Cardiovascular Systems, Inc. (CSI) (Nasdaq: CSII)
- Financial performance rose
significantly over prior-year fourth quarter:
- Revenues increased 20 percent to
$21.7 million
- Gross profit margin rose to 81
percent
- Operating expenses increased 1
percent
- Adjusted EBITDA improved $2.0
million to earnings of $539,000
- Net loss, including $(1.3) million
of expense related to conversion and valuation changes of
convertible debt, decreased 44 percent to $(2.5) million
- New Stealth 360° System drove
25-percent increase in device usage in converted accounts
- FDA approved completion of patient
enrollment in ORBIT II coronary pivotal trial
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, 2011.CSI’s revenues in the fourth quarter rose to
$21.7 million, a 20-percent gain over revenue of $18.0 million in
the fourth quarter of last fiscal year. Adjusted EBITDA improved by
$2.0 million to earnings of $539,000, driven by stronger revenue
and gross margin, with nominal growth in operating expenses.Net
loss was $(2.5) million, or $(0.15) per common share, for the
quarter, a 44-percent reduction from $(4.4) million, or $(0.29) per
common share, in the fourth quarter of last fiscal year. Net loss
for the current quarter includes $(1.3) million, or $(0.08) per
common share, of expense related to conversion and valuation
changes of convertible debt.David L. Martin, CSI president and
chief executive officer, commented, “We concluded fiscal 2011 with
a strong quarter: solid revenue growth, profitability on an
adjusted EBITDA basis and a significant reduction in net loss over
the year-ago period. We are managing our business to drive toward
profitability and for sustainable growth, as demonstrated by the
percentage of revenue from customer reorders, which rose to 96
percent of total revenue.“We also achieved significant progress on
our business objectives in the fourth quarter. The limited market
release of our innovative Stealth 360°™ PAD System expanded to more
than 100 accounts. Physicians’ enthusiasm about the product’s new
ease-of-use features and enhanced operating performance led to
substantial usage gains in those accounts.“Data from clinical
trials presented at two major medical meetings reinforce the safety
and efficacy our PAD therapy provides. Additionally, we received
FDA approval to complete patient enrollment in ORBIT II, our
pivotal trial for a coronary application – a major market
opportunity for CSI.”
Revenue from customer reorders increased to 96 percent of total
revenue from 93 percent in last year’s fourth quarter. Gross profit
margin increased to 81 percent from 77 percent in the same period
last year, primarily due to continued product cost reductions,
manufacturing efficiencies and shipment of fewer controller
units.Fiscal 2011 ResultsFinancial results for fiscal 2011
also improved significantly over the prior year. Revenues increased
22 percent to $78.8 million. Gross margin rose to 79 percent from
77 percent, while operating expenses declined 2 percent. Adjusted
EBITDA improved by 88 percent to a loss of $(1.6) million. Net loss
decreased 53 percent to $(11.1) million, or $(0.70) per common
share, including $(0.9) million, or $(0.05) per common share, of
expense related to conversion and valuation changes of convertible
debt.OPERATING HIGHLIGHTSLimited Market Release of
Stealth 360° AdvancesCSI is introducing its innovative Stealth
360° PAD System through a limited market release to generate
valuable feedback from physicians and establish best practices for
device operation. At fiscal 2011 year-end, over 100 customers had
purchased the third-generation system. The Stealth 360° offers a
simple design with power and speed controls on the handle to give
physicians hands-on control of device operation and shorter
procedure times. Stealth 360° is as easy to set up as a balloon or
stent, and utilizes CSI’s proven orbital mechanism of action that
protects healthy tissue while removing even the most
difficult-to-treat plaque throughout the entire leg.Martin noted,
“At hospitals where the Stealth 360° has been installed, device
usage rates increased 25 percent, and the number of sites using 30
or more devices per quarter rose 59 percent in the fourth quarter.
