Cardiovascular Systems Inc - Quarter Report: 2020 March (Form 10-Q)

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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 March 31, 2020

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

For the transition period from ___________ to ___________

Commission File No. 000-52082

____________________________________________________

CARDIOVASCULAR SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

____________________________________________________


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

1225 Old Highway 8 Northwest

St. Paul, Minnesota 55112-6416

(Address of principal executive offices, including zip code)

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

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


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

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

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

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, as of May 1, 2020 was: 35,274,437 shares.

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Cardiovascular Systems, Inc.

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			PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)			2
Consolidated Balance Sheets			2
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income			4
Consolidated Statements of Changes in Stockholders’ Equity			5
Consolidated Statements of Cash Flows			7
Notes to Consolidated Financial Statements			8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			26
ITEM 4. Controls and Procedures			26
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			27
ITEM 1A. Risk Factors			27
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
ITEM 3. Defaults Upon Senior Securities			28
ITEM 4. Mine Safety Disclosures			28
ITEM 5. Other Information			28
ITEM 6. Exhibits			28
Signatures			30

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PART I. — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cardiovascular Systems, Inc.

Consolidated Balance Sheets

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

(Unaudited)


	March 31, 2020		June 30, 2019
ASSETS
Current assets
Cash and cash equivalents	$	69,572	$	74,237
Marketable securities	37,688		48,435
Accounts receivable, net	30,864		36,015
Inventories	24,069		18,058
Prepaid expenses and other current assets	2,243		3,330
Total current assets	164,436		180,075
Property and equipment, net	27,692		27,324
Intangible assets, net	20,256		5,105
Other assets	7,694		6,073
Total assets	$	220,078	$	218,577
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	13,235	$	11,194
Accrued expenses	35,064		29,387
Deferred revenue	1,757		1,764
Total current liabilities	50,056		42,345
Long-term liabilities
Financing obligation	20,868		20,972
Deferred revenue	5,258		6,541
Other liabilities	720		775
Total liabilities	76,902		70,633
Commitments and contingencies (see Note 10)
Common stock, $0.001 par value; authorized 100,000,000 common shares; issued and outstanding 35,274,479 at March 31, 2020 and 34,934,569 at June 30, 2019, respectively	34		34
Additional paid in capital	491,053		477,368
Accumulated other comprehensive (loss) income	(59)		78
Accumulated deficit	(347,852)		(329,536)
Total stockholders’ equity	143,176		147,944
Total liabilities and stockholders’ equity	$	220,078	$	218,577

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

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Cardiovascular Systems, Inc.

Consolidated Statements of Operations

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

(Unaudited)


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2020		2019		2020		2019
Net revenues	$	61,175	$	63,311	$	193,999	$	179,783
Cost of goods sold	12,225		12,166		38,615		34,218
Gross profit	48,950		51,145		155,384		145,565
Expenses:
Selling, general and administrative	41,384		41,356		135,003		123,705
Research and development	9,964		9,155		31,515		23,702
Amortization of intangible assets	337		127		908		235
Total expenses	51,685		50,638		167,426		147,642
(Loss) income from operations	(2,735)		507		(12,042)		(2,077)
Other (income) expense, net:
Interest expense	501		420		1,473		1,266
Interest income and other, net	(394)		(671)		(1,574)		(1,771)
Total other (income) expense, net	107		(251)		(101)		(505)
(Loss) income before income taxes	(2,842)		758		(11,941)		(1,572)
Provision for income taxes	47		86		129		152
Net (loss) income	$	(2,889)	$	672	$	(12,070)	$	(1,724)

Basic earnings per share	$	(0.08)	$	0.02	$	(0.35)	$	(0.05)
Diluted earnings per share	$	(0.08)	$	0.02	$	(0.35)	$	(0.05)

Basic weighted average shares outstanding	34,149,561		33,600,148		34,029,296		33,510,368
Diluted weighted average shares outstanding	34,149,561		34,241,432		34,029,296		33,510,368

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

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Cardiovascular Systems, Inc.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2020		2019		2020		2019
Net (loss) income	$	(2,889)	$	672	$	(12,070)	$	(1,724)
Other comprehensive (loss) income:
Unrealized loss on available-for-sale debt securities	(152)		—		(137)		—


Comprehensive (loss) income	$	(3,041)	$	672	$	(12,207)	$	(1,724)

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

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Cardiovascular Systems, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except per share amounts)

(Unaudited)


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

Balances at June 30, 2019	$	34	$	477,368	$	78	$	(329,536)	$	147,944
Stock-based compensation related to restricted stock awards, net	—		3,804		—		—		3,804
Shares withheld for payroll taxes	—		—		—		(5,506)		(5,506)
Employee stock purchase plan activity	—		242		—		—		242
Unrealized gain on available-for-sale debt securities	—		—		24		—		24
Stock issued for acquisitions	—		1,346		—		—		1,346
Net loss	—		—		—		(5,780)		(5,780)
Balances at September 30, 2019	34		482,760		102		(340,822)		142,074
Stock-based compensation related to restricted stock awards, net	—		3,091		—		—		3,091
Shares withheld for payroll taxes	—		—		—		(379)		(379)
Employee stock purchase plan activity	—		1,929		—		—		1,929
Unrealized loss on available-for-sale debt securities	—		—		(9)		—		(9)
Net loss	—		—		—		(3,401)		(3,401)
Balances at December 31, 2019	34		487,780		93		(344,602)		143,305
Stock-based compensation related to restricted stock awards, net	—		2,934		—		—		2,934
Shares withheld for payroll taxes	—		—		—		(361)		(361)
Employee stock purchase plan activity	—		339		—		—		339
Unrealized loss on available-for-sale debt securities	—		—		(152)		—		(152)
Net loss	—		—		—		(2,889)		(2,889)
Balances at March 31, 2020	$	34	$	491,053	$	(59)	$	(347,852)	$	143,176

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

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Cardiovascular Systems, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except per share amounts)

(Unaudited)


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

Balances at June 30, 2018	$	33	$	461,927	$	101	$	(327,591)	$	134,470
Impact from adoption of ASU 2016-01 (See Note 7)	—		—		(101)		101		—
Stock-based compensation related to restricted stock awards, net	—		3,132		—		—		3,132
Shares withheld for payroll taxes	—		—		—		(1,058)		(1,058)
Employee stock purchase plan activity	—		252		—		—		252
Exercise of stock options at $8.75 per share	—		71		—		—		71
Net loss	—		—		—		(2,888)		(2,888)
Balances at September 30, 2018	33		465,382		—		(331,436)		133,979
Stock-based compensation related to restricted stock awards, net	1		2,471		—		—		2,472
Shares withheld for payroll taxes	—		—		—		(319)		(319)
Employee stock purchase plan activity	—		1,849		—		—		1,849
Exercise of stock options at $8.75 per share	—		125		—		—		125
Net income	—		—		—		492		492
Balances at December 31, 2018	34		469,827		—		(331,263)		138,598
Stock-based compensation related to restricted stock awards, net	—		2,380		—		—		2,380
Shares withheld for payroll taxes	—		—		—		(331)		(331)
Employee stock purchase plan activity	—		294		—		—		294

