abmd-10q_20170630.htm

 

 

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 June 30, 2017

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 number 001-09585

 

ABIOMED, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

04-2743260

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

22 CHERRY HILL DRIVE

DANVERS, MASSACHUSETTS 01923

(Address of principal executive offices, including zip code)

(978) 646-1400

(Registrant’s telephone number, including area code)

 

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      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      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

 

(Do not check if a smaller reporting company)

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.  

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

As of July 28, 2017, 44,102,166 shares of the registrant’s common stock, $.01 par value, were outstanding.

 

 

 


 

ABIOMED, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

Page

PART I - FINANCIAL INFORMATION:

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2017 and March 31, 2017

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2017 and 2016

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2017 and 2016

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2017 and 2016

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

Item 4.

Controls and Procedures

 

29

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

30

 

 

 

 

Item 1A.

Risk Factors

 

30

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

32

 

 

 

 

Item 4.

Mine Safety Disclosures

 

32

 

 

 

 

Item 5.

Other Information

 

32

 

 

 

 

Item 6.

Exhibits

 

33

 

 

 

 

SIGNATURES

 

34

 

 

NOTE REGARDING COMPANY REFERENCES

Throughout this report on Form 10-Q (the “Report”), “Abiomed, Inc.,” the “Company,” “we,” “us” and “our” refer to ABIOMED, Inc. and its consolidated subsidiaries.

 

NOTE REGARDING TRADEMARKS

ABIOMED, IMPELLA, IMPELLA 2.5, IMPELLA 5.0, IMPELLA LD, IMPELLA CP and IMPELLA RP are trademarks of ABIOMED, Inc., and are registered in the U.S. and certain foreign countries. AB5000 and cVAD REGISTRY are trademarks of ABIOMED, Inc.  RECOVER is a trademark of Abiomed Europe GmbH, a subsidiary of ABIOMED, Inc., and is registered in certain foreign countries.

2


 

PART 1. FINANCIAL INFORMATION

ITEM 1:

FINANCIAL STATEMENTS

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

 

 

 

June 30, 2017

 

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,970

 

 

$

39,040

 

Short-term marketable securities

 

 

207,441

 

 

 

190,908

 

Accounts receivable, net

 

 

53,557

 

 

 

54,055

 

Inventories

 

 

36,926

 

 

 

34,931

 

Prepaid expenses and other current assets

 

 

9,021

 

 

 

8,024

 

Total current assets

 

 

350,915

 

 

 

326,958

 

Long-term marketable securities

 

 

37,669

 

 

 

47,143

 

Property and equipment, net

 

 

92,804

 

 

 

87,777

 

Goodwill

 

 

33,199

 

 

 

31,045

 

In-process research and development

 

 

15,487

 

 

 

14,482

 

Long-term deferred tax assets, net

 

 

113,457

 

 

 

34,723

 

Other assets

 

 

8,686

 

 

 

8,286

 

Total assets

 

$

652,217

 

 

$

550,414

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,784

 

 

$

20,620

 

Accrued expenses

 

 

35,695

 

 

 

37,703

 

Deferred revenue

 

 

9,697

 

 

 

10,495

 

Current portion of capital lease obligation

 

 

829

 

 

 

799

 

Total current liabilities

 

 

59,005

 

 

 

69,617

 

Other long-term liabilities

 

 

588

 

 

 

3,251

 

Contingent consideration

 

 

9,418

 

 

 

9,153

 

Long-term deferred tax liabilities

 

 

837

 

 

 

783

 

Capital lease obligation, net of current portion

 

 

15,325

 

 

 

15,539

 

Total liabilities

 

 

85,173

 

 

 

98,343

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class B Preferred Stock, $.01 par value

 

 

 

 

 

 

Authorized - 1,000,000 shares; Issued and outstanding - none

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

 

441

 

 

 

437

 

Authorized - 100,000,000 shares; Issued - 45,791,680 shares at June 30, 2017 and 45,249,281 shares at March 31, 2017

