Cardiovascular Systems, Inc. Reports Fiscal 2019 Third-Quarter Financial Results

Conference Call Scheduled for Today, May 1, 2019, at 3:30 PM CT
(4:30 PM ET)

  • Revenues of $63.3 million increased 13.9% from third quarter last
    year
  • Net income was $0.7 million, or $0.02 per diluted share
  • Company increases fiscal 2019 revenue guidance to upper half of
    previous range

ST. PAUL, Minn.–(BUSINESS WIRE)–Cardiovascular Systems, Inc. (CSI®) (NASDAQ: CSII), a
medical device company developing and commercializing innovative
interventional treatment systems for patients with peripheral and
coronary artery disease, today reported financial results for its fiscal
third quarter, ended March 31, 2019.

CSI’s third-quarter revenues were $63.3 million, an increase of $7.7
million, or 13.9%, from the third quarter of fiscal 2018. Gross profit
margin remained healthy at 80.8%.

Selling, general and administrative expenses increased 9.4% to $41.4
million due to increased investments to support international expansion.
Research and development expenses increased 26.6% to $9.3 million as a
result of planned new product development and patient enrollment costs
in the ECLIPSE clinical trial.

Third-quarter net income was $0.7 million, or $0.02 per basic and
diluted share, compared favorably to net income of $0.4 million, or
$0.01 per basic and diluted share, in the prior-year period. Adjusted
EBITDA totaled $4.1 million.

Scott Ward, CSI’s Chairman, President and Chief Executive Officer, said,
“Our strategy to provide exceptional case support, deliver continuous
innovation and produce compelling medical evidence resonates with our
customers. Fiscal year-to-date, these efforts are translating into
market-leading growth in both peripheral and coronary atherectomy.”

CSI Updates Fiscal 2019 Guidance
Ward concluded, “Consistent
with our plan, we have successfully accelerated revenue growth this
year. During the first nine months of fiscal 2019, revenues increased
13.9% versus 3.9% during the comparable period one year ago. We are
driving growth primarily through increased adoption of orbital
atherectomy domestically and introducing our technology to new
international markets. We remain on track to achieve revenue of $245
million to $247 million, representing the upper half of our fiscal 2019
revenue guidance range.”

For fiscal 2019 ending June 30, 2019, CSI anticipates:

  • Revenue of $245 million to $247 million, representing 13% to 14%
    growth compared to fiscal 2018;
  • Gross profit as a percentage of revenues of 80%-81%;
  • Net loss equal to 0.5% of revenue to breakeven; and
  • Positive Adjusted EBITDA.

Conference Call Scheduled for Today at 3:30 p.m. CT (4:30 p.m. ET)
CSI
will host a live conference call and webcast of its fiscal third-quarter
results today, May 1, 2019, at 3:30 p.m. CT (4:30 p.m. ET). To access
the call, dial (833) 241-7255 at least 10 minutes prior to the call and
enter the access number 5768999. To access the live webcast, or replay,
click on this link https://investors.csi360.com/events-and-presentations/events-calendar/default.aspx,
and then click on the webcast link.

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 Peripheral Artery Disease (PAD)
As many as 18 million
Americans, most over age 65, suffer from PAD, which is caused by the
accumulation of plaque in peripheral arteries 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 orbital
atherectomy utilizing the Stealth 360® and Diamondback 360®
Peripheral Orbital Atherectomy Systems, minimally invasive catheter
systems developed and manufactured by CSI. These systems use a
diamond-coated crown, attached to an orbiting shaft, which sands away
plaque while preserving healthy vessel tissue — 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 Coronary Artery Disease (CAD)
CAD is a
life-threatening condition and a leading cause of death in men and women
in the United States. CAD occurs when a fatty material called plaque
builds up on the walls of arteries that supply blood to the heart. The
plaque buildup causes the arteries to harden and narrow
(atherosclerosis), reducing blood flow. The risk of CAD increases if a
person has one or more of the following: high blood pressure, abnormal
cholesterol levels, diabetes, or family history of early heart disease.
According to the American Heart Association, 16.3 million people in the
United States have been diagnosed with CAD, the most common form of
heart disease. Heart disease claims more than 600,000 lives in the
United States each year. According to estimates, significant arterial
calcium is present in nearly 40% of patients undergoing a percutaneous
coronary intervention (PCI). Significant calcium contributes to poor
outcomes and higher treatment costs in coronary interventions when
traditional therapies are used, including a significantly higher
occurrence of death and major adverse cardiac events (MACE).

