Market Overview

Cardiovascular Systems, Inc. Reports Fiscal 2018 Fourth-Quarter Financial Results

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Webcast of analyst day on Tuesday, July 31 will begin at 9:00 AM
ET with discussion of fiscal fourth-quarter results

  • Revenues of $59.2 million increased 11.8% from fourth quarter last
    year
  • Net income was $3.7 million, or $0.11 per basic and diluted share
  • CSI signs international distribution agreement with OrbusNeich
  • Analyst day meeting on July 31 to feature details of growth strategy

Cardiovascular Systems, Inc. (CSI®) (NASDAQ:CSII), a
medical device company developing and commercializing innovative
interventional treatment systems for peripheral and coronary artery
disease, today reported financial results for its fiscal fourth quarter,
ended June 30, 2018.

CSI's fourth-quarter revenues were $59.2 million, an increase of $6.2
million from the fourth-quarter of fiscal 2017. Gross profit margin
remained constant at 81.7%. Operating expenses increased $2.3 million to
$44.6 million, driven primarily by the addition of clinical specialists
in the first half of fiscal 2018, and increased research and development
costs.

Fourth-quarter net income was $3.7 million, or $0.11 per basic and
diluted share, compared to net income of $0.8 million, or $0.02 per
share, in the prior-year period. Adjusted EBITDA increased $3.0 million
to $7.0 million.

Scott Ward, CSI's Chairman, President and Chief Executive Officer, said,
"We are driving strong growth and market-leading performance in our
coronary and peripheral atherectomy businesses through strong sales
execution in the United States, new product introductions and the launch
of our business in Japan."

Fiscal year 2018 revenues grew 5.9% to $217.0 million. Gross margin
increased to 81.8% compared to 80.8% in the prior year, primarily driven
by lower unit costs. Operating expenses increased $8.3 million, or 5.0%,
to $175.3 million. Net income of $1.7 million, or $0.05 per common
share, represented a $3.5 million improvement compared to a net loss of
$(1.8) million, or $(0.06) per common share, in fiscal year 2017.

Added Ward, "We successfully delivered annual revenue growth and our
first annual net profit despite experiencing temporary business
disruptions early in fiscal 2018. Throughout the year, we remained
focused on fulfilling our mission to serve patients suffering from
coronary and peripheral artery disease. In total, our orbital
atherectomy systems were used in the treatment of over 67,000 patients.

"Fiscal 2018 included important milestones for CSI as we introduced
important innovations on our existing peripheral and coronary orbital
atherectomy systems. We also began expanding our product portfolio with
procedure support products and launched orbital atherectomy in Japan,
our first international market. We anticipate that growth in orbital
atherectomy, a broader product portfolio and international expansion
will remain important growth drivers in future periods."

OrbusNeich to Distribute CSI Products Internationally
In
July, CSI announced an exclusive international distribution agreement
with OrbusNeich to sell its coronary and peripheral orbital atherectomy
systems outside the United States and Japan. OrbusNeich manufactures and
sells an extensive portfolio of coronary and peripheral products,
including stents, balloons and microcatheters. The company operates 12
regional sales offices throughout the world and their products are
currently sold in over 60 countries.

Ward said, "We are excited to expand our strategic partnership with
OrbusNeich, a globally recognized leader offering an extensive portfolio
of vascular intervention products through a large international sales
channel that serves Europe, Asia and the Middle East. This partnership
leverages the global infrastructure of OrbusNeich while allowing CSI to
focus our international efforts on physician training and education to
support the expanded use of orbital atherectomy."

CSI to Host Analyst Day Meeting on July 31
In lieu of
hosting a quarterly earnings conference call, CSI management will
discuss fourth-quarter results at the beginning of its analyst day on
July 31 at 8:00 a.m. CT (9:00 a.m. ET). To access the live webcast on
the day of the meeting click on this link https://edge.media-server.com/m6/p/c5hxddy7.
A webcast replay will be available beginning at approximately 2:00 p.m.
ET the same day.

Ward said, "During our first analyst day meeting, we will discuss how we
can drive a sustainable competitive advantage by focusing on worldwide
unmet needs in peripheral and coronary artery disease. We will discuss
our plans to increase the depth and breadth of our product offering and
provide superior case support, medical education and medical evidence."

CSI's analyst day presentation will include:

  • A discussion of plans to protect and grow the company's domestic
    orbital atherectomy business;
  • How international distribution of orbital atherectomy will drive
    revenue growth;
  • CSI's investment in research and development, and its plans to bring
    new products and technologies to physicians treating patients
    suffering from peripheral and coronary artery disease; and
  • Long-term revenue growth and profitability targets.

Added Ward, "Attendees should leave the analyst day meeting with greater
visibility regarding our key growth initiatives."

Fiscal 2019 Full-Year Outlook and Commentary
Ward said, "We
anticipate that the growth drivers that we implemented during fiscal
2018 will gain momentum and drive revenue growth of 11%-15% in fiscal
2019."

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

  • Revenue in a range of $240 million to $250 million;
  • Gross profit as a percentage of revenues of about 80%;
  • Net loss equal to 1%-2% of revenue; and
  • Positive Adjusted EBITDA.

