SPECTRANETICS CORP - FORM 8-K - EX-99.1 - 2015 Q4 EARNINGS RELEASE

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Exhibit 99.1

FOR IMMEDIATE RELEASE

Spectranetics Achieves Fourth Quarter 2015 Revenue of $65.2 million

COLORADO SPRINGS, Colo. (February 25, 2016) - The Spectranetics Corporation (NASDAQ: SPNC) today reported financial results for the three months and year ended December 31, 2015. Highlights of the quarter, all compared with the three months ended December 31, 2014 include:


•	Revenue of $65.2 million increased 4% (5% constant currency¹)


•	Vascular Intervention revenue of $43.0 million increased 10% (12% constant currency)


•	Lead Management revenue of $18.3 million decreased 1% (no change constant currency)

“Our fourth quarter results represent another positive step going into 2016. We drove solid execution across business segments. Our existing portfolio and innovation pipeline position us to capitalize on our compelling opportunities. Our recent product clearances for the Turbo Power™ Laser Atherectomy Catheter and, more recently, the Bridge™ Occlusion Balloon augment our ability to continue to drive the ISR indication and expand our leadership position in the Lead Management market, respectively. The next 12 months will be an exciting time for our drug-coated balloon portfolio, with the expected product approvals, clinical data presentations, and the continued launch of Stellarex internationally,” said Scott Drake, President and Chief Executive Officer. “The future is bright, and we remain focused on near-term execution to capitalize on what’s ahead.”

Net loss for the three months ended December 31, 2015 was $10.5 million, or $0.25 per share, compared with net loss of $16.0 million, or $0.38 per share, for the three months ended December 31, 2014. Non-GAAP net loss¹ for the three months ended December 31, 2015 was $8.2 million, or $0.19 per share, compared with non-GAAP net loss of $1.7 million, or $0.04 per share, for the three months ended December 31, 2014.

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¹Constant currency and non-GAAP net loss are non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measures” later in this release.

Full Year 2015 Financial Results

Revenue for the year ended December 31, 2015 increased 20% (22% constant currency) to $246.0 million from $204.9 million for the year ended December 31, 2014. Vascular Intervention revenue increased 36% (38% constant currency) to $160.5 million. Lead Management revenue increased 5% (8% constant currency) to $69.9 million. Laser, service and other revenue decreased 23% (20% constant currency) to $15.6 million.

AngioSculpt^® revenue was $56.8 million for the year ended December 31, 2015. Excluding AngioSculpt, which we acquired on June 30, 2014, total revenue increased 8% (10% constant currency) and Vascular Intervention revenue, excluding AngioSculpt, increased 17% (18% constant currency).

Net loss during the year ended December 31, 2015 was $59.5 million, or $1.40 per share, compared with net loss of $40.9 million, or $0.98 per share, for the year ended December 31, 2014. Non-GAAP net loss during the year ended December 31, 2015 was $37.1 million, or $0.88 per share, compared with non-GAAP net loss of $11.3 million, or $0.27 per share, for the year ended December 31, 2014.

2016 Financial Outlook

Spectranetics’ management projects 2016 revenue to be within a range of $254 million to $266 million, an increase of 3% to 8% over 2015.

Net loss for 2016 is projected to be within a range of $59 million to $64 million, or $1.34 to $1.45 per share. Non-GAAP net loss for 2016 is projected to be within a range of $45 million to $50 million, or $1.03 to $1.14 per share. See “Reconciliation of non-GAAP Financial Measures” later in this release.


•	Gross margin is projected to be within a range of 74.4% to 75.0%.


•	Research, development and other technology expenses are expected to be in the range of 25% to 26% of revenue.


•	Selling, general and administrative expenses are expected to be in the range of 61% to 63% of revenue.

Conference Call

Management will host an investment community conference call today beginning at 2:30 p.m. MT / 4:30 p.m. ET. Individuals interested in listening to the conference call may dial (877) 561-2747 for domestic callers, or (973) 409-9689 for international callers, conference ID 39913305, or access the webcast on the investor relations section of the Company’s website at: www.spectranetics.com. The webcast will be available on the Company’s website for 14 days following the completion of the call.

About Spectranetics

The Spectranetics Corporation develops, manufactures, markets and distributes medical devices used in minimally invasive procedures within the cardiovascular system. The Company's products are sold in over 65 countries and are used to treat arterial blockages in the heart and legs and in the removal of pacemaker and defibrillator leads.