Net income	—		—		—		672		672
Balances at March 31, 2019	$	34	$	472,501	$	—	$	(330,922)	$	141,613

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

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Cardiovascular Systems, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


	Nine Months Ended
	March 31,
	2020		2019
Cash flows from operating activities
Net loss	$	(12,070)	$	(1,724)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation of property and equipment	2,244		2,382
Amortization of intangible assets	908		235
Write-off of patent costs	917		500
Provision for doubtful accounts	600		125

Stock-based compensation	10,469		8,600
Accretion of discount on marketable securities	(145)		—
Changes in assets and liabilities
Accounts receivable	4,551		(3,870)
Inventories	(6,011)		(2,699)
Prepaid expenses and other assets	1,310		647
Accounts payable	1,995		1,915
Accrued expenses and other liabilities	(4,902)		144
Deferred revenue	(1,290)		(1,347)
Net cash (used in) provided by operating activities	(1,424)		4,908
Cash flows from investing activities
Purchases of property and equipment	(2,138)		(2,286)
Acquisitions	(5,741)		—
Purchase of investments	(750)		(3,055)
Purchases of marketable securities	(17,968)		—
Sales of marketable securities	4,890		97
Maturities of marketable securities	23,800		—
Costs incurred in connection with patents	(717)		(665)
Net cash provided by (used in) investing activities	1,376		(5,909)
Cash flows from financing activities
Proceeds from employee stock purchase plan	1,687		1,551
Payments of employee taxes related to vested restricted stock	(6,246)		(1,708)
Exercise of stock options	—		196

Principal payments made on financing obligation	(58)		(18)
Net cash (used in) provided by financing activities	(4,617)		21
Net change in cash and cash equivalents	(4,665)		(980)
Cash and cash equivalents
Beginning of period	74,237		116,260
End of period	$	69,572	$	115,280

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

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CARDIOVASCULAR SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(For the Nine Months Ended March 31, 2020 and 2019)

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

(Unaudited)

1. Basis of Presentation

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

The Company prepared the unaudited interim consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The year-end consolidated balance sheet was derived from the Company’s audited consolidated financial statements, but does not include all disclosures as required by GAAP. These interim consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the Company’s consolidated financial position, the results of its operations, its changes in stockholders’ equity, and its cash flows for the interim periods. These interim consolidated financial statements should be read in conjunction with the consolidated annual financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2019. 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 outbreak of COVID-19. 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:


	March 31,		June 30,
	2020		2019
Accounts receivable	$	31,935	$	36,628
Less: Allowance for doubtful accounts	(1,071)		(613)
Accounts receivable, net	$	30,864	$	36,015

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Inventories

Inventories consist of the following:


	March 31,		June 30,
	2020		2019
Raw materials	$	7,752	$	5,547
Work in process	2,533		1,415
Finished goods	13,784		11,096
Inventories	$	24,069	$	18,058

Property and Equipment, Net

Property and equipment consists of the following:


	March 31,		June 30,
	2020		2019
Land	$	572	$	572
Building	22,420		22,420
Equipment	18,235		17,517
Furniture	3,207		2,975
Leasehold improvements	663		540
Construction in progress	2,855		1,328
	47,952		45,352
Less: Accumulated depreciation	(20,260)		(18,028)
Property and equipment, net	$	27,692	$	27,324

Accrued Expenses

Accrued expenses consist of the following:


	March 31,		June 30,
	2020		2019
Acquisition consideration	$	9,829	$	—
Salaries and bonus	6,908		11,105
Accrued vacation	5,043		4,230
Commissions	4,689		6,829
Accrued excise, sales and other taxes	2,492		3,349
Clinical studies	2,639		2,092

Other accrued expenses	3,464		1,782
Accrued expenses	$	35,064	$	29,387

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3. Revenue

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


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
Product Category	2020		2019		2020		2019
Peripheral	$	42,627	$	45,152	$	135,736	$	130,620
Coronary	18,548		18,159		58,263		49,163
Total net revenues	$	61,175	$	63,311	$	193,999	$	179,783

Geography
United States	$	58,122	$	60,897	$	185,611	$	174,417
International	3,053		2,414		8,388		5,366
Total net revenues	$	61,175	$	63,311	$	193,999	$	179,783

Revenue of $1,290 was recognized in the nine months ended March 31, 2020 that was deferred as of June 30, 2019. As of March 31, 2020 and June 30, 2019, the Company had a liability of $1,929 and $1,958, respectively, related to estimates of variable consideration which are recorded within accounts payable on the consolidated balance sheet.

4. Acquisition

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

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

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

5. Intangible Assets

The Company’s finite-lived intangible assets are stated at cost less accumulated amortization and include developed technology and trade name assets acquired in the asset acquisition discussed in Note 4, as well as costs incurred to obtain patents. Developed technology and trade name assets are amortized over 15 years. Patent costs are amortized beginning at the time of patent approval over a useful life not exceeding 20 years.

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The components of intangible assets, net are as follows:


	March 31, 2020										June 30, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology	$	15,624	$	(694)	$	14,930	$	—	$	—	$	—
Patents	5,727		(1,127)		4,600		6,093		(988)		5,105
Trade name	760		(34)		726		—		—		—
Total intangible assets, net	$	22,111	$	(1,855)	$	20,256	$	6,093	$	(988)	$	5,105

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


Remainder of fiscal 2020	$	336
Fiscal 2021	1,345
Fiscal 2022	1,343
Fiscal 2023	1,337
Fiscal 2024	1,333
Thereafter	14,562
	$	20,256

6. Debt

Revolving Credit Facility

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

Advances under the Revolver may be made from time to time up to the Maximum Dollar Amount, subject to certain borrowing limitations. The Revolver bears interest at a floating per annum rate equal to the Wall Street Journal prime rate, less 0.75%. Interest on borrowings is due monthly and the principal balance is due at maturity. Upon the Revolver’s maturity, any outstanding principal balance, unpaid accrued interest, and all other obligations under the Revolver will be due and payable. The Company will incur a fee equal to 3% of the Maximum Dollar Amount upon termination of the Loan Agreement, as amended by the Amendment (the "Amended Loan Agreement"), or the Revolver for any reason prior to the date that is fifteen days prior to the maturity date, unless refinanced with SVB.