 

 

 

 

 

 

 

 

Outstanding - 44,080,941 shares at June 30, 2017 and 43,673,286 shares at March 31, 2017

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

580,017

 

 

 

565,962

 

Retained earnings (accumulated deficit)

 

 

65,661

 

 

 

(46,959

)

Treasury stock at cost - 1,710,739 shares at June 30, 2017  and 1,575,995 shares at March 31, 2017

 

 

(64,567

)

 

 

(46,763

)

Accumulated other comprehensive loss

 

 

(14,508

)

 

 

(20,606

)

Total stockholders' equity

 

 

567,044

 

 

 

452,071

 

Total liabilities and stockholders' equity

 

$

652,217

 

 

$

550,414

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

3


 

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

 

 

For the Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

 

132,431

 

 

$

 

102,989

 

Funded research and development

 

 

 

37

 

 

 

 

6

 

 

 

 

 

132,468

 

 

 

 

102,995

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

 

21,862

 

 

 

 

15,070

 

Research and development

 

 

 

16,931

 

 

 

 

15,660

 

Selling, general and administrative

 

 

 

60,597

 

 

 

 

51,032

 

 

 

 

 

99,390

 

 

 

 

81,762

 

Income from operations

 

 

 

33,078

 

 

 

 

21,233

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

 

635

 

 

 

 

269

 

Other income (expense), net

 

 

 

79

 

 

 

 

(77

)

 

 

 

 

714

 

 

 

 

192

 

Income before income taxes

 

 

 

33,792

 

 

 

 

21,425

 

Income tax (benefit) provision

 

 

 

(3,582

)

 

 

 

8,515

 

Net income

 

$

 

37,374

 

 

$

 

12,910

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

 

0.85

 

 

$

 

0.30

 

Basic weighted average shares outstanding

 

 

 

43,895

 

 

 

 

42,811

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

 

0.82

 

 

$

 

0.29

 

Diluted weighted average shares outstanding

 

 

 

45,608

 

 

 

 

45,178

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

4


 

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

 

 

For the Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

Net income

 

$

37,374

 

 

$

12,910

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses)

 

 

6,153

 

 

 

(1,699

)

Net unrealized (losses) gains on marketable securities

 

 

(55

)

 

 

150

 

Other comprehensive gain (loss)

 

 

6,098

 

 

 

(1,549

)

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

43,472

 

 

$

11,361

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

5


 

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

For the Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

37,374

 

 

$

12,910

 

Adjustments required to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

2,463

 

 

 

1,406

 

Bad debt expense

 

 

(42

)

 

 

(31

)

Stock-based compensation

 

 

8,656

 

 

 

8,397

 

Write-down of inventory

 

 

510

 

 

 

708

 

Excess tax benefit from stock-based awards

 

 

 

 

 

(1,041

)

Deferred tax provision

 

 

(3,830

)

 

 

7,000

 

Change in fair value of contingent consideration

 

 

265

 

 

 

176

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

795

 

 

 

1,517

 

Inventories

 

 

(1,302

)

 

 

(3,393

)

Prepaid expenses and other assets

 

 

(915

)

 

 

7

 

Accounts payable

 

 

(4,391

)

 

 

(145

)

Accrued expenses and other liabilities

 

 

(2,436

)

 

 

(952

)

Deferred revenue

 

 

(853

)

 

 

(179

)

Net cash provided by operating activities

 

 

36,294

 

 

 

26,380

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(73,626

)

 

 

(67,318

)

Proceeds from the sale and maturity of marketable securities

 

 

66,622

 

 

 

47,090

 

Purchase of other investment

 

 

(400

)

 

 

 

Purchases of property and equipment

 

 

(9,804

)

 

 

(5,099

)

Net cash used for investing activities

 

 

(17,208

)

 

 

(25,327

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

3,555

 

 

 

2,770

 

Excess tax benefit from stock-based awards

 