The Company's Vascular Intervention (VI) products include a range of laser catheters for ablation of blockages in arteries above and below the knee, the AngioSculpt scoring balloon used in both peripheral and coronary procedures, and the Stellarex drug-coated balloon peripheral angioplasty platform, which received European CE mark approval in December 2014. The Company also markets support catheters to facilitate crossing of peripheral and coronary arterial blockages, and retrograde access and guidewire retrieval devices used in the treatment of peripheral arterial blockages, including chronic total occlusions. The Company markets aspiration and cardiac laser catheters to treat blockages in the heart.

The Lead Management (LM) product line includes excimer laser sheaths, dilator sheaths, mechanical sheaths and accessories for the removal of pacemaker and defibrillator cardiac leads.

For more information, visit www.spectranetics.com.

Safe Harbor Statement

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. You can identify these statements because they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “will,” “estimate,” “expect,” “look forward,” “strive,” “project,” “intend,” “should,” “plan,” “believe,” “hope,” “enable,” “potential,” and other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies,

clinical trials and regulatory approvals, regulatory or competitive environments, outcome of litigation, our intellectual property and product development. These forward-looking statements include, but are not limited to, statements regarding our competitive position, product development and commercialization schedule, expectation of continued growth and the reasons for that growth, growth rates, strength, integration and product launches, and 2016 outlook and projected results including projected revenue and expenses, net loss and gross margin. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements and to note they speak only as of the date of this release. These risks and uncertainties may include financial results differing from guidance, inability to successfully integrate AngioScore and Stellarex into our business, market acceptance of excimer laser atherectomy technology and our vascular intervention and lead management products, lack of cash necessary to satisfy our cash obligations under our outstanding 2.625% Convertible Senior Notes due 2034 and our term loan and revolving loan facilities, our debt adversely affecting our financial health and preventing us from fulfilling our debt service and other obligations, increasing price and product competition, increased pressure on expense levels resulting from expanded sales, marketing, product development and clinical activities, uncertain success of our strategic direction, dependence on new product development, loss of key personnel, uncertain success of or delays in our clinical trials, costs of and adverse results in any ongoing legal proceeding, or any legal proceeding in which we may become involved, adverse impact to our business of the health care reform and related legislation or regulations, including changes in reimbursements, continued or worsening adverse conditions in the general domestic and global economic markets and continued volatility and disruption of the credit markets, which affects the ability of hospitals and other health care systems to obtain credit and may impede our access to capital, intellectual property claims of third parties, availability of inventory from suppliers, adverse outcome of FDA inspections, the receipt of FDA clearance and other regulatory approvals to market new products or applications and the timeliness of any clearance and approvals, market acceptance of new products or applications, product defects, ability to manufacture sufficient volumes to fulfill customer demand, availability of vendor-sourced components at reasonable prices, unexpected delays or costs associated with any planned improvements to our manufacturing processes, and share price volatility due to the initiation or cessation of coverage, or changes in ratings, by securities analysts. For a further list and description of such risks and uncertainties that could cause our actual results, performance or achievements to materially differ from any anticipated results, performance or achievements, please see our previously filed SEC reports, including those risks set forth in our 2014 Annual Report on Form 10-K and 2015 quarterly reports on Form 10-Q. We disclaim any intention or obligation to update or revise any financial or other projections or other forward-looking statements, whether because of new information, futu

re events or otherwise.

Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures in this release. Reconciliations of the non-GAAP financial measures used in this release to the most directly comparable GAAP measures for the respective periods, and an explanation of our use of these non-GAAP measures, can be found in “Reconciliation of Non-GAAP Financial Measures” immediately following the financial tables. 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.

Investor Relations Contacts

Zach Stassen

Investor.relations@spnc.com

(719) 447-2292

Lynn Pieper

Investor.relations@spnc.com

(415) 309-5999

-Financial tables follow-

THE SPECTRANETICS CORPORATION

Condensed Consolidated Statements of Operations

(in thousands, except per share data and percentages)

(unaudited)



