0001180145-21-000010.txt : 20210204 0001180145-21-000010.hdr.sgml : 20210204 20210204160604 ACCESSION NUMBER: 0001180145-21-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 64 CONFORMED PERIOD OF REPORT: 20201231 FILED AS OF DATE: 20210204 DATE AS OF CHANGE: 20210204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Cardiovascular Systems Inc CENTRAL INDEX KEY: 0001180145 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411698056 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-52082 FILM NUMBER: 21591154 BUSINESS ADDRESS: STREET 1: 1225 OLD HWY 8 NW CITY: ST. PAUL STATE: MN ZIP: 55112 BUSINESS PHONE: 651-259-1600 MAIL ADDRESS: STREET 1: 1225 OLD HWY 8 NW CITY: ST. PAUL STATE: MN ZIP: 55112 FORMER COMPANY: FORMER CONFORMED NAME: REPLIDYNE INC DATE OF NAME CHANGE: 20020813 10-Q 1 csii-20201231.htm 10-Q csii-20201231
false2021Q20001180145--06-3000011801452020-07-012020-12-31xbrli:shares00011801452021-01-29iso4217:USD00011801452020-12-3100011801452020-06-30iso4217:USDxbrli:shares00011801452020-10-012020-12-3100011801452019-10-012019-12-3100011801452019-07-012019-12-310001180145us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-3000011801452020-07-012020-09-300001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-07-012020-09-300001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001180145us-gaap:CommonStockMember2020-09-300001180145us-gaap:AdditionalPaidInCapitalMember2020-09-300001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-09-3000011801452020-09-300001180145us-gaap:AdditionalPaidInCapitalMember2020-10-012020-12-310001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-10-012020-12-310001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-10-012020-12-310001180145us-gaap:CommonStockMember2020-12-310001180145us-gaap:AdditionalPaidInCapitalMember2020-12-310001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-12-310001180145us-gaap:CommonStockMember2019-06-300001180145us-gaap:AdditionalPaidInCapitalMember2019-06-300001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-06-3000011801452019-06-300001180145us-gaap:CommonStockMember2019-07-012019-09-300001180145us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-07-012019-09-300001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-07-012019-09-3000011801452019-07-012019-09-300001180145us-gaap:CommonStockMember2019-09-300001180145us-gaap:AdditionalPaidInCapitalMember2019-09-300001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-09-3000011801452019-09-300001180145us-gaap:AdditionalPaidInCapitalMember2019-10-012019-12-310001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-10-012019-12-310001180145us-gaap:CommonStockMember2019-10-012019-12-310001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-10-012019-12-310001180145us-gaap:CommonStockMember2019-12-310001180145us-gaap:AdditionalPaidInCapitalMember2019-12-310001180145us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001180145us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-12-3100011801452019-12-310001180145csii:PeripheralMember2020-10-012020-12-310001180145csii:PeripheralMember2019-10-012019-12-310001180145csii:PeripheralMember2020-07-012020-12-310001180145csii:PeripheralMember2019-07-012019-12-310001180145csii:CoronaryMember2020-10-012020-12-310001180145csii:CoronaryMember2019-10-012019-12-310001180145csii:CoronaryMember2020-07-012020-12-310001180145csii:CoronaryMember2019-07-012019-12-310001180145country:US2020-10-012020-12-310001180145country:US2019-10-012019-12-310001180145country:US2020-07-012020-12-310001180145country:US2019-07-012019-12-310001180145csii:InternationalMember2020-10-012020-12-310001180145csii:InternationalMember2019-10-012019-12-310001180145csii:InternationalMember2020-07-012020-12-310001180145csii:InternationalMember2019-07-012019-12-310001180145csii:WIRIONEmbolicProtectionSystemMemberMember2019-08-052019-08-050001180145csii:WIRIONEmbolicProtectionSystemMemberMember2019-08-050001180145us-gaap:DevelopedTechnologyRightsMembercsii:WIRIONEmbolicProtectionSystemMemberMember2019-08-050001180145csii:WIRIONEmbolicProtectionSystemMemberMemberus-gaap:TradeNamesMember2019-08-050001180145csii:DevelopedTechnologyAndTradeNamesMember2020-10-012020-12-310001180145us-gaap:PatentsMember2020-10-012020-12-310001180145us-gaap:DevelopedTechnologyRightsMember2020-12-310001180145us-gaap:DevelopedTechnologyRightsMember2020-06-300001180145us-gaap:PatentsMember2020-12-310001180145us-gaap:PatentsMember2020-06-300001180145us-gaap:TradeNamesMember2020-12-310001180145us-gaap:TradeNamesMember2020-06-300001180145us-gaap:RevolvingCreditFacilityMembercsii:SiliconValleyBankMember2020-03-012020-03-310001180145us-gaap:RevolvingCreditFacilityMembercsii:SiliconValleyBankMember2020-12-31xbrli:pure0001180145us-gaap:CapitalLeaseObligationsMember2020-07-012020-12-31csii:lease_renewal_option0001180145us-gaap:CapitalLeaseObligationsMember2020-12-310001180145us-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:EquityFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:EquityFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel3Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel1Memberus-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel3Memberus-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel1Memberus-gaap:EquityFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:EquityFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel3Memberus-gaap:EquityFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001180145us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel3Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel1Memberus-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel3Memberus-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel1Memberus-gaap:EquityFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:EquityFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel3Memberus-gaap:EquityFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001180145us-gaap:SubsequentEventMember2021-01-012021-01-310001180145us-gaap:FairValueInputsLevel3Member2020-12-310001180145csii:TwoThousandFourteenPlanMember2017-11-150001180145srt:MinimumMemberus-gaap:RestrictedStockMember2020-07-012020-12-310001180145srt:MaximumMemberus-gaap:RestrictedStockMember2020-07-012020-12-310001180145us-gaap:RestrictedStockMember2020-06-300001180145us-gaap:RestrictedStockMember2020-07-012020-12-310001180145us-gaap:RestrictedStockMember2020-12-310001180145srt:MaximumMemberus-gaap:PerformanceSharesMember2018-08-012018-08-310001180145us-gaap:PerformanceSharesMember2020-07-012020-12-310001180145us-gaap:PerformanceSharesMember2020-10-012020-12-310001180145us-gaap:PerformanceSharesMember2020-06-300001180145us-gaap:PerformanceSharesMember2020-12-3100011801452019-07-010001180145us-gaap:RestrictedStockUnitsRSUMember2020-12-310001180145us-gaap:RestrictedStockUnitsRSUMember2019-12-310001180145us-gaap:PerformanceSharesMember2020-12-310001180145us-gaap:PerformanceSharesMember2019-12-31

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 December 31, 2020
or
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: (651259-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, One-tenth of One Cent ($0.001) Par Value Per ShareCSIIThe 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 filerxAccelerated filer
Non-accelerated filerSmaller 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 January 29, 2021 was: 40,191,937 shares.



