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 fiscal second quarter ended
December 31, 2009.
CSI’s revenue in the second quarter rose to $15.1 million, an
8-percent increase over revenue of $14.0 million in the second
quarter of last fiscal year. The net loss improved at a higher rate
of 22 percent to $(6.8) million, benefiting from improved gross
margins and lower operating expenses. Adjusted EBITDA, calculated
as loss from operations, less depreciation and amortization and
stock-based compensation expense, improved by 39 percent to a loss
of $(4.3) million versus $(6.9) million in the year-ago period.
David L. Martin, CSI president and chief executive officer,
said, “Revenue grew in line with our expectation this quarter,
while the net loss narrowed significantly through careful expense
management. We installed optimal large vessel protocols for using
the Diamondback 360° at selected target accounts. The result was an
increase in device usage of over 50 percent in those accounts from
the first quarter of this fiscal year. Given this success, we have
broadened our program substantially for the third quarter of fiscal
2010.” The company’s Diamondback 360® PAD System treats peripheral
arterial disease (PAD) in vessels throughout the leg in a few
minutes of treatment time.
Net loss per diluted share was $(0.46) in the current quarter,
compared to $(2.34) per diluted share in the second quarter of
fiscal 2009, which included accretion of redeemable convertible
preferred stock of $3.0 million. The number of weighted average
common shares outstanding increased to 14.7 million in second
quarter fiscal 2010 from 5.0 million in last year’s second quarter,
primarily due to new shares issued in conjunction with the February
2009 reverse merger with Replidyne, Inc., including conversion of
all preferred stock to common stock.
Revenue generated from customer reorders continued to grow,
increasing by $3.3 million to 92 percent of total revenue for the
fiscal 2010 second quarter from 76 percent in last year’s second
quarter, reflecting CSI’s emphasis on driving adoption in existing
accounts.
The fiscal second-quarter 2010 gross margin rose to 77 percent
from 70 percent in the same period last year, due to product cost
reductions, manufacturing efficiencies and shipment of fewer
controller units. Operating expenses decreased 2 percent to $18.1
million, a result of effective expense management and the
completion and timing of development projects and clinical
studies.
In the first six months of fiscal 2010, revenue grew to $30.3
million, 18 percent above the same period last fiscal year. The
gross margin in the first six months of fiscal 2010 was 77 percent,
up from 69 percent in the year-ago first half, while operating
expenses declined 10 percent. In the first half of fiscal 2010, the
net loss was $(13.0) million, a 42-percent improvement over the
first half of last fiscal year. The net loss available to common
shareholders was $(13.0) million, or $(0.89) per diluted share, in
the first half of fiscal 2010, compared to $(25.4) million, or
$(5.09) per diluted share last year, which included accretion of
redeemable convertible preferred stock of $3.0 million.
Clinical Trials Update
As previously announced, CSI recently received FDA conditional
Investigational Device Exemption (IDE) approval to evaluate the
safety and effectiveness of the Diamondback 360° to treat calcified
coronary lesions. The ORBIT II pivotal clinical trial can initially
enroll up to 100 patients at as many as 50 U.S. sites.
Martin added, “The coronary indication for calcified lesions
represents a large, underserved market opportunity for CSI.
Removing plaque, safely and quickly, benefited ORBIT I patients who
were otherwise untreatable, scheduled for surgery, or facing
difficulty with stent deployment due to calcified plaque. We are
confident that we can repeat the favorable outcomes of our ORBIT I
coronary feasibility study in the ORBIT II trial.”
In addition, CSI is conducting clinical trials to advance
understanding of the Diamondback 360° to treat PAD, and to provide
clinically useful and scientifically sound data for physicians. In
mid-November, CSI enrolled the first patient in CALCIUM 360°, a
clinical trial to evaluate using the Diamondback 360° in lesions
behind and below the knee. This study complements the COMPLIANCE
360° study, which is evaluating the Diamondback 360° for
above-the-knee lesions, and has been enrolling patients since June
2009. Both studies are prospective, randomized clinical trials that
will enroll 50 patients at up to 10 sites and follow patients for
12 months.
