Cardiovascular Systems tumbles on Q2 misses

Cardiovascular Systems shares plummeted after releasing significant misses for its FY2016 Q2 earnings, dropping over 30% in mid-day trading.

St. Paul, Minn.-based Cardiovascular Systems reported losses of $15.2 million, or 47¢ per share, on sales of $41.4 million. That amounts to a significant 187% growth in losses as sales ticked down 7.5% compared with the same period last year.

Analysts on Wall Street were expecting losses per share of 38¢ and revenues around $46.2 million, which Cardiovascular Systems missed by 9¢ and $4.8 million respectively.

Stocks have sunk in response, down 32.3% to $8.44 as of 11:35 a.m. EST.

“CSI’s sales force expansion and implementation of a dual franchise model, selling both coronary and peripheral applications, has been challenging and is affecting our near term sales performance. We have gained meaningful insights during the transition and we are encouraged by recent progress. The sales organization continues to gain valuable experience and we have begun to adjust our sales model at the local level, adopting a more flexible approach where warranted. We remain confident that our sales strategy will lead to sustainable revenue growth and a pathway to profitability in the future,” interim CEO Scott Ward said in prepared remarks.

The company set Q3 guidance, expecting revenue of $40.5 to $42 million, net loss of $13.7 to $14.6 million and loss per share of 42¢ to 45¢.

“Implementation of our dual franchise sales strategy, including the development and maturation of our sales representatives, is progressing; however, it will take more time for that progress to be reflected in revenue growth. We believe that many of the transition challenges will be behind us toward the end of the third quarter, with sales productivity improving in the fourth quarter of this fiscal year,” Ward said in a prepared statement.

These anticipated earnings are below consensus “yet again,” according to Leerink Partner analyst Danielle Antalffy.

Antalffy said salesforce optimization issues are to blame for the low earnings and low outlook for the next quarter.

“Because of this, we now expect CSII sales to continue to come under pressure in the back half of the year with a now projected nearly 10% sales decline vs. our prior low-single digit growth projection. And while a FY2017 rebound seems feasible, the timing and extent of any such rebound — which not only depends upon management and salesforce execution but also an evolving competitive landscape — remains unclear. Shares could remain under pressure for another quarter or 2 until investors begin to see tangible benefits from the recent salesforce adjustments, as this remains a “show-me” story, in our view,” Antalffy said in a letter to investors.

Antalffy went on to note that the company said its salesforce adds were completed for the quarter, which may signal future stability as the “reps ramp to full productivity,” though warned that the company said it could take 4-6 weeks to take effect.

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