 

 

 

 

1,041

 

Taxes paid related to net share settlement of vesting of stock awards

 

 

(17,805

)

 

 

(15,033

)

Principal payments on capital lease obligation

 

 

(184

)

 

 

 

Net cash used for financing activities

 

 

(14,434

)

 

 

(11,222

)

Effect of exchange rate changes on cash

 

 

278

 

 

 

212

 

Net increase in cash and cash equivalents

 

 

4,930

 

 

 

(9,957

)

Cash and cash equivalents at beginning of period

 

 

39,040

 

 

 

48,231

 

Cash and cash equivalents at end of period

 

$

43,970

 

 

$

38,274

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

479

 

 

$

420

 

Cash paid for interest on capital lease obligation

 

 

130

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment in accounts payable and accrued expenses

 

 

1,872

 

 

 

996

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

6


 

ABIOMED, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except share data)

 

 

Note 1. Nature of Business

Abiomed, Inc. (the “Company” or “Abiomed”) is a provider of mechanical circulatory support devices and offers a continuum of care to heart failure patients. The Company develops, manufactures and markets proprietary products that are designed to enable the heart to rest, heal and recover by improving blood flow and/or performing the pumping function of the heart. The Company’s products are used in the cardiac catheterization lab, or cath lab, by interventional cardiologists and in the heart surgery suite by heart surgeons for patients who are in need of hemodynamic support prophylactically or emergently before, during or after angioplasty or heart surgery procedures.

 

Note 2. Basis of Preparation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial reporting and in accordance with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 that has been filed with the Securities and Exchange Commission (the “SEC”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments that are necessary for a fair presentation of results for the interim periods presented. The results of operations for any interim period may not be indicative of results for the full fiscal year or any other subsequent period.

There have been no changes in the Company’s significant accounting policies for the three months ended June 30, 2017 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 that has been filed with the SEC.

New Accounting Pronouncements Adopted

Effective April 1, 2017, the Company adopted the Financial Accounting Standards Board (“FASB”) standard update ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) which simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, recognition of stock compensation award forfeitures, classification of awards as either equity or liabilities, the calculation of diluted shares outstanding and classification on the statement of cash flows.

 

7


 

The following table summarizes the most significant impacts of the new accounting guidance for the three months ended June 30, 2017:

 

Description of Change:

 

Impact of Change Upon Adoption on April 1, 2017 and for the

Three Months Ended June 30, 2017:

 

Adoption Method:

The new standard eliminates the requirement that excess tax benefits be realized through a reduction in income taxes payable before a company can recognize them in the statement of operations.

 

As a result, on April 1, 2017, the Company recorded a cumulative-effect adjustment to increase retained earnings and deferred tax assets by $76.4 million for excess tax benefits not previously recognized.

 

Modified-retrospective (required)

 

 

 

 

 

Excess tax benefits related to restricted stock unit vestings or stock option exercises are recorded through the statement of operations.

 

The income tax benefit for the three months ended June 30, 2017, included excess tax benefits of $16.8 million. These recognized excess tax benefits resulted from restricted stock units that vested or stock options that were exercised during the three months ended June 30, 2017.

 

Prospective (required)

 

 

 

 

 

Excess tax benefits related to restricted stock unit vestings or stock option exercises are classified as operating cash flows instead of financing cash flows.

 

Increase in cash flow from operating activities and decrease in cash flow from financing activities by approximately $16.8 million for the three months ended June 30, 2017. The statement of cash flows for prior periods have not been adjusted.

 

Prospective (elected)

 

 

 

 

 

Calculation of diluted weighted average shares outstanding under the treasury method no longer assume that tax benefits related to stock-based awards are used to repurchase common stock.

 

The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis as required by  ASU 2016-09.

 

Prospective (required)

 

 

 

 

 

An accounting policy election can be made to reduce stock-based compensation expense for forfeitures as they occur instead of estimating forfeitures that are expected to occur.

