 73 percent
from 63 percent in the same period last year, driven by higher
disposable volumes, product cost reductions and manufacturing
efficiencies. Sales, general and administrative expenses grew 18
percent ─ a rate less than one-third of the revenue growth rate ─
to $14.2 million. The increase was due to expansion of the direct
sales organization to just over 100 professionals from 55 in the
fourth quarter last year. The commercial team did not grow
significantly from third quarter fiscal 2009 and is not expected to
grow further in the first quarter of fiscal 2010. CSI invests
significantly in innovation and product development; however,
research and development expenses declined nearly 50 percent from
the fourth quarter last year to $2.8 million, due to the completion
and timing of projects.
For the full year of fiscal 2009, revenue grew to $56.5 million,
compared to $22.2 million in the same period last year, which only
had three quarters of revenue due to the timing of U.S. Food and
Drug Administration (FDA) clearance and September 2007 launch of
the Diamondback 360º product. The gross margin in fiscal 2009 was
71 percent, up from 60 percent in fiscal 2008, due to higher
product volumes, manufacturing efficiencies and product cost
reductions.
Fiscal year 2009 net loss was $(31.9) million, compared to
$(39.2) million in the prior fiscal year. The lower net loss
reflects higher revenue and gross profit, partially offset by
investments in sales and marketing, infrastructure to support
growth and product development. Adjusted EBITDA for fiscal 2009
narrowed to $(27.0) million from $(30.5) million in the previous
fiscal year. Net loss available to common shareholders decreased to
$(9.1) million, or $(1.13) per basic and diluted common share, from
$(58.6) million, or $(13.25) per share in fiscal 2008. The decrease
was driven by a $22.8 million decline in value of preferred stock
in fiscal 2009, versus a $19.4 million increase in value in fiscal
2008, and by the lower net loss between periods. All preferred
stock and preferred stock warrants were converted to common stock
and common stock warrants upon completion of the reverse merger in
February 2009.
Growing Clinical Data
In June, the first patient was enrolled in the COMPLIANCE 360°
clinical trial, the first of two PAD studies scheduled to begin in
calendar 2009. This prospective, randomized, multi-center study
will evaluate the clinical benefit of modifying plaque to change
large vessel compliance above the knee with the Diamondback 360o.
The study compares the performance of the Diamondback 360º, plus
low-pressure balloon inflation, if desired, with that of
high-pressure balloon inflation alone. The study calls for
enrolling 50 patients at five U.S. medical centers.
Hospital internal review board (IRB) submissions are in progress
for the CALCIUM 360o study, a prospective, randomized, multi-center
study, which will compare the effectiveness of the Diamondback 360o
to balloon dilation in treating heavily calcified lesions below the
knee. Calcified plaque exists in about 75 percent of lesions below
the knee. This study will also enroll 50 patients at five U.S.
medical centers.
A retrospective study evaluating the long-term results of 64
patients from the pivotal OASIS trial has been completed. Outcomes
were analyzed out to a mean of 29 months and include limb salvage
rate, target lesion revascularization rate (TLR) and ankle-brachial
index (ABI). Results are expected to be reported by Dr. Barry
Weinstock, an interventional cardiologist at Orlando Regional
Medical Center, in an abstract at the Transcatheter Cardiovascular
Therapeutics (TCT) conference in September 2009.
Martin continued, “Most PAD patients do not receive the care
they need. The physical, emotional and financial costs are enormous
for patients and their families. CSI is committed to generating
scientifically sound and clinically useful data that will guide the
best use of limited healthcare resources.”
In addition, based on the excellent clinical outcomes in
treating lower-extremity PAD with the Diamondback 360º, CSI intends
to leverage the device’s capabilities to expand into the
interventional coronary market. A coronary application would
address a large market opportunity, further leveraging the
company’s core technology and expanding its market potential. In
2008, the company completed the ORBIT I trial, a 50-patient study
in India which investigated the safety of the Diamondback 360º
device in treating calcified coronary artery lesions. Results
successfully met both safety and efficacy endpoints. An IDE
application was recently submitted to the FDA for ORBIT II, a
pivotal trial in the United States to evaluate the safety and
effectiveness of the Diamondback 360º in treating severely
calcified coronary lesions.
