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, 2021

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: (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	x	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 January 31, 2022 was: 40,578,962 shares.

Cardiovascular Systems, Inc.

Table of Contents

 

	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	27
ITEM 4. Controls and Procedures	27
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	28
ITEM 1A. Risk Factors	28
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
ITEM 3. Defaults Upon Senior Securities	28
ITEM 4. Mine Safety Disclosures	28
ITEM 5. Other Information	28
ITEM 6. Exhibits	29
Signatures	31

2

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, 2021		June 30, 2021
ASSETS
Current assets
Cash and cash equivalents	$	65,865	$	71,070
Marketable securities	110,675		135,968
Accounts receivable, net	34,944		40,033
Inventories	31,671		32,313
Prepaid expenses and other current assets	4,842		5,285
Total current assets	247,997		284,669
Property and equipment, net	29,397		28,894
Intangible assets, net	16,426		15,376
Strategic investments	29,666		20,657
Other assets	2,914		2,971
Total assets	$	326,400	$	352,567
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	12,493	$	14,061
Accrued expenses	26,666		38,189
Deferred revenue	2,721		2,400
Total current liabilities	41,880		54,650
Long-term liabilities
Financing obligation	20,456		20,596
Deferred revenue	752		2,194
Other liabilities	3,787		4,169
Total liabilities	66,875		81,609
Commitments and contingencies (see Note 10)
Common stock, $0.001 par value; authorized 100,000,000 common shares; issued and outstanding 40,596,206 at December 31, 2021 and 40,215,554 at June 30, 2021, respectively	39		39
Additional paid in capital	663,660		652,288
Accumulated other comprehensive income	(58)		11
Accumulated deficit	(404,116)		(381,380)
Total stockholders’ equity	259,525		270,958
Total liabilities and stockholders’ equity	$	326,400	$	352,567

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

3

Cardiovascular Systems, Inc.

Consolidated Statements of Operations

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

(Unaudited)

 

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2021		2020		2021		2020
Net revenues	$	59,135	$	64,169	$	117,505	$	124,713
Cost of goods sold	18,073		13,920		32,381		26,484
Gross profit	41,062		50,249		85,124		98,229
Expenses:
Selling, general and administrative	40,402		40,061		82,253		80,343
Research and development	8,873		9,601		18,895		18,653
Amortization of intangible assets	346		304		650		608
Total expenses	49,621		49,966		101,798		99,604
(Loss) income from operations	(8,559)		283		(16,674)		(1,375)
Other (income) expense, net:
Interest expense	409		412		819		911
Interest income and other, net	(64)		(136)		(107)		(280)
Total other (income) expense, net	345		276		712		631
(Loss) income before income taxes	(8,904)		7		(17,386)		(2,006)
Provision for income taxes	63		63		199		126
Net loss	$	(8,967)	$	(56)	$	(17,585)	$	(2,132)
Basic and diluted earnings per share	$	(0.23)	$	—	$	(0.45)	$	(0.06)
Basic and diluted weighted average shares outstanding	39,199,593		38,808,980		39,143,533		38,746,410

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

4

Cardiovascular Systems, Inc.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2021		2020		2021		2020
Net loss	$	(8,967)	$	(56)	$	(17,585)	$	(2,132)
Other comprehensive loss:
Unrealized loss on available-for-sale debt securities	(52)		(85)		(69)		(154)
Comprehensive loss	$	(9,019)	$	(141)	$	(17,654)	$	(2,286)

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 Stock		Additional Paid  In Capital		Accumulated Other Comprehensive Income		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
Stock-based compensation related to restricted stock awards, net	—		3,659		—		—		3,659
Shares withheld for payroll taxes	—		—		—		(161)		(161)
Employee stock purchase plan activity	—		1,854		—		—		1,854
Unrealized loss on available-for-sale debt securities	—		—		(52)		—		(52)
Net loss	—		—		—		(8,967)		(8,967)
Balances at December 31, 2021	39		663,660		(58)		(404,116)		259,525

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

6

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, 2020	39		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, 2020	$	39	$	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.

