10-Q 1 csii-20220331.htm 10-Q csii-20220331
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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, 2022
or
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: (651259-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, One-tenth of One Cent ($0.001) Par Value Per ShareCSIIThe 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 filerxAccelerated filer
Non-accelerated filerSmaller 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 2, 2022 was: 40,785,123 shares.



Cardiovascular Systems, Inc.
Table of Contents
 
 PAGE

2

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,
2022
June 30,
2021
ASSETS
Current assets
Cash and cash equivalents$66,953 $71,070 
Marketable securities105,098 135,968 
Accounts receivable, net34,666 40,033 
Inventories32,854 32,313 
Prepaid expenses and other current assets5,742 5,285 
Total current assets245,313 284,669 
Property and equipment, net29,097 28,894 
Intangible assets, net16,080 15,376 
Strategic investments30,733 20,657 
Other assets2,768 2,971 
Total assets$323,991 $352,567 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$13,598 $14,061 
Accrued expenses30,011 38,189 
Deferred revenue2,812 2,400 
Total current liabilities46,421 54,650 
Long-term liabilities
Financing obligation20,385 20,596 
Deferred revenue 2,194 
Other liabilities3,687 4,169 
Total liabilities70,493 81,609 
Commitments and contingencies (see Note 10)
Common stock, $0.001 par value; authorized 100,000,000 common shares; issued and outstanding 40,784,179 at March 31, 2022 and 40,215,554 at June 30, 2021, respectively
39 39 
Additional paid in capital667,552 652,288 
Accumulated other comprehensive income(212)11 
Accumulated deficit(413,881)(381,380)
Total stockholders’ equity253,498 270,958 
Total liabilities and stockholders’ equity$323,991 $352,567 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Cardiovascular Systems, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share and share amounts)
(Unaudited)
 
 Three Months EndedNine Months Ended
March 31,March 31,
 2022202120222021
Net revenues$56,221 $63,273 $173,726 $187,986 
Cost of goods sold14,790 14,013 47,171 40,497 
Gross profit41,431 49,260 126,555 147,489 
Expenses:
Selling, general and administrative41,680 41,442 123,933 121,785 
Research and development9,052 13,163 27,947 31,816 
Amortization of intangible assets346 304 996 912 
Total expenses51,078 54,909 152,876 154,513 
Loss from operations(9,647)(5,649)(26,321)(7,024)
Other (income) expense, net:
Interest expense408 412 1,227 1,323 
Interest income and other, net(460)(120)(567)(400)
Total other (income) expense, net(52)292 660 923 
Loss before income taxes(9,595)(5,941)(26,981)(7,947)
Provision for income taxes63 63 262 189 
Net loss$(9,658)$(6,004)$(27,243)$(8,136)
Basic and diluted earnings per share$(0.25)$(0.15)$(0.70)$(0.21)
Basic and diluted weighted average shares outstanding39,287,632 38,911,454 39,190,865 38,800,622 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Cardiovascular Systems, Inc.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)
Three Months EndedNine Months Ended
March 31,March 31,
2022202120222021
Net loss$(9,658)$(6,004)$(27,243)$(8,136)
Other comprehensive loss:
Unrealized loss on available-for-sale debt securities(154)(72)(223)(226)
Comprehensive loss$(9,812)$(6,076)$(27,466)$(8,362)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

Cardiovascular Systems, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except per share amounts)
(Unaudited)
 Common StockAdditional
Paid  In
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
 
Balances at June 30, 2021$39 $652,288 $11 $(381,380)$270,958 
Stock-based compensation related to restricted stock awards, net 5,523   5,523 
Shares withheld for payroll taxes   (4,990)(4,990)
Employee stock purchase plan activity 324   324 
Unrealized loss on available-for-sale debt securities  (17) (17)
Exercise of stock options 12   12 
Net loss   (8,618)(8,618)
Balances at September 30, 2021$39 $658,147 $(6)$(394,988)$263,192 
Stock-based compensation related to restricted stock awards, net 3,659   3,659 
Shares withheld for payroll taxes   (161)(161)
Employee stock purchase plan activity 1,854 —  1,854 
Unrealized loss on available-for-sale debt securities  (52) (52)
Net loss   (8,967)(8,967)
Balances at December 31, 2021$39 $663,660 $(58)$(404,116)$259,525 
Stock-based compensation related to restricted stock awards, net 3,538   3,538 
Shares withheld for payroll taxes— — — (107)(107)
Employee stock purchase plan activity— 354 — — 354 
Unrealized loss on available-for-sale debt securities  (154) (154)
Net loss   (9,658)(9,658)
Balances at March 31, 2022$39 $667,552 $(212)$(413,881)$253,498 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
6

