Cardiovascular Systems, Inc. (Nasdaq: CSII):
- Key financial results
improved in fiscal third quarter 2010 over prior-year quarter
- Revenue increased 9 percent
to $16.5 million
- Revenue from reorders grew to
93 percent of total revenue from 84 percent
- Gross margin rose to 77
percent from 74 percent
- Adjusted EBITDA loss improved
16 percent to $(3.9) million
- Net loss improved 11 percent,
excluding income in 2009 from valuation changes
- Prospective clinical trials
advance
- ORBIT II coronary study
received unconditional IDE approval from FDA
- CALCIUM 360° small vessel
study enrollment completed
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 third quarter ended March
31, 2010.
CSI’s revenue in the third quarter rose to $16.5 million, a 9
percent increase over revenue of $15.1 million in the third quarter
of last fiscal year. Adjusted EBITDA, calculated as loss from
operations, less depreciation and amortization and stock-based
compensation expense, improved by 16 percent to a loss of $(3.9)
million, as a result of stronger revenue and improved gross
margins, partially offset by higher planned investments in sales
and marketing for future revenue growth.
David L. Martin, CSI president and chief executive officer,
said, “In the third quarter, we continued to see positive results
from our physician education programs in selected target accounts,
resulting in substantial revenue growth. Our focus on education and
its expansion to additional accounts will drive future revenue
growth. As revenue grows, we will limit expenses as we progress
toward profitability and positive cash flow.”
Net loss was $(6.5) million for the quarter compared to $(3.8)
million in the third quarter of last year. The year-ago quarter
benefited from $3.5 million of income due to valuation changes in
redeemable convertible preferred stock warrants and auction rate
security investments. Excluding the valuation changes in 2009, the
2010 net loss improved 11 percent.
Net loss per diluted common share was $(0.44) in the fiscal 2010
third quarter, compared to $(0.32) per diluted common share a year
earlier. The number of weighted average basic and diluted common
shares outstanding increased to 14.9 million in third quarter of
fiscal 2010 from 12.0 million diluted shares in last year’s third
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. Third quarter
2009 included decretion of redeemable convertible preferred stock
of $25.8 million, resulting in net income available to common
shareholders of $21.9 million, or $2.63 per basic common share.
Decretion of preferred stock arose from valuation adjustments prior
to conversion to common stock in the reverse merger.
Revenue generated from customer reorders rose by $2.6 million to
93 percent of total revenue for the fiscal 2010 third quarter from
84 percent in last year’s third quarter, reflecting CSI’s emphasis
on driving adoption in existing accounts. Gross margin rose to 77
percent from 74 percent in the same period last year, due to
product cost reductions, manufacturing efficiencies and shipment of
fewer controller units. Operating expenses increased 7 percent to
$18.8 million, a result of expanding the sales force and programs,
partially offset by lower research and development expenses from
completion and timing of development projects and clinical
studies.
Significant progress was also made in the first nine months of
fiscal 2010 compared to the same period last fiscal year. Revenue
increased 15 percent to $46.8 million. The gross margin improved to
77 percent from 71 percent, while operating expenses declined 5
percent. Operating loss improved by 35 percent, while the net loss
declined 26 percent to $(19.5) million. Fiscal 2009 included $3.8
million of income from valuation changes related to preferred stock
warrants and auction rate securities. Excluding this income in
2009, net loss improved by 35 percent in 2010. The net loss
available to common shareholders increased by $(16.0) million from
$(3.5) million last year, which was favorably affected by a $22.8
million valuation change in redeemable convertible preferred stock.
Net loss per diluted common share was $(1.33) in fiscal 2010,
compared to $(0.57) last year, also affected by an 8.6 million
increase in weighted average common shares outstanding.
Clinical Trials Update
As announced recently, CSI received FDA unconditional
Investigational Device Exemption (IDE) approval to evaluate the
safety and effectiveness of the Diamondback 360® System to treat
calcified coronary lesions. The ORBIT II pivotal clinical trial can
now proceed with initial enrollment of up to 100 patients at as
many as 50 U.S. sites.