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

The Company is required to pay a fee equal to 0.15% per annum on the unused portion of the Revolver, payable quarterly in arrears. The Company is not obligated to draw any funds under the Revolver and has not done so under the Revolver since entering into the Loan Agreement. No amounts are outstanding as of March 31, 2020.

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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 March 31, 2020 are as follows:


Remainder of fiscal 2020	$	447
Fiscal 2021	1,803
Fiscal 2022	1,857
Fiscal 2023	1,913
Fiscal 2024	1,970
Thereafter	17,405
	$	25,395

7. Marketable Securities & Fair Value Measurements

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


	March 31,		June 30,
	2020		2019
Short-term available-for-sale debt securities	$	20,396	$	38,193
Long-term available-for-sale debt securities	16,993		9,832
Available-for-sale debt securities	37,389		48,025
Mutual funds	299		410
Total marketable securities	$	37,688	$	48,435

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


			As of March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

Corporate debt	28,540		16		(44)		28,512
Asset backed securities	8,908		—		(31)		8,877
Total available-for-sale debt securities	$	37,448	$	16	$	(75)	$	37,389


			As of June 30, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper	$	14,277	$	—	$	—	$	14,277
Corporate debt	26,466		64		—		26,530
Asset backed securities	7,204		14		—		7,218
Total available-for-sale debt securities	$	47,947	$	78	$	—	$	48,025

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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 March 31, 2020 Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3

Corporate debt	28,512		—		28,512		—
Asset backed securities	8,877		—		8,877		—
Mutual funds	299		78		221		—
Total marketable securities	$	37,688	$	78	$	37,610	$	—


			Fair Value Measurements as of June 30, 2019 Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3
Commercial paper	$	14,277	$	—	$	14,277	$	—
Corporate debt	26,530		—		26,530		—
Asset backed securities	7,218		—		7,218		—
Mutual funds	410		121		289		—
Total marketable securities	$	48,435	$	121	$	48,314	$	—

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 nine months ended March 31, 2020. Any transfers between levels would be recognized on the date of the event or when a change in circumstances causes a transfer.

Effective July 1, 2018 the Company adopted the provisions of ASU 2016-01. Unrealized gains and losses of marketable securities in equity investments, denoted as mutual funds, previously recognized in other comprehensive income, will now be recognized in net income as a component of other income.

Non-Marketable Equity 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 March 31, 2020 and June 30, 2019, the carrying value of these investments were $6,343 and $5,593, respectively. During the nine months ended March 31, 2020, no impairment indicators were noted. The Company is committed to funding an additional $2,250 into one of these investments in the future. These investments are recorded within other long term assets on the consolidated balance sheet.

8. Stock-Based Compensation

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

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

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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 nine months ended March 31, 2020 is as follows:


	Number of Shares	Weighted Average Fair Value
Outstanding at June 30, 2019	474,945	$	31.36
Granted	191,382	$	46.49
Forfeited	(19,807)	$	36.15
Vested	(208,658)	$	29.73
Outstanding at March 31, 2020	437,862	$	38.34

Performance-Based Restricted Stock

The Company also grants performance-based restricted stock awards to certain executives and other management. In August 2019, the Company granted an aggregate maximum of 207,891 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, 2019 compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2022. 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, 2022 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 $6,330, which the Company will recognize as expense using the straight-line method over the period that the awards are expected to vest. Stock-based compensation expense related to an award with a market condition will be recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided.

Performance-based restricted stock awards granted in fiscal 2018 and 2019 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, 2017 and July 1, 2018, 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, 2020 and July 1, 2021, respectively.

Performance-based restricted stock award activity for the nine months ended March 31, 2020 is as follows:


	Number of Shares	Weighted Average Fair Value
Outstanding at June 30, 2019	753,872	$	15.20
Granted	207,891	$	30.45
Forfeited	(25,588)	$	16.28
Vested	(275,193)	$	11.97
Outstanding at March 31, 2020	660,982	$	21.69

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9. Leases

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

The Company leases its Texas manufacturing facilities under an operating lease agreement. During the nine months ended March 31, 2020, the Company exercised its option to extend the term of this lease agreement by one year, so that it now expires in April 2021. The Company also leases office equipment under lease agreements that expire at various dates through April 2024.

The Company also leases its Minnesota headquarters facility as discussed in Note 6. This transaction did not qualify for sale leaseback accounting upon adoption of ASC 842 and continues to be 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 $121 and $362 for the three and nine months ended March 31, 2020, respectively. Cash paid for operating lease liabilities approximated operating lease cost for the nine months ended March 31, 2020. There was $437 of operating lease right-of-use assets obtained in exchange for new lease liabilities during the nine months ended March 31, 2020.


	March 31,
	2020
Right-of-use assets
Other assets	$	545
Operating lease liabilities
Accrued expenses	$	492
Other liabilities	57
Total operating lease liabilities	$	549

Future minimum lease payments under the agreements as of March 31, 2020 are as follows:


Remainder of fiscal 2020	$	127
Fiscal 2021	423
Fiscal 2022	11
Fiscal 2023	3
Fiscal 2024	2
Thereafter	—
Total lease payments	566
Less imputed interest	(17)
Total operating lease liabilities	$	549

As of March 31, 2020, the weighted average remaining lease term for operating leases was 1.2 years and the weighted average discount rate used to determine operating lease liabilities was 5.25%.

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10. Commitment and Contingencies

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

11. Earnings Per Share

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations (in thousands except share and per share amounts):


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2020		2019		2020		2019
Numerator
Net (loss) income	$	(2,889)	$	672	$	(12,070)	$	(1,724)
Income allocated to participating securities	—		(3)		—		—
Net (loss) income available to common stockholders	$	(2,889)	$	669	$	(12,070)	$	(1,724)
Denominator
Weighted average common shares outstanding – basic	34,149,561		33,600,148		34,029,296		33,510,368

Effect of dilutive restricted stock units⁽¹⁾	—		339,929		—		—
Effect of performance-based restricted stock awards⁽²⁾	—		295,048		—		—
Effect of employee stock purchase plan⁽³⁾	—		6,307		—		—
Weighted average common shares outstanding – diluted	34,149,561		34,241,432		34,029,296		33,510,368

Earnings per common share – basic	$	(0.08)	$	0.02	$	(0.35)	$	(0.05)
Earnings per common share – diluted	$	(0.08)	$	0.02	$	(0.35)	$	(0.05)

(1)At March 31, 2020 and 2019, 332,798 and 354,176 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 the three and nine months ended March 31, 2020, and the nine months ended March 31, 2019, because those shares are anti-dilutive.

