csii-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________

FORM 10-Q

_____________________________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File No. 000-52082

____________________________________________________

CARDIOVASCULAR SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

____________________________________________________


Delaware						41-1698056
(State or other jurisdiction of						(IRS Employer
incorporation or organization)						Identification No.)

1225 Old Highway 8 Northwest

St. Paul, Minnesota 55112-6416

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (651) 259-1600

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, One-tenth of One Cent ($0.001) Par Value Per Share	CSII	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, as of October 31, 2022 was: 41,882,246 shares.

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Cardiovascular Systems, Inc.

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			PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)			3
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Comprehensive Income			5
Consolidated Statements of Changes in Stockholders’ Equity			6
Consolidated Statements of Cash Flows			8
Notes to Consolidated Financial Statements			9
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			26
ITEM 4. Controls and Procedures			26
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			27
ITEM 1A. Risk Factors			27
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
ITEM 3. Defaults Upon Senior Securities			27
ITEM 4. Mine Safety Disclosures			28
ITEM 5. Other Information			28
ITEM 6. Exhibits			28
Signatures			30

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PART I. — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cardiovascular Systems, Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share and share amounts)

(Unaudited)


	September 30, 2022		June 30, 2022
ASSETS
Current assets
Cash and cash equivalents	$	62,850	$	66,424
Marketable securities	80,898		93,409
Accounts receivable, net	40,259		39,678
Inventories	37,944		34,567
Prepaid expenses and other current assets	9,125		7,768
Total current assets	231,076		241,846
Property and equipment, net	28,959		29,035
Intangible assets, net	15,388		15,734
Strategic investments	34,027		33,425
Other assets	2,588		2,637
Total assets	$	312,038	$	322,677
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	16,757	$	14,383
Accrued expenses	19,704		23,464
Deferred revenue	694		2,107
Total current liabilities	37,155		39,954
Long-term liabilities
Financing obligation	20,208		20,298

Other liabilities	12,522		12,945
Total liabilities	69,885		73,197
Commitments and contingencies (see Note 9)
Common stock, $0.001 par value; authorized 100,000,000 common shares; issued and outstanding 41,892,615 at September 30, 2022 and 40,965,202 at June 30, 2022, respectively	40		40
Additional paid in capital	677,886		673,388
Accumulated other comprehensive income	(271)		(268)
Accumulated deficit	(435,502)		(423,680)
Total stockholders’ equity	242,153		249,480
Total liabilities and stockholders’ equity	$	312,038	$	322,677

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Cardiovascular Systems, Inc.

Consolidated Statements of Operations

(Dollars in thousands, except per share and share amounts)

(Unaudited)


	Three Months Ended
	September 30,
	2022		2021
Net revenues	$	59,673	$	58,370
Cost of goods sold	16,698		14,308
Gross profit	42,975		44,062
Expenses:
Selling, general and administrative	44,475		41,851
Research and development	9,056		10,022
Amortization of intangible assets	346		304
Total expenses	53,877		52,177
Loss from operations	(10,902)		(8,115)
Other (income) expense, net:
Interest expense	406		410
Interest income and other, net	(658)		(43)
Total other (income) expense, net	(252)		367
Loss before income taxes	(10,650)		(8,482)
(Benefit) provision for income taxes	(19)		136
Net loss	$	(10,631)	$	(8,618)

Basic and diluted earnings per share	$	(0.27)	$	(0.22)


Basic and diluted weighted average shares outstanding	39,607,022		39,087,472

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Cardiovascular Systems, Inc.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)


	Three Months Ended
	September 30,
	2022		2021
Net loss	$	(10,631)	$	(8,618)
Other comprehensive loss:
Unrealized loss on available-for-sale debt securities	3		(17)
Foreign currency translation adjustments	(6)		—


Comprehensive loss	$	(10,634)	$	(8,635)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Cardiovascular Systems, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except per share amounts)

(Unaudited)


	Common Stock		Additional Paid In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total

