Cardiovascular Systems, Inc. (Nasdaq: CSII):
- Key financial results
improved in fiscal 2010 fourth quarter over prior-year quarter
- Revenue increased 15 percent
to $18.0 million
- Revenue from reorders grew to
93 percent of total revenue from 89 percent
- Gross margin rose to 77
percent from 73 percent
- Adjusted EBITDA loss improved
58 percent to $(1.5) million
- Net loss improved 22 percent
to $(4.4) million
- Second-generation product,
the Diamondback Predator 360°™ PAD System, was launched
- Prospective clinical trials
were advanced
- ORBIT II coronary trial began
patient enrollment
- CALCIUM 360° and COMPLIANCE
360° studies completed patient enrollment
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 fourth quarter and year
ended June 30, 2010.
CSI’s revenue in the fourth quarter rose to $18.0 million, a 15
percent gain over revenue of $15.7 million in the fourth quarter of
last fiscal year. Adjusted EBITDA, calculated as loss from
operations, less depreciation and amortization and stock-based
compensation expense, improved by 58 percent to a loss of $(1.5)
million, as a result of stronger revenue and gross margins, with
limited operating expense growth.
David L. Martin, CSI president and chief executive officer,
said, “Our focus on customer education to drive adoption of our
Diamondback 360® PAD System has been successful, resulting in
significant revenue growth in the last two quarters of fiscal 2010.
As a result, we enter fiscal 2011 with a strong customer base. We
also made substantial progress toward profitability, greatly
reducing our net and adjusted EBITDA losses. These accomplishments
occurred while we made progress on key growth initiatives,
including launch of our ORBIT II trial for a coronary application –
a major new potential market for the company, and introduction of
CSI’s second-generation product, the Diamondback Predator 360°™ PAD
System.”
Net loss was $(4.4) million for the quarter, a 22-percent
improvement from $(5.6) million in the fourth quarter of last year
and a 32-percent reduction from the third quarter of fiscal 2010.
Net loss per diluted common share was $(0.29) in the fiscal 2010
fourth quarter, compared to $(0.40) per diluted common share a year
earlier.
Revenue generated from customer reorders rose to 93 percent of
total revenue for the fiscal 2010 fourth quarter, up from 89
percent in last year’s fourth quarter, reflecting CSI’s emphasis on
increasing usage in existing accounts. Gross margin rose to 77
percent from 73 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
$18.2 million, a result of expanding the sales force and education
programs earlier in fiscal 2010.
Fiscal Year 2010 Results
Financial results for fiscal year 2010 also improved over the
prior year. Revenue increased 15 percent to $64.8 million. Gross
margin rose to 77 percent from 71 percent, while operating expenses
declined two percent. The net loss decreased 25 percent to $(23.9)
million. Fiscal 2009 benefited from $4.1 million of income from
valuation changes related to preferred stock warrants and auction
rate securities. Excluding this 2009 income, net loss improved by
34 percent in 2010. Adjusted EBITDA improved by 51 percent to a
loss of $(13.2) million. The net loss available to common
shareholders increased to $(23.9) million from $(9.1) 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 $(1.62) in fiscal 2010, compared to
$(1.13) last year. Weighted average common shares outstanding
increased by 6.7 million shares, primarily resulting from
completion of the reverse merger in fiscal 2009.
OPERATING HIGHLIGHTS
Second Generation PAD System Introduced
CSI recently launched the Diamondback Predator 360° PAD™ System,
its second generation product – with improved crowns and shafts –
that uses the same mechanism of action as the Diamondback 360°.
With the Diamondback Predator 360°, physicians can remove a high
percentage of plaque in less time. A reduced profile with increased
weight allows for easy advancement through difficult
occlusions.
“At CSI, we listen to physicians’ feedback and respond with
technological innovation that meets their needs,” commented Martin.
“Physicians who have used the Diamondback Predator 360° have found
the new system gives them superior performance and outcomes.” The
product has completed an extensive limited release and is now
available for broad commercialization.
