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, 2022

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 February 7, 2023 was: 41,958,938 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	19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	29
ITEM 4. Controls and Procedures	30
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	31
ITEM 1A. Risk Factors	31
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
ITEM 3. Defaults Upon Senior Securities	34
ITEM 4. Mine Safety Disclosures	34
ITEM 5. Other Information	34
ITEM 6. Exhibits	34
Signatures	36

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, 2022		June 30, 2022
ASSETS
Current assets
Cash and cash equivalents	$	59,843	$	66,424
Marketable securities	72,159		93,409
Accounts receivable, net	40,232		39,678
Inventories	41,191		34,567
Prepaid expenses and other current assets	8,535		7,768
Total current assets	221,960		241,846
Property and equipment, net	30,002		29,035
Intangible assets, net	15,043		15,734
Strategic investments	42,034		33,425
Other assets	2,467		2,637
Total assets	$	311,506	$	322,677
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	17,087	$	14,383
Accrued expenses	19,149		23,464
Deferred revenue	525		2,107
Total current liabilities	36,761		39,954
Long-term liabilities
Financing obligation	20,117		20,298
Deferred revenue	3,365		—
Other liabilities	11,874		12,945
Total liabilities	72,117		73,197
Commitments and contingencies (see Note 9)
Common stock, $0.001 par value; authorized 100,000,000 common shares; issued and outstanding 41,965,948 at December 31, 2022 and 40,965,202 at June 30, 2022, respectively	40		40
Additional paid in capital	682,932		673,388
Accumulated other comprehensive income	(170)		(268)
Accumulated deficit	(443,413)		(423,680)
Total stockholders’ equity	239,389		249,480
Total liabilities and stockholders’ equity	$	311,506	$	322,677

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,
	2022		2021		2022		2021
Net revenues	$	61,453	$	59,135	$	121,126	$	117,505
Cost of goods sold	18,461		18,073		35,159		32,381
Gross profit	42,992		41,062		85,967		85,124
Expenses:
Selling, general and administrative	41,642		40,402		86,117		82,253
Research and development	9,533		8,873		18,589		18,895
Amortization of intangible assets	345		346		691		650
Total expenses	51,520		49,621		105,397		101,798
Loss from operations	(8,528)		(8,559)		(19,430)		(16,674)
Other (income) expense, net:
Interest expense	404		409		810		819
Interest income and other, net	(1,093)		(64)		(1,751)		(107)
Total other (income) expense, net	(689)		345		(941)		712
Loss before income taxes	(7,839)		(8,904)		(18,489)		(17,386)
Provision for income taxes	49		63		30		199
Net loss	$	(7,888)	$	(8,967)	$	(18,519)	$	(17,585)
Basic and diluted earnings per share	$	(0.20)	$	(0.23)	$	(0.47)	$	(0.45)
Basic and diluted weighted average shares outstanding	39,663,565		39,199,593		39,635,293		39,143,533

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,
	2022		2021		2022		2021
Net loss	$	(7,888)	$	(8,967)	$	(18,519)	$	(17,585)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale debt securities	103		(52)		106		(69)
Foreign currency translation adjustments	(2)		—		(8)		—
Comprehensive loss	$	(7,787)	$	(9,019)	$	(18,421)	$	(17,654)

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, 2022	$	40	$	673,388	$	(268)	$	(423,680)	$	249,480
Stock-based compensation related to restricted stock awards, net	—		4,324		—		—		4,324
Shares withheld for payroll taxes	—		—		—		(1,191)		(1,191)
Employee stock purchase plan activity	—		174		—		—		174
Unrealized gain on available-for-sale debt securities	—		—		3		—		3
Foreign currency translation adjustments	—		—		(6)		—		(6)
Net loss	—		—		—		(10,631)		(10,631)
Balances at September 30, 2022	$	40	$	677,886	$	(271)	$	(435,502)	$	242,153
Stock-based compensation related to restricted stock awards, net	—		3,547		—		—		3,547
Shares withheld for payroll taxes	—		—		—		(23)		(23)
Employee stock purchase plan activity	—		1,499		—		—		1,499
Unrealized gain on available-for-sale debt securities	—		—		103		—		103
Foreign currency translation adjustments	—		—		(2)		—		(2)
Net loss	—		—		—		(7,888)		(7,888)
Balances at December 31, 2022	$	40	$	682,932	$	(170)	$	(443,413)	$	239,389

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, 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.