7

Cardiovascular Systems, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

 

	Six Months Ended
	December 31,
	2021		2020
Cash flows from operating activities
Net loss	$	(17,585)	$	(2,132)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation of property and equipment	1,895		1,479
Amortization of intangible assets	650		608
Stock-based compensation	9,912		8,784
(Gain) loss on disposal of equipment	(15)		138
Amortization of premium (accretion of discount) on marketable securities	800		625
Other	(11)		—
Changes in assets and liabilities
Accounts receivable	5,089		(7,314)
Inventories	642		(4,800)
Prepaid expenses and other assets	950		(108)
Accounts payable	(1,525)		2,192
Accrued expenses and other liabilities	(11,996)		913
Deferred revenue	(1,121)		(852)
Net cash used in operating activities	(12,315)		(467)
Cash flows from investing activities
Purchases of property and equipment	(2,426)		(1,992)
Acquisitions	(1,700)		—
Investments in strategic ventures	(8,999)		(2,175)
Purchases of marketable securities	(50,844)		(122,193)
Sales of marketable securities	6,817		2,485
Maturities of marketable securities	68,261		14,450
Net cash provided by (used in) investing activities	11,109		(109,425)
Cash flows from financing activities
Proceeds from employee stock purchase plan	1,242		2,098
Payments of employee taxes related to vested restricted stock	(5,151)		(3,817)
Exercise of stock options	12		—
Principal payments made on financing obligation	(102)		(69)
Net cash used in financing activities	(3,999)		(1,788)
Net change in cash and cash equivalents	(5,205)		(111,680)
Cash and cash equivalents
Beginning of period	71,070		185,463
End of period	$	65,865	$	73,783

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

8

CARDIOVASCULAR SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(For the Six Months Ended December 31, 2021 and 2020)

(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. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current year presentation. 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, 2021. 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,
	2021		2021
Accounts receivable	$	36,375	$	41,634
Less: Allowance for doubtful accounts	(1,431)		(1,601)
Accounts receivable, net	$	34,944	$	40,033

9

Inventories

Inventories consist of the following:

	December 31,		June 30,
	2021		2021
Raw materials	$	10,962	$	11,621
Work in process	2,090		3,469
Finished goods	18,619		17,223
Inventories	$	31,671	$	32,313

WIRION Recall

In November 2021, the Company initiated a voluntary recall of unused WIRION embolic protection systems. The Company recorded a reserve for approximately $2,849 during the three months ended December 31, 2021 representing the Company's inventory that has no future intended use.

Property and Equipment, Net

Property and equipment consists of the following:

	December 31,		June 30,
	2021		2021
Land	$	572	$	572
Building	22,420		22,420
Equipment	22,811		21,203
Furniture	3,376		3,376
Leasehold improvements	804		804
Construction in progress	2,777		2,848
	52,760		51,223
Less: Accumulated depreciation	(23,363)		(22,329)
Property and equipment, net	$	29,397	$	28,894

Accrued Expenses

Accrued expenses consist of the following:

	December 31,		June 30,
	2021		2021
Acquisition consideration	$	10,000	$	10,000
Commissions	5,150		7,869
Salaries and bonus	2,998		11,699
Accrued vacation	2,283		3,011
Clinical Studies	1,466		1,478
Accrued excise, sales and other taxes	1,196		1,464
Other accrued expenses	3,573		2,668
Accrued expenses	$	26,666	$	38,189

10

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 common stock. The Company reviewed this liability in response to the voluntary recall of the WIRION system referred to above and determined that it remains probable and appropriately recorded in accrued liabilities as of December 31, 2021, although this payment will be made at a later date than originally anticipated due to the recall.

3. Revenue

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

	Three Months Ended				Six Months Ended
	December 31,				December 31,
Product Category	2021		2020		2021		2020
Peripheral	$	38,903	$	43,956	$	77,912	$	86,888
Coronary	20,232		20,213		39,593		37,825
Total net revenues	$	59,135	$	64,169	$	117,505	$	124,713
Geography
United States	$	55,471	$	61,907	$	110,513	$	120,738
International	3,664		2,262		6,992		3,975
Total net revenues	$	59,135	$	64,169	$	117,505	$	124,713

Revenue of $1,121 was recognized in the six months ended December 31, 2021 that was deferred as of June 30, 2021. As of December 31, 2021 and June 30, 2021, the Company had a liability of $1,129 and $1,985, respectively, related to estimates of variable consideration which are recorded within accounts payable on the consolidated balance sheet.