(2)At March 31, 2020 and 2019, 660,982 and 754,331 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 the three and nine months ended March 31, 2020, and the nine months ended March 31, 2019, because those shares are anti-dilutive.

(3)At March 31, 2020 and 2019, the Company included the number of shares that would be issued under its employee stock purchase plan based on the aggregate expected amount of withholdings and the average unrecognized compensation expense as assumed proceeds. The effect of these shares has been excluded from the calculation of diluted loss per share for the three and nine months ended March 31, 2020, and the nine months ended March 31, 2019, because those shares are anti-dilutive.

Unvested time-based restricted stock awards that contain nonforfeitable rights to dividends are participating securities and included in the computation of earnings per share pursuant to the two-class method. Under this method, earnings attributable to the Company are allocated between common stockholders and the participating awards, as if the awards were a second class of stock. During periods of net income, the calculation of earnings per share excludes the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. In the event of a net loss, undistributed earnings are not allocated to participating securities and the denominator excludes the dilutive impact of these securities as they do not share in the losses of the Company. During the three months ended March 31, 2019, undistributed earnings allocated to participating securities were based on 172,839 time-based restricted stock awards. During the three and nine months ended March 31, 2020, and the nine months ended March 31, 2019 there were no undistributed earnings allocated to participating securities due to the net losses.

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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, 2019 and subsequent Quarterly Reports on Form 10-Q, including in Item 1A of Part II of this Quarterly Report on Form 10-Q, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

OVERVIEW

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

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 during the course of the fiscal year. However, we expect that this will not be the case in the current fiscal year due to the ongoing COVID-19 pandemic. See below for additional discussion of the impact of the COVID-19 pandemic on our business and operations.

Peripheral

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

The United States Food and Drug Administration (“FDA”) has granted us 510(k) clearances for our Peripheral OAS as a therapy in patients with PAD, as discussed in Item 1 of Part I of our Annual Report on Form 10-K for the year ended June 30, 2019. 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 nine months ended March 31, 2020 represented 70% of revenue.

Coronary

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

In October 2013, we received premarket approval (“PMA”) from the FDA to market the Coronary OAS as a treatment for severely calcified coronary arteries and we commenced a commercial launch that same month. Coronary sales in the United States during the nine months ended March 31, 2020 represented approximately 26% of revenue.

International

Sales of our approved products in Japan are made through our exclusive Japan distributor, Medikit Co., Ltd. ("Medikit"). Sales of our products in the rest of the world, which primarily includes certain countries in Southeast Asia, Europe and the Middle

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East, are made through our exclusive international distributor, OrbusNeich^®. International sales during the nine months ended March 31, 2020 represented approximately 4% of revenue.

Impact of COVID-19

During the three months ended March 31, 2020, we experienced a disruption in the procedures using our products as a result of the COVID-19 outbreak in the United States and internationally. On March 18, 2020, the Centers for Medicare & Medicaid Services (“CMS”) released guidance for healthcare providers to limit all non-elective medical procedures in order to conserve personal protective equipment and limit exposure to COVID-19 during the pendency of the outbreak. CMS created a tiered framework outlining recommendations on which procedures should be postponed and which should not. Physician responses to these recommendations have varied and will continue to vary as the pandemic continues.

With respect to PAD, the patients treated using our devices generally fall into two categories: those with critical limb ischemia (“CLI”) and those with claudication. We believe that most patients with CLI would fall into a CMS “Do not postpone” tier and most patients with claudication would fall into a CMS “Postpone” tier. As a result, if physicians strictly follow the guidelines, we would anticipate that the treatment of most patients with CLI will most likely not be postponed, but that the treatment of most patients with claudication will most likely be postponed. With respect to CAD, if physicians strictly follow the guidelines, we would anticipate the majority of patients treated using our devices fall into a CMS “Do not postpone” tier. However, despite the guidelines, individual physicians and facilities may nevertheless postpone procedures that fall into a “Do not postpone” tier as a result of reduced availability of physicians or lab space to treat patients, different treatment prioritizations, increased cost pressures and burdens on the overall healthcare infrastructure that result in reallocation of resources, or other governmental guidelines and restrictions. In addition, patients may elect to defer or avoid treatment for procedures that use our products due to concerns about the potential spread of diseases in facilities. Finally, our personnel and the personnel of our distribution partners are experiencing restrictions on their ability to access many customers, hospitals, labs and other medical facilities for sales activities, training and case support as they have been deemed to be “non-essential” personnel by those facilities, and there has been a reduction in procedure activity in these accounts. Accordingly, we are unable to predict how the outbreak will impact procedure volumes in the future and the duration of that impact, and we are unable to reasonably quantify any future financial impact of the COVID-19 outbreak as a result of lower procedure volumes.

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

We have been running our manufacturing operations and have continued to ship product; however, we will continue to monitor federal, state and local requirements that apply to these operations and we may experience disruptions in these operations or limitations in our ability to continue producing and shipping products. Most of our office-based employees are telecommuting, and our field employees will continue to support cases in clinical settings where they continue to have access. We have taken steps intended to protect the health and well-being of our workforce and our customers, such as implementing restrictions on access to our facilities, deploying screening protocols for employees who work on site, utilizing remote working systems, supplying personal protective equipment to employees and customers, and adopting remote training on the use of our devices. We are monitoring developments at the local, state and national levels in order to ensure that we and our employees have current information for purposes of making decisions in the dynamic and unpredictable environment. We have taken steps to manage our expenses during the continuation of the pandemic, which include freezing new hiring, ceasing travel and conference activity, and suspending work on certain product development and other internal projects. We are also engaged in business planning for the recovery period as we anticipate how our business will return to a more normalized level of activity once the pandemic and its effects subside.