Cardiovascular Systems, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except per share amounts)
(Unaudited)
 Common StockAdditional
Paid  In
Capital
Accumulated Other Comprehensive Income (Loss) Accumulated
Deficit
Total
 
Balances at June 30, 2020$39 $631,559 $269 $(363,075)$268,792 
Stock-based compensation related to restricted stock awards, net 4,836   4,836 
Shares withheld for payroll taxes   (3,410)(3,410)
Employee stock purchase plan activity 332   332 
Unrealized loss on available-for-sale debt securities  (69) (69)
Net loss   (2,076)(2,076)
Balances at September 30, 2020$39 $636,727 $200 $(368,561)$268,405 
Stock-based compensation related to restricted stock awards, net 3,545   3,545 
Shares withheld for payroll taxes   (407)(407)
Employee stock purchase plan activity 2,430   2,430 
Unrealized loss on available-for-sale debt securities  (85) (85)
Net loss   (56)(56)
Balances at December 31, 2020$39 $642,702 $115 $(369,024)$273,832 
Stock-based compensation related to restricted stock awards, net 3,332   3,332 
Shares withheld for payroll taxes   (1,009)(1,009)
Employee stock purchase plan activity 372   372 
Unrealized loss on available-for-sale debt securities— — (72)— (72)
Net loss   (6,004)(6,004)
Balances at March 31, 2021$39 $646,406 $43 $(376,037)$270,451 

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

7

Cardiovascular Systems, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
 Nine Months Ended
March 31,
 20222021
Cash flows from operating activities
Net loss$(27,243)$(8,136)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation of property and equipment2,835 2,231 
Amortization of intangible assets996 912 
Stock-based compensation13,804 12,488 
Charges incurred in connection with acquired IPR&D— 3,353 
Provision for doubtful accounts50 — 
(Gain) loss on disposal of equipment(15)138 
Amortization of premium (accretion of discount) on marketable securities1,106 1,026 
Other(402) 
Changes in assets and liabilities
Accounts receivable5,317 (12,844)
Inventories(541)(5,661)
Prepaid expenses and other assets467 425 
Accounts payable(266)1,147 
Accrued expenses and other liabilities(8,769)3,910 
Deferred revenue(1,782)(1,409)
Net cash used in operating activities(14,443)(2,420)
Cash flows from investing activities
Purchases of property and equipment(3,220)(2,758)
Acquisitions(1,700)(3,353)
Investments in strategic ventures(9,674)(8,374)
Purchases of marketable securities(85,076)(156,628)
Sales of marketable securities13,692 4,885 
Maturities of marketable securities100,462 61,350 
Net cash provided by (used in) investing activities14,484 (104,878)
Cash flows from financing activities
Proceeds from employee stock purchase plan1,242 2,098 
Payments of employee taxes related to vested restricted stock(5,258)(4,826)
Exercise of stock options 12  
Principal payments made on financing obligation(154)(104)
Net cash used in financing activities(4,158)(2,832)
Net change in cash and cash equivalents(4,117)(110,130)
Cash and cash equivalents
Beginning of period71,070 185,463 
End of period$66,953 $75,333 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8

CARDIOVASCULAR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the Nine Months Ended March 31, 2022 and 2021)
(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. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current year presentation. 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, 2021. 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 COVID-19 pandemic. 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,
20222021
Accounts receivable$35,871 $41,634 
Less: Allowance for doubtful accounts(1,205)(1,601)
   Accounts receivable, net$34,666 $40,033 


9

Inventories

Inventories consist of the following:
March 31,June 30,
20222021
Raw materials$12,337 $11,621 
Work in process3,781 3,469 
Finished goods16,736 17,223 
   Inventories$32,854 $32,313 

WIRION Recall

In November 2021, the Company initiated a voluntary recall of unused WIRION embolic protection systems. In connection with the recall, the Company recorded a reserve for approximately $2,849 during the nine months ended March 31, 2022, which amount represents inventory that has no future intended use.

Property and Equipment, Net

Property and equipment consists of the following:
March 31,June 30,
20222021
Land$572 $572 
Building22,420 22,420 
Equipment24,045 21,203 
Furniture3,376 3,376 
Leasehold improvements812 804 
Construction in progress2,175 2,848 
53,400 51,223 
Less: Accumulated depreciation(24,303)(22,329)
Property and equipment, net$29,097 $28,894 

Accrued Expenses

Accrued expenses consist of the following:
March 31,June 30,
20222021
Acquisition consideration$10,000 $10,000 
Commissions4,784 7,869 
Salaries and bonus6,726 11,699 
Accrued vacation2,349 3,011 
Clinical Studies1,255 1,478 
Accrued excise, sales and other taxes960 1,464 
Other accrued expenses3,937 2,668 
Accrued expenses$30,011 $38,189 


10

WIRION Acquisition Consideration

Following the successful completion of the manufacturing transfer of the WIRION system to the Company, the Company has agreed to pay an additional consideration of $10,000, half of which may be paid by the Company through an issuance of shares of its common stock. The Company reviewed this liability in response to the voluntary recall of the WIRION system referred to above and determined that it remains probable and appropriately recorded in accrued liabilities as of March 31, 2022, although this payment will be made at a later date than originally anticipated due to the recall.