4. Acquisitions

Peripheral Support Catheters

During fiscal 2021, the Company acquired a line of peripheral support catheters from WavePoint Medical, LLC (“WavePoint”) and also engaged WavePoint to develop a portfolio of specialty catheters.

The acquisition of peripheral support catheters was accounted for as an asset acquisition. As consideration in this transaction, the Company made an upfront payment of $3,353 to WavePoint which was accounted for as a charge incurred in connection with acquired in process research and development ("IPR&D"). During the six months ended December 31, 2021, the peripheral support catheters received 510(k) clearance and the Company made an additional $1,700 payment to WavePoint which was capitalized as developed technology.

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 asset acquisitions, as well as costs incurred to obtain patents. Developed technology and trade name assets are amortized over 10 to 15 years. Patent costs are amortized beginning at the time of patent approval over a useful life not exceeding 20 years.

11

The components of intangible assets, net are as follows:

	December 31, 2021						June 30, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology	$	17,324	$	(2,560)	$	14,764	$	15,624	$	(1,997)	$	13,627
Patents	1,866		(842)		1,024		1,866		(780)		1,086
Trade name	760		(122)		638		760		(97)		663
Total intangible assets, net	$	19,950	$	(3,524)	$	16,426	$	18,250	$	(2,874)	$	15,376

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

Remainder of fiscal 2022	$	691
Fiscal 2023	1,381
Fiscal 2024	1,377
Fiscal 2025	1,374
Fiscal 2026	1,373
Thereafter	10,230
	$	16,426

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.

12

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, 2021.

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, 2021 are as follows:

Remainder of fiscal 2022	$	935
Fiscal 2023	1,913
Fiscal 2024	1,970
Fiscal 2025	2,029
Fiscal 2026	2,090
Thereafter	13,286
	$	22,223

7. Marketable Securities & Fair Value Measurements

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

	December 31,		June 30,
	2021		2021
Short-term available-for-sale debt securities	$	108,312	$	129,908
Long-term available-for-sale debt securities	2,121		5,748
Available-for-sale debt securities	110,433		135,656
Mutual funds	242		312
Total marketable securities	$	110,675	$	135,968

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

			As of December 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper	$	37,466	$	—	$	—	$	37,466
Corporate debt	54,282		—		(39)		54,243
Asset backed securities	18,742		1		(19)		18,724
Total available-for-sale debt securities	$	110,490	$	1	$	(58)	$	110,433

13

			As of June 30, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper	$	47,361	$	—	$	—	$	47,361
U.S. government securities	20,229		1		—		20,230
Corporate debt	57,134		12		(12)		57,134
Asset backed securities	10,922		10		(1)		10,931
Total available-for-sale debt securities	$	135,646	$	23	$	(13)	$	135,656

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, 2021 Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3
Commercial paper	$	37,466	$	—	$	37,466	$	—
Corporate debt	54,243		—		54,243		—
Asset backed securities	18,724		—		18,724		—
Mutual funds	242		125		117		—
Total marketable securities	$	110,675	$	125	$	110,550	$	—

			Fair Value Measurements as of June 30, 2021 Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3
Commercial paper	$	47,361	$	—	$	47,361	$	—
U.S. government securities	20,230		—		20,230		—
Corporate debt	57,134		—		57,134		—
Asset backed securities	10,931		—		10,931		—
Mutual funds	312		136		176		—
Total marketable securities	$	135,968	$	136	$	135,832	$	—

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, 2021. 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, 2021 and June 30, 2021, the carrying value of these investments was $12,005 and $11,706, respectively. During the six months ended December 31, 2021, no impairment indicators were noted. The Company is committed to funding an additional $1,410 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.

The Company also holds strategic investments accounted for as available-for-sale debt securities, which had carrying values and approximated fair values of $17,661 and $8,951 as of December 31, 2021 and June 30, 2021, respectively. The fair values of these investments are measured using Level 3 inputs and are not included in the tables above. Impairment is assessed similar

14

to the Company's other strategic investments and no impairment indicators were noted during the six months ended December 31, 2021.