 

The Company made an accounting policy election to account for forfeitures as they occur with the change applied on a modified retrospective basis with a cumulative effect adjustment on April 1, 2017 to increase additional paid-in capital by $1.8 million, increase deferred tax assets by $0.7 million and decrease retained earnings by $1.1 million. The Company elected to make this accounting policy change to simplify the accounting for stock-based compensation and believes this method provides a more accurate reflection of periodic stock based compensation cost. Prior to the adoption of this accounting standard, the Company estimated at grant the likelihood that the award would ultimately vest, and revised the estimate, if necessary, in future periods if the actual forfeiture rate differed.

 

Modified-retrospective (elected)

 

 

 

 

 

Cash payments to tax authorities for shares withheld to meet employee tax withholding requirements on restricted stock units are classified as financing cash flow instead of operating cash flow.

 

 

 

No change since the Company has historically presented these amounts as a financing activity. Prior to ASU 2016-09, U.S. GAAP has not specified how these types of transactions should be classified in the statement of cash flows.

 

N/A

 

See table below for the changes in beginning stockholders' equity as a result of this implementation.

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

Par value

 

 

Number of shares

 

 

Amount

 

 

Additional Paid in Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2017

 

 

43,673,286

 

$

 

437

 

 

 

1,575,995

 

$

 

(46,763

)

$

 

565,962

 

$

 

(46,959

)

$

 

(20,606

)

$

 

452,071

 

Cumulative effect of adoption of new accounting standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,835

 

 

 

75,246

 

 

 

 

 

 

 

77,081

 

Balance, April 1, 2017

 

 

43,673,286

 

$

 

437

 

 

 

1,575,995

 

$

 

(46,763

)

$

 

567,797

 

$

 

28,287

 

$

 

(20,606

)

$

 

529,152

 

 

8


 

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers to provide updated guidance on revenue recognition. This new standard will replace most of the existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies may need to use more judgment and make more estimates than under the current accounting guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The Company is assessing all of the potential impacts of the revenue recognition guidance. Although the Company has not yet completed its assessment of the new revenue recognition guidance, the Company believes that the new revenue recognition guidance generally supports the recognition of revenue at a point-in-time for product sales and over an extended period of time for preventative maintenance service agreements, which is consistent with its current revenue recognition model. The Company does anticipate that the new revenue standard will result in expanded financial statement disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. As the Company completes its evaluation of this new accounting standard, new information may arise that could change the Company’s current understanding of the impact to revenue and expense recognized and financial statement disclosures. Additionally, the Company will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession and adjust the Company’s assessment and implementation plans accordingly, if required. ASU 2014-09 will become effective for the Company beginning in fiscal 2019.

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires an entity to recognize lease liabilities and a right-of-use asset for all leases on the balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with earlier adoption permitted. ASU 2016-02 must be adopted using a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The Company is currently in the process of evaluating its lessee arrangements to determine the impact of ASU 2016-02 amendment on its consolidated financial statements. This evaluation includes a review of the Company’s existing leasing arrangements on its facilities. ASU 2016-02 will become effective for the Company beginning in fiscal 2020.

 

 

Note 3. Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of dilutive common shares outstanding during the period. Diluted shares outstanding are calculated by adding to the weighted average shares outstanding any potential dilutive securities outstanding for the period. Potential dilutive securities include stock options, restricted stock units, performance-based stock awards and shares to be purchased under the Company’s employee stock purchase plan. The Company’s basic and diluted net income per share for the three months ended June 30, 2017 and 2016 were as follows (in thousands, except per share data):

 

 

For the Three Months Ended June 30,

 

 

2017

 

 

2016

 

Basic Net Income Per Share

 

 

 

 

 

 

 

 

 

Net income

$

 

37,374

 

 

$

 

12,910

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing basic net

   income per share

 

 

43,895

 

 

 

 

42,811

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

$

 

0.85

 

 

$

 

