Cardiovascular Systems Reports Fiscal 2013 Second-Quarter Financial Results

  Cardiovascular Systems Reports Fiscal 2013 Second-Quarter Financial Results

Conference Call Scheduled for Today, January 30, 2013, at 3:45 PM CT (4:45 PM
                                     ET)

Business Wire

ST. PAUL, Minn. -- January 30, 2013

Cardiovascular Systems, Inc. (Nasdaq: CSII):

  *Revenues of $25.3 million rose 28 percent over the fiscal 2012 second
    quarter, and 9 percent sequentially over the fiscal 2013 first quarter

       *Stealth 360°^® revenues increased to 93 percent of total device
         revenues
       *Office-based lab revenues continued to grow at a double-digit
         consecutive quarter rate

  *ORBIT II coronary trial enrollment has been completed

       *PMA submission of module 3, which includes ORBIT II clinical data, is
         expected to occur around March 31, 2013

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 second
quarter ended December 31, 2012.

CSI’s second-quarter revenues rose to $25.3 million, a 28 percent gain from
$19.7 million in the second quarter of fiscal 2012. Conversions to the
company’s Stealth 360°^® PAD System continued at a high rate, with Stealth
360° revenues growing to 93 percent of total device revenues. Revenues from
office-based labs (OBLs) increased at a double-digit rate over the fiscal 2013
first quarter. Customer reorder revenues remained high at 97 percent of total
revenue.

The fiscal 2013 second-quarter net loss was better than expected at $(5.8)
million, or $(0.28) per common share, compared to $(4.1) million, or $(0.23)
per common share, in the fiscal 2012 second quarter. Net loss includes expense
of $(0.3) million, or $(0.01) per common share, from valuation changes of a
conversion asset related to convertible debt, versus $(0.2) million, or
$(0.01) per common share, in the prior-year period. Adjusted EBITDA was a loss
of $(3.2) million, compared to a loss of $(2.2) million in fiscal 2012. Higher
losses were primarily due to planned investments of approximately $4.7 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 second-quarter gross profit margin was 76 percent, similar to
the prior-year 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 additional future capacity.

David L. Martin, CSI president and chief executive officer, said, “We are very
pleased with CSI’s strong fiscal second-quarter results. Our focused sales
strategy and educational initiatives have continued to drive rapid adoption of
our easy-to-use Stealth 360° with PAD physicians in both hospital and
office-based lab settings. Our technology is scientifically proven as a safe
and effective treatment for PAD, especially in disease complicated by
calcium.”

Martin continued, “Additionally, we moved closer to FDA submission for a
coronary application, which has a market opportunity estimated to exceed $1.5
billion annually in the U.S. alone. Coronary arterial calcium is a vastly
underestimated problem in medicine today. At the 2012 Transcatheter
Cardiovascular Therapeutics conference, Dr. Philippe Genereux presented new
data proving, with statistical significance, that coronary patients with
moderate to severe calcium were more likely to die and have major adverse
coronary events than patients with mild or no calcium. Completing ORBIT II
enrollment was a significant milestone toward obtaining approval to treat this
devastating disease in coronary patients.”

In the first six months of fiscal 2013, revenues increased to $48.6 million,
up 27 percent from the fiscal 2012 six-month period. Gross margin was
comparable to the prior-year period at 77 percent, while operating expenses
rose 32 percent due to planned investments similar to those discussed for the
second quarter, including approximately $8.5 million for the ORBIT II trial
and coronary market preparation. Adjusted EBITDA loss increased by $(2.8)
million to $(6.4) million, while the net loss totaled $(11.0) million, or
$(0.53) per common share, compared to $(8.0) million, or $(0.45) per common
share, in fiscal 2012.

ORBIT II Coronary Trial Enrollment Completed
During its fiscal second quarter, CSI completed enrollment in its ORBIT II
clinical trial, enrolling 443 patients. ORBIT II is evaluating the safety and
effectiveness of the company’s orbital atherectomy technology in treating
severely calcified coronary arteries. It is estimated that moderate to severe
arterial calcium is present in nearly 40 percent of those treated annually for
coronary artery disease (CAD). ORBIT II is the first investigational device
exemption (IDE) trial designed to study these difficult-to-treat patients.

CSI received IDE approval from the FDA for the ORBIT II study in April 2010,
and 49 U.S. medical centers enrolled patients. The primary endpoints of ORBIT
II are based on a patient follow-up 30-days post procedure. CSI and the FDA
agreed to a modular pre-market approval (PMA) submission. To date, modules 1
(preclinical) and 2 (manufacturing/quality system) have been submitted to the
agency and are currently under review. The company’s PMA will be final on
submission of module 3 which includes ORBIT II clinical data and proposed
labeling. CSI is targeting to submit the third module around March 31, 2013.

Fiscal 2013 Third-Quarter Outlook
Martin added, “We continue to make growth investments in the ORBIT II trial
and coronary launch preparation, as well as in sales and marketing
professionals, 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.”