	Three Months Ended December 31,						Twelve Months Ended December 31,
	2015			2014			2015			2014
Revenue	$	65,197		$	62,959		$	245,956		$	204,914
Cost of products sold	16,358			15,859			62,883			51,385
Amortization of acquired inventory step-up	—			1,060			251			2,074
Gross profit	48,839			46,040			182,822			151,455
Operating expenses:
Selling, general and administrative	36,735			36,447			143,355			128,129
Research, development and other technology	16,589			9,311			64,436			28,675
Medical device excise tax	922			857			3,465			2,834
Acquisition transaction, integration and legal costs	2,572			9,233			29,472			17,288
Acquisition-related intangible asset amortization	3,203			3,007			13,275			6,335
Contingent consideration expense	200			955			2,671			2,070
Change in fair value of contingent consideration liability	(3,763		)	—			(25,819		)	(1,064		)
Intangible asset impairment	—			—			2,496			4,138
Total operating expenses	56,458			59,810			233,351			188,405
Operating loss	(7,619		)	(13,770		)	(50,529		)	(36,950		)
Other expense	(2,558		)	(1,864		)	(8,219		)	(4,273		)
Loss before taxes	(10,177		)	(15,634		)	(58,748		)	(41,223		)
Income tax expense (benefit)	283			363			726			(322		)
Net loss	$	(10,460	)	$	(15,997	)	$	(59,474	)	$	(40,901	)

Net loss per common share:
Basic and diluted	$	(0.25	)	$	(0.38	)	$	(1.40	)	$	(0.98	)
Weighted average shares outstanding:
Basic and diluted	42,613			41,931			42,430			41,679

THE SPECTRANETICS CORPORATION

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)



	December 31, 2015		December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	84,594	$	95,505
Accounts receivable, net	43,359		41,090
Inventories, net	25,155		25,446
Other current assets	5,171		8,093
Total current assets	158,279		170,134
Property and equipment, net	44,719		33,819
Goodwill and intangible assets	263,072		252,514
Other assets	1,929		1,371
Total assets	$	467,999	$	457,838

LIABILITIES AND STOCKHOLDERS’ EQUITY
Borrowings under revolving line of credit	$	24,232	$	—
Other current liabilities	39,447		41,343
Convertible debt, net of debt issuance costs	224,076		223,088
Term loan, net of debt issuance costs	59,601		—
Other non-current liabilities	3,674		31,250
Stockholders’ equity	116,969		162,157
Total liabilities and stockholders’ equity	$	467,999	$	457,838

THE SPECTRANETICS CORPORATION

Supplemental Financial Information

(Unaudited)



Financial Summary	2014			2015
(000’s, except laser sales and installed base amounts)		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Disposable products revenue:
Vascular Intervention		39,055		36,513		40,630		40,370		42,967
Lead Management		18,509		16,431		17,257		17,961		18,250
Total disposable products		57,564		52,944		57,887		58,331		61,217

Laser, service, and other		5,395		4,478		3,790		3,329		3,980

Total revenue		62,959		57,422		61,677		61,660		65,197
Non-GAAP gross margin percentage (excluding amortization of acquired inventory step-up) (1)		75	%	74	%	74	%	74	%	75	%

Net loss		(15,997	)	(27,305	)	(7,216	)	(14,493	)	(10,460	)

Cash flow used in operating activities		(7,576	)	(22,461	)	(10,082	)	(10,225	)	(16,691	)
Total cash and cash equivalents at end of quarter		95,505		43,639		49,255		41,721		84,594

Laser sales summary:
Laser sales from inventory		11		6		2		1		5
Laser sales from evaluation/rental units		2		2		—		1		2
Total laser sales		13		8		2		2		7

(1) Non-GAAP gross margin percentage (excluding amortization of acquired inventory step-up) is a non-GAAP financial measure and was recorded during the third quarter of 2014 through the first quarter of 2015. Please refer to the non-GAAP reconciliation tables following this table for the reconciliation to the most comparable GAAP measure.

Worldwide Installed Base Summary:
Laser sales from inventory		11		6		2		1		5
Rental placements		26		37		42		35		34
Evaluation placements		8		11		5		5		7
Laser placements during quarter		45		54		49		41		46
Buy-backs/returns during quarter		(10	)	(16	)	(11	)	(16	)	(26	)
Net laser placements during quarter		35		38		38		25		20
Total lasers placed at end of quarter		1,271		1,309		1,347		1,372		1,392

Reconciliation of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures in this release. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures for the respective periods can be found in the tables below. An explanation of the manner in which our management uses these non-GAAP measures to conduct and evaluate our business and the reasons management believes these non-GAAP measures provide useful information to investors are provided following the reconciliation tables.