3. Revenue

The following table disaggregates the Company’s net revenues by product category and geography for the following periods:
Three Months EndedNine Months Ended
March 31,March 31,
Product Category2022202120222021
Peripheral$37,370 $42,295 $115,282 $129,183 
Coronary18,851 20,978 58,444 58,803 
Total net revenues$56,221 $63,273 $173,726 $187,986 
Geography
United States$51,843 $59,593 $162,356 $180,331 
International 4,378 3,680 11,370 7,655 
Total net revenues$56,221 $63,273 $173,726 $187,986 

Revenue of $1,782 was recognized in the nine months ended March 31, 2022 that was deferred as of June 30, 2021. As of March 31, 2022 and June 30, 2021, the Company had a liability of $1,254 and $1,985, respectively, related to estimates of variable consideration which are recorded within accounts payable on the consolidated balance sheet.

4. Acquisitions

Peripheral Support Catheters

During fiscal 2021, the Company acquired a line of peripheral support catheters from WavePoint Medical, LLC (“WavePoint”) and also engaged WavePoint to develop a portfolio of specialty catheters.

The acquisition of peripheral support catheters was accounted for as an asset acquisition. As consideration in this transaction, the Company made an upfront payment of $3,353 to WavePoint, which was accounted for as a charge incurred in connection with acquired in process research and development ("IPR&D"). During the nine months ended March 31, 2022, the peripheral support catheters received 510(k) clearance and the Company made an additional $1,700 payment to WavePoint pursuant to the terms of the parties' agreement, which amount was capitalized as developed technology.

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 asset acquisitions, as well as costs incurred to obtain patents. Developed technology and trade name assets are amortized over 10 to 15 years. Patent costs are amortized beginning at the time of patent approval over a useful life not exceeding 20 years.

11

The components of intangible assets, net are as follows:
March 31, 2022June 30, 2021
Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Developed technology$17,324 $(2,863)$14,461 $15,624 $(1,997)$13,627 
Patents1,866 (872)994 1,866 (780)1,086 
Trade name760 (135)625 760 (97)663 
Total intangible assets, net$19,950 $(3,870)$16,080 $18,250 $(2,874)$15,376 


Amortization expense expected for the next five years and thereafter is as follows:
Remainder of fiscal 2022$345 
Fiscal 20231,381 
Fiscal 20241,377 
Fiscal 20251,374 
Fiscal 20261,373 
Thereafter10,230 
$16,080 

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”). In March 2022, the Company entered into the Second Amendment to the Loan Agreement (the "Second Amendment"). The Second Amendment extended the maturity date of the Loan Agreement by one year, to March 31, 2023.

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 1.5% of the Maximum Dollar Amount upon termination of the Loan Agreement, as amended by the Second 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.

12

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, 2022.

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, 2022 are as follows:
Remainder of fiscal 2022$475 
Fiscal 20231,913 
Fiscal 20241,970 
Fiscal 20252,029 
Fiscal 20262,090 
Thereafter13,286 
$21,763 

7. Marketable Securities & Fair Value Measurements

The Company’s marketable securities are classified on the consolidated balance sheet as follows:
March 31,June 30,
20222021
Short-term available-for-sale debt securities$94,236 $129,908 
Long-term available-for-sale debt securities10,621 5,748 
Available-for-sale debt securities104,857 135,656 
Mutual funds241 312 
Total marketable securities$105,098 $135,968 

Available-for-sale debt securities are invested in the following financial instruments:
As of March 31, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
Commercial paper$37,450 $ $ $37,450 
Corporate debt44,982 1 (117)44,866 
Asset backed securities16,665  (79)16,586 
U.S. government securities5,972  (17)5,955 
  Total available-for-sale debt securities$105,069 $1 $(213)$104,857 

13

As of June 30, 2021
Amortized CostUnrealized GainsUnrealized LossesFair Value
Commercial paper$47,361 $ $ $47,361 
U.S. government securities20,229 1  20,230 
Corporate debt57,134 12 (12)57,134 
Asset backed securities10,922 10 (1)10,931 
Total available-for-sale debt securities$135,646 $23 $(13)$135,656 