For the fiscal 2013 third quarter ending March 31, 2013, CSI anticipates:

  *Revenue growth of 20 percent to 25 percent over the third quarter of
    fiscal 2012, to a range of $25.5 million to $26.5 million;
  *Gross profit as a percentage of revenues similar to the second quarter of
    fiscal 2013;
  *Operating expenses 8 percent to 9 percent higher than the second quarter
    of fiscal 2013, including approximately $500,000 related to the medical
    device tax and 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 $(350,000), excluding the
    potential effect of debt conversions or valuation changes of the related
    conversion option asset; and
  *Net loss in the range of $(6.6) million to $(7.2) million, or loss per
    common share ranging from $(0.31) to $(0.34), assuming 21.2 million
    average shares outstanding, and excluding the potential effect of debt
    conversions or valuation changes of the related conversion option asset.

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 second-quarter results today, January 30, 2013, at 3:45 p.m. CT
(4:45 p.m. ET). To access the call, dial (888) 680-0860 and enter access
number 21740396. 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 63349889. The audio replay will be available beginning at 5:45
p.m. CT on Wednesday, January 30, 2013, through 11 p.m. CT on Wednesday,
February 6, 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, over 100,000
of CSI’s devices have been sold to 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 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 clinical
trials; (iii) the anticipated timing of Module 3 of the company’s coronary PMA
submission; (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 Ended                  Six Months Ended
                   December 31,                          December 31,
                   2012             2011               2012             2011
Revenues           $ 25,309           $ 19,718           $ 48,602           $ 38,378
Cost of goods       5,958            4,560            11,212           8,906      
sold
Gross profit        19,351           15,158           37,390           29,472     
                                                                            
Selling,
general and          20,418             15,733             40,441             31,083
administrative
Research and        4,055            3,084            7,277            5,148      
development
Total expenses      24,473           18,817           47,718           36,231     
Loss from            (5,122     )       (3,659     )       (10,328    )       (6,759     )
operations
Interest and
other               (645       )      (476       )      (649       )      (1,235     )
(expense)
income
Net loss           $ (5,767     )     $ (4,135     )     $ (10,977    )     $ (7,994     )
                                                                            
Net loss per
common share:
Basic and          $ (0.28      )     $ (0.23      )     $ (0.53      )     $ (0.45      )
diluted
                                                                            
Weighted
average common
shares used in
computation:
Basic and           20,699,222       17,781,326       20,548,113       17,634,134 
diluted
                                                                                         


Cardiovascular Systems, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
(unaudited)

                                             December 31,   June 30,
                                               2012             2012
ASSETS

Current assets
Cash and cash equivalents                      $   29,223       $   35,529
Accounts receivable, net                           13,020           13,644
Inventories                                        7,161            7,061
Prepaid expenses and other current assets         1,124           1,536
Total current assets                              50,528          57,770
Property and equipment, net                        2,342            2,163
Patents, net                                       2,938            2,635
Other assets                                      839             556
Total assets                                   $   56,647       $   63,124

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Current maturities of long-term debt           $   4,678        $   4,678
Accounts payable                                   5,012            5,610
Deferred grant incentive                           302              302
Accrued expenses                                  6,946           7,262
Total current liabilities                         16,938          17,852
Long-term liabilities
Long-term debt, net of current maturities          10,400           12,842
Other liabilities                                 151             241
Total long-term liabilities                       10,551          13,083
Total liabilities                                 27,489          30,935
Commitments and contingencies
Total stockholders’ equity                        29,158          32,189
Total liabilities and stockholders’ equity     $   56,647       $   63,124
                                                                    


Cardiovascular Systems, Inc.
Supplemental Sales Information
(Dollars in Thousands)
(unaudited)

                     Three months ended          Six months ended
                    December 31,                December 31,
                    2012         2011         2012         2011
                                                        
Device revenue       $ 22,252    $ 17,494    $ 42,728    $ 34,042 
Other product         3,057      2,224      5,874      4,336  
revenue
Total revenue        $ 25,309    $ 19,718    $ 48,602    $ 38,378 
                                                        
Device units sold     7,088      5,509      13,496     10,795 
                                                        
New customers         48         41         82         82     
                                                        
Reorder revenue %     97     %    95     %    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.



Cardiovascular Systems, Inc.
Adjusted EBITDA
(Dollars in Thousands)
(unaudited)

                   Actual
                      Three Months Ended          Six Months Ended
                      December 31,                  December 31,
                      2012         2011           2012          2011
Loss from             $ (5,122 )     $ (3,659 )     $ (10,328 )     $ (6,759 )
operations
Add: Stock-based        1,685          1,263          3,440           2,719
compensation
Add: Depreciation      226          227          447           448    
and amortization
Adjusted EBITDA       $ (3,211 )     $ (2,169 )     $ (6,441  )     $ (3,592 )
                                                                             

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.

Contact:

Cardiovascular Systems, Inc.
Investor Relations, 651-259-2800
investorrelations@csi360.com
or
Padilla Speer Beardsley Inc.
Marian Briggs, 612-455-1742
mbriggs@padillaspeer.com
or
Matt Sullivan, 612-455-1709
msullivan@padillaspeer.com
 
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