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. On March 12, 2020, the Company’s Board of Directors approved the Amended and Restated 2017 Equity Incentive Plan, which amends the 2017 Plan. On August 19, 2021, the Company's Board of Directors adopted an amendment to the 2017 Plan, which was approved by the Company's stockholders on November 11, 2021, that increased the number of shares available for issuance under the 2017 Plan by 1,700,000 shares.

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, 2021 is as follows:

	Number of Shares	Weighted Average Fair Value
Outstanding at June 30, 2021	467,942	$	35.61
Granted	284,263	$	37.66
Forfeited	(48,900)	$	36.26
Vested	(211,857)	$	36.74
Outstanding at December 31, 2021	491,448	$	36.32

Performance-Based Restricted Stock

The Company also grants performance-based restricted stock awards to certain executives and other management. In August 2021, the Company granted an aggregate maximum of 306,550 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, 2021 compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2024. 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, 2024 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 $6,090, 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 2021 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, 2020 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, 2023 and July 1, 2022, respectively.

15

Performance-based restricted stock award activity for the six months ended December 31, 2021 is as follows:

	Number of Shares	Weighted Average Fair Value
Outstanding at June 30, 2021	760,584	$	20.26
Granted	306,550	$	19.87
Forfeited	(99,565)	$	24.37
Vested	(147,001)	$	22.32
Outstanding at December 31, 2021	820,568	$	19.45

Unrecognized stock compensation related to unvested stock awards outstanding as of December 31, 2021 was $21,066.

9. Leases

The Company leases its Texas manufacturing facility under an operating lease agreement which expires in April 2026. 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 $258 and $252 for the six months ended December 31, 2021 and 2020, respectively. Cash paid for operating lease liabilities approximated operating lease cost for the six months ended December 31, 2021. There were $54 and $2,238 of operating lease right-of-use assets obtained in exchange for new lease liabilities during the six months ended December 31, 2021 and 2020, respectively.

	December 31,		June 30,
	2021		2021
Right-of-use assets
Other assets	$	2,035	$	2,212
Operating lease liabilities
Accrued expenses	510		487
Other liabilities	1,525		1,725
Total operating lease liabilities	$	2,035	$	2,212

Future minimum lease payments under the agreements as of December 31, 2021 are as follows:

Remainder of fiscal 2022	$	259
Fiscal 2023	514
Fiscal 2024	489
Fiscal 2025	483
Fiscal 2026	403
Thereafter	—
Total lease payments	2,148
Less imputed interest	(113)
Total operating lease liabilities	$	2,035

16

As of December 31, 2021, the weighted average remaining lease term for operating leases was 4.3 years and the weighted average discount rate used to determine operating lease liabilities was 2.51%.

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, commercial disputes and product liability claims. While the outcome of these matters is uncertain, the Company does not believe there are any significant matters as of December 31, 2021 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 Ended				Six Months Ended
	December 31,				December 31,
	2021		2020		2021		2020
Numerator
Net loss	$	(8,967)	$	(56)	$	(17,585)	$	(2,132)
Income allocated to participating securities	—		—		—		—
Net loss available to common stockholders	$	(8,967)	$	(56)	$	(17,585)	$	(2,132)
Denominator
Weighted average common shares outstanding – basic	39,199,593		38,808,980		39,143,533		38,746,410
Effect of dilutive stock options(1)	—		—		—		—
Effect of dilutive restricted stock units(2)	—		—		—		—
Effect of performance-based restricted stock awards(3)	—		—		—		—
Weighted average common shares outstanding – diluted	39,199,593		38,808,980		39,143,533		38,746,410
Earnings per common share – basic and diluted	$	(0.23)	$	—	$	(0.45)	$	(0.06)

(1)At December 31, 2021 and 2020, 79,188 and 42,528 stock options, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these options has been excluded from the calculation of diluted loss per share for all periods presented because those shares are anti-dilutive.

(2)At December 31, 2021 and 2020, 310,415 and 281,430 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, 2021 and 2020, 820,586 and 761,382 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.

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, 2021 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 suffering from peripheral and coronary artery diseases, including those with arterial calcium, the most difficult form of 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 the lives of patients facing this difficult disease state. We have developed patented orbital atherectomy systems (“OAS”) for both peripheral and coronary clinical applications. The primary base of our business is catheter-based platforms capable of treating a broad range of vessel sizes and plaque types, including calcified plaque, which address many of the limitations associated with other treatment alternatives.