THE SPECTRANETICS CORPORATION
Reconciliation of revenue by product line to non-GAAP revenue by product line on a constant currency basis (in thousands, except percentages) (unaudited)
	Three Months Ended
	December 31, 2015						December 31, 2014		% Change
	Revenue, as reported		Foreign exchange impact as compared to prior period		Revenue on a constant currency basis		Revenue, as reported		As reported		Constant currency basis
Vascular Intervention	$	42,967	$	695	$	43,662	$	39,055	10	%	12	%
Lead Management	18,250		340		18,590		18,509		(1	)%	—	%
Laser, service, and other	3,980		129		4,109		5,395		(26	)%	(24	)%
Total revenue	$	65,197	$	1,164	$	66,361	$	62,959	4	%	5	%

	Twelve Months Ended
	December 31, 2015						December 31, 2014		% Change
	Revenue, as reported		Foreign exchange impact as compared to prior period		Revenue on a constant currency basis		Revenue, as reported		As reported		Constant currency basis
Vascular Intervention, ex-AngioSculpt	$	103,655	$	1,175	$	104,830	$	88,522	17	%	18	%
AngioSculpt	56,825		938		57,763		29,626		92	%	95	%
Total Vascular Intervention	160,480		2,113		162,593		118,148		36	%	38	%
Lead Management	69,899		1,864		71,763		66,662		5	%	8	%
Laser, service, and other	15,577		528		16,105		20,104		(23	)%	(20	)%
Total revenue	$	245,956	$	4,505	$	250,461	$	204,914	20	%	22	%
Total revenue, ex AngioSculpt	$	189,131	$	3,567	$	192,698	$	175,288	8	%	10	%



THE SPECTRANETICS CORPORATION
Reconciliation of gross margin to non-GAAP gross margin excluding amortization of acquired inventory step-up (in thousands, except percentages) (unaudited)

	Three Months Ended
	Dec. 31, 2014			March 31, 2015			June 30, 2015			Sept. 30, 2015			Dec. 31, 2015
Gross profit, as reported	$	46,040		$	42,369		$	45,763		$	45,851		$	48,839
Amortization of acquired inventory step-up (1)	1,060			251			—			—			—
Adjusted gross profit, excluding amortization of acquired inventory step-up	$	47,100		$	42,620		$	45,763		$	45,851		$	48,839

Gross margin, as reported	73		%	74		%	74		%	74		%	75		%
Non-GAAP gross margin, excluding amortization of acquired inventory step-up	75		%	74		%	74		%	74		%	75		%

Footnote explanations can be found following the last non-GAAP tables.



Reconciliation of Net Loss to Non-GAAP Net Loss (in thousands) (unaudited)

	Three Months Ended						Twelve Months Ended
	December 31, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Net loss, as reported	$	(10,460	)	$	(15,997	)	$	(59,474	)	$	(40,901	)
Acquisition transaction, integration and legal costs (2)	2,572			9,233			29,472			17,288
Amortization of acquired inventory step-up (1)	—			1,060			251			2,074
Acquisition-related intangible asset amortization (3)	3,203			3,007			13,275			6,335
Contingent consideration expense (4)	200			955			2,671			2,070
Change in fair value of contingent consideration liability (5)	(3,763		)	—			(25,819		)	(1,064		)
Intangible asset impairment (5)	—			—			2,496			4,138
Release of valuation allowance related to AngioScore acquisition (6)	—			—			—			(1,266		)
Non-GAAP net loss	$	(8,248	)	$	(1,742	)	$	(37,128	)	$	(11,326	)



THE SPECTRANETICS CORPORATION
Reconciliation of Net Loss Per Share to Non-GAAP Net Loss Per Share (unaudited)

	Three Months Ended						Twelve Months Ended
	December 31, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Net loss per share, as reported	$	(0.25	)	$	(0.38	)	$	(1.40	)	$	(0.98	)
Acquisition transaction, integration and legal costs (2)	0.06			0.22			0.69			0.41
Amortization of acquired inventory step-up (1)	—			0.03			0.01			0.05
Acquisition-related intangible asset amortization (3)	0.08			0.07			0.31			0.15
Contingent consideration expense (4)	—			0.02			0.06			0.05
Change in fair value of contingent consideration liability (5)	(0.09		)	—			(0.61		)	(0.03		)
Intangible asset impairment (5)	—			—			0.06			0.10
Release of valuation allowance related to AngioScore acquisition (6)	—			—			—			(0.03		)
Non-GAAP net loss per share (7)	$	(0.19	)	$	(0.04	)	$	(0.88	)	$	(0.27	)



Reconciliation of 2016 Projected Net Loss to Non-GAAP Projected Net Loss (in millions) (unaudited)
	Projected Range
	Twelve Months Ending December 31, 2016
	Low			High
Net loss, GAAP	$	(64.0	)	$	(59.0	)
Acquisition transaction, integration and legal costs (8)	0.9			0.9
Acquisition-related amortization and contingent consideration expense (9)	12.8			12.8
Non-GAAP net loss	$	(50.3	)	$	(45.3	)