Cardiovascular Systems, Inc.
Table of Contents
 
 PAGE



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)
 
December 31,
2020
June 30,
2020
ASSETS
Current assets
Cash and cash equivalents$73,783 $185,463 
Marketable securities151,272 46,691 
Accounts receivable, net32,526 25,212 
Inventories32,506 27,706 
Prepaid expenses and other current assets2,994 2,617 
Total current assets293,081 287,689 
Property and equipment, net28,123 27,810 
Intangible assets, net15,998 16,606 
Other assets11,734 7,414 
Total assets$348,936 $339,519 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$13,669 $11,539 
Accrued expenses32,338 31,100 
Deferred revenue2,078 1,867 
Total current liabilities48,085 44,506 
Long-term liabilities
Financing obligation20,716 20,818 
Deferred revenue3,644 4,707 
Other liabilities2,659 696 
Total liabilities75,104 70,727 
Commitments and contingencies (see Note 10)
Common stock, $0.001 par value; authorized 100,000,000 common shares; issued and outstanding 40,191,609 at December 31, 2020 and 39,675,865 at June 30, 2020, respectively
39 39 
Additional paid in capital642,702 631,559 
Accumulated other comprehensive income115 269 
Accumulated deficit(369,024)(363,075)
Total stockholders’ equity273,832 268,792 
Total liabilities and stockholders’ equity$348,936 $339,519 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

Cardiovascular Systems, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share and share amounts)
(Unaudited)
 
 Three Months EndedSix Months Ended
December 31,December 31,
 2020201920202019
Net revenues$64,169 $68,334 $124,713 $132,824 
Cost of goods sold13,920 13,718 26,484 26,390 
Gross profit50,249 54,616 98,229 106,434 
Expenses:
Selling, general and administrative40,061 46,867 80,343 93,619 
Research and development9,601 10,786 18,653 21,551 
Amortization of intangible assets304 337 608 571 
Total expenses49,966 57,990 99,604 115,741 
Income (loss) from operations283 (3,374)(1,375)(9,307)
Other (income) expense, net:
Interest expense412 500 911 972 
Interest income and other, net(136)(517)(280)(1,180)
Total other (income) expense, net276 (17)631 (208)
Income (loss) before income taxes7 (3,357)(2,006)(9,099)
Provision for income taxes63 44 126 82 
Net loss$(56)$(3,401)$(2,132)$(9,181)
Basic and diluted earnings per share$ $(0.10)$(0.06)$(0.27)
Basic and diluted weighted average shares outstanding38,808,980 34,069,412 38,746,410 33,969,818 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Cardiovascular Systems, Inc.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)

Three Months EndedSix Months Ended
December 31,December 31,
2020201920202019
Net loss$(56)$(3,401)$(2,132)$(9,181)
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale debt securities(85)(9)(154)15 
Comprehensive loss$(141)$(3,410)$(2,286)$(9,166)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4

Cardiovascular Systems, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except per share amounts)
(Unaudited)

 Common StockAdditional
Paid  In
Capital
Accumulated Other Comprehensive Income (Loss) Accumulated
Deficit
Total
 
Balances at June 30, 202039 631,559 269 (363,075)268,792 
Stock-based compensation related to restricted stock awards, net— 4,836 — — 4,836 
Shares withheld for payroll taxes— — — (3,410)(3,410)
Employee stock purchase plan activity— 332 — — 332 
Unrealized loss on available-for-sale debt securities— — (69)— (69)
Net loss— — — (2,076)(2,076)
Balances at September 30, 202039 636,727 200 (368,561)268,405 
Stock-based compensation related to restricted stock awards, net— 3,545 — — 3,545 
Shares withheld for payroll taxes— — — (407)(407)
Employee stock purchase plan activity— 2,430 — — 2,430 
Unrealized loss on available-for-sale debt securities— — (85)— (85)
Net loss— — — (56)(56)
Balances at December 31, 2020$39 $642,702 $115 $(369,024)$273,832 

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

5

Cardiovascular Systems, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except per share amounts)
(Unaudited)

 Common StockAdditional
Paid  In
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
 
Balances at June 30, 2019$34 $477,368 $78 $(329,536)$147,944 
Stock-based compensation related to restricted stock awards, net 3,804   3,804 
Shares withheld for payroll taxes   (5,506)(5,506)
Employee stock purchase plan activity 242   242 
Unrealized gain on available-for-sale debt securities  24  24 
Stock issued for acquisitions 1,346   1,346 
Net loss— — — (5,780)(5,780)
Balances at September 30, 201934 482,760 102 (340,822)142,074 
Stock-based compensation related to restricted stock awards, net— 3,091 — — 3,091 
Shares withheld for payroll taxes— — — (379)(379)
Employee stock purchase plan activity— 1,929 — — 1,929 
Unrealized loss on available-for-sale debt securities  (9) (9)
Net loss— — — (3,401)(3,401)
Balances at December 31, 2019$34 $487,780 $93 $(344,602)$143,305 

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

6

Cardiovascular Systems, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
 Six Months Ended
December 31,
 20202019
Cash flows from operating activities
Net loss$(2,132)$(9,181)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation of property and equipment1,479 1,493 
Amortization of intangible assets608 571 
Write-off of patent costs— 771 
Provision for doubtful accounts— 450 
Loss on disposal of equipment138 — 
Stock-based compensation8,784 7,196 
Amortization of premium (accretion of discount) on marketable securities625 (142)
Changes in assets and liabilities
Accounts receivable(7,314)(268)
Inventories(4,800)(3,414)
Prepaid expenses and other assets(108)886 
Accounts payable2,192 5,409 
Accrued expenses and other liabilities913 (4,642)
Deferred revenue(852)(909)
Net cash used in operating activities(467)(1,780)
Cash flows from investing activities
Purchases of property and equipment(1,992)(1,080)
Acquisitions— (5,741)
Purchases of marketable securities(122,193)(4,844)
Sales of marketable securities2,485 85 
Maturities of marketable securities14,450 9,400 
Costs incurred in connection with patents— (573)
Other investing activities(2,175)— 
Net cash used in investing activities(109,425)(2,753)
Cash flows from financing activities
Proceeds from employee stock purchase plan2,098 1,687 
Payments of employee taxes related to vested restricted stock(3,817)(5,885)
Principal payments made on financing obligation(69)(39)
Net cash used in financing activities(1,788)(4,237)
Net change in cash and cash equivalents(111,680)(8,770)
Cash and cash equivalents
Beginning of period185,463 74,237 
End of period$73,783 $65,467 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