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, 2022
Using Inputs Considered as
Fair ValueLevel 1Level 2Level 3
Commercial paper$37,450 $ $37,450 $ 
U.S. government securities5,955  5,955  
Corporate debt44,866  44,866  
Asset backed securities16,586  16,586  
Mutual funds241 124 117  
  Total marketable securities$105,098 $124 $104,974 $ 

Fair Value Measurements as of June 30, 2021
Using Inputs Considered as
Fair ValueLevel 1Level 2Level 3
Commercial paper$47,361 $ $47,361 $ 
U.S. government securities20,230  20,230  
Corporate debt57,134  57,134  
Asset backed securities10,931  10,931  
Mutual funds312 136 176  
  Total marketable securities$135,968 $136 $135,832 $ 

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, 2022. Any transfers between levels would be recognized on the date of the event or when a change in circumstances causes a transfer.

Strategic 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, 2022 and June 30, 2021, the carrying value of these investments was $12,353 and $11,706, respectively. During the nine months ended March 31, 2022, no impairment indicators were noted. The Company is committed to funding an additional $1,410 into these investments in the future. The Company holds options to acquire all outstanding equity or certain developed technologies with respect to some of these strategic investments.

The Company also holds strategic investments accounted for as available-for-sale debt securities, which had carrying values and approximated fair values of $18,380 and $8,951 as of March 31, 2022 and June 30, 2021, respectively. The fair values of these investments are measured using Level 3 inputs and are not included in the tables above. Impairment is assessed similar to
14

the Company's other strategic investments and no impairment indicators were noted during the nine months ended March 31, 2022.

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. On March 12, 2020, the Company’s Board of Directors approved the Amended and Restated 2017 Equity Incentive Plan, which amends the 2017 Plan. On August 19, 2021, the Company's Board of Directors adopted an amendment to the 2017 Plan, which was approved by the Company's stockholders on November 11, 2021, that increased the number of shares available for issuance under the 2017 Plan by 1,700,000 shares.

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 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, 2022 is as follows:
Number of
Shares
Weighted
Average Fair
Value
Outstanding at June 30, 2021467,942 $35.61 
Granted556,934 $28.16 
Forfeited(97,041)$33.89 
Vested(227,219)$36.44 
Outstanding at March 31, 2022
700,616 $29.68 

Performance-Based Restricted Stock

The Company also grants performance-based restricted stock awards to certain executives and other management. In August 2021, the Company granted an aggregate maximum of 306,550 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, 2021 compared to the closing prices of the stock of the Company and the peer group members for the 90 trading days preceding July 1, 2024. 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, 2024 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 $6,090, 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 2021 and 2020 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, 2020 and July 1, 2019, 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, 2023 and July 1, 2022, respectively.
15


Performance-based restricted stock award activity for the nine months ended March 31, 2022 is as follows:
Number of
Shares
Weighted
Average Fair
Value
Outstanding at June 30, 2021760,584 $20.26 
Granted306,550 $19.87 
Forfeited(130,739)$22.73 
Vested(147,001)$22.32 
Outstanding at March 31, 2022
789,394 $19.52 

Unrecognized stock compensation related to unvested stock awards outstanding as of March 31, 2022 was $20,014.

9. Leases

The Company leases its Texas manufacturing facility under an operating lease agreement which expires in April 2026. The Company also leases office equipment under lease agreements that expire at various dates through December 2026. As discussed in Note 6, the Company also leases its Minnesota headquarters facility which is 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 $387 and $377 for the nine months ended March 31, 2022 and 2021, respectively. Cash paid for operating lease liabilities approximated operating lease cost for the nine months ended March 31, 2022. There were $103 and $2,238 of operating lease right-of-use assets obtained in exchange for new lease liabilities during the nine months ended March 31, 2022 and 2021, respectively.
March 31,June 30,
20222021
Right-of-use assets
Other assets$1,936 $2,212 
Operating lease liabilities
Accrued expenses510 487 
Other liabilities1,426 1,725 
Total operating lease liabilities$1,936 $2,212 

Future minimum lease payments under the agreements as of March 31, 2022 are as follows:
Remainder of fiscal 2022$134 
Fiscal 2023528 
Fiscal 2024503 
Fiscal 2025494 
Fiscal 2026406 
Thereafter2 
Total lease payments2,067 
Less imputed interest(131)
Total operating lease liabilities$1,936 

16

As of March 31, 2022, the weighted average remaining lease term for operating leases was 4.0 years and the weighted average discount rate used to determine operating lease liabilities was 2.51%.

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, commercial disputes and product liability claims. While the outcome of these matters is uncertain, the Company does not believe there are any significant matters as of March 31, 2022 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 EndedNine Months Ended
March 31,March 31,
 2022202120222021
Numerator
Net loss$(9,658)$(6,004)$(27,243)$(8,136)
Income allocated to participating securities