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 Orbital Atherectomy Systems
treat calcified and fibrotic plaque in arterial vessels throughout the
leg and heart 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 Orbital Atherectomy System in
peripheral arteries in August 2007. In October 2013, the company
received FDA approval for the use of the Diamondback Orbital Atherectomy
System in coronary arteries. The Stealth 360® Peripheral
Orbital Atherectomy System (OAS) received CE Mark in October 2014. In
March 2017, the company received PMDA approval in Japan for the
Diamondback 360® Coronary OAS Micro Crown and
reimbursement approval effective February 2018. Over 450,000 of CSI’s
devices have been sold to leading institutions worldwide. For more
information, visit the company’s website 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) CSI’s strategy
and growth; and (ii) anticipated revenue, gross profit, net loss and
Adjusted EBITDA, are forward-looking statements. These statements
involve risks and uncertainties that could cause results to differ
materially from those projected, including, but not limited to,
regulatory developments, clearances and approvals; approval of our
products for distribution in countries outside of the United States;
approval of products for reimbursement and the level of reimbursement in
the U.S., Japan and other foreign countries; dependence on market
growth; agreements with third parties to sell their products; the
ability of OrbusNeich to successfully launch CSI products outside of the
United States and Japan; our ability to maintain third-party supplier
relationships and renew existing purchase agreements; our ability to
maintain our relationship with our distribution partner in Japan and
with OrbusNeich; the experience of physicians regarding the
effectiveness and reliability of the products we sell; the reluctance of
physicians, hospitals and other organizations to accept new products;
the potential for unanticipated delays in enrolling medical centers and
patients for clinical trials; actual clinical trial and study results;
the impact of competitive products and pricing; unanticipated
developments affecting our estimates regarding expenses, future revenues
and capital requirements; the difficulty of successfully managing
operating costs; our ability to manage our sales force strategy; our
actual research and development efforts and needs; our ability to obtain
and maintain intellectual property protection for product candidates;
our actual financial resources and our ability to obtain additional
financing; fluctuations in results and expenses based on new product
introductions, sales mix, unanticipated warranty claims, and the timing
of project expenditures; our ability to manage costs; investigations or
litigation threatened or initiated against us; court rulings and future
actions by the FDA and other regulatory bodies; the effects of
hurricanes, flooding, and other natural disasters on our business;
issues relating to our saline pump recall; the impact of federal
corporate tax reform on our business, operations and financial
statements; international trade developments; shutdowns of the U.S.
federal government; 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 Disclosures:

Peripheral Products
The Stealth 360® PAD System
and Diamondback 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. See the instructions for use for
detailed information regarding the procedure, indications,
contraindications, warnings, precautions, and potential adverse events.
For further information call CSI at 1-877-274-0901 and/or consult CSI’s
website at www.csi360.com.

Coronary Product
Indications: The Diamondback 360®
Coronary Orbital Atherectomy System (OAS) is a percutaneous orbital
atherectomy system indicated to facilitate stent delivery in patients
with coronary artery disease (CAD) who are acceptable candidates for
PTCA or stenting due to de novo, severely calcified coronary
artery lesions.

Contraindications: The OAS is contraindicated when the ViperWire®
guide wire cannot pass across the coronary lesion or the target lesion
is within a bypass graft or stent. The OAS is contraindicated when the
patient is not an appropriate candidate for bypass surgery, angioplasty,
or atherectomy therapy, or has angiographic evidence of thrombus, or has
only one open vessel, or has angiographic evidence of significant
dissection at the treatment site and for women who are pregnant or
children.

Warnings/Precautions: Performing treatment in excessively
tortuous vessels or bifurcations may result in vessel damage; The OAS
was only evaluated in severely calcified lesions, A temporary pacing
lead may be necessary when treating lesions in the right coronary and
circumflex arteries; On-site surgical back-up should be included as a
clinical consideration; Use in patients with an ejection fraction (EF)
of less than 25% has not been evaluated. See the instructions for use
before performing Diamondback 360 Coronary OAS procedures for detailed
information regarding the procedure, indications, contraindications,
warnings, precautions, and potential adverse events. For further
information call CSI at 1-877-274-0901 and/or consult CSI’s website at www.csi360.com.