CARDIOVASCULAR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the Six Months Ended December 31, 2020 and 2019)
(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, 2020. 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:
December 31,June 30,
20202020
Accounts receivable$34,184 $26,971 
Less: Allowance for doubtful accounts(1,658)(1,759)
   Accounts receivable, net$32,526 $25,212 


8

Inventories

Inventories consist of the following:
December 31,June 30,
20202020
Raw materials$10,690 $8,508 
Work in process2,705 2,637 
Finished goods19,111 16,561 
   Inventories$32,506 $27,706 

Property and Equipment, Net

Property and equipment consists of the following:
December 31,June 30,
20202020
Land$572 $572 
Building22,420 22,420 
Equipment18,893 18,255 
Furniture3,360 3,326 
Leasehold improvements681 672 
Construction in progress3,729 3,251 
49,655 48,496 
Less: Accumulated depreciation(21,532)(20,686)
Property and equipment, net$28,123 $27,810 

Accrued Expenses

Accrued expenses consist of the following:
December 31,June 30,
20202020
Acquisition consideration$10,000 $9,914 
Commissions5,965 2,122 
Salaries and bonus5,814 8,476 
Accrued vacation5,381 5,536 
Accrued excise, sales and other taxes1,860 2,145 
Clinical studies1,254 1,420 
Other accrued expenses2,064 1,487 
Accrued expenses$32,338 $31,100 


9

3. Revenue

The following table disaggregates the Company’s net revenues by product category and geography for the following periods:
Three Months EndedSix Months Ended
December 31,December 31,
Product Category2020201920202019
Peripheral$43,956 $47,580 $86,888 $93,109 
Coronary20,213 20,754 37,825 39,715 
Total net revenues$64,169 $68,334 $124,713 $132,824 
Geography
United States$61,907 $65,960 $120,738 $127,489 
International 2,262 2,374 3,975 5,335 
Total net revenues$64,169 $68,334 $124,713 $132,824 

Revenue of $851 was recognized in the six months ended December 31, 2020 that was deferred as of June 30, 2020. As of December 31, 2020 and June 30, 2020, the Company had a liability of $1,515 and $1,719, respectively, related to estimates of variable consideration which are recorded within accounts payable on the consolidated balance sheet.

4. Acquisition

On August 5, 2019, the Company acquired the WIRION Embolic Protection System and related assets from Gardia Medical Ltd. ("Gardia"), a wholly owned Israeli subsidiary of Allium Medical Solutions Ltd., for a total purchase price of $16,687. The device, which received CE Mark in June 2015 and FDA clearance in March 2018, is a distal embolic protection filter used to capture debris that can be associated with all types of peripheral vascular intervention procedures. The Company acquired the device to expand its portfolio of products for physicians that treat complex peripheral arterial disease.

Upon closing, the Company made an initial $5,600 cash payment, net of transaction expenses, and issued Gardia 31,493 shares of common stock of the Company valued at $1,346. Following the successful completion of the manufacturing transfer of the WIRION system to the Company, the Company has agreed to pay Gardia an additional $10,000, half of which may be paid by the Company through an additional issuance of shares of common stock. The Company has accounted for this transaction as an asset acquisition resulting in developed technology of $15,624 and a trade name of $760, both recognized as a component of intangible assets, net within the Company's consolidated balance sheet. The remainder of the purchase price was recognized in property and equipment.

The purchase also includes a performance milestone payment to Gardia equal to $3,000 for each $10,000 in net revenues recognized by the Company from sales of the WIRION system for applications above-the-knee in excess of $30,000 during the 36 month period beginning on the earlier of the first commercial sale of the system by the Company or six months following successful manufacturing transfer. If payment of the performance milestone becomes probable, these additional costs will be added to the carrying value of the acquired assets.

5. 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 the asset acquisition discussed in Note 4, as well as costs incurred to obtain patents. Developed technology and trade name assets are amortized over 15 years. Patent costs are amortized beginning at the time of patent approval over a useful life not exceeding 20 years.


10

The components of intangible assets, net are as follows:
December 31, 2020June 30, 2020
Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Developed technology$15,624 $(1,475)$14,149 $15,624 $(955)$14,669 
Patents1,882 (721)1,161 1,882 (659)1,223 
Trade name760 (72)688 760 (46)714 
Total intangible assets, net$18,266 $(2,268)$15,998 $18,266 $(1,660)$16,606 

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

Remainder of fiscal 2021$608 
Fiscal 20221,216 
Fiscal 20231,212 
Fiscal 20241,208 
Fiscal 20251,205 
Thereafter10,549 
$15,998 

6. 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”).

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 3% of the Maximum Dollar Amount upon termination of the Loan Agreement, as amended by the 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 December 31, 2020.
11


Financing Obligation

In March 2017, 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.

Payments under the initial term of the Lease Agreement as of December 31, 2020 are as follows:
Remainder of fiscal 2021$908 
Fiscal 20221,857 
Fiscal 20231,913 
Fiscal 20241,970 
Fiscal 20252,029 
Thereafter15,376 
$24,053 

7. Marketable Securities & Fair Value Measurements

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

December 31,June 30,
20202020
Short-term available-for-sale debt securities$140,825 $40,088 
Long-term available-for-sale debt securities10,158 6,276 
Available-for-sale debt securities150,983 46,364 
Mutual funds289 327 
Total marketable securities$151,272 $46,691 

Available-for-sale debt securities are invested in the following financial instruments:

As of December 31, 2020
Amortized CostUnrealized GainsUnrealized LossesFair Value
Commercial paper$42,157 $ $ $42,157 
U.S. government securities46,559 2 (2)46,559 
Corporate debt48,827 95 (10)48,912 
Asset backed securities13,326 29  13,355 
  Total available-for-sale debt securities$150,869 $126 $(12)$150,983 


12

As of June 30, 2020
Amortized CostUnrealized GainsUnrealized LossesFair Value
Commercial paper$9,778 $ $ $9,778 
U.S. government securities6,120 1  6,121 
Corporate debt21,267 232 (1)21,498 
Asset backed securities8,930 37  8,967 
Total available-for-sale debt securities$46,095 $270 $(1)$46,364 