Reconciliation of 2016 Projected Net Loss Per Share to Non-GAAP Projected Net Loss Per Share (unaudited)
	Projected Range
	Twelve Months Ending December 31, 2016
	Low			High
Net loss per share, GAAP	$	(1.45	)	$	(1.34	)
Acquisition transaction, integration and legal costs (8)	0.02			0.02
Acquisition-related amortization and contingent consideration expense (9)	0.29			0.29
Non-GAAP net loss per share (7)	$	(1.14	)	$	(1.03	)

__________________


1)	Amortization of acquired inventory step-up relates to the inventory acquired in the AngioScore acquisition.

Acquisition transaction, integration and legal costs relate to the AngioScore and Stellarex acquisitions, which closed on June 30, 2014 and January 27, 2015, respectively, and included investment banking fees, accounting, consulting, and legal fees, severance and retention costs, and non-recurring costs associated with establishing manufacturing operations to support the Stellarex program. In addition, these costs included $1.0 million, $5.6 million, $19.9 million and $6.8 million in the three months ended December 31, 2015 and 2014 and the twelve months ended December 31, 2015 and 2014, respectively, for legal fees, including legal fees and costs advanced, associated with a patent and breach of fiduciary duty matter in which AngioScore is the plaintiff.


3)	Acquisition-related intangible asset amortization relates primarily to intangible assets acquired in the AngioScore acquisition in June 2014 and the Stellarex acquisition in January 2015.


4)	Contingent consideration expense represents the accretion of the estimated contingent consideration liability related to future amounts payable to former AngioScore stockholders primarily based on sales of the AngioScore products and achievement of regulatory milestones.

During 2015, the Company remeasured the contingent consideration liability related to the AngioScore acquisition to its fair value and reduced it by approximately $25.8 million. Of this amount, $21.5 million was a result of a decrease in future revenue estimates for the AngioSculpt products. The remaining $4.3 million was related to the AngioScore regulatory milestones. We also recorded a $2.5 million intangible asset impairment for a partial impairment of the in-process research and development intangible assets acquired as part of the AngioScore acquisition.


6)	Income tax benefit for the year ended December 31, 2014 included a tax benefit of $1.3 million resulting from a reduction in the valuation allowance against our deferred tax assets related to the acquisition of AngioScore.


7)	Per share amounts may not add due to rounding.


8)	Acquisition transaction, integration and legal costs consist of integration costs for the Stellarex and AngioScore acquisitions, which include legal fees and costs advanced associated with a patent and breach of fiduciary duty matter in which AngioScore is the plaintiff.

Acquisition-related intangible asset amortization relates primarily to intangible assets acquired in the AngioScore acquisition in June 2014 and the Stellarex acquisition in January 2015. Contingent consideration expense represents the accretion of the estimated contingent consideration liability related to future amounts that may be payable to former AngioScore stockholders primarily based on sales of the AngioScore products and achievement of regulatory milestones.

Management uses the non-GAAP financial measures as supplemental measures to analyze the underlying trends in our business, assess the performance of our core operations, establish operational goals and forecasts that are used in allocating resources and evaluate our performance period over period and in relation to our competitors’ operating results.

The impact of foreign exchange rates is highly variable and difficult to predict. We use a constant currency basis to show the impact from foreign exchange rates on current period revenue compared to prior period revenue using the prior period’s foreign exchange rates. In order to properly understand the underlying business trends and performance of our ongoing operations, we believe that investors may find it useful to consider the impact of excluding changes in foreign exchange rates from our revenue.

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

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 limitations associated with using these non-GAAP financial measures are provided below:


•	Management exercises judgment in determining which types of charges or other items should be excluded from the non-GAAP financial measures used.


•	Amortization expense, while not requiring cash settlement, is an ongoing and recurring expense and has a material impact on GAAP net income or loss and reflects costs to us not reflected in non-GAAP net loss. The intangible asset impairment, while not requiring cash settlement, reflects an economic cost to us not reflected in non-GAAP net loss.


•	Items such as the acquisition transaction and integration costs, contingent consideration expense and the change in fair value of contingent consideration liability excluded from non-GAAP net loss can have a material impact on cash flows and GAAP net loss and reflect economic costs to us not reflected in non-GAAP net loss.


•	Revenue growth rates stated on a constant currency basis, by their nature, exclude the impact of changes in foreign currency exchange rates, which may have a material impact on GAAP revenue.


•	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.

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