Caution: Federal law (USA) restricts these devices to sale by or
on the order of a physician.

   

Cardiovascular Systems, Inc.
Consolidated
Statements of Operations

(Dollars in Thousands)
(unaudited)

 
Three Months Ended Nine Months Ended
March 31 March 31
2019   2018 2019   2018
 
Net revenues $ 63,311 $ 55,587 $ 179,783 $ 157,891
Cost of goods sold   12,166     9,969     34,218     28,670  
Gross profit 51,145 45,618 145,565 129,221
Expenses:
Selling, general and administrative 41,356 37,796 123,705 110,722
Research and development   9,282     7,333     23,937     20,037  
Total expenses   50,638     45,129     147,642     130,759  
Income (loss) from operations 507 489 (2,077 ) (1,538 )
Other (income) and expense, net   (251 )   91     (505 )   388  
Loss before income taxes 758 398 (1,572 ) (1,926 )
Provision for income taxes   86     33     152     99  
Net income (loss) $ 672   $ 365   $ (1,724 ) $ (2,025 )
 
Basic earnings per share $ 0.02   $ 0.01   $ (0.05 ) $ (0.06 )
Diluted earnings per share $ 0.02   $ 0.01   $ (0.05 ) $ (0.06 )
 
Basic weighted average shares outstanding   33,600,148     33,237,552     33,510,368     33,105,174  
Diluted weighted average shares outstanding   34,241,432     33,641,804     33,510,368     33,105,174  
 

   

Cardiovascular Systems, Inc.
Consolidated Balance
Sheets

(Dollars in Thousands)
(unaudited)

 
March 31, June 30,
2019 2018
 
ASSETS
Current assets
Cash and cash equivalents $ 115,280 $ 116,260
Accounts receivable, net 34,970 31,225
Inventories 19,304 16,605
Marketable securities 456 544
Prepaid expenses and other current assets   2,221   2,977
Total current assets 172,231 167,611
Property and equipment, net 27,607 27,744
Patents, net 5,242 5,231
Other assets   6,149   2,766
Total assets $ 211,229 $ 203,352
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 12,396 $ 10,441
Accrued expenses 26,489 25,776
Deferred revenue   1,612   1,243
Total current liabilities 40,497 37,460
Long-term liabilities
Finance obligation 21,005 21,064
Deferred revenue 7,230 8,946
Other liabilities   884   1,412
Total liabilities 69,616 68,882
Commitments and contingencies
Total stockholders’ equity   141,613   134,470
Total liabilities and stockholders’ equity $ 211,229 $ 203,352

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 this non-GAAP measure to the most comparable U.S.
GAAP measure for the respective periods can be found in the following
tables. In addition, an explanation of the manner in which CSI’s
management uses this measure to conduct and evaluate its business, the
economic substance behind management’s decision to use this measure, the
substantive reasons why management believes that this measure provides
useful information to investors, the material limitations associated
with the use of this measure and the manner in which management
compensates for those limitations is included following the
reconciliation table.

   

Adjusted EBITDA
(Dollars in Thousands)
(unaudited)

 
Three Months Ended Nine Months Ended
March 31 March 31
2019   2018 2019   2018
 
Net income (loss) $ 672 $ 365 $ (1,724 ) $ (2,025 )
Less: Other (income) and expense, net (251 ) 91 (505 ) 388
Less: Provision for income taxes   86     33   152     99  
Income (loss) from operations 507 489 (2,077 ) (1,538 )
Add: Stock-based compensation 2,674 2,140 8,600 7,880
Add: Depreciation and amortization   932     990   2,617     3,080  
Adjusted EBITDA $ 4,113   $ 3,619 $ 9,140   $ 9,422  
 

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.

Contacts

Cardiovascular Systems, Inc.
Jack Nielsen
(651) 202-4919
j.nielsen@csi360.com

Padilla
Matt Sullivan
(612) 455-1709
matt.sullivan@padillaco.com

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