7

Cardiovascular Systems, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

 

	Six Months Ended
	December 31,
	2022		2021
Cash flows from operating activities
Net loss	$	(18,519)	$	(17,585)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation of property and equipment	1,797		1,895
Amortization of intangible assets	691		650
Stock-based compensation	7,985		9,912
Provision for doubtful accounts	50		—
Amortization of premium (accretion of discount) on marketable securities	(615)		800
Other	(69)		(26)
Changes in assets and liabilities
Accounts receivable	(612)		5,089
Inventories	(6,624)		642
Prepaid expenses and other assets	(278)		950
Accounts payable	2,667		(1,525)
Accrued expenses and other liabilities	(5,456)		(11,996)
Deferred revenue	1,783		(1,121)
Net cash used in operating activities	(17,200)		(12,315)
Cash flows from investing activities
Purchases of property and equipment	(2,727)		(2,426)
Acquisitions	—		(1,700)
Investments in strategic ventures	(8,540)		(8,999)
Purchases of marketable securities	(52,523)		(50,844)
Sales of marketable securities	14,389		6,817
Maturities of marketable securities	59,875		68,261
Net cash provided by investing activities	10,474		11,109
Cash flows from financing activities
Proceeds from employee stock purchase plan	1,499		1,242
Payments of employee taxes related to vested restricted stock	(1,214)		(5,151)
Exercise of stock options	—		12
Principal payments made on financing obligation	(140)		(102)
Net cash provided by (used in) financing activities	145		(3,999)
Net change in cash and cash equivalents	(6,581)		(5,205)
Cash and cash equivalents
Beginning of period	66,424		71,070
End of period	$	59,843	$	65,865

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, 2022 and 2021)

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

(Unaudited)

1. Basis of Presentation

Cardiovascular Systems, Inc. (the “Company”), based in St. Paul, Minnesota, is a medical device company focused on developing and commercializing innovative solutions for treating vascular and coronary disease. The Company’s Orbital Atherectomy Systems (“OAS”) treat calcified and fibrotic plaque in arterial vessels throughout the leg and heart in a few minutes of treatment time, and address many of the limitations associated with existing surgical, catheter and pharmacological treatment alternatives. 

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

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

2. Selected Consolidated Financial Statement Information

Accounts Receivable, Net

Accounts receivable consists of the following:

	December 31,		June 30,
	2022		2022
Accounts receivable	$	41,504	$	40,974
Less: Allowance for doubtful accounts	(1,272)		(1,296)
Accounts receivable, net	$	40,232	$	39,678

9

Inventories

Inventories consist of the following:

	December 31,		June 30,
	2022		2022
Raw materials	$	16,340	$	13,780
Work in process	2,404		2,785
Finished goods	22,447		18,002
Inventories	$	41,191	$	34,567

The total inventory reserve at December 31, 2022 and June 30, 2022 was $3,313 and $4,128, respectively.

Property and Equipment, Net

Property and equipment consists of the following:

	December 31,		June 30,
	2022		2022
Land	$	572	$	572
Building	22,420		22,420
Equipment	25,400		24,340
Furniture	3,376		3,376
Leasehold improvements	812		812
Construction in progress	4,376		2,670
	56,956		54,190
Less: Accumulated depreciation	(26,954)		(25,155)
Property and equipment, net	$	30,002	$	29,035

Accrued Expenses

Accrued expenses consist of the following:

	December 31,		June 30,
	2022		2022
Commissions	6,513		8,104
Salaries and bonus	5,675		8,082
Accrued vacation	2,336		2,345
Accrued excise, sales and other taxes	847		953
Clinical studies	1,009		1,082
Other	2,769		2,898
Accrued expenses	$	19,149	$	23,464

Other Liabilities

WIRION Acquisition Consideration

Following the successful completion of the manufacturing transfer of the WIRION system to the Company, the Company has agreed to pay an additional consideration of $10,000, half of which may be paid by the Company through an issuance of shares of its common stock. The Company reviewed this liability in response to the voluntary recall of the WIRION system and determined that it remains probable and appropriately recorded in other liabilities as of December 31, 2022, although this payment will be made at a later date than originally anticipated due to the recall.

