abmd-10q_20180930.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 September 30, 2018

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 every Interactive Data File required to be submitted 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 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

 

 

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 October 25, 2018, 45,039,527 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 September 30, 2018 and March 31, 2018

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2018 and 2017

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2018 and 2017

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2018 and 2017

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

Item 2.

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

 

22

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

Item 4.

Controls and Procedures

 

31

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

32

 

 

 

 

Item 1A.

Risk Factors

 

32

 

 

 

 

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. IMPELLA BTR, IMPELLA 5.5, IMPELLA ECP and cVAD REGISTRY are trademarks of ABIOMED, Inc. 

2


 

PART 1. FINANCIAL INFORMATION

ITEM 1:

FINANCIAL STATEMENTS

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

 

 

 

September 30, 2018

 

 

March 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

76,382

 

 

$

42,975

 

Short-term marketable securities

 

 

334,064

 

 

 

319,274

 

Accounts receivable, net

 

 

74,201

 

 

 

70,010

 

Inventories

 

 

63,656

 

 

 

50,204

 

Prepaid expenses and other current assets

 

 

13,296

 

 

 

11,808

 

Total current assets

 

 

561,599

 

 

 

494,271

 

Long-term marketable securities

 

 

 

 

 

37,502

 

Property and equipment, net

 

 

134,065

 

 

 

117,167

 

Goodwill

 

 

33,719

 

 

 

35,808

 

In-process research and development

 

 

15,730

 

 

 

16,705

 

Long-term deferred tax assets, net

 

 

116,248

 

 

 

70,746

 

Other assets

 

 

25,804

 

 

 

14,176

 

Total assets

 

$

887,165

 

 

$

786,375

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

21,884

 

 

$

23,565

 

Accrued expenses

 

 

46,099

 

 

 

46,147

 

Deferred revenue

 

 

13,996

 

 

 

14,970

 

Total current liabilities

 

 

81,979

 

 

 

84,682

 

Other long-term liabilities

 

 

889

 

 

 

776

 

Contingent consideration

 

 

10,493

 

 

 

10,490

 

Long-term deferred tax liabilities

 

 

850

 

 

 

903

 

Total liabilities

 

 

94,211

 

 

 

96,851

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class B Preferred Stock, $.01 par value

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

 

450

 

 

 

444

 

Authorized - 100,000,000 shares; Issued - 46,935,424 shares at September 30, 2018 and 46,100,649 shares at March 31, 2018

 

 

 

 

 

 

 

 

Outstanding - 45,038,453 shares at September 30, 2018 and 44,375,337 shares

at March 31, 2018

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

660,132

 

 

 

619,905

 

Retained earnings

 

 

280,650

 

 

 

140,457

 

Treasury stock at cost - 1,896,971 shares at September 30, 2018 and 1,725,312 shares at March 31, 2018

 

 

(136,743

)

 

 

(67,078

)

Accumulated other comprehensive loss

 

 

(11,535

)

 

 

(4,204

)

Total stockholders' equity

 

 

792,954

 

 

 

689,524

 

Total liabilities and stockholders' equity

 

$

887,165

 

 

$

786,375

 

 

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 September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

181,778

 

 

$

 

132,823

 

 

$

 

361,788

 

 

$

 

265,291

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

29,846

 

 

 

 

21,627

 

 

 

 

60,696

 

 

 

 

43,489

 

Research and development

 

 

 

22,717

 

 

 

 

19,390

 

 

 

 

43,990

 

 

 

 

36,321

 

Selling, general and administrative

 

 

 

78,895

 

 

 

 

60,080

 

 

 

 

160,034

 

 

 

 

120,677

 

 

 

 

 

131,458

 

 

 

 

101,097

 

 

 

 

264,720

 

 

 

 

200,487

 

Income from operations

 

 

 

50,320

 

 

 

 

31,726

 

 

 

 

97,068

 

 

 

 

64,804

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

 

1,671

 

 

 

 

781

 

 

 

 

3,222

 

 

 

 

1,416

 

Other (expense) income, net

 

 

 

(158

)

 

 

 

(23

)

 

 

 

30

 

 

 

 

56

 

 

 

 

 

1,513

 

 

 

 

758

 

 

 

 

3,252

 

 

 

 

1,472

 

Income before income taxes

 

 

 

51,833

 

 

 

 

32,484

 

 

 

 

100,320

 

 

 

 

66,276

 

Income tax provision (benefit)

 

 

 

1,706

 

 

 

 

7,981

 

 

 

 

(39,873

)

 

 

 

4,399

 

Net income

 