Clinical Trial for Coronary Application Advanced
In April, 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.
Patient enrollment in the ORBIT II pivotal clinical trial is now
under way. ORBIT II is expected to enroll 429 patients, subject to
FDA review of data from the first 50 cases.
Martin added, “Our unique orbital technology has a strong track
record in treating small vessels with calcified lesions and may be
well suited for a coronary application. The ability to remove hard
plaque prior to stent placement could spare many patients from
highly invasive surgery and improve long-term outcomes. Our ORBIT I
feasibility trial provided strong safety and efficacy data, and we
are confident about repeating those outcomes in ORBIT II.”
PAD Studies Support Evidence-Based Medicine
In the fourth quarter, CSI completed patient enrollment in the
COMPLIANCE 360° and CALCIUM 360° clinical trials, which are
evaluating the use of the Diamondback 360° in treating PAD lesions
above and behind/below the knee, respectively. Both studies are
prospective, randomized clinical trials, enrolling 50 patients at
up to 10 sites, with six-month and 12-month follow-up.
Martin noted, “Safety and outcomes data are the foundation of
evidence-based medicine and priority factors in physicians’
treatment decisions. The scope of our PAD clinical trial program is
unprecedented in this sector, and we now have data on more than
1,300 patients in 11 clinical trials. We are committed to obtaining
scientifically sound, clinically useful data that gives physicians
the information they need to optimize patient outcomes and raise
the standard of care for PAD patients.”
Fiscal 2011 First-Quarter Outlook
For the fiscal 2011 first quarter ending September 30, 2010, CSI
management anticipates:
- Revenue in the range of $17.0
million to $18.0 million, or growth of 12 percent to 18 percent
over the first quarter of fiscal 2010. The revenue range is
affected by seasonally lower procedure volume during the summer
months;
- Gross profit as a percentage of
revenue at approximately the same level as the fiscal 2010 fourth
quarter;
- A slight rise in operating
expenses from the fiscal 2010 fourth quarter, due to temporary
increases in research and development for an electric version of
the Diamondback 360° system and for the coronary initiative;
- Net loss in the range of $(4.7)
million to $(5.3) million, or loss per diluted share ranging from
$(0.31) to $(0.34), assuming 15.4 million average shares
outstanding; and
- Adjusted EBITDA loss between
$(2.2) million and $(2.8) million.
Management continues to balance growth with progress toward
profitability and positive cash flow and expects the net loss and
adjusted EBITDA to improve as revenue increases.
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 fourth-quarter and full-year 2010 results
today, August 10, 2010, at 3:45 p.m. CT (4:45 p.m. ET). To access
the call, dial (888) 680-0860 and enter access number 72651739.
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 17600619. The audio replay will be
available beginning at 8 p.m. CT on Tuesday, August 10, 2010,
through 6 p.m. CT on Friday, August 13, 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® and Diamondback Predator 360™ PAD
Systems treat calcified and fibrotic plaque in arterial vessels
throughout the leg in a few minutes of treatment time, and address
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, nearly 30,000 procedures have been performed 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) the use
of the Diamondback 360° to treat coronary lesions and the potential
market for this application; (ii) CSI’s clinical trials; (iii)
anticipated revenue, gross profit, operating expenses, net loss and
adjusted EBITDA in future periods; and (iv) management’s
expectation that net loss and adjusted EBITDA will improve as