Expanding Product Portfolio
CSI recently introduced the ViperCaddy™ guide wire management
system. This secure guide wire caddy provides a steady grip on the
multiple guide wires used during an interventional procedure to
improve the physician’s efficiency. ViperCaddy joins an expanding
portfolio of CSI supplemental products, including the ViperSheath™,
ViperSlide™, ViperTrack™ and ViperWire™.
In April, CSI began selling peripheral transluminal angioplasty
(PTA) balloon catheters from Invatec, a comprehensive provider of
interventional products. In some patients, balloon angioplasty may
be used in conjunction with the Diamondback 360º. Initial treatment
with the Diamondback system can make large vessels above the knee
more compliant, so that the Invatec balloons can be expanded with
far less pressure, avoiding dissection. CSI is offering the Invatec
balloon catheter line, including the SubMarine Plus™ PTA Balloon
Catheter, the Admiral Xtreme™ PTA Balloon Catheter and the
Amphirion Deep™ PTA Balloon Catheter.
Martin said, “We will continue to expand our product portfolio
through distribution and product development ─ an important
strategy to achieve our goal of providing physicians with
comprehensive endovascular tools for treating PAD. Offering
additional products leverages our investment in our commercial
organization.”
First-Quarter Fiscal 2010 Earnings Guidance
For the first fiscal quarter of 2010 ending September 30, 2009,
CSI anticipates revenue in the range of $15.7 million to $16.5
million. This represents growth of 35 percent to 42 percent over
the first quarter of fiscal 2009. Gross profit as a percentage of
revenue is expected to be similar to or slightly higher than in
fourth quarter 2009. The company anticipates the net loss to range
from $(6.1) million to $(6.6) million, representing a 52-percent to
55-percent improvement over the first quarter of fiscal 2009. On an
EPS basis, the loss would be in the range of $(0.42) to $(0.46) per
share, based on 14.5 million shares outstanding. The rate of
improvement is expected to be greater on an adjusted EBITDA basis.
The adjusted EBITDA loss for the first quarter of fiscal 2010 is
anticipated to be between $(3.6) million and $(4.1) million, versus
$(11.8) million in last year’s first quarter. The improvements in
net loss and adjusted EBITDA are due to growth in revenue and gross
profit and a decline in operating expenses between periods.
Martin continued, “Balancing progress toward profitability with
revenue growth has been a key priority for CSI the last two
quarters. In addition, valuable selling time has been dedicated to
train our commercial team in new procedural methods for the
Diamondback 360º and on the rapidly expanding product portfolio.
These initiatives have slowed our growth for the last six months of
fiscal 2009 and first six months of fiscal 2010, but position us
well for significant, profitable growth over the longer term.
Toward that end, we expect to grow revenue by about 30 percent in
fiscal year 2010 and achieve our first profitable quarter during
fiscal year 2011, while living within our cash resources and debt
capacity.”
About the Diamondback 360°® Peripheral Arterial
Disease System
CSI’s primary product is the Diamondback 360o, a minimally
invasive catheter system for treating PAD in leg arteries. The
Diamondback 360o is highly effective in removing plaque in vessels
both below the knee and above the knee in just a few minutes of
treatment time. Between 8 million and 12 million Americans suffer
from PAD, which is caused by the accumulation of plaque in
peripheral arteries (commonly the pelvis or leg) reducing blood
flow. Symptoms include leg pain when walking or at rest, and PAD
can lead to tissue loss and eventually limb amputation.
Conference Call Today at 4 PM CT (5 PM ET)
Cardiovascular Systems, Inc. will host a live conference call
and webcast of its fiscal fourth-quarter and full year ended June
30, 2009 results today, August 19, 2009, at 4 p.m. CT (5 p.m. ET).
To access the call, dial (888) 680-0892 and enter 30902713. Please
dial in at least 10 minutes prior to the call. To listen to the
live webcast, go to the investor information section of the
company’s Web site, www.csi360.com, and click on the webcast
icon. A webcast replay will be available beginning at 7 p.m. CT the
same day.