The following table provides information by level for the Company’s marketable securities that were measured at fair value on a recurring basis:
Fair Value Measurements as of December 31, 2020
Using Inputs Considered as
Fair ValueLevel 1Level 2Level 3
Commercial paper$42,157 $ $42,157 $ 
U.S. government securities46,559  46,559  
Corporate debt48,912  48,912  
Asset backed securities13,355  13,355  
Mutual funds289 115 174  
  Total marketable securities$151,272 $115 $151,157 $ 

Fair Value Measurements as of June 30, 2020
Using Inputs Considered as
Fair ValueLevel 1Level 2Level 3
Commercial paper$9,778 $ $9,778 $ 
U.S. government securities6,121  6,121  
Corporate debt21,498  21,498  
Asset backed securities8,967  8,967  
Mutual funds327 99 228  
  Total marketable securities$46,691 $99 $46,592 $ 

The Company’s marketable securities classified within Level 1 are valued using real-time quotes for transactions in active exchange markets. Marketable securities within Level 2 are valued using readily available pricing sources. There were no transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy during the six months ended December 31, 2020. Any transfers between levels would be recognized on the date of the event or when a change in circumstances causes a transfer.

Strategic Investments

The Company holds equity investments that do not have readily determined fair values. The Company has elected to measure these investments at cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Impairment is reviewed each reporting period by performing a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.

As of December 31, 2020 and June 30, 2020, the carrying value of these investments was $6,771 and $6,306, respectively. During the six months ended December 31, 2020, no impairment indicators were noted. The Company is committed to funding an additional $2,750 into these investments in the future. The Company holds options to acquire all outstanding equity or certain developed technologies with respect to some of these strategic investments. These investments are recorded within other assets on the consolidated balance sheet.

In January 2021, the Company provided an additional $5,399 of debt financing into an existing strategic investment opportunity for the Company. As of December 31, 2020, the carrying value and approximated fair value of this investment was $1,675 which is accounted for as an available-for-sale debt security and recorded within other assets on the consolidated
13

balance sheet. The fair value of this investment is measured using Level 3 inputs and is not included in the tables above. Impairment is assessed similar to the Company's other strategic investments and no impairment indicators were noted during the six months ended December 31, 2020.

8. Stock-Based Compensation

On November 15, 2017, the Company’s stockholders approved the 2017 Equity Incentive Plan (the “2017 Plan”) for the purpose of granting equity awards to employees, directors and consultants. The 2017 Plan replaced the 2014 Equity Incentive Plan (the “2014 Plan”), and no further equity awards may be granted under the 2014 Plan (the 2017 Plan and the 2014 Plan are collectively referred to as the “Plans”). On March 12, 2020, the Company’s Board of Directors approved the Amended and Restated 2017 Equity Incentive Plan, which amends the 2017 Plan.

Equity awards classified as restricted stock and performance-based restricted stock are treated as issued shares when granted; however, these shares are not included in the computation of basic weighted average shares outstanding. When shares vest, unless the holder elects to pay the payroll tax liability in cash or through a sale of shares, the Company withholds the appropriate amount of shares to settle the payroll tax liability, on behalf of the individual receiving the shares, as an adjustment to accumulated deficit.

Restricted Stock

The value of each restricted stock award is equal to the fair market value of the Company’s common stock at the date of grant. Vesting of time-based restricted stock awards ranges from one year to three years. The estimated fair value of restricted stock awards, including the effect of estimated forfeitures, is recognized on a straight-line basis over the restricted stock’s vesting period.

Restricted stock award activity for the six months ended December 31, 2020 is as follows:
Number of
Shares
Weighted
Average  Fair
Value
Outstanding at June 30, 2020434,067 $38.34 
Granted295,165 $31.13 
Forfeited(13,914)$36.88 
Vested(182,018)$37.57 
Outstanding at December 31, 2020533,300 $34.77 

Performance-Based Restricted Stock

The Company also grants performance-based restricted stock awards to certain executives and other management. In August 2020, the Company granted an aggregate maximum of 339,395 shares that vest based on the Company’s total shareholder return relative to total shareholder return of the Company’s peer group (a market condition), as measured by the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2020 compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2023. Vesting of these awards will be determined on the date that the Company’s Annual Report on Form 10-K for the fiscal year ending June 30, 2023 is filed.

To calculate the estimated fair value of these restricted stock awards with market conditions, the Company uses a Monte Carlo simulation, which uses the expected average stock prices to estimate the expected number of shares that will vest. The Monte Carlo simulation resulted in an aggregate fair value of approximately $4,330, which the Company will recognize as expense using the straight-line method over the period that the awards are expected to vest. Stock-based compensation expense related to an award with a market condition will be recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided.

Performance-based restricted stock awards granted in fiscal 2019 and 2020 that are outstanding vest based on the Company’s total shareholder return relative to total shareholder return of the Company’s peer group (a market condition), as measured by the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2018 and July 1, 2019, respectively, compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2021 and July 1, 2022, respectively.

14

Performance-based restricted stock award activity for the six months ended December 31, 2020 is as follows:
Number of
Shares
Weighted
Average  Fair
Value
Outstanding at June 30, 2020660,622 $21.69 
Granted339,395 $12.75 
Forfeited(72,549)$13.64 
Vested(166,086)$13.96 
Outstanding at December 31, 2020761,382 $20.26 

9. Leases

Effective July 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842 - Leases using the modified retrospective transition approach and electing the package of practical expedients. This resulted in the recognition of right-of-use assets of $441 and total operating lease liabilities of $463. There was no cumulative-effect adjustment recorded to retained earnings upon adoption.

The Company leases its Texas manufacturing facility under an operating lease agreement. During the six months ended December 31, 2020, the Company exercised its option to extend the term of this lease agreement by five years, so that it now expires in April 2026, and entered into an amendment for this extended period. The Company also leases office equipment under lease agreements that expire at various dates through April 2024.

As discussed in Note 6, the Company also leases its Minnesota headquarters facility which is accounted for as a financing obligation.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement dates. The Company considers fixed or variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company uses its incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments unless the lease provides an implicit interest rate.