Moreover, additional physicians are using the system as they become
acquainted with its improved operating performance, and most
importantly, its ability to safely treat the entire leg. We are
definitely changing the standard of PAD treatment.”CSI plans to
begin a broader commercial launch of the Stealth 360° in the second
quarter of fiscal 2012.Prospective, Randomized Studies Show
Advantages of Orbital PAD Therapy Over Balloon AngioplastyData
from CSI’s COMPLIANCE 360° and CALCIUM 360° studies of
above-the-knee and below-the-knee lesions, respectively, were
presented at two major medical conferences in the fourth
quarter.Martin commented, “We are building a foundation of clinical
PAD data unlike any other company in our space. Scientifically
sound clinical evidence is the best way to demonstrate the ability
of our orbital mechanism to help physicians successfully treat
patients with PAD. As patient follow-up continues, longer-term data
are confirming the durability of our therapy.”Acute data from the
prospective, randomized COMPLIANCE 360° clinical trial was
presented at the American College of Cardiology meeting. The study
directly compared the Diamondback 360® PAD System to balloon
angioplasty in treating above-the-knee PAD. Results showed that the
Diamondback 360° can achieve far superior acute results in treating
calcium-containing plaque by improving lesion compliance through
differential sanding, without the need for stent placement. Study
results with a p value of less than 0.0001 showed the success rate
in the Diamondback 360° arm was 360 percent greater than in the
balloon arm and required 91 percent less bailout stenting. The
COMPLIANCE 360° study enrolled 50 patients at nine U.S. sites.
Patients will have clinical follow up at one, six and 12 months.
Longer-term results will be reported as they become available.The
prospective CALCIUM 360° study randomized 50 patients with Critical
Limb Ischemia (CLI) below the knee to either orbital treatment or
balloon angioplasty. Six-month results presented at the New
Cardiovascular Horizons meeting showed orbital treatment
outperformed balloon angioplasty. A key finding was that by
modifying calcified lesions first, the Diamondback 360° allows use
of a lower-pressure adjunctive balloon therapy, reducing the need
for bailout stenting with improved longer-term patient outcomes.
Orbital treatment outperformed balloon angioplasty on the primary
endpoint of device success (less than or equal to 30 percent
restenosis with no dissection C-F) with 92.6 percent in the
Diamondback 360° arm versus 78.7 percent in the balloon
arm.Approval Received to Complete Patient Enrollment in ORBIT II
Coronary Clinical TrialIn May, CSI received FDA approval to
complete enrollment of 429 patients in its ORBIT II Investigational
Device Exemption (IDE) clinical trial for a coronary application of
its orbital technology. The approval came following FDA review of
data from the first 50 cases, as called for in the trial protocol.
As many as 50 U.S. medical centers are expected to participate in
ORBIT II."FDA approval to proceed with patient enrollment is a
significant milestone in the ORBIT II trial," said Martin. "Many
patients with small calcified coronary arteries are excluded from
other clinical studies because there are limited treatment options.
A coronary application would give patients a new minimally invasive
treatment option, as well as provide a sizeable expansion
opportunity for CSI. We have demonstrated that our orbital
mechanism of action is effective in treating small, calcified
vessels in PAD cases, and our ORBIT I coronary feasibility trial of
50 patients met both its safety and efficacy endpoints.”Fiscal
2012 First-Quarter and Full-Year OutlookMartin said, “With the
introduction of Stealth 360° and FDA approval to proceed with our
ORBIT II coronary trial, CSI is now at an appropriate stage to
invest further in sales and marketing and clinical trials to
capitalize on our growth opportunities. Therefore, we plan to
increase operating expenses in fiscal year 2012 to enhance future
growth. This is expected to temporarily increase our net losses in
the first half of fiscal 2012 compared to the last half of fiscal
2011. However, we expect to resume progress toward profitability in
the second half of fiscal 2012.”For the fiscal 2012 first quarter
ending September 30, 2011, CSI anticipates:
- Revenues in the range of $21.0 million
to $22.0 million, or growth of 16 percent to 21 percent over the
first quarter of fiscal 2011. The revenue range reflects seasonally
lower procedure volume during the summer months. Additionally, the
transition to the Stealth 360° product line will limit the rate of
revenue growth until a broader commercial launch begins, targeted
for the fiscal 2012 second quarter.