0.30

 

9


 

 

 

For the Three Months Ended June 30,

 

 

2017

 

 

2016

 

Diluted Net Income Per Share

 

 

 

 

 

 

 

 

 

Net income

$

 

37,374

 

 

$

 

12,910

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing basic net

   income per share

 

 

43,895

 

 

 

 

42,811

 

Effect of dilutive securities

 

 

1,713

 

 

 

 

2,367

 

Weighted average shares used in computing diluted

   net income per share

 

 

45,608

 

 

 

 

45,178

 

 

 

 

 

 

 

 

 

 

 

Net income per share - diluted

$

 

0.82

 

 

$

 

0.29

 

 

For the three months ended June 30, 2017, approximately 54,000 shares underlying out-of-the-money stock options, were excluded in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 80,000 restricted shares in the three months ended June 30, 2017, respectively, related to performance-based awards for which milestones have not been met, were not included in the computation of diluted earnings per share.

For the three months ended June 30, 2016, approximately 48,000 shares underlying out-of-the-money stock options, were excluded in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 241,000 restricted shares in the three months ended June 30, 2016, related to performance-based awards for which milestones had not been met were not included in the computation of diluted earnings per share.

 

 

Note 4. Marketable Securities and Fair Value Measurements

Marketable Securities

The Company’s marketable securities are classified as available-for-sale securities and, accordingly, are recorded at fair value. The difference between amortized cost and fair value is included in stockholders’ equity.

The Company’s marketable securities at June 30, 2017 and March 31, 2017 are invested in the following:

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term U.S. Treasury mutual fund securities

 

$

36,138

 

 

$

 

 

$

(20

)

 

$

36,118

 

Short-term government-backed securities

 

 

113,432

 

 

 

 

 

 

(138

)

 

 

113,294

 

Short-term corporate debt securities

 

 

58,053

 

 

 

1

 

 

 

(25

)

 

 

58,029

 

Long-term government-backed securities

 

 

34,970

 

 

 

1

 

 

 

(24

)

 

 

34,947

 

Long-term corporate debt securities

 

 

2,718

 

 

 

4

 

 

 

 

 

 

2,722

 

 

 

$

245,311

 

 

$

6

 

 

$

(207

)

 

$

245,110

 

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term U.S. Treasury mutual fund securities

 

$

45,199

 

 

$

 

 

$

(13

)

 

$

45,186

 

Short-term government-backed securities

 

 

90,199

 

 

 

1

 

 

 

(87

)

 

 

90,113

 

Short-term corporate debt securities

 

 

55,465

 

 

 

 

 

 

(31

)

 

 

55,434

 

Long-term U.S. Treasury mutual fund securities

 

 

1,998

 

 

 

 

 

 

(3

)

 

 

1,995

 

Long-term government-backed securities

 

 

43,484

 

 

 

5

 

 

 

(18

)

 

 

43,471

 

Long-term corporate debt securities

 

 

1,853

 

 

 

 

 

 

(1

)

 

 

1,852

 

 

 

$

238,198

 

 

$

6

 

 

$

(153

)

 

$

238,051

 

 

10


 

Fair Value Hierarchy

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Level 1 primarily consists of financial instruments whose values are based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 is comprised of unobservable inputs that are supported by little or no market activity. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flows, or similar techniques, and at least one significant model assumption or input is unobservable.

The following table presents the Company’s financial instruments recorded at fair value in the condensed consolidated balance sheets, classified according to the three categories described above:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2017:

 

(in $000's)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term U.S. Treasury mutual fund securities

 

$

 

 

$

36,118

 

 

$

 

 

$

36,118

 

Short-term government-backed securities

 

 

 

 

 

113,294

 

 

 

 

 

 

113,294

 

Short-term corporate debt securities

 

 

 

 

 

58,029

 

 

 

 

 

 

58,029

 

Long-term government-backed securities

 

 

 

 

 

34,947

 

 

 

 

 

