Cardiovascular Systems, Inc. Reports Fiscal 2020 Second-Quarter Financial Results

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 second quarter, ended December 31, 2019.

CSI’s fiscal 2020 second-quarter revenues were $68.3 million, an increase of $8.1 million, or 13.5%, from the second quarter of fiscal 2019. Gross profit margin was 79.9%.

Selling, general and administrative expenses increased 14.0% to $46.9 million due to increased investments in clinical specialists, medical education and international expansion. Research and development expenses increased 50.1% to $10.8 million as a result of planned new product development and patient enrollment costs in the ECLIPSE clinical trial.

Second-quarter net loss was $3.4 million, or $0.10 per basic and diluted share, compared to net income of $0.5 million, or $0.01 per basic and diluted share, in the prior-year period. Adjusted EBITDA totaled $1.0 million.

Scott Ward, CSI’s Chairman, President and Chief Executive Officer, said, “The ongoing success of our strategies to strengthen our domestic core orbital atherectomy franchises and add new revenue streams contributed to our seventh consecutive quarter of double-digit revenue growth.

“Worldwide coronary revenues grew 30% driven by 14% unit growth domestically, the adoption of our procedure support product offering and the expansion of orbital atherectomy internationally, particularly in Japan. Worldwide peripheral revenues increased 8% driven primarily by 12% unit growth domestically.”

CSI Raises Low End of Fiscal 2020 Revenue Guidance
Ward concluded, “Consistent with our expectations, the combination of 10% domestic core orbital atherectomy revenue growth, increasing adoption of our coronary procedure support products and international expansion drove 14% revenue growth during the first half of the fiscal year. While quarterly comparisons become slightly more difficult in the second half, we believe the momentum we have established is sustainable and we are raising the low end of our guidance range to reflect our expectation of 13% to 14% revenue growth in fiscal 2020.

“In addition, fiscal 2020 investments in new product development, clinical evidence and general and administrative expenses will be higher than previously forecasted. As a result, we now anticipate a net loss in fiscal 2020 of approximately 2% of revenues, including the previously disclosed costs related to the WIRION acquisition.”

For fiscal 2020 ending June 30, 2020, CSI anticipates:

• Revenue of $280 million to $283 million, representing 13% to 14% growth compared with fiscal 2019;
• Gross profit margin of 79% to 80%;
• Net loss of approximately 2% of revenues, including approximately $1 million of intangible asset amortization and an additional $1 million of direct expenses related to the WIRION acquisition; 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 second-quarter results today, February 5, 2020, at 3:30 p.m. CT (4:30 p.m. ET). To access the call, dial [phone] at least 10 minutes prior to the call and enter 8396268. To access the live webcast, or replay, click on this link go to the events section of CSI’s investor relations website, https://investors.csi360.com/events-and-presentations/events-calendar/ ..., and click on the webcast link. Webcast replay will be available beginning at 6:30 p.m. CT today.

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 system treats calcified and fibrotic plaque in arterial vessels throughout the leg and heart in a few minutes of treatment time and addresses many of the limitations associated with existing surgical, catheter and pharmacological treatment alternatives. For additional information, please visit www.csi360.com and connect on Twitter @csi360.

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, growth and sustainable momentum; (ii) expansion of CSI’s product offerings; (iii) international expansion; and (iv) 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, including the timing of product development programs; 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; unanticipated developments during the manufacturing transfer process for the WIRION system; the effectiveness of the WIRION system; the potential impact of any future strategic transactions; 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
Indications: The Stealth 360 PAD System and Diamondback 360 PAD System are percutaneous orbital atherectomy systems (OAS) indicated for use as therapy in patients with occlusive atherosclerotic disease in peripheral arteries and stenotic material from artificial arteriovenous dialysis fistulae.

Contraindications: The OAS are contraindicated for use in coronary arteries, bypass grafts, stents or where thrombus or dissections are present.

Warnings/Precautions: 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.
Caution: Federal law (USA) restricts these devices to sale by or on the order of a physician.
The Stealth 360 PAD System and Diamondback 360 PAD System received FDA 510(k) clearance. The Stealth 360 PAD System is CE Marked.

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 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.

The Diamondback 360 Coronary OAS is FDA PMA approved.

Cardiovascular Systems, Inc.
Consolidated Statements of Operations
(Dollars in Thousands)
(unaudited)
		Three Months Ended								Six Months Ended
		December 31								December 31
		2019				2018				2019				2018
Net revenues		$	68,334			$	60,206			$	132,824			$	116,472
Cost of goods sold		13,718				11,477				26,390				22,052
Gross profit		54,616				48,729				106,434				94,420
Expenses:
Selling, general and administrative		46,867				41,107				93,619				82,349
Research and development		10,786				7,183				21,551				14,547
Amortization of intangible assets		337				55				571				108
Total expenses		57,990				48,345				115,741				97,004
(Loss) income from operations		(3,374		)		384				(9,307		)		(2,584		)
Other (income) and expense, net		(17		)		(141		)		(208		)		(254		)
(Loss) income before income taxes		(3,357		)		525				(9,099		)		(2,330		)
Provision for income taxes		44				33				82				66
Net (loss) income		$	(3,401	)		$	492			$	(9,181	)		$	(2,396	)
Basic earnings per share		$	(0.10	)		$	0.01			$	(0.27	)		$	(0.07	)
Diluted earnings per share		$	(0.10	)		$	0.01			$	(0.27	)		$	(0.07	)
Basic weighted average shares outstanding		34,069,412				33,507,843				33,969,818				33,466,454
Diluted weighted average shares outstanding		34,069,412				34,120,639				33,969,818				33,466,454

Cardiovascular Systems, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
(unaudited)
		December 31,			June 30,
		2019			2019
ASSETS
Current assets
Cash and cash equivalents		$	65,467		$	74,237
Marketable securities		43,954			48,435
Accounts receivable, net		35,833			36,015
Inventories		21,472			18,058
Prepaid expenses and other current assets		2,961			3,330
Total current assets		169,687			180,075
Property and equipment, net		27,320			27,324
Intangible assets, net		20,571			5,105
Other assets		6,614			6,073
Total assets		$	224,192		$	218,577
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	16,560		$	11,194
Accrued expenses		35,074			29,387
Deferred revenue		1,656			1,764
Total current liabilities		53,290			42,345
Long-term liabilities
Financing obligation		20,903			20,972
Deferred revenue		5,740			6,541
Other liabilities		954			775
Total liabilities		80,887			70,633
Commitments and contingencies		—			—
Total stockholders’ equity		143,305			147,944
Total liabilities and stockholders’ equity		$	224,192		$	218,577

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								Six Months Ended
		December 31								December 31
		2019				2018				2019				2018
Net (loss) income		$	(3,401	)		$	492			$	(9,181	)		$	(2,396	)
Less: Other (income) and expense, net		(17		)		(141		)		(208		)		(254		)
Less: Provision for income taxes		44				33				82				66
(Loss) income from operations		(3,374		)		384				(9,307		)		(2,584		)
Add: Stock-based compensation		3,290				2,770				7,196				5,926
Add: Depreciation and amortization		1,090				831				2,064				1,685
Adjusted EBITDA		$	1,006			$	3,985			$	(47	)		$	5,027

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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