Balances at June 30, 2022	$	40	$	673,388	$	(268)	$	(423,680)	$	249,480
Stock-based compensation related to restricted stock awards, net	—		4,324		—		—		4,324
Shares withheld for payroll taxes	—		—		—		(1,191)		(1,191)
Employee stock purchase plan activity	—		174		—		—		174
Unrealized gain on available-for-sale debt securities	—		—		3		—		3
Foreign currency translation adjustments	—		—		(6)		—		(6)

Net loss	—		—		—		(10,631)		(10,631)
Balances at September 30, 2022	$	40	$	677,886	$	(271)	$	(435,502)	$	242,153

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Cardiovascular Systems, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except per share amounts)

(Unaudited)


	Common Stock		Additional Paid In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total

Balances at June 30, 2021	$	39	$	652,288	$	11	$	(381,380)	$	270,958
Stock-based compensation related to restricted stock awards, net	—		5,523		—		—		5,523
Shares withheld for payroll taxes	—		—		—		(4,990)		(4,990)
Employee stock purchase plan activity	—		324		—		—		324
Unrealized loss on available-for-sale debt securities	—		—		(17)		—		(17)
Exercise of stock options	—		12		—		—		12

Net loss	—		—		—		(8,618)		(8,618)
Balances at September 30, 2021	$	39	$	658,147	$	(6)	$	(394,988)	$	263,192

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Cardiovascular Systems, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


	Three Months Ended
	September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(10,631)	$	(8,618)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation of property and equipment	874		954
Amortization of intangible assets	346		304
Stock-based compensation	4,438		5,672




Amortization of premium (accretion of discount) on marketable securities	(184)		380
Other	(27)		5
Changes in assets and liabilities
Accounts receivable	(587)		3,584
Inventories	(3,377)		(814)
Prepaid expenses and other assets	(1,127)		28
Accounts payable	2,264		(895)
Accrued expenses and other liabilities	(4,228)		(10,846)
Deferred revenue	(1,413)		(538)
Net cash used in operating activities	(13,652)		(10,784)
Cash flows from investing activities
Purchases of property and equipment	(688)		(1,103)
Acquisitions	—		(1,700)
Investments in strategic ventures	(575)		(50)
Purchases of marketable securities	(31,763)		(38,462)
Sales of marketable securities	11,989		6,721
Maturities of marketable securities	32,375		46,200


Net cash provided by investing activities	11,338		11,606
Cash flows from financing activities

Payments of employee taxes related to vested restricted stock	(1,191)		(4,990)
Exercise of stock options	—		12

Principal payments made on financing obligation	(69)		(50)
Net cash used in financing activities	(1,260)		(5,028)
Net change in cash and cash equivalents	(3,574)		(4,206)
Cash and cash equivalents
Beginning of period	66,424		71,070
End of period	$	62,850	$	66,864

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CARDIOVASCULAR SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(For the Three Months Ended September 30, 2022 and 2021)

(Dollars in thousands, except per share and share amounts)

(Unaudited)

1. Basis of Presentation

Cardiovascular Systems, Inc. (the “Company”), based in St. Paul, Minnesota, is a medical device company focused on developing and commercializing innovative solutions for treating vascular and coronary disease. The Company’s Orbital Atherectomy Systems (“OAS”) 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 Company prepared the unaudited interim consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The year-end consolidated balance sheet was derived from the Company’s audited consolidated financial statements, but does not include all disclosures as required by GAAP. These interim consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the Company’s consolidated financial position, the results of its operations, its changes in stockholders’ equity, and its cash flows for the interim periods. These interim consolidated financial statements should be read in conjunction with the consolidated annual financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2022. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company has been impacted by the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on the Company's customers and markets. The Company has made estimates of the impact of COVID-19 within these consolidated financial statements and there may be changes to those estimates in future periods. Actual results could differ from those estimates.