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. To date, 392,000 of
CSI's devices have been sold to leading institutions across the United
States and Japan. For more information, visit the company's website at www.csi360.com.

About OrbusNeich
OrbusNeich is a global pioneer in the
provision of life-changing vascular solutions and offers an extensive
portfolio of products that set industry benchmarks in vascular
intervention. Current products include the world's first dual therapy
stents, the COMBO® Plus and COMBO®
Dual Therapy Stents, together with stents and balloons marketed under
the names of Azule®, Scoreflex®,
Sapphire® II, Sapphire® II PRO and
Sapphire® II NC, as well as products to treat
peripheral artery disease: the Jade™ and Scoreflex®
PTA balloons. OrbusNeich is headquartered in Hong Kong and has
operations in Shenzhen, China; Fort Lauderdale, Florida, USA;
Hoevelaken, The Netherlands; and Tokyo, Japan. OrbusNeich supplies
medical devices to physicians in more than 60 countries. For more
information, visit www.OrbusNeich.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 growth,
including growth drivers of orbital atherectomy, a broader product
portfolio and international expansion; (ii) the anticipated sale of CSI
devices outside of the United States and Japan under the distribution
agreement with OrbusNeich; (iii) CSI's international focus on physician
training and education; (iv) CSI's plans to increase the depth and
breadth of its product offering and provide superior case support,
medical education and medical evidence; (v) forecasted revenue growth in
fiscal 2019; and (vi) anticipated revenue, gross profit, operating
expenses, 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 CSI's products; 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; 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 Year Ended
June 30, June 30,
2018     2017 2018     2017
 
Net revenues $ 59,152 $ 52,919

$

217,043

$ 204,906
Cost of goods sold   10,814   9,673   39,484   39,441  
Gross profit 48,338 43,246 177,559 165,465
Expenses:
Selling, general and administrative 37,847 35,905 148,569 144,096
Research and development   6,719   6,339   26,756   22,911  
Total expenses   44,566   42,244   175,325   167,007  
Income (loss) from operations 3,772 1,002 2,234 (1,542 )
Other (income) and expense, net   2   210   390   164  
Income (loss) before income taxes 3,770 792 1,844 (1,706 )
Provision for income taxes   33   20   132   86  
Net income (loss) $ 3,737 $ 772 $ 1,712 $ (1,792 )
 
Basic earnings per share $ 0.11 $ 0.02 $ 0.05 $ (0.06 )
Diluted earnings per share $ 0.11 $ 0.02 $ 0.05 $ (0.06 )
 
Basic weighted average shares outstanding 33,265,475 32,731,834 33,145,140 32,373,709
Diluted weighted average shares outstanding 33,716,995 33,357,782 33,614,260 32,373,709
 
 
Cardiovascular Systems, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
(unaudited)
       

   June 30,   

   June 30,   

2018 2017
ASSETS
Current assets
Cash and cash equivalents $ 116,260 $ 107,912
Accounts receivable, net 31,225 28,472
Inventories 16,605 16,897
Marketable securities 544 704
Prepaid expenses and other current assets   2,977   5,074
Total current assets 167,611 159,059
Property and equipment, net 27,744 29,696
Patents, net 5,231 5,056
Other assets   2,766   129
Total assets $ 203,352 $ 193,940
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,441 $ 10,736
Accrued expenses 25,776 30,236
Deferred revenue   1,243  
Total current liabilities 37,460 40,972
Long-term liabilities
Finance obligation 21,064 21,100
Deferred revenue 8,946 10,000
Other liabilities   1,412   3,479
Total liabilities 68,882 75,551
Commitments and contingencies
Total stockholders' equity   134,470   118,389
Total liabilities and stockholders' equity $ 203,352 $ 193,940
 
 
Cardiovascular Systems, Inc.
Supplemental Sales Information
(Dollars in Thousands)
(unaudited)
       
Three Months Ended Year Ended
June 30, June 30,
2018     2017 2018     2017
 
Device revenue $ 53,639 $ 48,831 $ 198,606 $ 188,620
Other product revenue   5,513     4,088     18,437     16,286  
Total revenue $ 59,152   $ 52,919   $ 217,043   $ 204,906  
 
PAD revenue $ 43,074 $ 39,765 $ 161,405 $ 153,716
CAD revenue   16,079     13,154     55,638     51,190  
Total revenue $ 59,152   $ 52,919   $ 217,043   $ 204,906  
 
New customers:
PAD 43 43 144 165
CAD 43 39 140 180
 
Reorder revenue % 99 % 98 % 99 % 98 %
 

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 Year Ended
June 30, June 30,
2018     2017 2018     2017
 
Net income (loss) $ 3,737 $ 772 $ 1,712 $ (1,792 )
Less: Other (income) and expense, net 2 210 390 164
Less: Provision for income taxes   33   20   132   86  
Income (loss) from operations 3,772 1,002 2,234 (1,542 )
Add: Stock-based compensation 2,422 2,018 10,302 10,354
Add: Depreciation and amortization   854   1,035   3,934   4,135  
Adjusted EBITDA $ 7,048 $ 4,055 $ 16,470 $ 12,947  
 

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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