In the near term, as the pandemic continues, we anticipate that we will experience a continued reduction in the number of procedures using our devices, which will result in lower revenue and increased utilization of our existing capital resources. The discussion below provides additional details on our expectations for upcoming periods. We expect that the total impact of disruptions resulting from the pandemic will have a material impact on our financial condition, capital resources and results of

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operations, but we cannot predict the specific extent, or duration, of the impact of the COVID-19 outbreak on our condition, resources and results.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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

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

Our critical accounting policies are identified in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 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 March 31,										Nine Months Ended March 31,
	2020		2019		Percent Change		2020		2019		Percent Change
Net revenues	$	61,175	$	63,311	(3.4)	%	$	193,999	$	179,783	7.9	%
Cost of goods sold	12,225		12,166		0.5		38,615		34,218		12.8
Gross profit	48,950		51,145		(4.3)		155,384		145,565		6.7
Expenses:
Selling, general and administrative	41,384		41,356		0.1		135,003		123,705		9.1
Research and development	9,964		9,155		8.8		31,515		23,702		33.0
Amortization of intangible assets	337		127		165.4		908		235		286.4
Total expenses	51,685		50,638		2.1		167,426		147,642		13.4
(Loss) income from operations	(2,735)		507		(639.4)		(12,042)		(2,077)		(479.8)
Other (income) expense, net	107		(251)		(142.6)		(101)		(505)		(80.0)
(Loss) income before income taxes	(2,842)		758		(474.9)		(11,941)		(1,572)		(659.6)
Provision for income taxes	47		86		(45.3)		129		152		(15.1)
Net (loss) income	(2,889)		672		(529.9)		$	(12,070)	$	(1,724)	(600.1)

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

Net revenues. Net revenues decreased by $2.1 million, or 3.4%, from $63.3 million for the three months ended March 31, 2019 to $61.2 million for the three months ended March 31, 2020. Peripheral revenues decreased $2.5 million, or 5.6%, and coronary revenues increased $400,000, or 2.1%. Decreases in peripheral revenue were driven by decreased unit volumes as a result of the outbreak of COVID-19, in addition to slight decreases in average selling prices. Coronary revenue increases of $400,000 were driven largely by increased sales of interventional case support devices. Coronary revenues were also impacted by the COVID-19 outbreak as well as small decreases in average selling prices. International revenue was $3.1 million for the three months ended March 31, 2020, compared with international revenue of $2.4 million for the three months ended March 31, 2019, an increase of $600,000. Despite the increased international revenue, the outbreak of COVID-19 has impacted product volumes worldwide, especially within Europe. We expect our revenue to continue to decline in the short-term as the United States healthcare system continues to navigate the COVID-19 pandemic. Longer term, we expect to return to future revenue growth as we continue to increase the number of physicians using the devices, increase the usage per physician, introduce new and improved products, generate additional clinical data, and expand into new geographies through our distribution agreements with Medikit and OrbusNeich, partially offset by potential decreases in average selling prices. However, we are unable to predict the timing of this recovery period.

Cost of Goods Sold. Cost of goods sold was $12.2 million for both the three months ended March 31, 2020 and 2019. These amounts represent the cost of materials, labor and overhead for single-use catheters, guide wires, pumps, and other ancillary products. Gross margin decreased to 80.0% for the three months ended March 31, 2020 from 80.8% for the three months ended March 31, 2019, primarily due to increased sales of lower margin products, expansion into lower margin international markets through distributor relationships, and lower average selling prices. This decrease was partially offset by product cost reductions and manufacturing efficiencies. We expect that gross margin in the fourth quarter of fiscal 2020 will be lower than gross margin in the three months ended March 31, 2020 as the outbreak of COVID-19 is expected to continue to adversely impact our sales volumes due to continued postponements of elective procedures. Quarterly margin fluctuations could also occur based on production volumes, timing of new product introductions, sales mix, pricing changes, or other unanticipated circumstances.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $41.1 million for both the three months ended March 31, 2020 and 2019. Increased expenses related to additional clinical specialists within our sales organization, the expansion of our medical affairs initiatives and international expansion were offset by lower commissions, cash incentive compensation and costs associated with travel as a result of COVID-19. Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019 include $2.7 million and $2.3 million, respectively, for stock-based compensation. We expect our selling, general and administrative expenses for the fourth quarter of fiscal 2020 to be less than amounts incurred for the three months ended March 31, 2020, as we adjust our spending levels as a result of the COVID-19 outbreak.

Research and Development Expenses. Research and development expenses increased by 8.8%, from $9.2 million for the three months ended March 31, 2019 to $10.0 million for the three months ended March 31, 2020. Research and development expenses relate to specific projects to develop new products or expand into new markets, such as the development of new versions of the Peripheral and Coronary OAS, shaft designs and crown designs, and to PAD and CAD clinical trials. The increase was primarily due to increased personnel and project costs for the three months ended March 31, 2020 as we invested in expanding our product portfolio and additional regulatory and clinical study costs. In March 2020, we announced a suspension of the ECLIPSE clinical trial as a result of the outbreak of COVID-19. In addition, we expect disruptions or delays in other product development activities, and as a result, we expect research and development expenses in the fourth quarter of fiscal 2020 to be less than amounts incurred for the three months ended March 31, 2020. Fluctuations could occur based on the number of projects and studies, the progress of such projects and studies, the rate of study enrollment, and the timing of expenditures.

Comparison of Nine Months Ended March 31, 2020 with Nine Months Ended March 31, 2019

Net revenues. Net revenues increased by $14.2 million, or 7.9%, from $179.8 million for the nine months ended March 31, 2019 to $194.0 million for the nine months ended March 31, 2020. Peripheral revenues increased $5.1 million, or 3.9%, and coronary revenues increased $9.1 million, or 18.5%. Both peripheral and coronary revenue increases were primarily driven by higher unit volumes as a result of the growth of our customer base and expansion into new international markets, and new product offerings such as balloons guidewires and catheters, partially offset by the impact of the recent COVID-19 outbreak as well as lower average selling prices. International revenue was $8.4 million for the nine months ended March 31, 2020, compared with $5.4 million for the nine months ended March 31, 2019, an increase of $3.0 million.

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Cost of Goods Sold. Cost of goods sold increased to $38.6 million for the nine months ended March 31, 2020 from $34.2 million for the nine months ended March 31, 2019, a 12.8% increase. These amounts represent the cost of materials, labor and overhead for single-use catheters, guide wires, pumps, and other ancillary products. The increase in cost of goods sold was due to greater unit volumes as we added new accounts, expanded internationally and offered additional products, partially offset by recent volume declines as a result of the outbreak of COVID-19. Gross margin decreased to 80.1% for the nine months ended March 31, 2020 from 81.0% for the nine months ended March 31, 2019, primarily due to increased sales of lower margin products, expansion into lower margin international markets through distributor relationships, and lower average selling prices. This decrease was partially offset by product cost reductions and manufacturing efficiencies.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased by $11.3 million, or 9.1%, from $123.7 million for the nine months ended March 31, 2019 to $135.0 million for the nine months ended March 31, 2020. The increase was primarily due to increased expenses related to the expansion of our medical affairs initiatives, additional clinical specialists within our sales organization and international expansion. Selling, general and administrative expenses for the nine months ended March 31, 2020 and 2019 include $8.9 million and $7.3 million, respectively, for stock-based compensation.