2. Selected Consolidated Financial Statement Information

Accounts Receivable, Net

Accounts receivable consists of the following:


	September 30,		June 30,
	2022		2022
Accounts receivable	$	41,561	$	40,974
Less: Allowance for doubtful accounts	(1,302)		(1,296)
Accounts receivable, net	$	40,259	$	39,678

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Inventories

Inventories consist of the following:


	September 30,		June 30,
	2022		2022
Raw materials	$	14,274	$	13,780
Work in process	3,832		2,785
Finished goods	19,838		18,002
Inventories	$	37,944	$	34,567

The total inventory reserve at September 30, 2022 and June 30, 2022 was $3,761 and $4,128, respectively.

Property and Equipment, Net

Property and equipment consists of the following:


	September 30,		June 30,
	2022		2022
Land	$	572	$	572
Building	22,420		22,420
Equipment	24,741		24,340
Furniture	3,376		3,376
Leasehold improvements	812		812
Construction in progress	3,067		2,670
	54,988		54,190
Less: Accumulated depreciation	(26,029)		(25,155)
Property and equipment, net	$	28,959	$	29,035

Accrued Expenses

Accrued expenses consist of the following:


	September 30,		June 30,
	2022		2022

Salaries and bonus	6,197		8,082
Commissions	5,797		8,104
Accrued vacation	2,280		2,345
Accrued excise, sales and other taxes	967		953
Clinical studies	902		1,082

Other	3,561		2,898
Accrued expenses	$	19,704	$	23,464

Other Liabilities

WIRION Acquisition Consideration

Following the successful completion of the manufacturing transfer of the WIRION system to the Company, the Company has agreed to pay an additional consideration of $10,000, half of which may be paid by the Company through an issuance of shares of its common stock. The Company reviewed this liability in response to the voluntary recall of the WIRION system and determined that it remains probable and appropriately recorded in other liabilities as of September 30, 2022, although this payment will be made at a later date than originally anticipated due to the recall.

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3. Revenue

The following table disaggregates the Company’s net revenues by product category and geography for the following periods:


	Three Months Ended
	September 30,
Product Category	2022		2021
Peripheral	$	38,784	$	39,009
Coronary	20,889		19,361
Total net revenues	$	59,673	$	58,370

Geography
United States	$	55,027	$	55,042
International	4,646		3,328
Total net revenues	$	59,673	$	58,370

Revenue of $1,413 was recognized in the three months ended September 30, 2022 that was deferred as of June 30, 2022. As of September 30, 2022 and June 30, 2022, the Company had a liability of $1,499 and $1,315, respectively, related to estimates of variable consideration which are recorded within accounts payable on the consolidated balance sheet.

4. Intangible Assets

The Company’s finite-lived intangible assets are stated at cost less accumulated amortization and include developed technology and trade name assets acquired in asset acquisitions, as well as costs incurred to obtain patents. Developed technology and trade name assets are amortized over 10 years to 15 years. Patent costs are amortized beginning at the time of patent approval over a useful life not exceeding 20 years.

The components of intangible assets, net are as follows:


	September 30, 2022						June 30, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology	$	17,324	$	(3,468)	$	13,856	$	17,324	$	(3,165)	$	14,159
Patents	1,866		(933)		933		1,866		(903)		963
Trade name	760		(161)		599		760		(148)		612
Total intangible assets, net	$	19,950	$	(4,562)	$	15,388	$	19,950	$	(4,216)	$	15,734

Amortization expense expected for the next five years and thereafter is as follows:


Remainder of fiscal 2023	$	1,035
Fiscal 2024	1,377
Fiscal 2025	1,374
Fiscal 2026	1,373
Fiscal 2027	1,371
Thereafter	8,858
	$	15,388

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5. Debt

Revolving Credit Facility

In March 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). In March 2020, the Company entered into the First Amendment to the Loan Agreement (the "Amendment"). The Amendment extended the maturity date of the Loan Agreement by two years, to March 31, 2022, and increased the maximum amount available under the senior, secured revolving credit facility (the “Revolver”) to $50,000 (the “Maximum Dollar Amount”). In March 2022, the Company entered into the Second Amendment to the Loan Agreement (the "Second Amendment"). The Second Amendment extended the maturity date of the Loan Agreement by one year, to March 31, 2023.

