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Cardiovascular Systems Reports Fiscal 2014 Second-Quarter Financial Results

  Cardiovascular Systems Reports Fiscal 2014 Second-Quarter Financial Results

Conference Call Scheduled for Today, January 29, 2014, at 3:45 PM CT (4:45 PM
                                     ET)

  *Revenues rose 28 percent for both the second quarter and first half of
    fiscal 2014
  *Successful controlled launch of Diamondback 360^® Coronary Orbital
    Atherectomy System is progressing

       *Over 50 physicians in 17 institutions have performed over 200
         procedures to date

  *Company raised $84.4 million in follow-on stock offering

Business Wire

ST. PAUL, Minn. -- January 29, 2014

Cardiovascular Systems, Inc. (CSI) (NASDAQ: CSII), a medical device company
developing and commercializing innovative interventional treatment systems for
vascular and coronary disease, today reported financial results for its fiscal
second quarter ended December 31, 2013.

CSI’s second-quarter revenues rose to $32.3 million, a 28 percent gain from
$25.3 million in the second quarter of fiscal 2013. Customer reorder revenues
remained strong at 96 percent of total revenue.

CSI’s fiscal 2014 second-quarter net loss was $(8.7) million, or $(0.32) per
common share, compared to a net loss of $(5.8) million, or $(0.28) per common
share, in the fiscal 2013 second quarter. Adjusted EBITDA for the quarter was
a loss of $(4.6) million, compared to a loss of $(3.2) million a year ago.
Losses increased from the prior year primarily due to planned investments,
including approximately $7.5 million of expenses related to coronary approval
and market launch initiatives. Net loss also includes approximately $0.7
million of charges related to conversions and repayment of debt. The company’s
second-quarter gross profit margin was over 77 percent, slightly higher than
the prior-year quarter.

In the first six months of fiscal 2014, revenues increased to $62.1 million,
up 28 percent from the fiscal 2013 six-month period. Gross margin was
comparable to the prior-year period at 77 percent, while operating expenses
rose 30 percent, primarily due to planned investments, including approximately
$13.5 million for coronary approval and market launch initiatives. Adjusted
EBITDA loss increased by $(2.4) million to $(8.9) million, while the net loss
totaled $(16.0) million, or $(0.61) per common share, compared to $(11.0)
million, or $(0.53) per common share, in fiscal 2013. Net loss includes
approximately $0.9 million of charges related to valuation changes of a
conversion asset, and conversions and repayment of debt.

David L. Martin, CSI president and chief executive officer, said, “We continue
to drive success in the peripheral arterial disease, or PAD, market with our
easy-to-use technology that consistently provides a safe and effective
solution to treat arterial calcium throughout the leg, including the small
vessels below the knee. Calcium is present in approximately 65 percent of all
PAD arteries treated and in nearly 80 percent of the small arteries treated
below the knee. Continued physician adoption of our Stealth 360^® PAD
treatment system was the primary driver of revenue growth in the second
quarter.”

Coronary Approval and Launch
On October 22, 2013, CSI received FDA approval to treat severely calcified
coronary arteries with its Diamondback 360^® Coronary Orbital Atherectomy
System (OAS). Immediately following approval, CSI initiated a controlled
commercial launch with a dedicated team of coronary sales specialists, focused
on a select number of top medical institutions in the United States. The
controlled launch strategy is expected to continue for several quarters, with
broader launch activities occurring in fiscal 2015. To date, over 50
physicians in 17 institutions have treated over 200 patients using CSI’s
unique OAS technology.

According to Martin, “The approval of our OAS to treat severely calcified
coronary arteries was a watershed event for CSI. Our technology is the first
and only device specifically approved to treat this complex disease
state—thereby fueling adoption and usage by prominent physicians across the
country. As we continue our rollout, we expect to see the list of prominent
hospitals and physicians continue to expand.

“Significant arterial calcium is present in nearly 40 percent of patients
undergoing a percutaneous coronary intervention, and it contributes to poor
outcomes and higher treatment costs in coronary interventions when other
traditional therapies are used—including a substantially higher occurrence of
death and major adverse cardiac events. The Diamondback 360 Coronary OAS, used
as vessel preparation for proper stent apposition, addresses a previously
unmet need in this difficult-to-treat patient population, which is estimated
to be a $1.5 billion market opportunity for CSI.”

Follow-on Offering
In November 2013, CSI raised approximately $84.4 million in a public offering
of common stock. Proceeds will be used primarily to fund growth investments
including coronary launch initiatives, clinical studies, product portfolio
expansion, education programs and international expansion.

Said Martin, “With nearly $147 million of cash on hand, we now have the funds
necessary to aggressively pursue our attractive expansion opportunities and
implement our current growth strategy.”

Fiscal 2014 Third-Quarter Outlook
For the fiscal 2014 third quarter ending March 31, 2014, CSI anticipates:

  *Revenue growth of 25 percent to 30 percent over the third quarter of
    fiscal 2013, to a range of $33.0 million to $34.5 million;
  *Gross profit as a percentage of revenues similar to the second quarter of
    fiscal 2014;
  *Operating expenses approximately 10 percent higher than the second quarter
    of fiscal 2014, primarily for additional coronary investments and
    progression of clinical studies and product development;
  *Interest and other expense of approximately $(100,000); and
  *Net loss in the range of $(9.2) million to $(10.1) million, or loss per
    common share ranging from $(0.31) to $(0.34), assuming 30.3 million
    average shares outstanding.

Concluded Martin, “We remain steadfast with our fiscal 2014 focus:
successfully launching our coronary system—making growth investments as
appropriate—and driving further PAD adoption through clinical and educational
initiatives, as well as through product enhancements. We’re encouraged by our
fiscal second-quarter and first-half performance, and will work to continue to
advance our technology on both the peripheral and coronary fronts in the
second half of fiscal 2014.”

