Cardiovascular Systems Reports Fiscal 2013 Third-Quarter Financial Results

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Cardiovascular Systems Reports Fiscal 2013 Third-Quarter Financial Results

Conference Call Scheduled for Today, May 1, 2013, at 3:45 PM CT (4:45 PM ET)


ST. PAUL, Minn.--(BUSINESS WIRE)-- Cardiovascular Systems, Inc. (NAS: CSII) :

  • Revenues of $26.5 million rose 25 percent over the fiscal 2012 third quarter, and 5 percent sequentially over the fiscal 2013 second quarter
    • Stealth 360°®revenues increased to more than 96 percent of total device revenues
  • Pivotal 30-day data from ORBIT II coronary study presented at ACC
    • Results exceeded trial's two primary safety and efficacy endpoints by a significant margin
    • PMA submission to treat coronary artery disease completed on March 15
  • Net proceeds of approximately $38 million raised in public offering of common stock

Cardiovascular Systems, Inc. (CSI) (NAS: 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, 2013.

CSI's third-quarter revenues rose to $26.5 million, a 25-percent gain from $21.2 million in the third quarter of fiscal 2012. Substantial demand for the company's Stealth 360°® peripheral arterial disease (PAD) System drove Stealth 360° revenues to more than 96 percent of total device revenues. Customer reorder revenues remained strong at 96 percent of total revenue.

The fiscal 2013 third-quarter net loss was less than anticipated at $(6.2) million, or $(0.29) per common share, compared to $(4.2) million, or $(0.23) per common share, in the fiscal 2012 third quarter. Net loss includes expense of $(0.5) million, or $(0.02) per common share, from $4.5 million of debt conversions and valuation changes in a related conversion asset. Adjusted EBITDA for the quarter was a loss of $(3.3) million, compared to a loss of $(2.3) million in fiscal 2012. Losses increased from prior-year periods, primarily due to planned investments of approximately $4.1 million to advance the ORBIT II coronary clinical trial and prepare for a coronary market launch, as well as competitive enhancements to sales and marketing, and expansion of medical education programs.

The company's third-quarter gross profit margin was 76 percent, similar to the year-earlier quarter. The favorable effect of increased production volume was offset by the higher unit cost of the Stealth 360° compared to the predecessor Diamondback 360° device and by investments to ramp-up CSI's manufacturing facility in Texas for added capacity.

In March 2013, CSI raised approximately $38 million in a public offering of common stock. Proceeds will be primarily used to fund growth investments including coronary launch preparation, international expansion, clinical studies, product portfolio expansion and education programs.

David L. Martin, CSI president and chief executive officer, said, "We continued to achieve significant milestones during the quarter. Our focused sales strategy and educational initiatives drove rapid adoption of our easy-to-use technology with PAD physicians in both hospital and office-based lab settings. This resulted in continued strong quarterly financial results."

Martin continued, "We also presented pivotal 30-day data from our ORBIT II study of severely calcified coronary lesions at the 2013 American College of Cardiology, or ACC, conference. CSI's mission is to be the primary therapy for calcified artery disease. Our compelling ORBIT II study results demonstrate the substantial potential for our orbital atherectomy technology to treat this most challenging, underserved patient population.

"Building on that success, we submitted a premarket approval, or PMA, application to the FDA for our orbital atherectomy system to treat calcified coronary arteries. This marks another major coronary milestone for CSI, as we drive toward this $1.5 billion market opportunity."

In the first nine months of fiscal 2013, revenues increased to $75.1 million, up 26 percent from the fiscal 2012 nine-month period. Gross margin was comparable to the prior-year period at 77 percent, while operating expenses rose 31 percent due to planned investments similar to those discussed for the third quarter, including approximately $12.6 million for the ORBIT II trial and coronary market preparation. Adjusted EBITDA loss increased by $(3.8) million to $(9.7) million, while the net loss totaled $(17.2) million, or $(0.82) per common share, compared to $(12.2) million, or $(0.69) per common share, in fiscal 2012.

Pivotal ORBIT II Coronary Data Presented at ACC 2013
The Featured Clinical Research session presentation by Dr. Jeffrey Chambers of Metropolitan Heart and Vascular Institute, Minneapolis, demonstrated that CSI's technology produced clinical outcomes that exceeded the trial's two primary safety and efficacy endpoints by a significant margin — within one of the most challenging patient populations to treat.

The ORBIT II results showed that at 30 days, patient freedom from major adverse cardiac events, or MACE, was 89.8 percent and procedural success was 89.1 percent (including in-hospital MACE). Patients had less than 50 percent residual stenosis 98.6 percent of the time, and 97.7 percent of stents were successfully delivered.

ORBIT II is evaluating the safety and effectiveness of the company's orbital atherectomy technology in treating a problematic subset of patients with severely calcified coronary lesions and is the first IDE study in history to seek approval for treating these lesions.

CSI Completes PMA Submission to Treat Coronary Artery Disease
CSI completed submission of its PMA application to the FDA for its orbital atherectomy system, to treat calcified coronary arteries, on March 15, 2013. The FDA agreed to a modular PMA process that allowed CSI to submit the first two modules covering preclinical data and manufacturing/quality systems, while still collecting, compiling and analyzing the clinical data. CSI has now submitted the third and final PMA application module, as well as responses to FDA comments on the first two modules, which were submitted in late 2012.