revenue increases, 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® PAD System and Diamondback Predator 360™
PAD System are percutaneous orbital atherectomy systems indicated
for use as therapy in patients with occlusive atherosclerotic
disease in peripheral arteries and stenotic material from
artificial arteriovenous dialysis fistulae. The systems are
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)
(unaudited) Three Months Ended Year
Ended
June 30,
June 30,
2010 2009
2010 2009 Revenues $
18,015 $ 15,695 $ 64,829 $ 56,461 Cost of goods sold
4,153 4,240
15,003 16,194 Gross
profit
13,862 11,455
49,826 40,267
Selling, general and administrative 15,297 14,196
62,447 59,822 Research and development
2,857
2,827 10,278
14,678 Total expenses
18,154 17,023
72,725 74,500 Loss
from operations
(4,292 )
(5,568 ) (22,899
) (34,233 ) Other
(expense) income Interest expense (360 ) (519 ) (1,435 ) (2,350
) Interest income 157 200 402 3,380 Decretion of redeemable
convertible preferred stock --- --- --- 2,991 Gain (impairment) on
investments 150 250 150 (1,683 ) Other
(56
) ---
(122 ) ---
Total other (expense) income
(109
) (69 )
(1,005 ) 2,338
Net loss (4,401 ) (5,637 ) (23,904 ) (31,895 ) Decretion of
redeemable convertible preferred stock
---
--- ---
22,781 Net loss available to
common shareholders
$ (4,401
) $ (5,637 )
$ (23,904 ) $
(9,114 ) Net loss per common share: Basic
and diluted
$ (0.29 )
$ (0.40 ) $
(1.62 ) $ (1.13
) Weighted average common shares used in computation:
Basic and diluted
14,950,869
14,006,891 14,748,293
8,068,689
Stock-based compensation supplemental detail (included in
amounts above): (Dollars in Thousands) Cost of goods
sold $ 114 $ 109 $ 548 $ 475 Selling, general and administrative
2,122 1,560 7,272 5,684 Research and development
398 171
1,274 612 Totals
$ 2,634 $
1,840 $ 9,094
$ 6,771
Cardiovascular Systems, Inc. Consolidated Balance
Sheets (Dollars in Thousands) (unaudited)
June 30,
June 30,
2010
2009
ASSETS Current assets Cash and cash equivalents $ 23,717 $
33,411 Accounts receivable, net 9,394 8,474 Inventories 4,319 3,369
Prepaid expenses and other current assets
1,048
798 Total current assets
38,478 46,052 Auction rate
securities put option — 2,800 Investments — 20,000 Property and
equipment, net 1,964 1,719 Patents, net 1,712 1,363 Other assets
180 436 Total assets
$ 42,334 $
72,370
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities Current maturities of long-term debt $
3,613 $ 25,823 Accounts payable 3,353 4,751 Accrued expenses
6,569 5,600 Total current
liabilities
13,535 36,174
Long-term liabilities Long-term debt, net of current maturities
7,286 4,379 Grant payable 3,389 — Other liabilities
409 1,485 Total long-term
liabilities
11,084 5,864
Total liabilities
24,619
42,038 Commitments and contingencies Total
stockholders’ equity
17,715
30,332 Total liabilities and stockholders’ equity
$ 42,334 $
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)
(unaudited)
Three months ended Year ended June 30,
June 30, 2010
2009 2010 2009
Device revenue $ 15,885 $ 14,095
$ 57,351 $ 51,307 Other product
revenue 2,130 1,600
7,478 5,154 Total
revenue $ 18,015 $ 15,695
$ 64,829 $ 56,461
Device units sold
5,318 4,692
19,178 17,254
New customers
60 69
215 373
Reorder revenue %
93 % 89 % 93 %
81 %
Cardiovascular Systems, Inc. Adjusted EBITDA
(Dollars in Thousands)
Actual
(unaudited)
Projected Range Three Months Ended Year
Ended Three Months Ending
June 30,
June 30,
September 30, 2010
2010 2009 2010
2009 High Low Loss from operations $
(4,292 ) $ (5,568 ) $ (22,899 ) $ (34,233 ) $ (4,400
) $ (5,000 ) Add: Stock-based compensation
2,634
1,840
9,094
6,771
2,000
2,000
Add: Depreciation and amortization
164
136
599
468
200
200
Adjusted EBITDA $ (1,494 ) $ (3,592 ) $
(13,206 ) $ (26,994 ) $ (2,200 ) $ (2,800 )
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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