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 29, 2014, at 3:45 p.m. CT
(4:45 p.m. ET). To access the call, dial (888) 713-4205 and enter access
number 44608700. 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 20335104. The audio replay will be available beginning at 7:45
p.m. CT on Wednesday, January 29, 2014, through 11 p.m. CT on Wednesday,
February 5, 2014.

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 Coronary Arterial Disease
Coronary Artery Disease (CAD) is a life-threatening condition and 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, or 1 in 4 Americans, in the United States each
year. According to estimates, significant arterial calcium is present in
nearly 40 percent 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 August 2007. To date, over
135,000 of CSI’s devices have been sold to leading institutions across the
United States. In October 2013, the company received FDA approval for the use
of the Diamondback Orbital Atherectomy System in coronary arteries. 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) the coronary launch strategy and timeline; (ii) adoption and
usage of CSI’s coronary technology by prominent hospitals and physicians;
(iii) the $1.5 billion estimate of the market for a coronary application and
its future growth potential; (iv) the use of proceeds from the November 2013
follow-up offering and the pursuit of expansion opportunities with such
proceeds; (v) potential future growth of CSI on both the coronary and
peripheral fronts; (vi) anticipated revenue, gross profit, operating expenses,
interest and other expense, and net loss; and (vii) CSI’s fiscal 2014 focus,
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 and hospitals to
accept new products; the effectiveness of the Stealth 360° and the Diamondback
360 Coronary OAS; actual clinical trial and study 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 Disclosures

Peripheral Products

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.

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 this device to sale by or on the order of
a physician.

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,
                 2013            2012             2013            2012
Revenues         $ 32,337         $ 25,309         $ 62,103         $ 48,602
Cost of goods     7,313          5,958          14,177         11,212     
sold
Gross profit      25,024         19,351         47,926         37,390     
                                                                    
Selling,
general and        27,468           20,418           52,839           40,441
administrative
Research and      5,051          4,055          9,429          7,277      
development
Total expenses    32,519         24,473         62,268         47,718     
Loss from          (7,495     )     (5,122     )     (14,342    )     (10,328    )
operations
Interest and
other             (1,163     )    (645       )    (1,608     )    (649       )
(expense)
income
Net loss         $ (8,658     )   $ (5,767     )   $ (15,950    )   $ (10,977    )
                                                                    
Net loss per
common share:
Basic and        $ (0.32      )   $ (0.28      )   $ (0.61      )   $ (0.53      )
diluted
                                                                    
Weighted
average common
shares used in
computation:
Basic and         27,177,952     20,699,222     25,964,660     20,548,113 
diluted
                                                                                 

Cardiovascular Systems, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
(unaudited)
                                                         
                                             December 31,   June 30,
                                             2013           2013

ASSETS

Current assets
Cash and cash equivalents                    $   146,664    $ 67,897
Accounts receivable, net                         15,918       14,730
Inventories                                      10,283       6,243
Prepaid expenses and other current assets       1,476       959
Total current assets                            174,341     89,829
Property and equipment, net                      3,088        2,999
Patents, net                                     3,505        3,219
Other assets                                    70          850
Total assets                                 $   181,004    $ 96,897

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Current maturities of long-term debt         $   5,050      $ 5,095
Accounts payable                                 8,511        7,230
Deferred grant incentive                         151          156
Accrued expenses                                11,092      9,932
Total current liabilities                       24,804      22,413
Long-term liabilities
Long-term debt, net of current maturities        -            7,472
Other liabilities                               123         180
Total long-term liabilities                     123         7,652
Total liabilities                               24,927      30,065
Commitments and contingencies
Total stockholders’ equity                      156,077     66,832
Total liabilities and stockholders’ equity   $   181,004    $ 96,897
                                                              

Cardiovascular Systems, Inc.
Supplemental Sales Information
(Dollars in Thousands)
(unaudited)
                                                     
                                  Three months ended    Six months ended
                                  December 31,          December 31,
                                  2013      2012       2013      2012
                                                                   
Device revenue:        PAD        $ 28,054   $ 22,252   $ 54,260   $ 42,728
                       CAD         388      -         388      -
                       Total        28,442     22,252     54,648     42,728
Other product revenue:             3,895    3,057     7,455    5,874
Total revenue                     $ 32,337  $ 25,309   $ 62,103  $ 48,602
                                                                   
Device units sold:     PAD          9,276      7,088      17,834     13,496
                       CAD         103      -         103      -
                       Total       9,379    7,088     17,937   13,496
                                                                   
New customers:         PAD          58         48         108        82
                       CAD          11         -          11         -
                       Combined    59       48        109      82
                                                                   
Reorder revenue %                  96%      97%       96%      97%
                                                                     

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 on the next page. 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.

Cardiovascular Systems, Inc.
Adjusted EBITDA
(Dollars in Thousands)
(unaudited)
                         
                          Actual
                           Three Months Ended       Six Months Ended
                           December 31,              December 31,
                           2013        2012        2013         2012
Loss from operations       $ (7,495 )  $ (5,122 )   $ (14,342 )  $ (10,328 )
Add: Stock-based             2,555        1,685        4,855         3,440
compensation
Add: Depreciation and       313       226       629        447     
amortization
Adjusted EBITDA            $ (4,627 )  $ (3,211 )  $ (8,858  )  $ (6,441  )
                                                                             

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
PadillaCRT
Marian Briggs, 612-455-1742
marian.briggs@padillacrt.com
or
Matt Sullivan, 612-455-1709
matt.sullivan@padillacrt.com
 
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