$

 

50,127

 

 

$

 

24,503

 

 

$

 

140,193

 

 

$

 

61,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

 

1.11

 

 

$

 

0.56

 

 

$

 

3.13

 

 

$

 

1.41

 

Basic weighted average shares outstanding

 

 

 

44,961

 

 

 

 

44,141

 

 

 

 

44,754

 

 

 

 

44,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

 

1.09

 

 

$

 

0.54

 

 

$

 

3.04

 

 

$

 

1.36

 

Diluted weighted average shares outstanding

 

 

 

46,153

 

 

 

 

45,698

 

 

 

 

46,164

 

 

 

 

45,655

 

 

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 September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

50,127

 

 

$

24,503

 

 

$

140,193

 

 

$

61,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (losses) gains

 

 

(600

)

 

 

2,696

 

 

 

(7,452

)

 

 

8,849

 

Net unrealized (losses) gains on marketable securities

 

 

(22

)

 

 

10

 

 

 

121

 

 

 

(45

)

Other comprehensive (loss) gain

 

 

(622

)

 

 

2,706

 

 

 

(7,331

)

 

 

8,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

49,505

 

 

$

27,209

 

 

$

132,862

 

 

$

70,681

 

 

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 Six Months Ended September 30,

 

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

140,193

 

 

$

61,877

 

Adjustments required to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

6,347

 

 

 

5,320

 

Bad debt expense (recovery)

 

 

467

 

 

 

(54

)

Stock-based compensation

 

 

28,179

 

 

 

17,938

 

Write-down of inventory and other

 

 

1,733

 

 

 

2,528

 

Accretion on marketable securities

 

 

(848

)

 

 

 

Deferred tax provision

 

 

(45,676

)

 

 

3,073

 

Change in fair value of contingent consideration

 

 

3

 

 

 

682

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,131

)

 

 

(2,824

)

Inventories

 

 

(16,750

)

 

 

(5,363

)

Prepaid expenses and other assets

 

 

(1,987

)

 

 

(869

)

Accounts payable

 

 

761

 

 

 

299

 

Accrued expenses and other liabilities

 

 

826

 

 

 

(3,174

)

Deferred revenue

 

 

(926

)

 

 

18

 

Net cash provided by operating activities

 

 

107,191

 

 

 

79,451

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(112,956

)

 

 

(131,934

)

Proceeds from the sale and maturity of marketable securities

 

 

136,844

 

 

 

95,416

 

Purchase of other assets

 

 

(11,426

)

 

 

(6,400

)

Purchases of property and equipment

 

 

(27,345

)

 

 

(17,675

)

Net cash used for investing activities

 

 

(14,883

)

 

 

(60,593

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

10,613

 

 

 

5,257

 

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

 

 

(69,666

)

 

 

(19,237

)

Proceeds from the issuance of stock under employee stock purchase plan

 

 

1,375

 

 

 

1,063

 

Principal payments on capital lease obligation

 

 

 

 

 

(377

)

Net cash used for financing activities

 

 

(57,678

)

 

 

(13,294

)

Effect of exchange rate changes on cash

 

 

(1,223

)

 

 

(68

)

Net increase in cash and cash equivalents

 

 

33,407

 

 

 

5,496

 

Cash and cash equivalents at beginning of period

 

 

42,975

 

 

 

39,040

 

Cash and cash equivalents at end of period

 

$

76,382

 

 

$

44,536

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

3,530

 

 

$

584

 

Cash paid for interest on capital lease obligation

 

 

 

 

 

259

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment in accounts payable and accrued expenses

 

 

1,399

 

 

 

897

 

 

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 cardiac 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, 2018 that has been filed with the Securities and Exchange Commission (“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 and six months ended September 30, 2018 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, 2018 that has been filed with the SEC.

New Accounting Pronouncements Adopted

Effective April 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) standard update ASU 2014-09, “Revenue from Contracts with Customers,” (“Topic 606”) which provides a principles-based, five-step approach to measure and recognize revenue from contracts with customers. The adoption of this guidance did not have a material impact on the Company’s consolidated statement of operations, cash flows, and balance sheet as of the adoption date or for the three or six months ended September 30, 2018. Additional information and disclosures required by this new standard are contained in “Note 4. Revenue Recognition,” to the Company’s consolidated financial statements.

Effective April 1, 2018, the Company adopted the FASB standard update ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which requires certain financial assets to be measured at fair value with changes in fair value recognized in the statement of operations. The adoption of this guidance did not have a material impact on the Company’s consolidated statement of operations, cash flows, and balance sheet as of the adoption date or for the three or six months ended September 30, 2018. Additional information and disclosures required by this new standard are contained in “Note 5. Cash Equivalents, Marketable Securities, and Fair Value Measurements,” to the Company’s consolidated financial statements.