Fiscal 2010 Third-Quarter Outlook
For the fiscal 2010 third quarter ending March 31, 2010, CSI
management anticipates:
- Revenue in the range of $15.5
million to $16.5 million, or growth of 3 percent to 9 percent over
the third quarter of fiscal 2009, as the company continues its
focus on customer education, adoption and PAD awareness;
- Gross profit as a percentage of
revenue at approximately the same level as the fiscal 2010 second
quarter;
- Net loss in a range of $(6.5)
million to $(7.1) million, or loss per diluted share ranging from
$(0.44) to $(0.48), assuming 14.9 million shares outstanding;
and
- Adjusted EBITDA loss between
$(3.6) million and $(4.2) million, versus a loss of $(4.6) million
in last fiscal year’s third quarter.
Management expects the net loss and adjusted EBITDA to improve
as revenue grows in the future.
Martin continued, “Installing the large vessel protocol has been
successful in key accounts, and we will continue to expand this
initiative to more customers in the coming quarters. This requires
considerable time and resources, but positions CSI for sustainable,
long-term growth going forward. Given the current progress of this
initiative, we expect revenue growth of approximately 10 percent to
15 percent for fiscal year 2010 over fiscal year 2009. Revenue
growth will continue to be balanced with progress toward
profitability, as we target to achieve our first profitable quarter
during fiscal 2011, while living within our cash resources and debt
capacity.”
Conference Call Today at 3:45 PM CT (4:45 PM ET)
Cardiovascular Systems, Inc. will host a live conference call
and webcast of its fiscal second quarter results today, February 3,
2010, at 3:45 p.m. CT (4:45 p.m. ET). To access the call, dial
(888) 680-0879 and enter access number 66378363. Please dial in at
least 10 minutes prior to the call and wait for operator
assistance. 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 41659872. The audio replay will be
available beginning at 8 p.m. CT on Wednesday, February 3, 2010,
through 6 p.m. CT on Friday, February 5, 2010.
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., based in St. Paul, Minn., is a
medical device company focused on developing and commercializing
interventional treatment systems for vascular disease. The
company’s Diamondback 360® PAD System treats calcified and fibrotic
plaque in arterial vessels throughout the leg in a few minutes of
treatment time, and addresses many of the limitations associated
with existing surgical, catheter and pharmacological treatment
alternatives. As many as 12 million Americans suffer from
peripheral arterial disease (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 can lead to tissue loss and eventually limb
amputation. In August 2007, the U.S. FDA granted 510(k) clearance
for the use of the Diamondback 360° as a therapy for PAD, and CSI
commenced a U.S. product launch in September 2007. Since then, more
than 20,000 procedures have been performed to-date using the
Diamondback 360° in leading institutions across the United States.
For more information visit the company’s Web site at
www.csi360.com.
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) driving
greater adoption at each hospital as the right strategy to develop
sustainable revenue growth over time; (ii) CSI’s clinical trials;
(iii) expanding into the interventional coronary market and the
large opportunity in that market; (iv) anticipated revenue, gross
margin, net loss, and adjusted EBITDA in future periods; (v)
management’s expectation that net loss and adjusted EBITDA will
improve as revenue grows; (vi) our intention to expand our large
vessel protocol initiative, which will position us for sustainable,
long-term growth; (vii) achieving our first profitable quarter; and
(ix) our expectation that we will live within our cash resources
and debt capacity, 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 most recent annual report on Form
10-K and subsequent quarterly reports on Form 10-Q. 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.
Product Disclosure
The Diamondback 360® PAD System is a percutaneous orbital
atherectomy system indicated for use as therapy in patients with
occlusive atherosclerotic disease in peripheral arteries and
stenotic material from artificial arteriovenous dialysis fistulae.
The System is contraindicated for use in coronary arteries, bypass
grafts, stents, or where thrombus or dissections are present.
Although the incidence of adverse events is rare, potential events
that can occur with atherectomy include: pain, hypotension,
CVA/TIA, death, dissection, perforation, distal embolization,
thrombus formation, hematuria, abrupt or acute vessel closure, or
arterial spasm.