Operating lease cost is classified within the consolidated statement of operations based on the nature of the leased asset. The Company's operating lease cost was $252 and $241 for the six months ended December 31, 2020 and 2019, respectively. Cash paid for operating lease liabilities approximated operating lease cost for the six months ended December 31, 2020. There were $2,238 and $437 of operating lease right-of-use assets obtained in exchange for new lease liabilities during the six months ended December 31, 2020 and 2019, respectively.
December 31,June 30,
20202020
Right-of-use assets
Other assets$2,434 $427 
Operating lease liabilities
Accrued expenses493 412 
Other liabilities1,941 15 
Total operating lease liabilities$2,434 $427 



15

Future minimum lease payments under the agreements as of December 31, 2020 are as follows:
Remainder of fiscal 2021$251 
Fiscal 2022494 
Fiscal 2023486 
Fiscal 2024485 
Fiscal 2025483 
Thereafter403 
Total lease payments2,602 
Less imputed interest(168)
Total operating lease liabilities$2,434 

As of December 31, 2020, the weighted average remaining lease term for operating leases was 5.3 years and the weighted average discount rate used to determine operating lease liabilities was 2.54%.

10. Commitment and Contingencies

In the ordinary conduct of business, the Company is subject to various lawsuits and claims covering a wide range of matters including, but not limited to, employment claims and commercial disputes. While the outcome of these matters is uncertain, the Company does not believe there are any significant matters as of December 31, 2020 that are probable or estimable, for which the outcome could have a material adverse impact on its consolidated balance sheets or statements of operations.

11. Earnings Per Share

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations (in thousands except share and per share amounts):
 Three Months EndedSix Months Ended
December 31,December 31,
 2020201920202019
Numerator
Net (loss) income$(56)$(3,401)$(2,132)$(9,181)
Income allocated to participating securities— — — — 
Net (loss) income available to common stockholders$(56)$(3,401)$(2,132)$(9,181)
Denominator
Weighted average common shares outstanding – basic(1)
38,808,980 34,069,412 38,746,410 33,969,818 
Effect of dilutive restricted stock units(2)
— — — — 
Effect of performance-based restricted stock awards(3)
— — — — 
Weighted average common shares outstanding – diluted
38,808,980 34,069,412 38,746,410 33,969,818 
Earnings per common share – basic and diluted$ $(0.10)$(0.06)$(0.27)

(1)The increase in weighted average shares outstanding is primarily from the Company's offering of common stock completed in June 2020.
(2)At December 31, 2020 and 2019, 281,430 and 365,818 additional shares of common stock, respectively, were issuable upon the settlement of outstanding restricted stock units. The effect of the shares that would be issued upon settlement of these restricted stock units has been excluded from the calculation of diluted loss per share for all periods presented because those shares are anti-dilutive.
(3)At December 31, 2020 and 2019, 761,382 and 661,314 performance-based restricted stock awards, respectively, were outstanding. The effect of the potential vesting of these awards has been excluded from the calculation of diluted loss per share for all periods presented because those shares are anti-dilutive.

Unvested time-based restricted stock awards that contain nonforfeitable rights to dividends are participating securities and included in the computation of earnings per share pursuant to the two-class method. Under this method, earnings attributable to the Company are allocated between common stockholders and the participating awards, as if the awards were a second class of stock. During periods of net income, the calculation of earnings per share excludes the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. In the event of a net loss,
16

undistributed earnings are not allocated to participating securities and the denominator excludes the dilutive impact of these securities as they do not share in the losses of the Company. During the three and six months ended December 31, 2020 and 2019, there were no undistributed earnings allocated to participating securities due to the net losses.
17


ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing under Item 1 of Part I of this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” discussed in our Annual Report on Form 10-K for the year ended June 30, 2020 and subsequent Quarterly Reports on Form 10-Q, including in Item 1A of Part II of this Quarterly Report on Form 10-Q, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

OVERVIEW

We are a medical technology company leading the way in the effort to successfully treat patients living with peripheral and coronary artery diseases, including those with arterial calcium, the most difficult arterial disease to treat. We are committed to clinical rigor, constant innovation and a defining drive to set the industry standard to deliver safe and effective medical devices that improve lives of patients facing these difficult disease states.

In the past, we have observed some degree of seasonality in our business, as there tends to be a lower number of procedures that use our products during the three months ending September 30. Interventional procedure volume usually grows throughout the course of the fiscal year, with the quarter ending June 30 representing the highest volume of cases and, therefore, the highest amount of revenue generated by us during the course of the fiscal year. With the COVID-19 pandemic in fiscal 2020 and 2021, we have not experienced this same pattern of seasonality due to the significant decrease in procedure volumes, and we cannot be certain if this pattern will resume in the future.

Peripheral

Our peripheral arterial disease (“PAD”) products are catheter-based platforms capable of treating a broad range of plaque types in leg arteries both above and below the knee, including calcified plaque, and address many of the limitations associated with other existing surgical, catheter and pharmacological treatment alternatives. The micro-invasive devices use small access sheaths that can provide procedural benefits, allow physicians to treat PAD patients in even the small and tortuous vessels located below the knee, and facilitate access through alternative sites in the ankle, foot and wrist, as well as in the groin.

The United States Food and Drug Administration (“FDA”) has granted us 510(k) clearances for our Peripheral OAS as a therapy in patients with PAD, as discussed in Item 1 of Part I of our Annual Report on Form 10-K for the year ended June 30, 2020. We refer to these products in this Quarterly Report on Form 10-Q as the “Peripheral OAS.” In addition to our Peripheral OAS, we also offer support products within the peripheral space. Peripheral sales in the United States during the six months ended December 31, 2020 represented 70% of revenue.

Coronary

Our coronary artery disease (“CAD”) product, the Diamondback 360 Coronary OAS (“Coronary OAS”), is a catheter-based platform designed to facilitate stent delivery in patients with CAD who are acceptable candidates for percutaneous transluminal coronary angioplasty or stenting due to de novo, severely calcified coronary artery lesions. The Coronary OAS design is similar to technology used in our Peripheral OAS, customized specifically for the coronary application. In addition to the Coronary OAS, we also offer support products within the coronary space as we expand treatment to a broader patient population with complex coronary artery disease.

We have received premarket approval (“PMA”) from the FDA to market the Coronary OAS as a treatment for severely calcified coronary arteries. Coronary sales in the United States during the six months ended December 31, 2020 represented approximately 27% of revenue.

International

Sales of our approved products in Japan are made through our exclusive Japan distributor, Medikit Co., Ltd. ("Medikit"). Sales of our products in the rest of the world, which primarily includes certain countries in Southeast Asia, Europe and the Middle East, are currently made through OrbusNeich®. In the three months ended December 31, 2020, we amended our international
18

distribution agreement with OrbusNeich. Pursuant to this amendment, OrbusNeich has retained exclusive or non-exclusive rights to distribute our products in the territories in which it is currently selling our products, as well as certain additional territories, with all other territorial distribution rights reverting to us. We intend to seek additional distributors or commence direct sales in certain territories in which OrbusNeich has non-exclusive distribution rights or no further distribution rights following such amendment. International sales during the six months ended December 31, 2020 represented approximately 3% of revenue.