Advances under the Revolver may be made from time to time up to the Maximum Dollar Amount, subject to certain borrowing limitations. The Revolver bears interest at a floating per annum rate equal to the Wall Street Journal prime rate, less 0.75%. Interest on borrowings is due monthly and the principal balance is due at maturity. Upon the Revolver’s maturity, any outstanding principal balance, unpaid accrued interest, and all other obligations under the Revolver will be due and payable. The Company will incur a fee equal to 1.5% of the Maximum Dollar Amount upon termination of the Loan Agreement, as amended by the Second Amendment (the "Amended Loan Agreement"), or the Revolver for any reason prior to the date that is fifteen days prior to the maturity date, unless refinanced with SVB.

The Company’s obligations under the Amended Loan Agreement are secured by certain of the Company’s assets, including, among other things, accounts receivable, deposit accounts, inventory, equipment, general intangibles and records pertaining to the foregoing. The collateral does not include the Company’s intellectual property, but the Company has agreed not to encumber its intellectual property without the consent of SVB. The Amended Loan Agreement contains customary covenants limiting the Company’s ability to, among other things, incur debt or liens, make certain investments and loans, enter into transactions with affiliates, undergo certain fundamental changes, dispose of assets, or change the nature of its business. In addition, the Amended Loan Agreement contains financial covenants requiring the Company to maintain, at all times when any amounts are outstanding under the Revolver, either (i) minimum unrestricted cash at SVB and unused availability on the Revolver of at least $10,000 or (ii) minimum trailing three-month Adjusted EBITDA of $1,000. If the Company does not comply with the various covenants under the Amended Loan Agreement or an event of default under the Amended Loan Agreement occurs, such as a material adverse change, the interest rate on outstanding amounts will increase by 5% and SVB may, subject to various customary cure rights and the other terms and conditions of the Amended Loan Agreement, decline to provide additional advances under the Revolver, require the immediate payment of all amounts outstanding under the Revolver, and foreclose on all collateral.

The Company is required to pay a fee equal to 0.15% per annum on the unused portion of the Revolver, payable quarterly in arrears. The Company is not obligated to draw any funds under the Revolver and has not done so under the Revolver since entering into the Loan Agreement. No amounts are outstanding as of September 30, 2022.

Financing Obligation

In connection with the sale of the Company’s headquarters facility in St. Paul, Minnesota (the “Facility”), the Company entered into a Lease Agreement to lease the Facility. The Lease Agreement has an initial term of 15 years, with four consecutive renewal options of 5 years each at the Company’s option, with a base annual rent in the first year of $1,638 and annual escalations of 3% thereafter. Rent during subsequent renewal terms will be at the then fair market rental rate. As the lease terms resulted in a capital lease classification, the Company accounted for the sale and leaseback of the Facility as a financing transaction where the assets remain on the Company’s balance sheet and a financing obligation was recorded for $20,944. As lease payments are made, they will be allocated between interest expense and a reduction of the financing obligation, resulting in a value of the financing obligation that is equivalent to the net book value of the assets at the end of the lease term. The effective interest rate is 7.89%. At the end of the lease (including any renewal option terms), the Company will remove the assets and financing obligation from its balance sheet.

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Payments under the initial term of the Lease Agreement as of September 30, 2022 are as follows:


Remainder of fiscal 2023	$	1,438
Fiscal 2024	1,970
Fiscal 2025	2,029
Fiscal 2026	2,090
Fiscal 2027	2,153
Thereafter	11,133
	$	20,813

6. Marketable Securities & Fair Value Measurements

The Company’s marketable securities are classified on the consolidated balance sheet as follows:


			Se

SEC Form 10-Q filed by Cardiovascular Systems Inc.