For an audio replay of the conference call, dial (888) 286-8010
and enter access number 43101085. The audio replay will be
available beginning at 8 p.m. CT on Wednesday, August 19, 2009,
through 6 p.m. CT on Friday, August 21, 2009.
Safe Harbor
Certain statements in this news release are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and are provided under the protection of the
safe harbor for forward-looking statements provided by that Act.
For example, statements in this press release regarding (i) CSI’s
plans to initiate two clinical trials in calendar 2009; (ii) growth
of our commercial team; (iii) expanding into the interventional
coronary market and the large opportunity in that market; (iv)
expansion of our product portfolio through distribution and product
development; (v) anticipated revenue, gross margin, net loss, and
adjusted EBITDA for the first quarter of fiscal 2010 and future
periods; (vi) achieving our first profitable quarter and longer
term significant, profitable growth; and (vi) cash requirements,
are forward looking statements. These statements involve risks and
uncertainties which could cause results to differ materially from
those projected, including but not limited to the potential for
unanticipated delays in enrolling medical centers and patients for
clinical trials; dependence on market growth; the difficulty in
accurately predicting product, customer and geographic sales mix;
product development delays; the reluctance of physicians to accept
new products; the impact of competitive products and pricing;
dependence on major customers and distribution partners; the
difficulty to successfully manage operating costs; fluctuations in
quarterly results; approval of products for reimbursement and the
level of reimbursement; general economic conditions and other
factors detailed from time to time in CSI’s SEC reports, including
its registration statement on Form S-4 declared effective by the
SEC on January 26, 2009. CSI encourages you to consider all of
these risks, uncertainties and other factors carefully in
evaluating the forward-looking statements contained in this
release. As a result of these matters, changes in facts,
assumptions not being realized or other circumstances, CSI's actual
results may differ materially from the expected results discussed
in the forward-looking statements contained in this release. The
forward-looking statements made in this release are made only as of
the date of this release, and CSI undertakes no obligation to
update them to reflect subsequent events or circumstances.
Use of Non-GAAP Financial Measures
To supplement CSI's consolidated condensed financial statements
prepared in accordance with U.S. generally accepted accounting
principles (GAAP), CSI uses certain non-GAAP financial measures in
this release. Reconciliations of the non-GAAP financial measures
used in this release to the most comparable U.S. GAAP measures for
the respective periods can be found in tables later in this release
immediately following the consolidated statements of operations.
Non-GAAP financial measures have limitations as analytical tools
and should not be considered in isolation or as a substitute for
CSI's financial results prepared in accordance with GAAP.
About Cardiovascular Systems, Inc.
Cardiovascular Systems, Inc. is a medical device company focused
on developing and commercializing interventional treatment systems
for vascular disease. The company's Diamondback 360°® Peripheral
Arterial Disease System is capable of treating a broad range of
plaque types both above and below the knee, including calcified
vessel lesions, and addresses many of the limitations associated
with existing treatment alternatives. In August 2007, the U.S. FDA
granted 510(k) clearance for the use of the Diamondback 360° as a
therapy for PAD (peripheral arterial disease), and CSI commenced a
U.S. product launch in September 2007. The Diamondback 360° has
been adopted by nearly 600 hospitals across the United States. For
more information visit the company's Web site at www.csi360.com.
Cardiovascular Systems,
Inc.