- Gross profit as a percentage of revenue
about 2 percentage points lower than the fiscal 2011 fourth
quarter. Stealth 360° will become a higher percentage of revenue,
but will still be at limited volumes, which raises its unit cost
compared to the Diamondback 360° device. Also, ramp up of the Texas
manufacturing facility for higher future production volumes will
temporarily increase costs, but enhance efficiencies over
time.
- An increase in operating expenses of
about 7 percent to 8 percent from the fiscal 2011 fourth quarter,
due to expansion of the ORBIT II trial, and additional investments
in sales and marketing programs and infrastructure.
- Interest and other expense of about
$(350,000), excluding the potential effect of conversions or
valuation changes of convertible debt.
- Net loss in the range of $(2.9) million
to $(3.5) million, or loss per common share ranging from $(0.17) to
$(0.20), assuming 17.4 million average shares outstanding,
excluding the potential effect of conversions or valuation changes
of convertible debt.
- Adjusted EBITDA loss between $(0.8)
million and $(1.4) million.
For the fiscal year ending June 30, 2012, CSI anticipates:
- Revenue growth of 20 percent to 25
percent over fiscal 2011.
- Net loss for the full year, but
positive net income in the fourth quarter, excluding the potential
effect of conversions or valuation changes of convertible
debt.
Conference Call Today at 3:45 p.m. CT (4:45 p.m.
ET)Cardiovascular Systems, Inc. will host a live conference
call and webcast of its fiscal fourth-quarter and full-year results
today, August 3, 2011, at 3:45 p.m. CT (4:45 p.m. ET). To access
the call, dial (888) 680-0865 and enter access number 10258009.
Please dial in at least 10 minutes prior to the call and wait for
assistance, or dial “0” for the operator. 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 71239570. The audio
replay will be available beginning at 8 p.m. CT on Wednesday,
August 3, 2011, through 6 p.m. CT on Friday, August 5, 2011.Use
of Non-GAAP Financial MeasuresTo 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 Peripheral Arterial
DiseaseAs many as 12 million Americans, most over age 65,
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. Left
untreated, PAD can lead to severe pain, immobility, non-healing
wounds and eventually limb amputation. With risk factors such as
diabetes and obesity on the rise, the prevalence of PAD is growing
at double-digit rates.Millions of patients with PAD may benefit
from treatment with the Stealth 360° and Diamondback 360°,
minimally invasive catheter systems developed and manufactured by
CSI. These systems use a diamond-coated crown, attached to a guide
wire, which sands away plaque while preserving healthy vessel
tissue, or medial integrity — a critical factor in preventing
reoccurrences. Balloon angioplasty and stents have significant
shortcomings in treating hard, calcified lesions. Stents are prone
to fractures and high recurrence rates, and treatment of hard,
calcified lesions often leads to vessel damage and suboptimal
results.About Cardiovascular Systems, Inc.Cardiovascular
Systems, Inc., based in St. Paul, Minn., is a medical device
company focused on developing and commercializing innovative
solutions for treating vascular and coronary disease. The company’s
Stealth 360°™, Diamondback 360® and 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. The U.S. FDA granted 510(k)
clearance for the use of the Diamondback 360° in August 2007 and
for the Stealth 360° in March 2011. To date, more than 50,000 PAD
procedures have been performed using the Diamondback 360° and
Stealth 360° in leading institutions across the United States.CSI
has also commenced its ORBIT II Investigational Device Exemption
clinical trial to evaluate the safety and effectiveness of its
orbital technology in treating coronary arteries. The coronary