10

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	2022		2021		2022		2021
Peripheral	$	38,452	$	38,903	$	77,236	$	77,912
Coronary	23,001		20,232		43,890		39,593
Total net revenues	$	61,453	$	59,135	$	121,126	$	117,505
Geography
United States	$	56,329	$	55,471	$	111,356	$	110,513
International	5,124		3,664		9,770		6,992
Total net revenues	$	61,453	$	59,135	$	121,126	$	117,505

Revenue of $2,107 was recognized in the six months ended December 31, 2022 that was deferred as of June 30, 2022. On December 13, 2022, we signed a distribution agreement with Otsuka Medical Devices Co., Ltd. ("Otsuka"). Effective February 1, 2023 upon expiration of Medikit's distribution agreement, Otsuka became our exclusive Japan distributor. The Company received a $4,000 upfront payment which the Company has recorded as deferred revenue and classified as current and long-term based on its expectation of when revenue will be recognized. Revenue of $110 was recognized in the three months ended December 31, 2022 related to this upfront payment. As of December 31, 2022 and June 30, 2022, the Company had a liability of $991 and $1,315, respectively, related to estimates of variable consideration which are recorded within accounts payable on the consolidated balance sheet.

4. Intangible Assets

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

The components of intangible assets, net are as follows:

	December 31, 2022						June 30, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology	$	17,324	$	(3,771)	$	13,553	$	17,324	$	(3,165)	$	14,159
Patents	1,866		(963)		903		1,866		(903)		963
Trade name	760		(173)		587		760		(148)		612
Total intangible assets, net	$	19,950	$	(4,907)	$	15,043	$	19,950	$	(4,216)	$	15,734

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

Remainder of fiscal 2023	$	690
Fiscal 2024	1,377
Fiscal 2025	1,374
Fiscal 2026	1,373
Fiscal 2027	1,371
Thereafter	8,858
	$	15,043

11

5. Debt

Revolving Credit Facility

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

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

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

The Company is required to pay a fee equal to 0.15% per annum on the unused portion of the Revolver, payable quarterly in arrears. The Company is not obligated to draw any funds under the Revolver and has not done so under the Revolver since entering into the Loan Agreement. No amounts are outstanding as of December 31, 2022.

Financing Obligation

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

12

Payments under the initial term of the Lease Agreement as of December 31, 2022 are as follows:

Remainder of fiscal 2023	$	963
Fiscal 2024	1,970
Fiscal 2025	2,029
Fiscal 2026	2,090
Fiscal 2027	2,153
Thereafter	11,133
	$	20,338

6. Marketable Securities & Fair Value Measurements

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

	December 31,		June 30,
	2022		2022
Short-term available-for-sale debt securities	$	69,688	$	88,375
Long-term available-for-sale debt securities	2,331		4,810
Available-for-sale debt securities	72,019		93,185
Mutual funds	140		224
Total marketable securities	$	72,159	$	93,409

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

			As of December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper	$	34,221	$	—	$	—	$	34,221
U.S. government securities	17,004		1		(40)		16,965
Corporate debt	18,601		—		(99)		18,502
Asset backed securities	2,354		—		(23)		2,331
Total available-for-sale debt securities	$	72,180	$	1	$	(162)	$	72,019

			As of June 30, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper	$	36,800	$	—	$	—	$	36,800
U.S. government securities	14,994		—		(67)		14,927
Corporate debt	27,193		—		(142)		27,051
Asset backed securities	14,465		—		(58)		14,407
Total available-for-sale debt securities	$	93,452	$	—	$	(267)	$	93,185

13

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, 2022 Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3
Commercial paper	$	34,221	$	—	$	34,221	$	—
U.S. government securities	16,965		—		16,965		—
Corporate debt	18,502		—		18,502		—
Asset backed securities	2,331		—		2,331		—
Mutual funds	140		81		59		—
Total marketable securities	$	72,159	$	81	$	72,078	$	—