Consolidated Statements of
Operations
(Dollars in Thousands, except
per share and share amounts)
Three Months Ended Year Ended
June 30,
June 30,
2009 2008
2009 2008 Revenues $
15,695 $ 9,892 $ 56,461 $ 22,177 Cost of goods sold
4,240 3,683
16,194 8,927 Gross
profit
11,455 6,209
40,267 13,250
Selling, general and administrative 14,196 12,050
59,822 35,326 Research and development
2,827
5,406 14,678
16,068 Total expenses
17,023 17,456
74,500 51,394 Loss
from operations
(5,568 )
(11,247 ) (34,233
) (38,144 ) Other
income (expense) Interest expense (519 ) (7 ) (2,350 ) (7 )
Interest income 200 155 3,380 1,167 Decretion (accretion) of
redeemable convertible preferred stock warrants --- (4 ) 2,991 (916
) Gain (impairment) on investments
250
(244 ) (1,683
) (1,267 ) Total
other income (expense)
(69 )
(100 ) 2,338
(1,023 ) Net loss (5,637 )
(11,347 ) (31,895 ) (39,167 ) Decretion (accretion) of redeemable
convertible preferred stock
---
--- 22,781
(19,422 ) Net loss available to common shareholders
$ (5,637 ) $
(11,347 ) $
(9,114 ) $
(58,589 ) Net loss per common share:
Basic and diluted
$ (0.40 )
$ (2.34 ) $
(1.13 ) $
(13.25 ) Weighted average common shares
used in computation: Basic and diluted
14,006,891 4,854,979
8,068,689 4,422,326
Stock-based compensation supplemental
detail (included in amounts above): (Dollars in
Thousands) Cost of goods sold $ 109 $ 107 $ 475 $ 248 Selling,
general and administrative 1,560 945 5,684 6,838 Research and
development
171 107
612 295
Totals
$ 1,840
$ 1,159 $
6,771 $ 7,381
Cardiovascular Systems,
Inc.
Consolidated Balance
Sheets
(Dollars in Thousands)
June 30, June 30,
2009
2008
ASSETS Current assets Cash and cash
equivalents $ 33,411 $ 7,595 Accounts receivable, net 8,474 4,897
Inventories 3,369 3,776 Prepaid expenses and other current assets
798 1,936 Total
current assets
46,052
18,204 Auction rate securities put option 2,800
—
Investments, trading 20,000 — Investments, available for sale —
21,733 Property and equipment, net 1,719 1,041 Patents, net 1,363
980 Other assets
436
—
Total assets
$ 72,370
$ 41,958
LIABILITIES AND SHAREHOLDERS’
EQUITY (DEFICIENCY)
Current liabilities Current maturities of long-term debt $
25,823 $ 11,888 Accounts payable 4,751 5,851 Accrued expenses 5,600
3,467 Deferred revenue
—
116 Total current liabilities
36,174 21,322 Long-term
liabilities Long-term debt, net of current maturities 4,379 —
Redeemable convertible preferred stock warrants — 3,986 Other
liabilities
1,485 100
Total long-term liabilities
5,864
4,086 Total liabilities
42,038 25,408 Commitments
and contingencies Redeemable convertible preferred stock — 98,242
Total shareholders’ equity (deficiency)
30,332
(81,692 ) Total liabilities and shareholders’
equity (deficiency)
$ 72,370
$ 41,958
Non-GAAP Financial Measures
To supplement CSI's consolidated condensed financial statements
prepared in accordance with GAAP, CSI uses a non-GAAP financial
measure referred to as "Adjusted EBITDA" in this release.
Reconciliations of Adjusted EBITDA to the most comparable U.S.
GAAP measure for the respective periods can be found in the table
below. In addition, an explanation of the manner in which CSI's
management uses Adjusted EBITDA to conduct and evaluate its
business, the economic substance behind management's decision to
use Adjusted EBITDA, the substantive reasons why management
believes that Adjusted EBITDA provides useful information to
investors, the material limitations associated with the use of
Adjusted EBITDA and the manner in which management compensates for
those limitations is included following the reconciliation table
below.
Cardiovascular Systems,
Inc.
Supplemental Sales
Information
(Dollars in Thousands)
RevenueComponents:
Q2 2008 Q3 2008 Q4 2008
Q1 2009 Q2 2009 Q3 2009
Q4 2009
Devices $ 4,157 $ 6,867 $ 9,000 $
10,664 $ 12,853 $ 13,694 $ 14,095 Other
474 787 892 982
1,151 1,421 1,600 Total
revenue $ 4,631 $ 7,654 $ 9,892 $
11,646 $ 14,004 $ 15,115 $ 15,695
Device unitssold
1,404
2,328
3,063
3,636
4,368 4,558
4,692
Customers, atquarter end
39
106
183
283
400
487
556
Cardiovascular Systems,
Inc.