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. While we did not experience this same pattern of seasonality in the three months ended September 30, 2020 due to the significant decrease in procedure volumes in the quarter ended June 30, 2020 due to the COVID-19 pandemic, we did experience this pattern of seasonality in the three months ended September 30, 2021, compared to the three months ended June 30, 2021. The three months ended June 30, 2021 benefited from a recovery from the COVID-19 pandemic, and the volume of procedures involving our products in the three months ended September 30, 2021 was adversely impacted primarily by hospital capacity constraints due to increased hospitalizations caused by the COVID-19 Delta variant, as well as disruption of referral patterns, deferral of elective procedures, staffing shortages and heightened summer seasonality in the quarter. Although we began to experience a recovery from the lower first quarter procedure volumes during the three months ended December 31, 2021, these disruptions continued during the quarter and were heightened as a result of the Omicron variant outbreak in December, and they continued to adversely affect our business.

Peripheral

Our peripheral artery 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, 2021. 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, 2021 represented 66% 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.

18

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, 2021 represented approximately 28% of revenue.

International

We serve a growing patient population globally through an expanding distribution and sales network. 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 made through a network of distributors and sales agents. International sales during the six months ended December 31, 2021 represented approximately 6% of revenue.

Impact of COVID-19

The COVID-19 pandemic in the United States and internationally has caused us to experience ongoing disruptions in the procedures using our products. Procedures have been 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, customer staffing shortages, and governmental guidelines and restrictions. In addition, patients have 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 experienced 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.

In addition to the impact on procedure volumes, we experienced other disruptions as a result of the COVID-19 pandemic. For example, enrollment in our ECLIPSE clinical trial was paused for several months. Other disruptions included 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 has also disrupted or delayed our ability to launch affected products; reallocation of company resources from our strategic priorities; supply chain disruptions that limited, delayed or prevented us from acquiring the components used to develop and manufacture our products or ship those products once manufactured; disruptions in our relationships with our distributors due to the impact of the COVID-19 pandemic on their operations; temporary closures of our facilities; loss of employee productivity; 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; and we have experienced an increase in employee turnover, which we believe has been consistent with broader market conditions. To address the continuing uncertainties associated with the pandemic and utilize our resources more effectively, we have reduced our field clinical support and realigned a small number of our sales representatives in territories or regions where procedural volumes no longer warrant incremental case support.

Throughout the pandemic, we have operated our manufacturing facilities and continued to ship product. Most of our office-based employees have telecommuted, and our field employees have continued to support cases in clinical settings where they are able to have access. We took and continue to take several actions intended to protect the health and well-being of our workforce and our customers. We will continue to monitor 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 are monitoring the spread of variants, including the Delta and Omicron variants, and continue to track hospitalizations resulting from these variants. Many factors may increase or decrease procedure volumes, which would have an impact on our revenue and financial results, including vaccination levels and mandates, the spread of new, more viral or deadly variants of the SARS-CoV-2 virus, easing of social restrictions and government restrictions on elective and semi-elective cases, level of patient anxiety, medical facility and workforce capacity, and sales representative access to facilities to support cases.

19

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, 2021 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,
	2021		2020		Percent Change		2021		2020		Percent Change
Net revenues	$	59,135	$	64,169	(7.8)	%	$	117,505	$	124,713	(5.8)	%
Cost of goods sold	18,073		13,920		29.8		32,381		26,484		22.3
Gross profit	41,062		50,249		(18.3)		85,124		98,229		(13.3)
Expenses:
Selling, general and administrative	40,402		40,061		0.9		82,253		80,343		2.4
Research and development	8,873		9,601		(7.6)		18,895		18,653		1.3
Amortization of intangible assets	346		304		13.8		650		608		6.9
Total expenses	49,621		49,966		(0.7)		101,798		99,604		2.2
Loss from operations	(8,559)		283		(3,124.4)		(16,674)		(1,375)		(1,112.7)
Other (income) expense, net	345		276		25.0		712		631		12.8
Loss before income taxes	(8,904)		7		(127,300.0)		(17,386)		(2,006)		(766.7)
Provision for income taxes	63		63		—		199		126		57.9
Net loss	$	(8,967)	$	(56)	15,912.5		$	(17,585)	$	(2,132)	(724.8)

20