Research and Development Expenses. Research and development expenses increased by $7.8 million, or 33.0%, from $23.7 million for the nine months ended March 31, 2019 to $31.5 million for the nine months ended March 31, 2020. Research and development expenses relate to specific projects to develop new products or expand into new markets, such as the development of new versions of the Peripheral and Coronary OAS, shaft designs and crown designs, and to PAD and CAD clinical trials. The increase was primarily due to increased personnel costs as we invested in expanding our product portfolio and additional costs associated with the ECLIPSE clinical study. Research and development expenses for the nine months ended March 31, 2020 and 2019 include $1.1 million and $1.0 million, respectively, for stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES

We had cash, cash equivalents and highly liquid marketable securities of $107.3 million and $122.7 million at March 31, 2020 and June 30, 2019, respectively. We expect this amount to decrease in the three months ending June 30, 2020 as our revenues decline and we utilize existing resources to cover our expenses as a result of the ongoing COVID-19 pandemic. As of March 31, 2020, we had an accumulated deficit of $347.9 million. We have historically funded our operating losses primarily from the issuance of common and preferred stock, convertible promissory notes, and debt.

A summary of our cash flow activities is as follows:


	Nine Months Ended
	March 31,
	2020		2019
Net cash (used in) provided by operating activities	$	(1,424)	$	4,908
Net cash provided by (used in) investing activities	1,376		(5,909)
Net cash (used in) provided by financing activities	(4,617)		21
Net change in cash and cash equivalents	$	(4,665)	$	(980)

Changes in Liquidity

Operating Activities

Net cash used in operating activities was $1.4 million for the nine months ended March 31, 2020, primarily due to the net loss of $12.1 million and increased use of cash as we build inventory and diversify our products, as well as for payouts of previously accrued bonuses and commissions. The amount of cash used was partially offset by collections on receivables, increased accounts payable due to timing of activity and payments, and non-cash expenditures for the nine months ended March 31, 2020.

Net cash provided by operating activities was $4.9 million for the nine months ended March 31, 2019, primarily due to positive cash flow when the net loss of $1.7 million is adjusted for non-cash expenditures such as stock-based compensation, depreciation and amortization. Contributing to positive cash flows from operations was the timing of cash payments on payables. These positive cash flows were partially offset by the timing of collections on receivables, increased use of cash as we build inventory and diversify our products, and the effects of recognizing previously deferred revenue.

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Investing Activities

Net cash provided by investing activities was $1.4 million for the nine months ended March 31, 2020, primarily due to the maturity of marketable securities, partially offset by the cash payment made for the WIRION acquisition, additional purchases of marketable securities, purchases of property and equipment, costs associated with capitalized patent activities, and the purchase of a non-marketable equity investment. These uses of cash were partially offset by maturities of marketable securities.

Net cash used in investing activities was $5.9 million for the nine months ended March 31, 2019, primarily due to additional shares acquired in an investment, purchases of property and equipment and costs associated with capitalized patent activities.

Financing Activities

Net cash used in financing activities was $4.6 million for the nine months ended March 31, 2020, primarily due to the payment of payroll taxes on the employee vesting of stock awards, partially offset by proceeds from employee stock purchases.

Net cash provided by financing activities was $21,000 for the nine months ended March 31, 2019, primarily due to proceeds from employee stock purchases and the exercise of stock options, partially offset by the payment of payroll taxes on the employee vesting of stock awards.

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

Facility Sale and Lease

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

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Revolving Credit Facility

In March 2017, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). In March 2020, we entered into the First Amendment to the Loan Agreement (the "Amendment"). The Amendment extended the maturity date of the Loan Agreement by two years, to March 31, 2022, and increased the maximum amount available under the senior, secured revolving credit facility (the "Revolver") to $50.0 million (the “Maximum Dollar Amount”).

Advances under the Revolver may be made from time to time up to the Maximum Dollar Amount, subject to certain borrowing limitations. The Revolver bears interest at a floating per annum rate equal to the Wall Street Journal prime rate, less 0.75%. Interest on borrowings is due monthly and the principal balance is due at maturity. Upon the Revolver’s maturity, any outstanding principal balance, unpaid accrued interest, and all other obligations under the Revolver will be due and payable. We will incur a fee equal to 3% of the Maximum Dollar Amount upon termination of the Loan Agreement, as amended by the Amendment (the "Amended Loan Agreement"), or the Revolver for any reason prior to the date that is fifteen days prior to the maturity date, unless refinanced with SVB.

Our obligations under the Amended Loan Agreement are secured by certain of our assets, including, among other things, accounts receivable, deposit accounts, inventory, equipment, general intangibles and records pertaining to the foregoing. The collateral does not include our intellectual property, but we agreed not to encumber our intellectual property without the consent of SVB. The Amended Loan Agreement contains customary covenants limiting our ability to, among other things, incur debt or liens, make certain investments and loans, enter into transactions with affiliates, undergo certain fundamental changes, dispose of assets, or change the nature of our business. In addition, the Amended Loan Agreement contains financial covenants requiring us to maintain, at all times when any amounts are outstanding under the Revolver, either (i) minimum unrestricted cash at SVB and unused availability on the Revolver of at least $10.0 million or (ii) minimum trailing three-month Adjusted EBITDA (as defined in the Amended Loan Agreement) of $1.0 million. If we do not comply with the various covenants under the Amended Loan Agreement or an event of default under the Amended Loan Agreement occurs, such as a material adverse change, the interest rate on outstanding amounts will increase by 5% and SVB may, subject to various customary cure rights and the other terms and conditions of the Amended Loan Agreement, decline to provide additional advances under the Revolver, require the immediate payment of all amounts outstanding under the Revolver, and foreclose on all collateral.

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

NON-GAAP FINANCIAL INFORMATION

To supplement our consolidated financial statements prepared in accordance with GAAP, our management uses a non-GAAP financial measure referred to as “Adjusted EBITDA.” The following table sets forth, for the periods indicated, a reconciliation of Adjusted EBITDA to the most comparable GAAP measure expressed as dollar amounts (in thousands):


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2020		2019		2020		2019
Net (loss) income	(2,889)		672		$	(12,070)	$	(1,724)
Less: Other (income) expense, net	107		(251)		(101)		(505)
Less: Provision for income taxes	47		86		129		152
(Loss) income from operations	(2,735)		507		(12,042)		(2,077)
Add: Stock-based compensation	3,273		2,674		10,469		8,600
Add: Depreciation and amortization	1,088		932		3,152		2,617
Adjusted EBITDA	$	1,626	$	4,113	$	1,579	$	9,140

Adjusted EBITDA decreased for the three and nine months ended March 31, 2020 as compared to the three and nine months ended March 31, 2019 primarily due to a greater loss from operations.

