[January 28, 2015] |
|
Cardiovascular Systems Reports Fiscal 2015 Second-Quarter Financial Results
Cardiovascular Systems, Inc. (CSI (News - Alert)) (NASDAQ: CSII), a medical device
company developing and commercializing innovative interventional
treatment systems for peripheral and coronary artery disease, today
reported financial results for its fiscal second quarter ended December
31, 2014.
The company's second-quarter revenues increased 38 percent to $44.7
million, from $32.3 million in the second quarter of fiscal 2014.
Coronary revenues grew to $6.3 million. Customer reorder revenues
remained strong at 95 percent of total revenue, compared to 96 percent a
year ago. The gross profit margin increased to 79 percent from 77
percent, benefiting from higher average selling prices of coronary
products and lower device unit costs than in the prior-year quarter.
CSI's fiscal 2015 second-quarter net loss was $(5.3) million, or $(0.17)
per common share, compared to a net loss of $(8.7) million, or $(0.32)
per common share, in the fiscal 2014 second quarter. Adjusted EBITDA
improved to $(1.3) million compared to $(4.6) million a year earlier.
Losses narrowed from the prior year as revenue gains exceeded the growth
of planned investments, including over $12 million related to the
coronary market. Overall, expenses were favorable to guidance, due to
lower than expected expenses for sales force expansion and timing of
projects. Excluding net coronary investments, adjusted EBITDA was
positive for the quarter.
In the first six months of fiscal 2015, revenues increased to $86.1
million, up 39 percent from the fiscal 2014 six-month period. Gross
margin increased to 79 percent compared to the prior-year period of 77
percent, while operating expenses rose 31 percent, primarily due to
planned investments, including over $24 million of coronary market
related expenses. Adjusted EBITDA loss decreased by $(3.3) million to
$(5.5) million, while the net loss totaled $(13.5) million, or $(0.43)
per common share, compared to $(16.0) million, or $(0.61) per common
share, in fiscal 2014. Excluding net coronary investments, adjusted
EBITDA was positive year to date.
David L. Martin, CSI's President and Chief Executive Officer, said, "Our
unique orbital atherectomy technology for the treatment of peripheral
and coronary artery disease continues to gain adoption in the vastly
underserved, multi-billion dollar calcified artery disease markets,
driving year-over-year revenue growth of more than 30 percent in the
last four consecutive quarters."
CSI's Peripheral Orbital Atherectomy System (OAS) consistently treats
peripheral artery disease (PAD), including calcified plaque both above
and below the knee, while allowing physicians to use tibiopedal access
in the ankle or the foot with 4 Fr introducer sheath compatibility. The
use of smaller sheaths has been shown to reduce procedure and recovery
times, access site complications, and radiation exposure for patients
and healthcare professionals.
Approximately 4 million people in the U.S. are estimated to have
critical limb ischemia (CLI), an undertreated, advanced form of PAD
dominated by calcium in small vessels that contributes to over 160,000
debilitating amputations annually.
CSI's Coronary OAS is the first and only atherectomy device approved to
specifically treat severely calcified coronary arteries. Data shows that
significant coronary calcium results in higher rates of major adverse
coronary events (MACE) and death. It's estimated that significant
calcium is present in nearly 400,000 of U.S. coronary procedures
performed annually.
Continued Strong Adoption of the Diamondback®
Coronary Orbital Atherectomy System During the fiscal second
quarter, CSI passed the one-year anniversary of receiving FDA approval
of the Diamondback 360® Coronary OAS in the United States.
Since FDA approval on October 21, 2013, over 4,000 patients have been
treated using CSI's orbital atherectomy technology.
Next month, CSI plans to share the two-year data from the ORBIT II study
at CRT 2015. CSI's ORBIT II pivotal clinical study evaluated safety and
effectiveness of the Diamondback 360 in treating patients with severely
calcified coronary lesions. The one-year data from this study
demonstrated superior rates of freedom from MACE of 84 percent, and
freedom from target lesion revascularization of 95 percent, compared to
historical data for this difficult-to-treat patient population. CSI
expects continued positive long-term outcomes with the two-year data.
CSI began to broaden the controlled commercial rollout of the Coronary
OAS during the fourth quarter of fiscal 2014 when it started training
its PAD sales representatives to sell the Coronary OAS in addition to
the company's peripheral system. Going into the 2015 fiscal third
quarter, CSI has approximately 100 sales representatives selling the
Coronary OAS, including 80 of these "hybrid" sales representatives. CSI
plans to cross-train about 25 PAD sales representatives each quarter.