Impact of COVID-19

Beginning in the three months ended March 31, 2020, we experienced a disruption in the procedures using our products as a result of the COVID-19 pandemic in the United States and internationally. Procedures were postponed, and may continue to be postponed, as a result of reduced availability of physicians or lab space to treat patients, the lack of personal protective equipment and active virus test kits, different treatment prioritizations, increased cost pressures and burdens on the overall healthcare infrastructure that result in reallocation of resources, and other governmental guidelines and restrictions. In addition, patients elected to defer or avoid treatment for procedures that use our products due to anxiety about the potential spread of COVID-19 in facilities. Finally, our personnel and the personnel of our distribution partners have experienced, and we expect will continue to experience, restrictions on their ability to access many customers, hospitals, labs and other medical facilities for sales activities, training and case support as they may have been deemed to be “non-essential” personnel by those facilities, and there has been a reduction in procedure activity in these accounts. These disruptions continued in the six months ended December 31, 2020.

In addition to the impact on procedure volumes, we are experiencing and may experience other disruptions as a result of the COVID-19 pandemic. For example, enrollment in our ECLIPSE clinical trial was paused at the outset of the pandemic, but we began to enroll new patients on a limited basis beginning in October 2020. Other disruptions or potential disruptions include restrictions on the ability of our personnel and personnel of our distribution partners to travel; delays in approvals by regulatory bodies; delays in product development efforts, which will also disrupt or delay our ability to launch affected products; reallocation of company resources from our strategic priorities; supply chain disruptions that limit, delay or prevent us from acquiring the components used to develop and manufacture our products or ship those products once manufactured; disruptions and changes in our relationships with our distributors due to the impact of the COVID-19 pandemic on their operations and ability to sell our products; temporary closures of our facilities; loss of employee productivity; and additional government requirements to “shelter at home” or other incremental mitigation efforts that may further impact our capacity to manufacture, sell and support the use of our products.

We have been operating our manufacturing facilities and have continued to ship product; however, we will continue to monitor federal, state and local requirements that apply to these operations and we may experience disruptions in these operations or limitations in our ability to continue producing and shipping products. Most of our office-based employees are telecommuting, and our field employees will continue to support cases in clinical settings where they continue to have access. We have taken several actions intended to protect the health and well-being of our workforce and our customers, such as implementing restrictions on access to our facilities; deploying screening, safety and rapid testing protocols for employees who work on site; utilizing remote working systems and providing home office equipment for employees; providing employees with access to coronavirus test kits and antibody tests; training employees on personal protection, hygiene and safe practices in patient care; establishing protocols for our field sales personnel for their interactions with customer and facilities; supplying personal protective equipment to employees and customers; introducing new paid leave programs for employees who have been adversely impacted by the pandemic; adopting virtual physician and sales training on the use of our devices; and establishing new company-wide safety policies and a COVID-19 preparedness plan. We are monitoring developments at the local, state and national levels in order to ensure that we and our employees have current information for purposes of making decisions in the dynamic and unpredictable environment and that we comply with applicable requirements. We have continued to manage our expenses during the continuation of the pandemic, which includes freezing most new hiring, ceasing most travel and all in-person conference activity, and suspending work on certain product development and other internal projects. We are also engaged in ongoing business planning for the recovery period as we anticipate how our business will return to a more normalized level of activity once the pandemic and its effects subside.

In the near term, as the pandemic continues, we anticipate that we may experience a continued reduction in the number of procedures using our devices relative to prior year comparable periods, which could result in lower revenue and increased utilization of our existing capital resources. We expect that the pandemic will continue to have an acute, short-term impact on our business. Many factors may increase or decrease procedure volumes, including, as noted above, developments relating to social restrictions and government restrictions on elective and semi-elective cases, level of patient anxiety, availability of personal protective equipment, medical facility and workforce capacity, sales representative access to facilities to support cases, and availability of vaccines. We expect that medical facilities will continue to preserve cash and they will not immediately
19

replenish their inventories. Travel restrictions and our inability to support new accounts will continue to negatively impact our international business. We also expect that the total impact of disruptions resulting from the pandemic could be material on our financial condition, capital resources and results of operations, but we cannot predict the specific extent, or duration, of the impact of the COVID-19 pandemic on our condition, resources and results.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect amounts reported in those statements. Our estimates, assumptions and judgments, including those related to revenue recognition, deferred revenue and stock-based compensation, are updated as appropriate at least quarterly. We use authoritative pronouncements, our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies. While we believe that the estimates, assumptions and judgments that we use in preparing our consolidated financial statements are appropriate, these estimates, assumptions and judgments are subject to factors and uncertainties regarding their outcome. Therefore, actual results may materially differ from these estimates.

Some of our significant accounting policies require us to make subjective or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (1) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (2) different estimates that reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period, would have a material impact on the presentation of our financial condition, results of operations, or cash flows.

Our critical accounting policies are identified in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 under the heading “Critical Accounting Policies and Significant Judgments and Estimates.”

RESULTS OF OPERATIONS

The following table sets forth our results of operations expressed as dollar amounts (in thousands) and the changes between the specified periods expressed as percent increases or decreases:
 Three Months Ended December 31,Six Months Ended December 31,
20202019Percent
Change
20202019Percent
Change
Net revenues$64,169 $68,334 (6.1)%$124,713 $132,824 (6.1)%
Cost of goods sold13,920 13,718 1.5 26,484 26,390 0.4 
Gross profit50,249 54,616 (8.0)98,229 106,434 (7.7)
Expenses:
Selling, general and administrative40,061 46,867 (14.5)80,343 93,619 (14.2)
Research and development9,601 10,786 (11.0)18,653 21,551 (13.4)
Amortization of intangible assets304 337 (9.8)608 571 6.5 
Total expenses49,966 57,990 (13.8)99,604 115,741 (13.9)
Income (loss) from operations283 (3,374)(108.4)(1,375)(9,307)85.2 
Other (income) expense, net276 (17)(1,723.5)631 (208)(403.4)
Income (loss) before income taxes(3,357)(100.2)(2,006)(9,099)78.0 
Provision for income taxes63 44 43.2 126 82 53.7 
Net loss$(56)$(3,401)(98.4)$(2,132)$(9,181)76.8 