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Use and Economic Substance of Non-GAAP Financial Measures Used and Usefulness of Such Non-GAAP Financial Measures to Investors

We use Adjusted EBITDA as a supplemental measure of performance and believe 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. Our management uses Adjusted EBITDA to analyze the underlying trends in our business, assess the performance of our core operations, establish operational goals and forecasts that are used to allocate resources and evaluate our performance period over period and in relation to our competitors’ operating results. Additionally, our management is partially evaluated on the basis of Adjusted EBITDA when determining achievement of their incentive compensation performance targets. Management does not use Adjusted EBITDA as a liquidity measure or in the calculation of our financial covenants under the loan and security agreement with Silicon Valley Bank.

We believe that presenting Adjusted EBITDA provides investors greater transparency to the information used by our management for its financial and operational decision-making and allows investors to see our results “through the eyes” of management. We also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by our management to evaluate and measure such performance.

The following is an explanation of each of the items that management excludes from Adjusted EBITDA and the reasons for excluding each of these individual items:

•Stock-based compensation. Our management believes that excluding this item from Adjusted EBITDA is useful to investors to understand the application of stock-based compensation guidance and its impact on our operational performance and ability to make additional investments in our company, and excluding this item allows for greater transparency to certain line items in our financial statements.

•Depreciation and amortization expense. Our management believes that excluding these items from our Adjusted EBITDA is useful to investors to understand our operational performance and ability to make additional investments in our company.

Material Limitations Associated with the Use of Non-GAAP Financial Measures and Manner in Which We Compensate for these Limitations

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Some of the limitations associated with our use of these non-GAAP financial measures are:

•Items such as stock-based compensation do not directly affect our cash flow position; however, such items reflect economic costs to us and are not reflected in our Adjusted EBITDA, and therefore Adjusted EBITDA does 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 we do, limiting the usefulness of those measures for comparative purposes.

•Our management exercises judgment in determining which types of charges or other items should be excluded from the non-GAAP financial measures we use.

We compensate for these limitations by relying primarily upon our GAAP results and using non-GAAP financial measures only supplementally.

INFLATION

We do not believe that inflation had a material impact on our business and operating results during the periods presented.

OFF-BALANCE SHEET ARRANGEMENTS

Since inception, we have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

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RECENT ACCOUNTING PRONOUNCEMENTS

For a description of recent accounting pronouncements, see Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the year ended June 30, 2019.

PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Such “forward-looking” information is included in this Quarterly Report on Form 10-Q and in other materials filed or to be filed by us with the SEC (as well as information included in oral statements or other written statements made or to be made by us). Forward-looking statements include all statements based on future expectations. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including, but not limited to, (i) our expectations regarding the impact of the COVID-19 outbreak on our operations; (ii) our expectation of continued sales of our products internationally, including the specific products to be sold, the territories in which such products will be sold, and the timing of such sales; (iii) seasonality in our business; (iv) our expectation that our revenue will decline in the short-term but return to growth in the future; (v) our expectation that we will incur selling, general and administrative expenses in the fourth quarter of fiscal 2020 that are less than the amounts incurred in the three months ended March 31, 2020; (vi) our expectation that gross margin in the fourth quarter of fiscal 2020 will be less than gross margin in the three months ended March 31, 2020; (vii) our expectation that we will incur research and development expenses in the fourth quarter of fiscal 2020 that are less than the amounts incurred in the three months ended March 31, 2020; (viii) our belief that our current cash and cash equivalents will be sufficient to fund working capital requirements, capital expenditures and operations for the foreseeable future, as well as to fund certain other anticipated expenses; (ix) our intention to retain any future earnings to support operations and to finance the growth and development of our business; (x) our dividend expectations; (xi) our plan not to borrow under our loan and security agreement; and (xii) the anticipated impact of adoption of recent accounting pronouncements on our financial statements.

In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on their interpretation of currently available information.

These statements involve known and unknown risks, uncertainties and other factors that may cause our results or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. These factors include the pendency and impact of the COVID-19 outbreak, including government actions related to the COVID-19 outbreak, material delays and cancellations of procedures, delayed spending by healthcare providers, and distributor and supply chain disruptions; regulatory developments, clearances and approvals; approval of our products for distribution in foreign countries; approval of products for reimbursement and the level of reimbursement in the United States, Japan and other foreign countries; dependence on market growth; agreements with third parties to sell their products; the ability of OrbusNeich to successfully launch our products outside of the United States and Japan; our ability to maintain third-party supplier relationships and renew existing purchase agreements; our ability to maintain our relationships with Medikit and OrbusNeich; the experience of physicians regarding the effectiveness and reliability of the products we sell; the reluctance of physicians, hospitals and other organizations to accept new products; the potential for unanticipated delays in enrolling medical centers and patients for clinical trials; actual clinical trial and study results; the impact of competitive products and pricing; our ability to comply with the financial covenants in our loan and security agreement and to make payments under and comply with the lease agreement for our corporate headquarters; unanticipated developments affecting our estimates regarding expenses, future revenues and capital requirements; the difficulty of successfully managing operating costs; our ability to manage our sales force strategy; actual research and development efforts and needs, including the timing of product development programs; our ability to obtain and maintain intellectual property protection for product candidates; fluctuations in results and expenses based on new product introductions, sales mix, unanticipated warranty claims, and the timing of project expenditures; our ability to manage costs; our actual financial resources and our ability to obtain additional financing; investigations or litigation threatened or initiated against us; court rulings and future actions by the FDA and other regulatory bodies; international trade developments; the impact of federal corporate tax reform on our business, operations and financial statements; shutdowns of the U.S. federal government; unanticipated developments during the manufacturing transfer process for the WIRION system; and general economic conditions.

These and additional risks and uncertainties are described more fully in our Annual Report on Form 10-K for the year ended June 30, 2019 and subsequent Quarterly Reports on Form 10-Q, including in Item 1A of Part II of this Quarterly Report on Form 10-Q. Copies of filings made with the SEC are available through the SEC’s electronic data gathering analysis and retrieval system (EDGAR) at www.sec.gov.