According to Martin, "Nearly 70 percent of our PAD customers are
interventional cardiologists who treat calcified lesions throughout the
body. Our new hybrid sales representatives can now offer both our
Peripheral and Coronary OAS to these physicians. To date, we're seeing
improved productivity in this hybrid group and remain confident that
they will drive continued strong revenue growth, while providing a path
to future profitability."
COAST Coronary Study Enrollment Completed in Japan COAST is
a prospective, single-arm, multi-center, global study designed to
evaluate the safety and efficacy of CSI's new investigational Coronary
Micro Crown OAS. CSI plans to enroll up to 100 subjects at up to 15 U.S.
sites and five sites in Japan.
Data from this study is expected to help secure approval for the use of
the new micro crown OAS in CAD patients in the world's two largest
coronary markets, the U.S. and Japan. On November 20, 2014, CSI reached
an important milestone by completing its required number of enrollments
in Japan. Enrollment in the United States is expected to be completed in
mid-calendar 2015.
The investigational 1.25 mm micro crown is CSI's second-generation
system designed to facilitate stent delivery in patients with severely
calcified lesions who are acceptable candidates for percutaneous
transluminal coronary angioplasty (PTCA) or stenting. The micro crown
OAS is designed to improve the tracking and piloting of the OAS
driveshaft and treat lesions while operating at lower rotational speeds.
LIBERTY 360° Trial Enrolls 600th Patient LIBERTY
360° is a prospective, observational, multi-center clinical study
evaluating acute and long-term clinical, quality of life and economic
outcomes of endovascular device intervention in patients with distal
outflow peripheral arterial disease. This study is designed with unique
endpoints to demonstrate how CSI's PAD systems provide effective
long-term clinical and economic outcomes compared to other treatment
alternatives.
Enrollment of patients in this study accelerated during the second
fiscal quarter. In mid-January, CSI enrolled the 600th
patient, an increase of about 350 since June 30, 2014. The company is
currently enrolling up to 1,200 patients in this study, which is
expected to be completed in calendar 2015.
Fiscal 2015 Third-Quarter Outlook Martin said, "We enter
into the second half of fiscal year 2015 with many favorable market
factors, including differentiated products addressing multi-billion
dollar market opportunities that were previously underserved, and
attractive reimbursement levels. As a result, we are expanding our sales
organization to take full advantage of these opportunities. We expect
these investments to continue building our market leadership and enhance
future growth."
For the fiscal 2015 third quarter ending March 31, 2015, CSI anticipates:
-
Revenue growth of 32 percent to 36 percent over the third quarter of
fiscal 2014, to a range of $46.0 million to $47.7 million;
-
Gross profit as a percentage of revenues similar to the second quarter
of fiscal 2015;
-
Operating expenses approximately 17 percent higher than the second
quarter of fiscal 2015, primarily due to expansion of the sales force;
and
-
Net loss in the range of $(10.0) million to $(11.0) million, or loss
per common share ranging from $(0.32) to $(0.35), assuming 31.6
million average shares outstanding.
Conference Call Today at 3:45 p.m. CT (4:45 p.m. ET) Cardiovascular
Systems, Inc. will host a live conference call and webcast of its fiscal
second-quarter results today, January 28, 2015, at 3:45 p.m. CT (4:45
p.m. ET). To access the call, dial (844) 421-0596 and enter access
number 62308062. Please dial in at least 10 minutes prior to the call
and wait for assistance, or dial "0" for the operator. To listen to the
live webcast, go to the investor section of the company's website, www.csi360.com,
and click on the webcast icon.
For an audio replay of the conference call, dial (855) 859-2056 and
enter access number 62308062. The audio replay will be available
beginning at 6:45 p.m. CT on Wednesday, January 28, 2015, through 10:59
p.m. CT on Wednesday, February 4, 2015.
Use of Non-GAAP Financial Measures To supplement CSI's
consolidated condensed financial statements prepared in accordance with
U.S. generally accepted accounting principles (GAAP), CSI uses certain
non-GAAP financial measures in this release. Reconciliations of the
non-GAAP financial measures used in this release to the most comparable
U.S. GAAP measures for the respective periods can be found in tables
later in this release immediately following the consolidated statements
of operations. Non-GAAP financial measures have limitations as
analytical tools and should not be considered in isolation or as a
substitute for CSI's financial results prepared in accordance with GAAP.