20

Comparison of Three Months Ended December 31, 2020 with Three Months Ended December 31, 2019

Net revenues. Net revenues decreased by $4.1 million, or 6.1%, from $68.3 million for the three months ended December 31, 2019 to $64.2 million for the three months ended December 31, 2020. Peripheral revenues decreased $3.6 million, or 7.6%, and coronary revenues decreased $541,000, or 2.6%. Decreases in both peripheral and coronary revenues were driven by decreased unit volumes in the hospital site of service as a result of the continuing effects of the COVID-19 pandemic. These volume decreases in the hospital setting were partially offset by increased volumes in office-based labs. International revenue was $2.3 million for the three months ended December 31, 2020, compared with international revenue of $2.4 million for the three months ended December 31, 2019. The COVID-19 pandemic has impacted global case volumes and our ability to provide case support worldwide. In the third quarter of fiscal 2021 we continue to expect our revenue will be impacted by the COVID-19 pandemic's effect on case volumes. Longer-term we expect revenue growth to return to recently observed normal levels driven by increasing the number of physicians using the devices; increasing the usage per physician; introducing new and improved products such as the Sapphire balloons, Teleport Microcatheter, and ViperWire with Flex Tip; generating additional clinical data; and continuing expansion into new geographies, partially offset by potential decreases in average selling prices.

Cost of Goods Sold. Cost of goods sold was $13.9 million for the three months ended December 31, 2020, an increase of 1.5% from $13.7 million for the three months ended December 31, 2019. These amounts represent the cost of materials, labor and overhead for single-use catheters, guide wires, pumps, and other ancillary products. Gross margin decreased to 78.3% for the three months ended December 31, 2020 from 79.9% for the three months ended December 31, 2019, primarily due to increased sales of lower margin products and lower volumes of devices sold. This decrease was partially offset by product cost reductions and manufacturing efficiencies. We expect that gross margin in the third quarter of fiscal 2021 will be slightly lower than gross margin in the three months ended December 31, 2020 due to sales mix and declining average selling prices, partially offset by increased sales volumes. Quarterly margin fluctuations could also occur based on production volumes, timing of new product introductions, sales mix, pricing changes, or other unanticipated circumstances.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $40.1 million for the three months ended December 31, 2020, a decrease of $6.8 million, or 14.5%, from $46.9 million for the three months ended December 31, 2019. Expense decreases were driven by reduced costs associated with travel and meetings due to customer facility access restrictions, cessation of in-person sales and physician trainings, and internal and external conferences moving to a virtual format during the pandemic, in addition to lower sales commissions as a result of reduced sales due to COVID-19. Selling, general and administrative expenses for the three months ended December 31, 2020 and 2019 include $3.2 million and $2.7 million, respectively, for stock-based compensation. We expect our selling, general and administrative expenses for the third quarter of fiscal 2021 to be greater than amounts incurred for the three months ended December 31, 2020.

Research and Development Expenses. Research and development expenses decreased by 11.0%, from $10.8 million for the three months ended December 31, 2019 to $9.6 million for the three months ended December 31, 2020. Research and development expenses relate to specific projects to develop new products or expand into new markets, such as the development of new versions of the Peripheral and Coronary OAS, shaft designs and crown designs, and expanded product offerings, and to clinical trials. The decrease was primarily due to decreased activity on the ECLIPSE clinical trial as enrollments were paused at the onset of COVID-19 and only began to recommence on a limited basis in October 2020. We expect increased research and development expenses in the third quarter of fiscal 2021 as we continue resumption of enrollments in ECLIPSE and continue ongoing product development activities. Quarterly fluctuations could occur based on the number of projects and studies, the progress of such projects and studies, the rate of study enrollment, and the timing of expenditures.


21

Comparison of Six Months Ended December 31, 2020 with Six Months Ended December 31, 2019

Net revenues. Net revenues decreased by $8.1 million, or 6.1%, from $132.8 million for the six months ended December 31, 2019 to $124.7 million for the six months ended December 31, 2020. Peripheral revenues decreased $6.2 million, or 6.7%, and coronary revenues decreased $1.9 million, or 4.8%. Decreases in peripheral and coronary revenue were driven by decreased unit volumes in the hospital site of service as a result of the continuing effects of the COVID-19 pandemic. Decreased revenues due to volume decreases in the hospital setting were partially offset by increased volumes in office-based labs. International revenue was $4.0 million for the six months ended December 31, 2020, compared with international revenue of $5.3 million for the six months ended December 31, 2019, a decrease of $1.3 million.

Cost of Goods Sold. Cost of goods sold was $26.5 million for the six months ended December 31, 2020, an increase of 0.4% from $26.4 million for the six months ended December 31, 2019. These amounts represent the cost of materials, labor and overhead for single-use catheters, guide wires, pumps, and other ancillary products. Gross margin decreased to 78.8% for the six months ended December 31, 2020 from 80.1% for the six months ended December 31, 2019, primarily due to increased sales of lower margin products and lower volumes of devices sold. This decrease was partially offset by product cost reductions and manufacturing efficiencies.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $80.3 million for the six months ended December 31, 2020, a decrease of $13.3 million, or 14.2%, from $93.6 million for the six months ended December 31, 2019. Expense decreases were driven by reduced costs associated with travel and meetings due to customer facility access restrictions, cessation of in-person sales and physician trainings, and internal and external conferences moving to a virtual format during the pandemic, in addition to lower sales commissions as a result of reduced sales due to COVID-19. Selling, general and administrative expenses for the six months ended December 31, 2020 and 2019 include $7.1 million and $5.8 million, respectively, for stock-based compensation.

Research and Development Expenses. Research and development expenses decreased by 13.4%, from $21.6 million for the six months ended December 31, 2019 to $18.7 million for the six months ended December 31, 2020. Research and development expenses relate to specific projects to develop new products or expand into new markets, such as the development of new versions of the Peripheral and Coronary OAS, shaft designs and crown designs, and expanded product offerings, and to clinical trials. The decrease was primarily due to decreased activity on the ECLIPSE clinical trial as enrollments were paused at the onset of COVID-19 and only began to recommence on a limited basis in October 2020. Research and development expenses for the six months ended December 31, 2020 and 2019 include $1.3 million and $1.0 million respectively, for stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES

We had cash, cash equivalents and highly liquid marketable securities of $225.1 million and $232.2 million at December 31, 2020 and June 30, 2020, respectively. As of December 31, 2020, we had an accumulated deficit of $369.0 million. We have historically funded our operating losses primarily from the issuance of common and preferred stock, convertible promissory notes, and debt. In June 2020, we completed a public offering of 4,227,941 shares of common stock which resulted in net proceeds to us, before expenses, of approximately $135.0 million.