 

34,947

 

Long-term corporate debt securities

 

 

 

 

 

2,722

 

 

 

 

 

 

2,722

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

 

 

 

 

 

 

9,418

 

 

 

9,418

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

March 31, 2017:

 

(in $000's)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term U.S. Treasury mutual fund securities

 

$

 

 

$

45,186

 

 

$

 

 

$

45,186

 

Short-term government-backed securities

 

 

 

 

 

90,113

 

 

 

 

 

 

90,113

 

Short-term corporate debt securities

 

 

 

 

 

55,434

 

 

 

 

 

 

55,434

 

Long-term U.S. Treasury mutual fund securities

 

 

 

 

 

1,995

 

 

 

 

 

 

1,995

 

Long-term government-backed securities

 

 

 

 

 

43,471

 

 

 

 

 

 

43,471

 

Long-term corporate debt securities

 

 

 

 

 

1,852

 

 

 

 

 

 

1,852

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

 

 

 

 

 

 

9,153

 

 

 

9,153

 

 

The Company has determined that the estimated fair value of its investments in U.S. Treasury mutual fund securities, government-backed securities, and corporate debt securities are reported as Level 2 financial assets as they are not exchange-traded instruments.

11


 

The Company’s financial liabilities consisted of contingent consideration potentially payable related to the acquisition of ECP Entwicklungsgesellschaft mbH (“ECP”) and AIS GmbH Aachen Innovative Solutions (“AIS”), in July 2014. The Company acquired ECP for $13.0 million in cash, with additional potential payouts totaling $15.0 million based on the achievement of certain clinical and regulatory and revenue-based milestones. These potential milestone payments may be made, at the Company’s option, by a combination of cash or Abiomed common stock. The Company uses a combination of an income approach, based on various revenue and cost assumptions and applying a probability to each outcome and a Monte-Carlo valuation model. For the clinical and regulatory milestone, probabilities were applied to each potential scenario and the resulting values were discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn out itself, the related projections, and the overall business. The revenue-based milestone is valued using a Monte-Carlo valuation model, which simulates estimated future revenues during the earn out-period using management's best estimates. Projected revenues are based on our most recent internal operational budgets and long-range strategic plans.

This liability is reported as Level 3 as the estimated fair value of the contingent consideration related to the acquisition of the ECP requires significant management judgment or estimation and is calculated using the following valuation methods:

 

 

 

Fair Value at

 

 

 

 

 

 

Weighted Average

 

 

 

June 30, 2017

 

 

 

 

Significant

 

(range, if

 

 

 

(in $000's)

 

 

Valuation Methodology

 

Unobservable Input

 

applicable)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical and regulatory milestone

 

$

5,453

 

 

Probability

weighted income approach

 

Projected fiscal year of milestone payments

 

2019 to 2022

 

 

 

 

 

 

 

 

 

Discount rate

 

2.6% to 3.3%

 

 

 

 

 

 

 

 

 

Probability of occurrence

 

Probability adjusted level of 40% for the base case scenario and 5% to 20% for various upside and downside scenarios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue-based milestone

 

 

3,965

 

 

Monte Carlo simulation model

 

Projected fiscal year of milestone payments

 

2023 to 2035

 

 

 

 

 

 

 

 

 

Discount rate

 

 

18%

 

 

 

 

 

 

 

 

 

Expected volatility for forecasted revenues

 

 

50%

 

 

 

$

9,418

 

 

 

 

 

 

 

 

 

 

The following table summarizes the change in fair value, as determined by Level 3 inputs, of the contingent consideration for the three months ended June 30, 2017 and 2016:

 

 

 

For the Three Months Ended June 30,

 

 

 

 

2017

 

 

 

2016

 

 

 

(in $000's)

 

Level 3 liabilities, beginning balance

 

$

9,153

 

 

$

7,563

 

Additions

 

 

 

 

 

 

Payments

 

 

 

 

 

 

Change in fair value