About Peripheral Artery Disease (PAD) As many as 18 million
Americans, most over age 65, suffer from PAD, which is caused by the
accumulation of plaque in peripheral arteries (commonly the pelvis or
leg) reducing blood flow. Symptoms include leg pain when walking or at
rest. Left untreated, PAD can lead to severe pain, immobility,
non-healing wounds and eventually limb amputation. With risk factors
such as diabetes and obesity on the rise, the prevalence of PAD is
growing at double-digit rates.
Millions of patients with PAD may benefit from treatment with orbital
atherectomy utilizing the Stealth 360 and Diamondback 360
Peripheral Orbital Atherectomy Systems, minimally invasive catheter
systems developed and manufactured by CSI. These systems use a
diamond-coated crown, attached to an orbiting shaft, which sands away
plaque while preserving healthy vessel tissue - a critical factor in
preventing reoccurrences. Balloon angioplasty and stents have
significant shortcomings in treating hard, calcified lesions. Stents are
prone to fractures and high recurrence rates, and treatment of hard,
calcified lesions often leads to vessel damage and suboptimal results.
About Coronary Artery Disease (CAD) CAD is a
life-threatening condition and a leading cause of death in men and women
in the United States. CAD occurs when a fatty material called plaque
builds up on the walls of arteries that supply blood to the heart. The
plaque buildup causes the arteries to harden and narrow
(atherosclerosis), reducing blood flow. The risk of CAD increases if a
person has one or more of the following: high blood pressure, abnormal
cholesterol levels, diabetes, or family history of early heart disease.
According to the American Heart Association, 16.3 million people in the
United States have been diagnosed with CAD, the most common form of
heart disease. Heart disease claims more than 600,000 lives in the
United States each year. According to estimates, significant arterial
calcium is present in nearly 40 percent of patients undergoing a
percutaneous coronary intervention (PCI (News - Alert)). Significant calcium
contributes to poor outcomes and higher treatment costs in coronary
interventions when traditional therapies are used, including a
significantly higher occurrence of death and major adverse cardiac
events (MACE).
About Cardiovascular Systems, Inc. Cardiovascular Systems,
Inc., based in St. Paul, Minn., is a medical device company focused on
developing and commercializing innovative solutions for treating
vascular and coronary disease. The company's Orbital Atherectomy Systems
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 U.S. FDA granted 510(k)
clearance for the use of the Diamondback Orbital Atherectomy System in
peripheral arteries in August 2007. In October 2013, the company
received FDA approval for the use of the Diamondback Orbital Atherectomy
System in coronary arteries. To date, nearly 182,000 of CSI's devices
have been sold to leading institutions across the United States. For
more information, visit the company's website at www.csi360.com.
Safe Harbor Certain statements in this news release are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and are provided under the protection of
the safe harbor for forward-looking statements provided by that Act. For
example, statements in this press release regarding (i) the extensive
market opportunity for our technology, including the estimate of a
multi-billion dollar market opportunity; (ii) the coronary launch
strategy and timeline; (iii) the expected training and expansion of our
sales organization; (iv) the expectation that our hybrid sales strategy
will drive continued strong revenue growth and provide a path to
profitability in the future; (v) the expected continued positive
long-term outcomes with the two-year ORBIT II data; (vi) the LIBERTY
360° trial, including the number of patients expected to be enrolled and
the timing of enrollment; (vii) the COAST trial, including the number of
patients expected to be enrolled, the timing of enrollment, and the
potential to secure approval of the new micro crown OAS in the U.S. and
Japan; (viii) anticipated revenue, gross profit, operating expenses, and
net loss; (ix) the expectation that investments will continue building
CSI's market leadership; and (x) potential future growth of CSI, are
forward-looking statements. These statements involve risks and
uncertainties that could cause results to differ materially from those
projected, including, but not limited to, dependence on market growth;
the reluctance of physicians, hospitals and other organizations to
accept new products; the experience of physicians regarding the
effectiveness and reliability of CSI's products; actual clinical trial
and study results; the potential for unanticipated delays in enrolling
medical centers and patients for clinical trials; the impact of
competitive products and pricing; the difficulty to successfully manage
operating costs; fluctuations in quarterly results; agreements with
third parties to sell their products; regulatory developments in the
U.S. and foreign countries; FDA and international regulatory clearances
and approvals; approval of our products for distribution in foreign
countries; approval of products for reimbursement and the level of
reimbursement; general economic conditions and other factors detailed
from time to time in CSI's SEC (News - Alert) reports, including its most recent annual
report on Form 10-K and subsequent quarterly reports on Form 10-Q. CSI
encourages you to consider all of these risks, uncertainties and other
factors carefully in evaluating the forward-looking statements contained
in this release. As a result of these matters, changes in facts,
assumptions not being realized or other circumstances, CSI's actual
results may differ materially from the expected results discussed in the
forward-looking statements contained in this release. The
forward-looking statements made in this release are made only as of the
date of this release, and CSI undertakes no obligation to update them to
reflect subsequent events or circumstances.