			Fair Value Measurements as of June 30, 2022 Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3
Commercial paper	$	36,800	$	—	$	36,800	$	—
U.S. government securities	14,927		—		14,927		—
Corporate debt	27,051		—		27,051		—
Asset backed securities	14,407		—		14,407		—
Mutual funds	224		108		116		—
Total marketable securities	$	93,409	$	108	$	93,301	$	—

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, 2022. 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, 2022 and June 30, 2022, the carrying value of these investments was $12,503 and $12,333, respectively. During the six months ended December 31, 2022, no impairment indicators were noted. The Company is committed to funding an additional $1,200 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 $29,531 and $21,092 as of December 31, 2022 and June 30, 2022, respectively. On December 30, 2022, the Company entered into a Loan Agreement (the “CVT Loan Agreement”) with Chansu Vascular Technologies, LLC (“CVT”) pursuant to which the Company agreed to loan to CVT up to the principal amount of $49,653, of which the principal amount of $19,653 was outstanding as of the date of such agreement. In January 2023, the Company advanced an additional $15,000 to CVT pursuant to the terms of the CVT Loan Agreement and is obligated to make additional advances of $5,000 on or after July 1, 2023 and $10,000 after CVT’s achievement of a development milestone related to its medical device candidate. The principal amounts outstanding pursuant to the CVT Loan Agreement accrue interest at the rate of 4.35% per annum and all principal and accrued and unpaid interest are due and payable on June 30, 2024. CVT’s obligations under the CVT Loan Agreement are secured by its assets. The fair values of these investments are measured using Level 3 inputs and are 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, 2022.

7. Stock-Based Compensation

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On November 15, 2017, the Company’s stockholders approved the 2017 Equity Incentive Plan (the “Original 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 amended and restated the Original 2017 Plan (the "Amended 2017 Plan"). On August 19, 2021, the Company's Board of Directors adopted a further amendment to the Amended 2017 Plan (as amended, 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. As amended to date, the 2017 Plan allows for the granting of up to 3,607,523 shares of common stock as approved by the Board of Directors or committees thereof in the form of nonqualified or incentive stock options, restricted stock awards, restricted stock unit awards, performance share awards, performance unit awards or stock appreciation rights to officers, directors, consultants and employees of the Company. As of December 31, 2022, there were 1,120,174 shares available for grant under 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, 2022 is as follows:

	Number of Shares	Weighted Average Fair Value
Outstanding at June 30, 2022	678,899	$	28.88
Granted	669,890	$	16.48
Forfeited	(90,695)	$	23.14
Vested	(194,830)	$	36.23
Outstanding at December 31, 2022	1,063,264	$	20.21

The Company also grants performance-based restricted stock awards to certain executives and other management, as summarized below.

Performance-Based Restricted Stock - Total Shareholder Return

In August 2022, the Company granted an aggregate maximum of 303,272 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, 2022 compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2025. 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, 2025 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 $2,800, 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 2022 and 2021 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, 2021 and July 1, 2020, 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, 2024 and July 1, 2023, respectively.

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Performance-Based Restricted Stock - Revenue

In August 2022, the Company granted an aggregate maximum of 303,244 shares that vest based on the Company’s average annual revenue growth during the performance period. Annual revenue growth is measured as the percentage increase in the revenue reported in the Form 10-K for each of the fiscal years ending June 30, 2023, 2024 and 2025, compared to the revenue reported in the Form 10-K for each preceding fiscal year. 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, 2025 is filed. The Company recognizes expense for awards with performance conditions when it concludes that it is probable that the performance condition will be achieved. Probability is assessed at each reporting period and expense is adjusted for such changes accordingly with a cumulative catch up adjustment.

Performance-based restricted stock award activity for the six months ended December 31, 2022 is as follows:

	Number of Shares	Weighted Average Fair Value
Outstanding at June 30, 2022	744,215	$	19.89
Granted	606,516	$	12.73
Forfeited	(242,733)	$	27.79
Vested	—	$	—
Outstanding at December 31, 2022	1,107,998	$	14.24

Unrecognized stock compensation related to unvested stock awards outstanding as of December 31, 2022 was $20,982.