On June 20, 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting,” which simplifies the accounting for share-based payments granted to nonemployees for goods and services. ASU 2018-07 eliminated the previous guidance for accounting for share-based payments to nonemployees and expanded Topic 718 to include share-based payments transactions to nonemployees. ASU 2018-07 is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The adoption of ASU 2018-07 requires a modified retrospective transition approach, with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year. The Company early adopted ASU 2018-07 on June 20, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated statements of operations, cash flows, and balance sheet as of the adoption date or for the three or six months ended September 30, 2018.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases.” The new guidance significantly impacts lessee accounting and financial statement disclosures.  Specifically, this guidance requires lessees to identify arrangements that should be accounted for as

7


 

leases. Under this guidance, for lease arrangements exceeding a one year term, a right-of-use asset and lease obligation is recorded by the lessee for all leases on the balance sheet, whether operating or financing, while the statement of operations includes lease expense for operating leases and amortization and interest expense for financing leases. The lease obligation amount recorded on the balance sheet at the date of adoption of this guidance must be calculated using the applicable incremental borrowing rate at the date of adoption. Leases with a term of one year or less will be accounted for similar to existing guidance for operating leases. The Company is currently in the process of evaluating its lease arrangements to determine the impact of ASU 2016-02 on its consolidated financial statements as well as updating processes and controls in order to adopt the new standard. This evaluation includes a review of the Company’s existing leasing arrangements on its facilities. In addition, the evaluation includes a review of the Company’s existing contracts with its suppliers and vendors to determine if these agreements contain an embedded lease. The Company currently expects that its lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption, which will increase total assets and total liabilities that the Company reports on its consolidated balance sheet. 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.  ASU 2016-02 will become effective for the Company on April 1, 2019.

 

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 and six months ended September 30, 2018 and 2017 were as follows (in thousands, except per share data):

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Basic Net Income Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

50,127

 

 

$

 

24,503

 

 

$

 

140,193

 

 

$

 

61,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

44,961

 

 

 

 

44,141

 

 

 

 

44,754

 

 

 

 

44,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

$

 

1.11

 

 

$

 

0.56

 

 

$

 

3.13

 

 

$

 

1.41

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Diluted Net Income Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

50,127

 

 

$

 

24,503

 

 

$

 

140,193

 

 

$

 

61,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

44,961

 

 

 

 

44,141

 

 

 

 

44,754

 

 

 

 

44,018

 

Effect of dilutive securities

 

 

1,192

 

 

 

 

1,557

 

 

 

 

1,410

 

 

 

 

1,637

 

Diluted weighted average shares outstanding

 

 

46,153

 

 

 

 

45,698

 

 

 

 

46,164

 

 

 

 

45,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

$

 

1.09

 

 

$

 

0.54

 

 

$

 

3.04

 

 

$

 

1.36

 

 

For the three and six months ended September 30, 2018, approximately 4,000 and 54,000 shares underlying out-of-the-money stock options, respectively, were excluded in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 97,000 restricted shares in each of the three and six months ended September 30, 2018, 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 and six months ended September 30, 2017, approximately 200 and 5,700 shares underlying out-of-the-money stock options, respectively, were excluded in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 77,000 restricted shares in each of the three and six months ended September 30, 2017, respectively, related to performance-based and market-based awards for which milestones have not been met, were not included in the computation of diluted earnings per share.

 

8


 

Note 4. Revenue Recognition

Adoption of Topic 606, Revenue from Contracts with Customers

The Company adopted Topic 606 on April 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for fiscal year 2019 reflect the application of Topic 606 guidance while the reported results for fiscal year 2018 were prepared under the guidance of ASC 605, “Revenue Recognition.” The adoption of Topic 606 did not have a material impact on the timing or amount of revenue recognized upon adoption and there was no cumulative prior period adjustment recorded to the opening balance of retained earnings upon adoption. Accordingly, the adoption of Topic 606 did not have a material impact on the Company’s consolidated balance sheet, statement of operations, stockholders’ equity or cash flows as of the adoption date or for the three or six months ended September 30, 2018.