Product Disclosures:
Peripheral Products The Stealth 360® PAD System
and Diamondback 360® PAD System are percutaneous orbital
atherectomy systems indicated for use as therapy in patients with
occlusive atherosclerotic disease in peripheral arteries and stenotic
material from artificial arteriovenous dialysis fistulae. The systems
are contraindicated for use in coronary arteries, bypass grafts, stents
or where thrombus or dissections are present. Although the incidence of
adverse events is rare, potential events that can occur with atherectomy
include: pain, hypotension, CVA/TIA (News - Alert), death, dissection, perforation,
distal embolization, thrombus formation, hematuria, abrupt or acute
vessel closure, or arterial spasm.
Coronary Product Indications: The Diamondback 360®
Coronary Orbital Atherectomy System (OAS) is a percutaneous orbital
atherectomy system indicated to facilitate stent delivery in patients
with coronary artery disease (CAD) who are acceptable candidates for
PTCA or stenting due to de novo, severely calcified coronary
artery lesions.
Contraindications: The OAS is contraindicated when the ViperWire
guide wire cannot pass across the coronary lesion or the target lesion
is within a bypass graft or stent. The OAS is contraindicated when the
patient is not an appropriate candidate for bypass surgery, angioplasty,
or atherectomy therapy, or has angiographic evidence of thrombus, or has
only one open vessel, or has angiographic evidence of significant
dissection at the treatment site and for women who are pregnant or
children.
Warnings/Precautions: Performing treatment in excessively
tortuous vessels or bifurcations may result in vessel damage; The OAS
was only evaluated in severely calcified lesions, A temporary pacing
lead may be necessary when treating lesions in the right coronary and
circumflex arteries; On-site surgical back-up should be included as a
clinical consideration; Use in patients with an ejection fraction (EF)
of less than 25% has not been evaluated. See the instructions for use
before performing Diamondback 360 Coronary OAS procedures for
detailed information regarding the procedure, indications,
contraindications, warnings, precautions, and potential adverse events.
For further information call CSI at 1-877-274-0901 and/or consult CSI's
website at www.csi360.com.
Caution: Federal law (USA) restricts this device to sale by or on
the order of a physician.
Micro Crown OAS CSI has commenced its COAST Investigational
Device Exemption clinical trial to evaluate the safety and efficacy of
its new micro crown orbital technology in treating severely calcified
lesions within the coronary arteries. This new system is limited by
federal law to investigational use and is currently not commercially
available in the United States or Japan.
|
|
|
|
|
Cardiovascular Systems, Inc.
|
Consolidated Statements of Operations
|
(Dollars in Thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
44,732
|
|
|
$
|
32,337
|
|
|
$
|
86,086
|
|
|
$
|
62,103
|
|
Cost of goods sold
|
|
|
9,346
|
|
|
|
7,313
|
|
|
|
18,231
|
|
|
|
14,177
|
|
Gross profit
|
|
|
35,386
|
|
|
|
25,024
|
|
|
|
67,855
|
|
|
|
47,926
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
32,553
|
|
|
|
27,468
|
|
|
|
66,060
|
|
|
|
52,839
|
|
Research and development
|
|
|
8,085
|
|
|
|
5,051
|
|
|
|
15,237
|
|
|
|
9,429
|
|
Total expenses
|
|
|
40,638
|
|
|
|
32,519
|
|
|
|
81,297
|
|
|
|
62,268
|
|
Loss from operations
|
|
|
(5,252
|
)
|
|
|
(7,495
|
)
|
|
|
(13,442
|
)
|
|
|
(14,342
|
)
|
Interest and other, net
|
|
|
(21
|
)
|
|
|
(1,163
|
)
|
|
|
(55
|
)
|
|
|
(1,608
|
)
|
Net loss and comprehensive loss
|
|
$
|
(5,273
|
)
|
|
$
|
(8,658
|
)
|
|
$
|
(13,497
|
)
|
|
$
|
(15,950
|
)
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss per common share:
|
Basic and diluted
|
|
$
|
(0.17
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computation:
|
Basic and diluted
|
|
|
31,487,358
|
|
|
|
27,177,952
|
|
|
|
31,399,234
|
|
|
|
25,964,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular Systems, Inc.