Martin added, “The coronary indication of preparing calcified
lesions for stent placement represents a large, underserved market
opportunity for CSI. Removing plaque, safely and quickly, benefited
patients in our ORBIT I coronary feasibility study who were
otherwise untreatable, required bypass surgery, or faced difficulty
with stent deployment due to calcified plaque. We look forward to
the opportunity to repeat the favorable outcomes of our ORBIT I
study in the ORBIT II trial.”
In addition, CSI reported continued progress on its clinical
trials to advance understanding of the Diamondback 360° to treat
PAD, and to provide clinically useful and scientifically sound data
for physicians. In March 2010, CSI completed enrollment 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 is expected to complete enrollment
during the fourth quarter of fiscal 2010. Both studies are
prospective, randomized clinical trials, enrolling 50 patients at
up to 10 sites, with 12 month follow-up.
Martin noted, “We believe that evidence is the path to leading
market share and are committed to obtaining quality data to confirm
the clinical utility of the Diamondback 360° in treating both
peripheral and coronary artery disease. Our growing foundation of
data puts us in a unique leadership position to provide physicians
with the evidence they need to optimize patient outcomes, favorably
affect the cost of care, and standardize practice guidelines.”
$29 Million of Debt Facilities Established
As recently reported, CSI established $29 million in credit
facilities with Silicon Valley Bank and Partners for Growth.
Proceeds will be used to consolidate existing outstanding debt and
provide financial flexibility for expected growth. The Silicon
Valley Bank facility consists of a $10 million growth capital term
loan and a $15 million line of credit for working capital. The
Partners for Growth convertible debt provides the ability to draw
up to $4 million in the first 12 months and additional funds over
the subsequent four years to the extent debt is converted to common
stock.
Fiscal 2010 Fourth-Quarter Outlook
For the fiscal 2010 fourth quarter ending June 30, 2010, CSI
management anticipates:
- Revenue in the range of $16.5
million to $17.5 million, or growth of 5 percent to 11 percent over
the fourth quarter of fiscal 2009;
- Gross profit as a percentage of
revenue at approximately the same level as the fiscal 2010 third
quarter;
- Net loss in the range of $(5.6)
million to $(6.2) million, or loss per diluted share ranging from
$(0.37) to $(0.41), excluding a charge of approximately $(0.8)
million, or $(0.05) per diluted share, for extending the term of
certain expiring stock options, and assuming 15.0 million average
shares outstanding; and
- Adjusted EBITDA loss between
$(3.0) million and $(3.6) million.
Management expects the net loss and adjusted EBITDA to improve
as revenue increases and as the company continues to balance growth
with progress toward profitability and positive cash flow.
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 third-quarter results today, May 5, 2010,
at 3:45 p.m. CT (4:45 p.m. ET). To access the call, dial (888)
713-4209 and enter access number 71236627. 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 website, 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 35324704. The audio replay will be
available beginning at 8 p.m. CT on Wednesday, May 5, 2010, through
6 p.m. CT on Friday, May 7, 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® 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 25,000 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)
continuing to drive revenue growth and limit expenses; (ii) CSI’s
clinical trials; (iii) anticipated revenue, gross margin, net loss
and adjusted EBITDA in future periods; and (iv) management’s
expectation that net loss and adjusted EBITDA will improve as
revenue grows, 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