8. 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 December 2026. As discussed in Note 5, 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 $269 and $258 for the six months ended December 31, 2022 and 2021, respectively. Cash paid for operating lease liabilities approximated operating lease cost for the six months ended December 31, 2022. There were $29 and $54 of operating lease right-of-use assets obtained in exchange for new lease liabilities during the six months ended December 31, 2022 and 2021, respectively.

	December 31,		June 30,
	2022		2022
Right-of-use assets
Other assets	$	1,636	$	1,852
Operating lease liabilities
Accrued expenses	522		526
Other liabilities	1,114		1,326
Total operating lease liabilities	$	1,636	$	1,852

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Future minimum lease payments under the agreements as of December 31, 2022 are as follows:

Remainder of fiscal 2023	$	270
Fiscal 2024	514
Fiscal 2025	503
Fiscal 2026	416
Fiscal 2027	4
Total lease payments	1,707
Less imputed interest	(71)
Total operating lease liabilities	$	1,636

As of December 31, 2022, the weighted average remaining lease term for operating leases was 3.3 years and the weighted average discount rate used to determine operating lease liabilities was 2.55%.

9. 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, 2022 that are probable or estimable, for which the outcome could have a material adverse impact on its consolidated balance sheets or statements of operations.

10. 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,
	2022		2021		2022		2021
Numerator
Net loss	$	(7,888)	$	(8,967)	$	(18,519)	$	(17,585)
Income allocated to participating securities	—		—		—		—
Net loss available to common stockholders	$	(7,888)	$	(8,967)	$	(18,519)	$	(17,585)
Denominator
Weighted average common shares outstanding – basic	39,663,565		39,199,593		39,635,293		39,143,533
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	39,663,565		39,199,593		39,635,293		39,143,533
Earnings per common share – basic and diluted	$	(0.20)	$	(0.23)	$	(0.47)	$	(0.45)

(1)At December 31, 2022 and 2021, 67,938 and 79,188 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, 2022 and 2021, 279,657 and 310,415 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, 2022 and 2021, 1,107,998 and 820,586 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.

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11. Subsequent Events

On February 8, 2023, the Company entered into an Agreement and Plan of Merger (the “Abbott Merger Agreement”) with Abbott Laboratories, an Illinois corporation (“Abbott”), and Cobra Acquisition Co., a Delaware corporation and a direct, wholly-owned subsidiary of Abbott (“Merger Sub”). The Abbott Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Abbott Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a wholly-owned subsidiary of Abbott (the “Abbott Transaction”). At the effective time of the Abbott Transaction, each share of the Company’s common stock issued and outstanding immediately prior to the effective time, subject to certain exceptions set forth in the Abbott Merger Agreement, will automatically convert into and be exchangeable for the right to receive $20.00 per share in cash, without interest.

The boards of directors of both the Company and Abbott have unanimously approved the Abbott Merger Agreement and the Abbott Transaction. The Company’s board of directors unanimously recommended that the Company’s stockholders vote to adopt the Abbott Merger Agreement and approve the transactions contemplated thereby, including the Abbott Transaction, and directed that the adoption of the Abbott Merger Agreement be submitted to a vote of the stockholders.

The closing of the Abbott Transaction is subject to the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock to adopt the Abbott Merger Agreement, the expiration or termination of any waiting period (and extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and various other closing conditions.

The Abbott Merger Agreement includes certain termination provisions for both the Company and Abbott and provides that (i) in connection with the termination of the Abbott Merger Agreement under certain specified circumstances related to a change in the recommendation of the Company, the entry into an agreement for a superior proposal or the breach of certain of the Company’s covenants under the Abbott Merger Agreement, the Company may be required to pay Abbott a termination fee of $26,500,000, and (ii) in connection with the termination of the Abbott Merger Agreement after November 8, 2023 (or as such date might be extended under the Abbott Merger Agreement) under certain specified circumstances related to antitrust laws or due to the consummation of the Abbott Transaction being permanently enjoined under antitrust laws, Abbott may be required to pay the Company a termination fee of $26,500,000.