|
Consolidated Balance Sheets
|
(Dollars in Thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
December 31,
|
|
June 30,
|
|
|
2014
|
|
2014
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
101,344
|
|
|
$
|
126,592
|
|
Accounts receivable, net
|
|
|
26,064
|
|
|
|
21,383
|
|
Inventories
|
|
|
13,957
|
|
|
|
12,890
|
|
Prepaid expenses and other current assets
|
|
|
4,084
|
|
|
|
1,846
|
|
Total current assets
|
|
|
145,449
|
|
|
|
162,711
|
|
Property and equipment, net
|
|
|
30,940
|
|
|
|
15,297
|
|
Patents, net
|
|
|
4,150
|
|
|
|
3,823
|
|
Other assets
|
|
|
70
|
|
|
|
70
|
|
Total assets
|
|
$
|
180,609
|
|
|
$
|
181,901
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
-
|
|
|
$
|
2,400
|
|
Accounts payable
|
|
|
18,302
|
|
|
|
12,699
|
|
Accrued expenses
|
|
|
12,185
|
|
|
|
14,630
|
|
Total current liabilities
|
|
|
30,487
|
|
|
|
29,729
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
1,967
|
|
|
|
117
|
|
Total long-term liabilities
|
|
|
1,967
|
|
|
|
117
|
|
Total liabilities
|
|
|
32,454
|
|
|
|
29,846
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
148,155
|
|
|
|
152,055
|
|
Total liabilities and stockholders' equity
|
|
$
|
180,609
|
|
|
$
|
181,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular Systems, Inc.
|
Supplemental Sales Information
|
(Dollars in Thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Device revenue
|
|
$
|
39,966
|
|
|
$
|
28,442
|
|
|
$
|
76,475
|
|
|
$
|
54,648
|
|
Other product revenue
|
|
|
4,766
|
|
|
|
3,895
|
|
|
|
9,611
|
|
|
|
7,455
|
|
Total revenue
|
|
$
|
44,732
|
|
|
$
|
32,337
|
|
|
$
|
86,086
|
|
|
$
|
62,103
|
|
|
|
|
|
|
|
|
|
|
Device units sold:
|
|
|
|
|
|
|
|
|
PAD
|
|
|
11,233
|
|
|
|
9,276
|
|
|
|
21,508
|
|
|
|
17,834
|
|
CAD
|
|
|
1,631
|
|
|
|
103
|
|
|
|
2,892
|
|
|
|
103
|
|
Total device units sold
|
|
|
12,864
|
|
|
|
9,379
|
|
|
|
24,400
|
|
|
|
17,937
|
|
|
|
|
|
|
|
|
|
|
New customers:
|
|
|
|
|
|
|
|
|
PAD
|
|
|
62
|
|
|
|
58
|
|
|
|
119
|
|
|
|
108
|
|
CAD
|
|
|
68
|
|
|
|
11
|
|
|
|
150
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Reorder revenue %
|
|
|
95
|
%
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures To supplement CSI's consolidated
condensed financial statements prepared in accordance with GAAP, CSI
uses a non-GAAP financial measure referred to as "Adjusted EBITDA" in
this release.