Adjusted EBITDA
(Dollars in Thousands)
Actual Projected Range Three Months Ended
Year Ended Three Months Ending
June 30,
June 30,
Sept. 30, 2009
2009 2008 2009
2008 High Low Loss from operations $
(5,568 ) $ (11,247 ) $ (34,233 ) $ (38,144 ) $ (5,900
) $ (6,400 )
Add: Stock-basedcompensation
1,840
1,159
6,771
7,381
2,100
2,100
Add: Depreciationand
amortization
136
66
468
293
200
200
Adjusted EBITDA $ (3,592 ) $ (10,022 ) $
(26,994 ) $ (30,470 ) $ (3,600 ) $ (4,100 )
Use and Economic Substance of Non-GAAP Financial Measures
Used by CSI and Usefulness of Such Non-GAAP Financial Measures to
Investors
CSI uses Adjusted EBITDA as a supplemental measure of
performance and believes this measure facilitates operating
performance comparisons from period to period and company to
company by factoring out potential differences caused by
depreciation and amortization expense and non-cash charges such as
stock based compensation. CSI's management uses Adjusted EBITDA to
analyze the underlying trends in CSI's business, assess the
performance of CSI's core operations, establish operational goals
and forecasts that are used to allocate resources and evaluate
CSI's performance period over period and in relation to its
competitors' operating results. Additionally, CSI's management is
evaluated on the basis of Adjusted EBITDA when determining
achievement of their incentive compensation performance
targets.
CSI believes that presenting Adjusted EBITDA provides investors
greater transparency to the information used by CSI's management
for its financial and operational decision-making and allows
investors to see CSI's results "through the eyes" of management.
CSI also believes that providing this information better enables
CSI's investors to understand CSI's operating performance and
evaluate the methodology used by CSI's management to evaluate and
measure such performance.
The following is an explanation of each of the items that
management excluded from Adjusted EBITDA and the reasons for
excluding each of these individual items:
-- Stock-based compensation. CSI excludes stock-based
compensation expense from its non-GAAP financial measures primarily
because such expense, while constituting an ongoing and recurring
expense, is not an expense that requires cash settlement. CSI's
management also believes that excluding this item from CSI's
non-GAAP results is useful to investors to understand the
application of SFAS 123R and its impact on CSI's operational
performance, liquidity and its ability to make additional
investments in the company, and it allows for greater transparency
to certain line items in CSI's financial statements.
-- Depreciation and amortization expense. CSI excludes
depreciation and amortization expense from its non-GAAP financial
measures primarily because such expenses, while constituting
ongoing and recurring expenses, are not expenses that require cash
settlement and are not used by CSI's management to assess the core
profitability of CSI's business operations. CSI's management also
believes that excluding these items from CSI's non-GAAP results is
useful to investors to understand CSI's operational performance,
liquidity and its ability to make additional investments in the
company.
Material Limitations Associated with the Use of Non-GAAP
Financial Measures and Manner in which CSI Compensates for these
Limitations
Non-GAAP financial measures have limitations as analytical tools
and should not be considered in isolation or as a substitute for
CSI's financial results prepared in accordance with GAAP. Some of
the limitations associated with CSI's use of these non-GAAP
financial measures are:
-- Items such as stock-based compensation do not directly affect
CSI's cash flow position; however, such items reflect economic
costs to CSI and are not reflected in CSI's "Adjusted EBITDA" and
therefore these non-GAAP measures do not reflect the full economic
effect of these items.
-- Non-GAAP financial measures are not based on any
comprehensive set of accounting rules or principles and therefore
other companies may calculate similarly titled non-GAAP financial
measures differently than CSI, limiting the usefulness of those
measures for comparative purposes.
-- CSI's management exercises judgment in determining which
types of charges or other items should be excluded from the
non-GAAP financial measures CSI uses.
CSI compensates for these limitations by relying primarily upon
its GAAP results and using non-GAAP financial measures only
supplementally. CSI provides full disclosure of each non-GAAP
financial measure CSI uses and detailed reconciliations of each
non-GAAP measure to its most directly comparable GAAP measure. CSI
encourages investors to review these reconciliations. CSI qualifies
its use of non-GAAP financial measures with cautionary statements
as set forth above.
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