Cardiovascular Systems,
Inc. Consolidated Statements of Operations (Dollars
in Thousands, except per share and share amounts)
Three Months Ended Six Months Ended December
31, December 31, 2009
2008 2009
2008 Revenues $ 15,097 $ 14,004 $ 30,295 $
25,650 Cost of goods sold
3,515
4,153 7,003
8,034 Gross profit
11,582
9,851 23,292
17,616 Selling, general
and administrative 15,912 14,949 30,768 31,373 Research and
development
2,181
3,469 4,962
8,424 Total expenses
18,093
18,418 35,730
39,797 Loss from operations
(6,511 )
(8,567 ) (12,438
) (22,181 ) Other
(expense) income Interest expense (363 ) (799 ) (734 ) (1,026 )
Interest income 89 2,867 187 3,009 Impairment on investments
--- (2,233 )
--- (2,233
) Total other (expense)
(274
) (165 )
(547 ) (250
) Net loss (6,785 ) (8,732 ) (12,985 ) (22,431 )
Accretion of redeemable convertible preferred stock ---
(2,997 ) --- (2,997 ) Net loss
available to common
shareholders
$ (6,785 ) $ (11,729 ) $ (12,985 ) $ (25,428 ) Net loss per common
share: Basic and diluted
$ (0.46
) $ (2.34 )
$ (0.89 ) $
(5.09 ) Weighted average common shares
used in computation: Basic and diluted
14,651,641 5,018,227
14,584,242 4,997,555
Stock-based compensation supplemental
detail (included in amounts above): (Dollars in
Thousands) Cost of goods sold $ 148 $ 100 $ 277 $ 276 Selling,
general and administrative 1,674 1,340 3,485 2,724 Research and
development
295 108
576 220
Totals
$ 2,117
$ 1,548 $
4,338 $ 3,220
Cardiovascular Systems, Inc.
Consolidated Balance Sheets (Dollars in Thousands)
December 31,
June 30,
2009
2009
ASSETS Current assets Cash and cash equivalents $
23,594 $ 33,411 Accounts receivable, net 8,876 8,474 Inventories
4,048 3,369 Auction rate securities put option 2,800 — Investments
19,750 — Prepaid expenses and other current assets
1,078 798 Total current assets
60,146 46,052 Auction rate
securities put option — 2,800 Investments — 20,000 Property and
equipment, net 1,784 1,719 Patents, net 1,629 1,363 Other assets
291 436 Total assets
$ 63,850 $
72,370
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities Current maturities of long-term debt $
25,689 $ 25,823 Accounts payable 3,010 4,751 Accrued expenses
5,779 5,600 Total current
liabilities
34,478 36,174
Long-term liabilities Long-term debt, net of current maturities
2,794 4,379 Grant payable 2,963 — Other liabilities
943 1,485 Total long-term
liabilities
6,700 5,864
Total liabilities
41,178
42,038 Commitments and contingencies Total
stockholders’ equity
22,672
30,332 Total liabilities and stockholders’ equity
$ 63,850 $
72,370
Cardiovascular Systems, Inc. Supplemental
Sales Information (Dollars in Thousands)
Three
months ended Six months ended
December 31, December
31, 2009
2008 2009 2008
Device revenue
$ 13,340 $ 12,853
$ 26,980 $ 23,517 Other product revenue
1,757 1,151
3,315 2,133
Total revenue $ 15,097
$ 14,004 $ 30,295
$ 25,650
Device units sold
4,449 4,368
8,990 8,004
New customers
48 117
103 217
Reorder revenue %
92 % 76 %
92 % 74 %
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. Adjusted EBITDA (Dollars in
Thousands)
Actual
Projected Range
Three Months Ended Six Months Ended Three
Months Ending
December 31,
December 31,
March 31, 2010
2009 2008 2009
2008 High Low Loss from operations $
(6,511 ) $ (8,567 ) $ (12,438 ) $ (22,181 ) $ (6,100
) $ (6,700 )
Add: Stock-based
compensation
2,117
1,548
4,338
3,220
2,350
2,350
Add: Depreciation
and amortization
143
101
279
196
150
150
Adjusted EBITDA $ (4,251 ) $ (6,918 ) $ (7,821 ) $ (18,765 )
$ (3,600 ) $ (4,200 )
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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