A summary of our cash flow activities is as follows:
Six Months Ended
December 31,
20202019
Net cash used in operating activities$(467)$(1,780)
Net cash used in investing activities(109,425)(2,753)
Net cash used in financing activities(1,788)(4,237)
Net change in cash and cash equivalents$(111,680)$(8,770)


22

Changes in Liquidity

Operating Activities

Net cash used in operating activities was $467,000 for the six months ended December 31, 2020, primarily due to the net loss of $2.1 million, and $10.0 million relating to changes in working capital as a result of the ongoing recovery from the COVID-19 pandemic in our business, partially offset by non-cash expenditures for the six months ended December 31, 2020.

Net cash used in operating activities was $1.8 million for the six months ended December 31, 2019, primarily due to the net loss of $9.2 million and increased use of cash as we build inventory and diversify our products, as well as for payouts of previously accrued bonuses and commissions. The amount of cash used was partially offset by collections on receivables, increased accounts payable due to timing of activity and payments, and non-cash expenditures for the six months ended December 31, 2019.

Investing Activities

Net cash used in investing activities was $109.4 million for the six months ended December 31, 2020, primarily due to investing cash from our recently completed equity offering into marketable securities. We also deployed cash into strategic investments and capital expenditures as we continue to grow our business. These uses of cash were partially offset by maturities and sales of marketable securities.

Net cash used in investing activities was $2.8 million for the six months ended December 31, 2019, primarily due to the cash payment made for the WIRION acquisition, additional purchases of marketable securities, purchases of property and equipment and costs associated with capitalized patent activities. These uses of cash were partially offset by maturities of marketable securities.

Financing Activities

Net cash used in financing activities was $1.8 million and $4.2 million for the six months ended December 31, 2020 and 2019, respectively, primarily due to the payment of payroll taxes on the employee vesting of stock awards, partially offset by proceeds from employee stock purchases.

Our future liquidity and capital requirements will be influenced by numerous factors, including the extent and duration of future operating losses, the level and timing of future sales and expenditures, the results and scope of ongoing research and product development programs, working capital required to support our business operations, the receipt of and time required to obtain regulatory clearances and approvals, our sales and marketing programs, the continuing acceptance of our products in the marketplace, competing technologies, market and regulatory developments, ongoing facility requirements, potential strategic transactions (including the potential acquisition of, or investments in, businesses, technologies and products), international expansion, the existence, defense and resolution of legal proceedings, and the severity and duration of the current COVID-19 pandemic. As discussed in the “Overview” above, the disruptions from COVID-19 have had a material impact on our financial condition and results of operations, and we cannot predict the specific extent, or duration, of the continuing impact of the COVID-19 pandemic on our condition and results. We will continue to closely monitor our liquidity and capital resources through the disruptions caused by COVID-19 and will continue to evaluate our financial position to assess additional spending reductions and our liquidity needs. As of December 31, 2020, we believe our current cash, cash equivalents and highly liquid marketable securities will be sufficient to fund working capital requirements, capital expenditures and operations for the foreseeable future, including at least the next twelve months, as well as to fund expenses relating to compliance with our Corporate Integrity Agreement, payments under our lease agreements, payments under development agreements, future payments relating to our asset acquisition of the WIRION embolic protection system, and commitments to funding strategic investments. If needed, we have the ability to borrow under our senior, secured revolving credit facility. We intend to retain any future earnings to support operations and to finance the growth and development of our business. We do not anticipate paying any dividends in the foreseeable future.


23

Facility Sale and Lease

On December 29, 2016, we entered into a Purchase and Sale Agreement, as subsequently amended (collectively, the “Sale Agreement”), with Krishna Holdings, LLC (“Krishna”), providing for the sale to Krishna of our headquarters facility in St. Paul, Minnesota (the “Facility”) for a cash purchase price of $21.5 million. On March 30, 2017, the sale of the Facility under the Sale Agreement closed. We received proceeds of approximately $20.9 million ($21.5 million less $556,000 of transaction expenses). In connection with the closing of the facility sale, we entered into a Lease Agreement (the “Lease Agreement”) with Krishna Holdings, LLC, Apex Holdings, LLC, Kashi Associates, LLC, Keva Holdings, LLC, S&V Ventures, LLC, Polo Group LLC, SPAV Holdings LLC, Star Associates LLC, and The Global Villa, LLC. The Lease Agreement has an initial term of fifteen years, with four consecutive renewal options of five years each, with a base annual rent in the first year of $1.6 million and annual escalations of 3%. See Note 6 to our Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional discussion.

Revolving Credit Facility

In March 2017, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). In March 2020, we 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 $50.0 million (the “Maximum Dollar Amount”).

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. We will incur a fee equal to 3% of the Maximum Dollar Amount upon termination of the Loan Agreement, as amended by the 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.

Our obligations under the Amended Loan Agreement are secured by certain of our assets, including, among other things, accounts receivable, deposit accounts, inventory, equipment, general intangibles and records pertaining to the foregoing. The collateral does not include our intellectual property, but we agreed not to encumber our intellectual property without the consent of SVB. The Amended Loan Agreement contains customary covenants limiting our 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 our business. In addition, the Amended Loan Agreement contains financial covenants requiring us 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 $10.0 million or (ii) minimum trailing three-month Adjusted EBITDA (as defined in the Amended Loan Agreement) of $1.0 million. If we do 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.

We are required to pay a fee equal to 0.15% per annum on the unused portion of the Revolver, payable quarterly in arrears. We are not obligated to draw any funds under the Revolver and have not done so under the Revolver since entering into the Loan Agreement. No amounts were outstanding as of December 31, 2020 and we currently do not have plans to borrow under the Amended Loan Agreement.


24

NON-GAAP FINANCIAL INFORMATION

To supplement our condensed consolidated financial statements prepared in accordance with GAAP, our management uses a non-GAAP financial measure referred to as “Adjusted EBITDA.” Reconciliations of this non-GAAP measure to the most comparable U.S. GAAP measure for the respective periods can be found in the following table. In addition, an explanation of the manner in which our management uses this measure to conduct and evaluate our business, the economic substance behind our management's decision to use this measure, the substantive reasons why our 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 our management compensates for those limitations is included following the reconciliation table.
 Three Months Ended