The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the FASB, in applying Topic 606: (1) the Company accounts for amounts collected from customers for sales and other taxes, net of related amounts remitted to tax authorities; (2) the Company does not adjust the promised amount of consideration for the effects of a significant financing component because, at contract inception, the Company expects the period between the time when the Company transfers a promised good or service to the customer and the time when the customer pays for that good or service will be one year or less; (3) the Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the amortization period, is one year or less; (4) the Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs are recorded as selling, general and administrative expenses; (5) the Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer; and (6) the Company does not disclose the transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less.

The Company generates revenue primarily from the sale of Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella RP and Impella AIC products. The Company also generates revenue from preventative maintenance service contracts and maintenance calls.

The Company determines revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligation in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligation in the contract

 

Recognition of revenue when, or as, a performance obligation is satisfied

Contracts and Performance Obligations

The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. The Company's performance obligations consist mainly of transferring control of products and services identified in the contracts, purchase orders or invoices. For each contract, the Company considers the obligation to transfer products and services to the customer, each of which are distinct, to be performance obligations.

Transaction price and allocation to performance obligations

Transaction prices of products or services are typically based on contracted rates. To the extent that the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount, depending on the circumstances, to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.  Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available.  Sales and other taxes collected on behalf of third parties are excluded from revenue.

The Company does not provide for rights of return to customers on product sales and, therefore, does not record a provision for returns. Customers typically have a limited time frame to notify the Company of any defective or non-conforming products. The Company’s limited warranty provision is accounted for using the cost accrual method and is recognized as expense when products are sold and is not considered a separate performance obligation.

9


 

If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately.  

Revenue Recognition

Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers.  Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer.

Product revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract.

Service revenue is generally recognized over time as the services are rendered to the customer based on the extent of progress towards completion of the performance obligation. The Company recognizes service revenue over the term of the service contract. Services are expected to be transferred to the customer throughout the term of the contract and the Company believes recognizing revenue ratably over the term of the contract best depicts the transfer of value to the customer. Revenue generated from preventative maintenance calls is recognized at a point in time when the services are provided to the customer.

Revenue from the sale of products and services are evidenced by either a contract with the customer or a valid purchase order and an invoice which includes all relevant terms of sale. The Company performs a review of each specific customer's credit worthiness and ability to pay prior to acceptance as a customer. Further, the Company performs periodic reviews of its customers' creditworthiness prospectively.

Disaggregation of Revenue

The Company generally sells its Impella products and services through a direct sales force in the U.S. and Germany and through direct sales and distribution agreements in other international markets outside (e.g. in: Europe, Canada, Latin America, Asia-Pacific). Revenue is disaggregated from contracts between product revenue and service and other revenue and by geography, which the Company believes best depicts how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors.

The following table disaggregates the Company’s revenue by products and services:

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

 

(in $000's)

 

 

(in $000's)

 

Impella product revenue

$

175,270

 

 

$

127,400

 

 

$

348,945

 

 

$

254,594

 

Service and other revenue

 

6,508

 

 

 

5,423

 

 

 

12,843

 

 

 

10,697

 

Total revenue

$

181,778

 

 

$

132,823

 

 

$

361,788

 

 

$

265,291

 

 

The following table disaggregates the Company’s revenue by geographical location:

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

 

(in $000's)

 

 

(in $000's)

 

U.S. revenue

$

158,243

 

 

$

118,669

 

 

$

315,838

 

 

$

238,335

 

International revenue

 

23,535

 

 

 

14,154

 

 

 

45,950

 

 

 

26,956

 

Total revenue

$

181,778

 

 

$

132,823

 

 

$

361,788

 

 

$

265,291

 

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from discounts or rebates that are offered within contracts between the Company and its customers relating to the Company’s sales of its products.  These reserves are based on the amounts earned or are expected to be claimed on the related sales and are classified as reductions of accounts receivable.  Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual and statutory requirements,

10


 

specific known market events and trends, industry data and forecasted customer buying and payment patterns.  These reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract.  Actual amounts of consideration ultimately received may differ from the Company’s estimates.  If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

Rebates and Discounts  

The Company provides certain customers with rebates and discounts that are defined in the Company’s contract arrangements with customers and are recorded as a reduction of revenue in the period the related product revenue is recognized, resulting in a reduction to revenue and the establishment of a liability, which are all included in accrued expenses in the accompanying consolidated balance sheets. Rebates normally result from performance-based offers that are primarily based on attaining contractually specified sales volumes as well as product usage.  Discounts are normally from early payment incentives. The Company estimates the amount of rebates and discounts based on an estimate of the third party’s sales and the respective rebate or discount defined in the customer contractual arrangement.