reluctance of physicians to accept new products; the impact of
competitive products and pricing; 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® 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 Nine Months Ended
March 31,
March 31,
2010 2009
2010 2009 Revenues $
16,519 $ 15,115 $ 46,814 $ 40,766 Cost of goods sold
3,847 3,920
10,850 11,954 Gross
profit
12,672 11,195
35,964 28,812
Selling, general and administrative 16,382 14,253
47,150 45,626 Research and development
2,459
3,428 7,421
11,851 Total expenses
18,841 17,681
54,571 57,477 Loss
from operations
(6,169 )
(6,486 ) (18,607
) (28,665 ) Other
(expense) income Interest expense (341 ) (971 ) (1,075 ) (1,831
) Interest income 58 171 245 3,180 Decretion of redeemable
convertible preferred stock warrants --- 3,157 --- 2,991 Gain
(impairment) on investments --- 300 --- (1,933 ) Other
(66 ) ---
(66 ) ---
Total other (expense) income
(349
) 2,657
(896 ) 2,407
Net loss (6,518 ) (3,829 ) (19,503 ) (26,258 ) Decretion of
redeemable convertible preferred stock
---
25,778 ---
22,781 Net (loss) income
available to common shareholders
$ (6,518
) $ 21,949
$ (19,503 ) $
(3,477 ) Net (loss) income per common
share: Basic
$ (0.44 )
$ 2.63 $
(1.33 ) $ (0.57
) Diluted
$ (0.44
) $ (0.32 )
$ (1.33 ) $
(0.57 ) Weighted average common shares
used in computation: Basic
14,878,859
8,343,660 14,681,014
6,096,523 Diluted
14,878,859 12,048,581
14,681,014
6,096,523 Stock-based
compensation supplemental detail (included in amounts above):
(Dollars in Thousands) Cost of goods sold $ 157 $ 92 $ 434 $
367 Selling, general and administrative 1,665 1,400 5,150 4,124
Research and development
300
220 876
441 Totals
$ 2,122
$ 1,712 $
6,460 $ 4,932
Cardiovascular Systems,
Inc.
Consolidated Balance
Sheets
(Dollars in Thousands)
March 31,
June 30,
2010
2009
ASSETS Current assets Cash and cash
equivalents $ 23,552 $ 33,411 Accounts receivable, net 9,801 8,474
Inventories 4,562 3,369 Auction rate securities put option 2,800 —
Investments 16,375 — Prepaid expenses and other current assets
991 798 Total current
assets
58,081 46,052
Auction rate securities put option — 2,800 Investments — 20,000
Property and equipment, net 1,959 1,719 Patents, net 1,704 1,363
Other assets
216 436 Total
assets
$ 61,960 $
72,370
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities Current maturities of long-term debt $
20,601 $ 25,823 Accounts payable 4,943 4,751 Accrued expenses
6,335 5,600 Total current
liabilities
31,879 36,174
Long-term liabilities Long-term debt, net of current maturities
8,183 4,379 Grant payable 2,963 — Other liabilities
659 1,485 Total long-term
liabilities
11,805 5,864
Total liabilities
43,684
42,038 Commitments and contingencies Total
stockholders’ equity
18,276
30,332 Total liabilities and stockholders’ equity
$ 61,960 $
72,370
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)
Three months ended
Nine months ended
March 31,
March 31,
2010 2009 2010
2009
Device revenue $ 14,486 $ 13,694
$ 41,466 $ 37,211 Other product revenue 2,033
1,421 5,348 3,555 Total
revenue $ 16,519 $ 15,115 $ 46,814 $
40,766
Device units sold 4,870 4,559
13,860 12,563
New customers
52 87 155 304
Reorder revenue % 93% 84%
92% 78%
Cardiovascular Systems,
Inc.
Adjusted EBITDA
(Dollars in Thousands)
Actual
Projected Range
Three Months Ended Nine Months Ended Three
Months Ending
March 31,
March 31,
June 30, 2010
2010 2009 2010
2009 High Low Loss from operations $
(6,169 ) $ (6,486 ) $ (18,607 ) $ (28,665 ) $ (6,100
) $ (6,700 )
Add: Stock-basedcompensation
2,122
1,712
6,460
4,932
2,900
2,900
Add: Depreciation
andamortization
156
136
435
332
200
200
Adjusted EBITDA $ (3,891 ) $ (4,638 ) $
(11,712 ) $ (23,401 ) $ (3,000 ) $ (3,600 )
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 stock-based compensation guidance 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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