Fiscal 2013 Fourth-Quarter Outlook
For the fiscal 2013 fourth quarter ending June 30, 2013, CSI anticipates:

  • Revenue growth of 17 percent to 21 percent over the fourth quarter of fiscal 2012, to a range of $26.7 million to $27.7 million;
  • Gross profit as a percentage of revenues similar to the third quarter of fiscal 2013;
  • Operating expenses 7 percent to 8 percent higher than the third quarter of fiscal 2013, including approximately $4.5 million for the ORBIT II trial and preparation for a potential coronary market launch in the future;
  • Interest and other expense of approximately $(325,000), excluding the potential effect of debt conversions or valuation changes of the related conversion option asset; and
  • Net loss in the range of $(6.8) million to $(7.4) million, or loss per common share ranging from $(0.28) to $(0.31), assuming 24.2 million average shares outstanding, and excluding the potential effect of debt conversions or valuation changes of the related conversion option asset.

Martin added, "We continue to make growth investments in preparation for a coronary launch, as well as in clinical studies and education programs to further drive PAD adoption. Investing in these opportunities will help us realize the full potential of our technology, support ongoing attractive revenue growth and lead us to profitability over the long term."

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 third-quarter results today, May 1, 2013, at 3:45 p.m. CT (4:45 p.m. ET). To access the call, dial (888) 713-4205 and enter access number 48810662. 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 46269911. The audio replay will be available beginning at 5:45 p.m. CT on Wednesday, May 1, 2013, through 11 p.m. CT on Wednesday, May 8, 2013.

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 Arterial Disease
As 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 orbital atherectomy utilizing the Stealth 360°and Diamondback 360°, 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 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 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 August 2007. To date, nearly 110,000 of CSI's devices have been sold to leading institutions across the United States. CSI has also completed 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 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 potential coronary application; (ii) CSI's ORBIT II trial; (iii) the anticipated use of proceeds from the public offering of common stock in March 2013; (iv) the $1.5 billion estimate of the market for a coronary application; (v) the potential growth and profitability driven by CSI's anticipated investments; and (vi) anticipated revenue, gross profit, operating expenses, interest and other expense, and net loss, 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 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 Disclosure
The 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 EndedNine Months Ended

March 31,

March 31,

2013 20122013 2012
Revenues$26,474$21,205$75,076$59,583
Cost of goods sold 6,241  5,132  17,453  14,038 
Gross profit 20,233  16,073  57,623  45,545 
 
Selling, general and administrative21,65016,80962,09147,892
Research and development 3,993  2,985  11,270  8,133 
Total expenses 25,643  19,794  73,361  56,025 
Loss from operations(5,410)(3,721)(15,738)(10,480)
Interest and other (expense) income (809) (470) (1,458) (1,705)
Net loss$(6,219)$(4,191)$(17,196)$(12,185)
 

Net loss per common share:

Basic and diluted$(0.29)$(0.23)$(0.82)$(0.69)
 

Weighted average common shares used in computation:

Basic and diluted 21,488,879  17,977,819  20,857,124  17,746,558 
 

Cardiovascular Systems, Inc.

Consolidated Balance Sheets

(Dollars in Thousands)

(unaudited)

  

March 31,

June 30,

20132012
 
ASSETS
 
Current assets
Cash and cash equivalents$69,932$35,529
Accounts receivable, net15,18713,644
Inventories6,7967,061
Prepaid expenses and other current assets 778 1,536
Total current assets 92,693 57,770
Property and equipment, net2,5322,163
Patents, net3,0662,635
Other assets 742 556
Total assets$99,033$63,124
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
Current liabilities
Current maturities of long-term debt$4,928$4,678
Accounts payable6,1835,610
Deferred grant incentive176302
Accrued expenses 8,668 7,262
Total current liabilities 19,955 17,852
Long-term liabilities
Long-term debt, net of current maturities8,85112,842
Other liabilities 242 241
Total long-term liabilities 9,093 13,083
Total liabilities 29,048 30,935
Commitments and contingencies
Total stockholders' equity 69,985 32,189
Total liabilities and stockholders' equity$99,033$63,124
 

Cardiovascular Systems, Inc.

Supplemental Sales Information

(Dollars in Thousands)

(unaudited)

     
 Three months ended Nine months ended
  

March 31,

 

March 31,

  2013 2012 2013 2012
         
Device revenue $23,135 $18,800 $65,863 $52,842
Other product revenue 3,339 2,405 9,213 6,741
Total revenue $26,474 $21,205 $75,076 $59,583
         
Device units sold 7,314 5,894 20,810 16,689
         
New customers 50 41 132 123
         
Reorder revenue % 96% 96% 97% 95%
  

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.

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Cardiovascular Systems, Inc.

Adjusted EBITDA

(Dollars in Thousands)

(unaudited)

 

 

Actual

Three Months Ended Nine Months Ended

March 31,

March 31,

2013 2012 2013 2012
Loss from operations$(5,410) $(3,721)$(15,738) $(10,480)
Add: Stock-based compensation

1,876

1,200

5,316

3,919

Add: Depreciation and amortization 

241

   

228

   

688