Cardiovascular Systems, Inc. (Nasdaq: CSII):
- Key financial results improved in fiscal third quarter 2010 over prior-year quarter
- Revenue increased 9 percent to $16.5 million
- Revenue from reorders grew to 93 percent of total revenue from 84 percent
- Gross margin rose to 77 percent from 74 percent
- Adjusted EBITDA loss improved 16 percent to $(3.9) million
- Net loss improved 11 percent, excluding income in 2009 from valuation changes
- Prospective clinical trials advance
- ORBIT II coronary study received unconditional IDE approval from FDA
- CALCIUM 360° small vessel study enrollment completed
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 third quarter ended March 31, 2010.
CSI's revenue in the third quarter rose to $16.5 million, a 9 percent increase over revenue of $15.1 million in the third quarter of last fiscal year. Adjusted EBITDA, calculated as loss from operations, less depreciation and amortization and stock-based compensation expense, improved by 16 percent to a loss of $(3.9) million, as a result of stronger revenue and improved gross margins, partially offset by higher planned investments in sales and marketing for future revenue growth.
David L. Martin, CSI president and chief executive officer, said, "In the third quarter, we continued to see positive results from our physician education programs in selected target accounts, resulting in substantial revenue growth. Our focus on education and its expansion to additional accounts will drive future revenue growth. As revenue grows, we will limit expenses as we progress toward profitability and positive cash flow."
Net loss was $(6.5) million for the quarter compared to $(3.8) million in the third quarter of last year. The year-ago quarter benefited from $3.5 million of income due to valuation changes in redeemable convertible preferred stock warrants and auction rate security investments. Excluding the valuation changes in 2009, the 2010 net loss improved 11 percent.
Net loss per diluted common share was $(0.44) in the fiscal 2010 third quarter, compared to $(0.32) per diluted common share a year earlier. The number of weighted average basic and diluted common shares outstanding increased to 14.9 million in third quarter of fiscal 2010 from 12.0 million diluted shares in last year's third quarter, primarily due to new shares issued in conjunction with the February 2009 reverse merger with Replidyne, Inc., including conversion of all preferred stock to common stock. Third quarter 2009 included decretion of redeemable convertible preferred stock of $25.8 million, resulting in net income available to common shareholders of $21.9 million, or $2.63 per basic common share. Decretion of preferred stock arose from valuation adjustments prior to conversion to common stock in the reverse merger.
Revenue generated from customer reorders rose by $2.6 million to 93 percent of total revenue for the fiscal 2010 third quarter from 84 percent in last year's third quarter, reflecting CSI's emphasis on driving adoption in existing accounts. Gross margin rose to 77 percent from 74 percent in the same period last year, due to product cost reductions, manufacturing efficiencies and shipment of fewer controller units. Operating expenses increased 7 percent to $18.8 million, a result of expanding the sales force and programs, partially offset by lower research and development expenses from completion and timing of development projects and clinical studies.
Significant progress was also made in the first nine months of fiscal 2010 compared to the same period last fiscal year. Revenue increased 15 percent to $46.8 million. The gross margin improved to 77 percent from 71 percent, while operating expenses declined 5 percent. Operating loss improved by 35 percent, while the net loss declined 26 percent to $(19.5) million. Fiscal 2009 included $3.8 million of income from valuation changes related to preferred stock warrants and auction rate securities. Excluding this income in 2009, net loss improved by 35 percent in 2010. The net loss available to common shareholders increased by $(16.0) million from $(3.5) million last year, which was favorably affected by a $22.8 million valuation change in redeemable convertible preferred stock. Net loss per diluted common share was $(1.33) in fiscal 2010, compared to $(0.57) last year, also affected by an 8.6 million increase in weighted average common shares outstanding.
Clinical Trials Update
As announced recently, CSI received FDA unconditional Investigational Device Exemption (IDE) approval to evaluate the safety and effectiveness of the Diamondback 360® System to treat calcified coronary lesions. The ORBIT II pivotal clinical trial can now proceed with initial enrollment of up to 100 patients at as many as 50 U.S. sites.
Martin added, "The coronary indication of preparing calcified lesions for stent placement represents a large, underserved market opportunity for CSI. Removing plaque, safely and quickly, benefited patients in our ORBIT I coronary feasibility study who were otherwise untreatable, required bypass surgery, or faced difficulty with stent deployment due to calcified plaque. We look forward to the opportunity to repeat the favorable outcomes of our ORBIT I study in the ORBIT II trial."
In addition, CSI reported continued progress on its clinical trials to advance understanding of the Diamondback 360° to treat PAD, and to provide clinically useful and scientifically sound data for physicians. In March 2010, CSI completed enrollment in CALCIUM 360°, a clinical trial to evaluate using the Diamondback 360° in lesions behind and below the knee. This study complements the COMPLIANCE 360° study, which is evaluating the Diamondback 360° for above-the-knee lesions and is expected to complete enrollment during the fourth quarter of fiscal 2010. Both studies are prospective, randomized clinical trials, enrolling 50 patients at up to 10 sites, with 12 month follow-up.
Martin noted, "We believe that evidence is the path to leading market share and are committed to obtaining quality data to confirm the clinical utility of the Diamondback 360° in treating both peripheral and coronary artery disease. Our growing foundation of data puts us in a unique leadership position to provide physicians with the evidence they need to optimize patient outcomes, favorably affect the cost of care, and standardize practice guidelines."
$29 Million of Debt Facilities Established
As recently reported, CSI established $29 million in credit facilities with Silicon Valley Bank and Partners for Growth. Proceeds will be used to consolidate existing outstanding debt and provide financial flexibility for expected growth. The Silicon Valley Bank facility consists of a $10 million growth capital term loan and a $15 million line of credit for working capital. The Partners for Growth convertible debt provides the ability to draw up to $4 million in the first 12 months and additional funds over the subsequent four years to the extent debt is converted to common stock.
Fiscal 2010 Fourth-Quarter Outlook
For the fiscal 2010 fourth quarter ending June 30, 2010, CSI management anticipates:
- Revenue in the range of $16.5 million to $17.5 million, or growth of 5 percent to 11 percent over the fourth quarter of fiscal 2009;
- Gross profit as a percentage of revenue at approximately the same level as the fiscal 2010 third quarter;
- Net loss in the range of $(5.6) million to $(6.2) million, or loss per diluted share ranging from $(0.37) to $(0.41), excluding a charge of approximately $(0.8) million, or $(0.05) per diluted share, for extending the term of certain expiring stock options, and assuming 15.0 million average shares outstanding; and
- Adjusted EBITDA loss between $(3.0) million and $(3.6) million.
Management expects the net loss and adjusted EBITDA to improve as revenue increases and as the company continues to balance growth with progress toward profitability and positive cash flow.
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