Cardiovascular Systems, Inc. :CSII-US: Earnings Analysis: 2017 By the Numbers : August 28, 2017

Cardiovascular Systems, Inc. reports financial results for the year ended June 30, 2017.

We analyze the earnings along side the following peers of Cardiovascular Systems, Inc. – AngioDynamics, Inc., LeMaitre Vascular, Inc., Endologix, Inc., Boston Scientific Corporation, Merit Medical Systems, Inc., Medtronic plc and Johnson & Johnson (ANGO-US, LMAT-US, ELGX-US, BSX-US, MMSI-US, MDT-US and JNJ-US) that have also reported for this period.

Highlights

  • Gross margins widened from 79.98% to 80.75% compared to the same period last year, operating (EBITDA) margins now 1.27% from -23.63%.
  • Year-on-year change in operating cash flow of 183.06% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017 2016 2015 2014 2013
Relevant Numbers (Annual)
Revenues 204.91 176.91 178.81 136.61 103.9
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -1.79 -56.02 -32.82 -35.29 -24.04
Earnings Growth (YOY) 96.8 -70.69 6.99 -46.82 -43.16
Net Margin -0.87 -31.67 -18.36 -25.83 -23.14
EPS -0.06 -1.72 -1.04 -1.25 -1.11
Return on Equity -1.63 -46.62 -22.52 -32.24 -48.55
Return on Assets -1.07 -35.71 -18.58 -25.32 -30.04

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 79.98% to 80.75% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -23.63% to 1.27% compared to the same period last year. For comparison, gross margins were 79.98% and EBITDA margins were -23.63% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CSII-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 166.97 days from 178.87 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

CSII-US‘s change in operating cash flow of 183.06% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -25.84% to -0.75% and (2) one-time items. The company’s pretax margins are now -0.83% compared to -31.67% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Cardiovascular Systems, Inc. is a medical device company, which develops and sells devices for treating cardiovascular diseases. It focuses on developing and commercializing minimally invasive treatment solutions for vascular diseases. The company’s products such as diamondback 360° PAD system and the stealth 360° PAD system are catheter based platforms capable of treating a broad range of plaque types in leg arteries both above and below the knee. The company was founded in 2000 and is headquartered in St. Paul, MN.

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