Additional information about the Abbott Merger Agreement and the Abbott Transaction will be set forth in the Company’s preliminary and definitive proxy statements relating to the transaction that will be filed with the SEC.

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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, 2022 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 these difficult disease states. 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.

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 three months ending June 30 usually representing the highest volume of cases and, therefore, the highest amount of revenue generated by us during the course of the fiscal year.

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, 2022. 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, 2022 represented approximately 63% 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, 2022 represented approximately 29% of revenue.

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International

We serve a growing patient population globally through an expanding distribution and sales network. Sales of our approved products in Japan have been made through our exclusive Japan distributor, Medikit Co., Ltd. ("Medikit"). On December 13, 2022, we entered into a distribution agreement with Otsuka Medical Devices Co., Ltd. Effective February 1, 2023, upon the expiration of our distribution agreement with Medikit, Otsuka became our exclusive Japan distributor. Sales of our products in the rest of the world, which primarily includes certain countries in Southeast Asia, Europe, Latin America, the Middle East and Canada, are made through a network of distributors and sales agents. International sales during the six months ended December 31, 2022 represented approximately 8% 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 and sales agents 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 in fiscal 2022, such as the 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; and decreased employee productivity. Some of these disruptions continued into the first and second quarters of fiscal 2023, although to a lesser extent than we experienced in the first and second quarters of fiscal 2022.

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.

Throughout the COVID-19 pandemic, we have observed the impact from the spread of some variants, and the fluctuations in hospitalizations resulting from these variants. For example, there were significant disruptions in procedures that occurred in the first quarter of fiscal 2022 due to the Delta variant outbreak and in the second and third quarters of fiscal 2022 due to the Omicron variant outbreak. 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. We continue to monitor the spread of variants and track hospitalizations resulting from variants of the SARS-CoV-2 virus.

The Abbott Transaction

On February 8, 2023, we entered into an Agreement and Plan of Merger (the “Abbott Merger Agreement”) with Abbott Laboratories, an Illinois corporation (“Abbott”), and Cobra Acquisition Co., a Delaware corporation and a direct, wholly-owned subsidiary of Abbott (“Merger Sub”). The Abbott Merger Agreement provides that, upon the terms and subject to the conditions set forth in such agreement, Merger Sub will merge with and into us, and we will continue as the surviving corporation and as a wholly-owned subsidiary of Abbott (the “Abbott Transaction”). At the effective time of the Abbott Transaction, each share of our common stock issued and outstanding immediately prior to the effective time, subject to certain exceptions set forth in the Abbott Merger Agreement, will automatically convert into and be exchangeable for the right to receive $20.00 per share in cash, without interest.

The boards of directors of both the Company and Abbott have unanimously approved the Abbott Merger Agreement and the Abbott Transaction. Our board of directors unanimously recommended that our stockholders vote to adopt the Abbott Merger Agreement and approve the transactions contemplated thereby, including the Abbott Transaction, and directed that the adoption of the Abbott Merger Agreement be submitted to a vote of our stockholders.

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The closing of the Abbott Transaction is subject to the affirmative vote of the holders of a majority of our outstanding shares of common stock to adopt the Abbott Merger Agreement, the expiration or termination of any waiting period (and extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and various other closing conditions.

The Abbott Merger Agreement includes certain termination provisions for both us and Abbott and provides that (i) in connection with the termination of the Abbott Merger Agreement under certain specified circumstances related to a change in the recommendation of the Company, the entry into an agreement for a superior proposal or the breach of certain of our covenants under the Abbott Merger Agreement, we may be required to pay Abbott a termination fee of $26,500,000, and (ii) in connection with the termination of the Abbott Merger Agreement after November 8, 2023 (or as such date might be extended under the Abbott Merger Agreement) under certain specified circumstances related to antitrust laws or due to the consummation of the Abbott Transaction being permanently enjoined under antitrust laws, Abbott may be required to pay us a termination fee of $26,500,000.

Additional information about the Abbott Merger Agreement and the Abbott Transaction will be set forth in the Company’s preliminary and definitive proxy statements relating to the transaction that will be filed with the SEC.

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, i