system is limited by federal law to investigational use and is
currently not commercially available in the United States.For more
information, visit the company’s website at www.csi360.com.Safe
HarborCertain 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 future profitability; (ii) anticipated
sustainable revenue growth; (iii) the expected growth of the
Stealth 360° as a percentage of total revenue; (iv) the expected
broader commercial launch of the Stealth 360° in the second quarter
of fiscal 2012; (v) CSI’s clinical trials; (vi) the market and
expansion opportunity provided by a coronary application and (vii)
anticipated revenue, gross profit, operating expenses, interest and
other expense, net loss and adjusted EBITDA in future periods, 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 effectiveness of the Stealth
360°; actual clinical trial results; the impact of competitive
products and pricing; the difficulty to successfully manage
operating costs; fluctuations in quarterly results; FDA clearances
and approvals; 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
DisclosureThe Stealth 360°™ PAD System, Diamondback 360® PAD
System and 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 EndedJune 30,
Year EndedJune 30,
2011
2010 2011
2010 Revenues $ 21,707 $ 18,015 $ 78,780 $
64,829 Cost of goods sold
4,214
4,153
16,277 15,003 Gross profit
17,493 13,862 62,503
49,826 Selling, general and administrative
15,775 15,297 62,372 62,447 Research and development
2,624 2,857 8,940
10,278 Total expenses
18,399
18,154 71,312 72,725 Loss
from operations (906) (4,292) (8,809) (22,899) Interest and
other income (expense)
(1,577) (109)
(2,316) (1,005) Net loss
$
(2,483) $ (4,401) $ (11,125)
$ (23,904)
Net loss per common share:
Basic and diluted
$ (0.15) $ (0.29)
$ (0.70) $ (1.62)
Weighted average common shares used in
computation:
Basic and diluted
16,329,850 14,950,869
15,915,800 14,748,293
Cardiovascular Systems,
Inc.Consolidated Balance Sheets(Dollars in
Thousands)(unaudited)
June 30, June 30, 2011
2010
ASSETS
Current assets Cash and cash equivalents $ 21,159 $ 23,717 Accounts
receivable, net 13,254 9,394 Inventories 5,818 4,319 Prepaid
expenses and other current assets
797
1,048 Total current assets
41,028
38,478 Property and equipment, net 2,383 1,964
Patents, net 2,314 1,712 Other assets
1,033
568 Total assets
$ 46,758 $
42,722
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities Current maturities of long-term debt $ 3,813 $
2,302 Accounts payable 5,181 3,353 Deferred grant incentive 647
1,181 Accrued expenses
5,545 6,569 Total
current liabilities
15,186 13,405
Long-term liabilities Long-term debt, net of current maturities
8,331 8,985 Deferred grant incentive 1,497 2,208 Other liabilities
109 409 Total long-term liabilities
9,937 11,602 Total liabilities
25,123 25,007 Commitments and
contingencies Total stockholders’ equity
21,635
17,715 Total liabilities and stockholders’ equity
$ 46,758 $ 42,722
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 endedJune
30,
Year ended June 30,
2011 2010 2011
2010 Device revenue
$19,169 $15,885 $69,268 $57,351 Other product revenue 2,538 2,130
9,512 7,478 Total revenue $21,707 $18,015 $78,780 $64,829
Device units sold 6,255 5,318 22,917
19,178 New customers 41 60 222
215 Reorder revenue % 96% 93%
94% 93%
Cardiovascular Systems,
Inc.Adjusted EBITDA(Dollars in
Thousands)(unaudited)
Actual
Projected Range
Three Months EndedJune 30,
Year EndedJune 30,
Three Months EndedSeptember 30, 2011
2011 2010 2011 2010
High Low Loss from operations $ (906) $
(4,292) $ (8,809) $ (22,899) $ (2,300) $ (2,900) Add: Stock-based
compensation
1,247
2,634
6,468
9,094
1,300
1,300
Add: Depreciation and amortization
198
164
716
599
200
200
Adjusted EBITDA $ 539 $ (1,494) $ (1,625) $ (13,206) $ (800) $
(1,400)
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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