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You should read these risk factors and the other cautionary statements made in this Quarterly Report on Form 10-Q as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report on Form 10-Q. We cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. You should read this Quarterly Report on Form 10-Q completely. Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other than the negative impact the COVID-19 pandemic has had and will continue to have on our business and results of operations as discussed elsewhere in this report, there have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2020. Based on that review and evaluation, which included inquiries made to certain other of our employees, the Certifying Officers have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as designed and implemented, are effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, including the important information in the section entitled “Private Securities Litigation Reform Act,” you should carefully consider the “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2019 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 this Quarterly Report on Form 10-Q and materially adversely affect our business, financial condition and/or future operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also might materially adversely affect our business, financial condition and/or operating results. In addition, you should consider the following risk factor:

Outbreaks of pandemic diseases, such as the novel coronavirus, COVID-19, may impact our business and operations, which could materially adversely affect our financial condition and results of operations.

We have experienced a disruption in the procedures using our products and in our operations as a result of the COVID-19 outbreak in the United States and internationally. An outbreak of a contagious disease, such as COVID-19, particularly to the extent it becomes a pandemic, could significantly disrupt our business. The effects of such an outbreak include a decrease in procedure volumes due to restrictions and guidelines implemented by facilities and governmental entities; reduced availability of physicians or lab space to treat patients using our products and/or different treatment prioritizations of those physicians; increased cost pressures and burdens on the overall healthcare infrastructure that result in reallocation of resources; changed treatment decisions by patients who may elect to defer or avoid treatment for procedures that use our products due to concerns about the potential spread of diseases in facilities; the suspension of clinical trial activity; restrictions on the ability of our personnel and personnel of our distribution partners to travel and to access customers and medical facilities for sales activities, training and case support; delays in approvals by regulatory bodies; delays in product development efforts, which will also disrupt or delay our ability to launch affected products; reallocation of company resources from our strategic priorities; supply chain disruptions that limit, delay or prevent us from acquiring the components used to manufacture our products or ship those products once manufactured; disruptions in our relationships with our distributors due to the impact of the COVID-19 outbreak on their operations; temporary closures of our facilities; loss of employee productivity; 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 adverse impacts on the national and global economies. Pandemics, such as the outbreak of COVID-19, will also affect the economy generally, which may affect our stock price, our ability to borrow or raise additional capital, and the funding of health systems that purchase our products, among other potential effects. The total impact of these disruptions could have a material adverse impact on our financial condition and results of operations, and we cannot predict the specific extent, or duration, of the impact of the COVID-19 outbreak or any other outbreak of a contagious disease on our financial condition and results. In addition, the effect of the COVID-19 pandemic on our business and financial results may also have the effect of heightening other risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended June 30, 2019.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Company Repurchases of Equity Securities

The following table presents information with respect to purchases made by us of our common stock during the third quarter of fiscal 2020:


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs
January 1 to January 31, 2020	—	—		N/A	N/A
February 1 to February 29, 2020⁽¹⁾	8,589	42.02		N/A	N/A
March 1 to March 31, 2020	—	—		N/A	N/A
	8,589	$	42.02

⁽¹⁾ Comprised of shares withheld pursuant to the terms of restricted stock awards under our stock-based compensation plans to offset tax withholding obligations that occur upon vesting and release of shares. The value of the shares withheld is the closing price of our common stock on the date the relevant transaction occurs.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

On March 12, 2020, our Board of Directors approved the Amended and Restated 2017 Equity Incentive Plan (the “Amended Plan”), which replaces the 2017 Equity Incentive Plan (the “Original Plan”). The Amended Plan amends the provisions of the Original Plan that permit the recipients of awards to elect to have us withhold shares otherwise issuable to them or to deliver shares to us, in each case in order to satisfy withholding and employment tax obligations of the recipient upon the vesting of awards. The Original Plan provided that any such shares withheld or delivered for such purposes must have a fair market value equal to, and not in excess of, the minimum statutory withholding rates for federal and state tax purposes. The Amended Plan provides that the administrator of the plan may establish minimum and/or maximum tax withholding rates for recipients of awards. In connection with the approval of the Amended Plan, our Human Resources and Compensation Committee established that the minimum tax withholding rate for all participants will be the minimum statutory rates for federal and state tax purposes, the maximum tax withholding rate for our officers will be the maximum statutory rates for federal and state tax purposes, and that the maximum tax withholding rate for all other participants will be the minimum statutory rates for federal and state tax purposes. The Amended Plan also includes minor administrative changes. The foregoing description of material amended terms in the Amended Plan is qualified in its entirety by reference to the full text of the Amended Plan, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q. In addition, amended forms of award agreement are filed as Exhibits 10.2 through 10.6 to this Quarterly Report on Form 10-Q.

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ITEM 6. EXHIBITS


Exhibit No.						Description






10.1*†						Amended and Restated 2017 Equity Incentive Plan.

10.2*†						Form of Board Restricted Stock Award Agreement (in lieu of cash retainer) under Amended and Restated 2017 Equity Incentive Plan.

10.3*†						Form of Board RSU Agreement (annual) under Amended and Restated 2017 Equity Incentive Plan.

10.4*†						Form of Board RSU Agreement (in lieu of cash retainer) under Amended and Restated 2017 Equity Incentive Plan.

10.5*†						Form of Performance-Vest Restricted Stock Award Agreement under Amended and Restated 2017 Equity Incentive Plan.

10.6*†						Form of Time-Vest Restricted Stock Award Agreement under Amended and Restated 2017 Equity Incentive Plan

10.7*†						Form of Stock Option Agreement under Amended and Restated 2017 Equity Incentive Form.

10.8*						First Amendment to Loan and Security Agreement, by and between Cardiovascular Systems, Inc. and Silicon Valley Bank, dated March 26, 2020.

10.9*						Amendment No. 2 to Supply Agreement, between Cardiovascular Systems, Inc. and Fresenius Kabi AB, effective March 18, 2020.

10.10*+						Amendment No. 2 to Product Schedule, between Cardiovascular Systems, Inc. and Fresenius Kabi AB, effective March 18, 2020.

31.1*						Certification of Chairman, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**						Certification of Chairman, President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**						Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*						Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2020, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Financial Statements.

104*						Cover page interactive data file (formatted in Inline XBRL and contained in Exhibit 101).

_______________________

* Filed herewith.

** Furnished herewith.

† Compensatory plan or agreement.

+ Certain portions have been omitted from this exhibit.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 7, 2020

CARDIOVASCULAR SYSTEMS, INC.

/s/ Scott R. Ward

Scott R. Ward

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

/s/ Jeffrey S. Points

Jeffrey S. Points

Chief Financial Officer

(Principal Financial and Accounting Officer)