The following table summarizes product revenue rebates and discounts for the six months ended September 30, 2018 (in thousands):

 

 

Rebates and Discounts

 

Balance at March 31, 2018

$

1,405

 

Provision related to current period revenue

 

989

 

Credits and adjustments made during the period

 

(869

)

Balance at September 30, 2018

$

1,525

 

Contract Balances

The timing of revenue recognition, billings and cash collections results in trade receivables and deferred revenue on the consolidated balance sheet. A receivable is recognized in the period the Company’s right to the consideration from the customer is unconditional. The change in the accounts receivable balances relate to the timing of revenue recognition, billings and cash collections. The Company generally does not have any performance obligations with a term of more than one year.

Payment terms vary by contract type and type of customer and generally range from 30 to 60 days for direct sales customers. Payment terms with certain international distributors can be up to 90 days. The Company’s contracts with customers do not typically include extended payment terms.

Deferred Revenue

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, deferred revenue is recorded. Deferred revenue is recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

The Company’s deferred revenue balance was $14.0 million as of September 30, 2018 and $15.0 million as of March 31, 2018. The change relates to the timing of product shipment and completion of recognizing revenue when the customer obtains control of the product and additional preventative maintenance service contracts and the subsequent recognition of the contract ratably over the term of the service contract. During the three and six months ended September 30, 2018, the Company recognized $3.3 million and $12.4 million of revenue that was included in the deferred revenue balance as of March 31, 2018, respectively.  

 

Costs to Obtain or Fulfill a Customer Contract

The Company has certain costs to obtain and fulfill a customer contract, such as commissions and shipping costs. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. These costs are included in selling, general, and administrative expenses.

 

11


 

Note 5. Cash Equivalents, Marketable Securities and Fair Value Measurements

The Company classifies any marketable security with a maturity date of 90 days or less at the time of purchase as a cash equivalent. Cash equivalents are carried on the balance sheet at fair market value. The Company’s marketable securities, consisting of U.S. Treasuries, U.S. Government Agency, corporate debt securities, and commercial paper, 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. At September 30, 2018 and March 31, 2018, the Company’s financial instruments consisted primarily of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and contingent consideration. The carrying amounts of accounts receivable and accounts payable are considered reasonable estimates of their fair value, due to the short maturity of these investments.

The Company’s cash equivalents and marketable securities at September 30, 2018 and March 31, 2018 are classified on the balance sheet as follows:

 

 

 

September 30, 2018

 

 

March 31, 2018

 

 

 

(in $000's)

 

Cash equivalents

 

$

17,768

 

 

$

22,595

 

Short-term marketable securities

 

 

334,064

 

 

 

319,274

 

Long-term marketable securities

 

 

 

 

 

37,502

 

 

 

$

351,832

 

 

$

379,371

 

The Company’s cash equivalents and marketable securities at September 30, 2018 and March 31, 2018 are invested in the following:

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

17,768

 

 

$

 

 

$

 

 

$

17,768

 

Short-term U.S. Treasury mutual fund securities

 

 

39,729

 

 

 

 

 

 

(63

)

 

 

39,666

 

Short-term government-backed securities

 

 

204,018

 

 

 

 

 

 

(349

)

 

 

203,669

 

Short-term corporate debt securities

 

 

54,477

 

 

 

 

 

 

(54

)

 

 

54,423

 

Short-term commercial paper

 

 

36,326

 

 

 

 

 

 

(20

)

 

 

36,306

 

 

 

$

352,318

 

 

$

 

 

$

(486

)

 

$

351,832

 

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

5,845

 

 

$

 

 

$

 

 

$

5,845

 

Repurchase agreements

 

 

16,750

 

 

 

 

 

 

 

 

 

16,750

 

Short-term U.S. Treasury mutual fund securities

 

 

18,132

 

 

 

 

 

 

(29

)

 

 

18,103

 

Short-term government-backed securities

 

 

212,255

 

 

 

3

 

 

 

(538

)

 

 

211,720

 

Short-term corporate debt securities

 

 

52,737

 

 

 

 

 

 

(161

)

 

 

52,576

 

Short-term commercial paper

 

 

36,936

 

 

 

2

 

 

 

(63

)

 

 

36,875

 

Long-term U.S. Treasury mutual fund securities

 

 

10,953

 

 

 

 

 

 

(16

)

 

 

10,937

 

Long-term government-backed securities

 

 

24,798

 

 

 

1

 

 

 

(12

)

 

 

24,787

 

Long-term corporate debt securities

 

 

1,777

 

 

 

1

 

 

 

 

 

 

1,778

 

 

 

$

380,183

 

 

$

7

 

 

$

(819

)

 

$

379,371

 

 

12


 

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 consi