Reconciliations of Adjusted EBITDA to the most comparable U.S. GAAP
measure for the respective periods can be found in the table on the next
page. In addition, an explanation of the manner in which CSI's
management uses Adjusted EBITDA to conduct and evaluate its business,
the economic substance behind management's decision to use Adjusted
EBITDA, the substantive reasons why management believes that Adjusted
EBITDA provides useful information to investors, the material
limitations associated with the use of Adjusted EBITDA and the manner in
which management compensates for those limitations is included following
the reconciliation table.
|
|
|
|
|
Cardiovascular Systems, Inc.
|
Adjusted EBITDA
|
(Dollars in Thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(5,252
|
)
|
|
$
|
(7,495
|
)
|
|
$
|
(13,442
|
)
|
|
$
|
(14,342
|
)
|
Add: Stock-based compensation
|
|
|
3,510
|
|
|
|
2,555
|
|
|
|
7,083
|
|
|
|
4,855
|
|
Add: Depreciation and amortization
|
|
|
426
|
|
|
|
313
|
|
|
|
833
|
|
|
|
629
|
|
Adjusted EBITDA
|
|
$
|
(1,316
|
)
|
|
$
|
(4,627
|
)
|
|
$
|
(5,526
|
)
|
|
$
|
(8,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Use and Economic Substance of Non-GAAP Financial Measures Used by CSI
and Usefulness of Such Non-GAAP Financial Measures to Investors CSI
uses Adjusted EBITDA as a supplemental measure of performance and
believes this measure facilitates operating performance comparisons from
period to period and company to company by factoring out potential
differences caused by depreciation and amortization expense and non-cash
charges such as stock based compensation. CSI's management uses Adjusted
EBITDA to analyze the underlying trends in CSI's business, assess the
performance of CSI's core operations, establish operational goals and
forecasts that are used to allocate resources and evaluate CSI's
performance period over period and in relation to its competitors'
operating results. Additionally, CSI's management is evaluated on the
basis of Adjusted EBITDA when determining achievement of their incentive
compensation performance targets.
CSI believes that presenting Adjusted EBITDA provides investors greater
transparency to the information used by CSI's management for its
financial and operational decision-making and allows investors to see
CSI's results "through the eyes" of management. CSI also believes that
providing this information better enables CSI's investors to understand
CSI's operating performance and evaluate the methodology used by CSI's
management to evaluate and measure such performance.
The following is an explanation of each of the items that management
excluded from Adjusted EBITDA and the reasons for excluding each of
these individual items:
-- Stock-based compensation. CSI excludes stock-based compensation
expense from its non-GAAP financial measures primarily because such
expense, while constituting an ongoing and recurring expense, is not an
expense that requires cash settlement. CSI's management also believes
that excluding this item from CSI's non-GAAP results is useful to
investors to understand the application of stock-based compensation
guidance and its impact on CSI's operational performance, liquidity and
its ability to make additional investments in the company, and it allows
for greater transparency to certain line items in CSI's financial
statements.
-- Depreciation and amortization expense. CSI excludes depreciation and
amortization expense from its non-GAAP financial measures primarily
because such expenses, while constituting ongoing and recurring
expenses, are not expenses that require cash settlement and are not used
by CSI's management to assess the core profitability of CSI's business
operations. CSI's management also believes that excluding these items
from CSI's non-GAAP results is useful to investors to understand CSI's
operational performance, liquidity and its ability to make additional
investments in the company.
Material Limitations Associated with the Use of Non-GAAP Financial
Measures and Manner in which CSI Compensates for these Limitations Non-GAAP
financial measures have limitations as analytical tools and should not
be considered in isolation or as a substitute for CSI's financial
results prepared in accordance with GAAP. Some of the limitations
associated with CSI's use of these non-GAAP financial measures are:
-- Items such as stock-based compensation do not directly affect CSI's
cash flow position; however, such items reflect economic costs to CSI
and are not reflected in CSI's "Adjusted EBITDA" and therefore these
non-GAAP measures do not reflect the full economic effect of these items.
-- Non-GAAP financial measures are not based on any comprehensive set of
accounting rules or principles and therefore other companies may
calculate similarly titled non-GAAP financial measures differently than
CSI, limiting the usefulness of those measures for comparative purposes.
-- CSI's management exercises judgment in determining which types of
charges or other items should be excluded from the non-GAAP financial
measures CSI uses. CSI compensates for these limitations by relying
primarily upon its GAAP results and using non-GAAP financial measures
only supplementally. CSI provides full disclosure of each non-GAAP
financial measure.
-- CSI uses and detailed reconciliations of each non-GAAP measure to its
most directly comparable GAAP measure. CSI encourages investors to
review these reconciliations. CSI qualifies its use of non-GAAP
financial measures with cautionary statements as set forth above.
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