abmd-10q_20190630.htm
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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 June 30, 2019

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)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

ABMD

The 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      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 July 25, 2019, 45,376,713 shares of the registrant’s common stock, $.01 par value, were outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION:

  Page

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and March 31, 2019

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2019 and 2018

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2019 and 2018

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2019 and 2018

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2019 and 2018

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

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

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 3.

Defaults Upon Senior Securities

35

 

 

 

Item 4.

Mine Safety Disclosures

35

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6.

Exhibits

36

 

 

 

Signatures

37

 

 

EXPLANATORY NOTES

Pending Trademarks and Registered Marks

Throughout this quarterly report on Form 10-Q (the “Report”), we refer to various trademarks, service marks and trade names that we use in our business. ABIOMED, IMPELLA, IMPELLA 2.5, IMPELLA 5.0, IMPELLA LD, IMPELLA CP, IMPELLA RP, and IMPELLA CONNECT are registered trademarks of ABIOMED, Inc., and are registered in the U.S. and certain foreign countries. IMPELLA BTR, IMPELLA 5.5, IMPELLA ECP, CVAD StudyTM and SMARTASSIST are pending trademarks of ABIOMED, Inc. Other trademarks and service marks appearing in this Report are the property of their respective holders.

Company References

Throughout this Report, “ABIOMED, Inc.,” the “Company,” “we,” “us” and “our” refer to ABIOMED, Inc. and its consolidated subsidiaries.

Where You Can Find More Information

We make available, free of charge on our website located at www.abiomed.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after filing such reports with or furnishing such reports to the U.S. Securities and Exchange Commission (the “SEC”). We also use our website for the distribution of Company information. The information we post on our website may be deemed to be material information. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website are not incorporated by reference into this Report.  

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1: Condensed Consolidated Financial Statements

ABIOMED, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

 

 

 

June 30, 2019

 

 

March 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

101,048

 

 

$

121,021

 

Short-term marketable securities

 

 

385,624

 

 

 

370,677

 

Accounts receivable, net

 

 

86,206

 

 

 

90,809

 

Inventories

 

 

87,726

 

 

 

80,942

 

Prepaid expenses and other current assets

 

 

16,761

 

 

 

13,748

 

Total current assets

 

 

677,365

 

 

 

677,197

 

Long-term marketable securities

 

 

40,032

 

 

 

21,718

 

Property and equipment, net

 

 

151,654

 

 

 

145,005

 

Goodwill

 

 

33,035

 

 

 

32,601

 

In-process research and development

 

 

15,411

 

 

 

15,208

 

Long-term deferred tax assets, net

 

 

66,743

 

 

 

77,502

 

Other assets

 

 

140,820

 

 

 

85,115

 

Total assets

 

$

1,125,060

 

 

$

1,054,346

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

29,688

 

 

$

32,185

 

Accrued expenses

 

 

51,941

 

 

 

57,420

 

Deferred revenue

 

 

16,193

 

 

 

16,393

 

Other current liabilities

 

 

2,379

 

 

 

-

 

Total current liabilities

 

 

100,201

 

 

 

105,998

 

Contingent consideration

 

 

9,931

 

 

 

9,575

 

Long-term deferred tax liabilities

 

 

833

 

 

 

822

 

Other long-term liabilities

 

 

11,502

 

 

 

1,061

 

Total liabilities

 

 

122,467

 

 

 

117,456

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class B Preferred Stock, $.01 par value

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

 

454

 

 

 

451

 

Authorized - 100,000,000 shares; Issued - 47,435,945 shares at June 30, 2019

   and 47,026,226 shares at March 31, 2019

 

 

 

 

 

 

 

 

Outstanding - 45,374,278 shares at June 30, 2019 and 45,122,985 shares

   at March 31, 2019

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

704,884

 

 

 

690,507

 

Retained earnings

 

 

488,396

 

 

 

399,473

 

Treasury stock at cost - 2,061,667 shares at June 30, 2019 and 1,903,241 shares at

   March 31, 2019

 

 

(179,386

)

 

 

(138,852

)

Accumulated other comprehensive loss

 

 

(11,755

)

 

 

(14,689

)

Total stockholders' equity

 

 

1,002,593

 

 

 

936,890

 

Total liabilities and stockholders' equity

 

$

1,125,060

 

 

$

1,054,346

 

 

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,

 

 

 

2019

 

 

2018

 

Revenue

 

$

207,666

 

 

$

180,010

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenue

 

 

37,073

 

 

 

30,850

 

Research and development

 

 

23,790

 

 

 

21,273

 

Selling, general and administrative

 

 

86,078

 

 

 

81,139

 

 

 

 

146,941

 

 

 

133,262

 

Income from operations

 

 

60,725

 

 

 

46,748

 

Other income:

 

 

 

 

 

 

 

 

Investment income, net

 

 

3,049

 

 

 

1,551

 

Other income, net

 

 

39,364

 

 

 

188

 

 

 

 

42,413

 

 

 

1,739

 

Income before income taxes

 

 

103,138

 

 

 

48,487

 

Income tax provision (benefit)

 

 

14,215

 

 

 

(41,579

)

Net income

 

$

88,923

 

 

$

90,066

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

1.97

 

 

$

2.02

 

Basic weighted average shares outstanding

 

 

45,215

 

 

 

44,546

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

1.93

 

 

$

1.95

 

Diluted weighted average shares outstanding

 

 

46,092

 

 

 

46,169

 

 

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,

 

 

 

2019

 

 

2018

 

Net income

 

$

88,923

 

 

$

90,066

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses)

 

 

2,334

 

 

 

(6,852

)

Net unrealized gains (losses) on marketable securities

 

 

600

 

 

 

143

 

Other comprehensive income (loss)

 

 

2,934

 

 

 

(6,709

)

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

91,857

 

 

$

83,357

 

 

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

 

 

 

 

5


 

ABIOMED, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands, except share data)

 

 

 

For the Three Months Ended June 30, 2019

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par value

 

 

Shares

 

 

Amount

 

 

Additional Paid in Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total Stockholders' Equity

 

Balance, March 31, 2019

 

 

45,122,985

 

 

$

451

 

 

 

1,903,241

 

 

$

(138,852

)

 

$

690,507

 

 

$

399,473

 

 

$

(14,689

)

 

$

936,890

 

Restricted stock units issued

 

 

373,430

 

 

 

4

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

36,289

 

 

 

1

 

 

 

 

 

 

 

 

 

1,260

 

 

 

 

 

 

 

 

 

1,261

 

Return of common stock to pay withholding taxes on restricted stock

 

 

(158,426

)

 

 

(2

)

 

 

158,426

 

 

 

(40,534

)

 

 

 

 

 

 

 

 

 

 

 

(40,536

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,121

 

 

 

 

 

 

 

 

 

13,121

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,934

 

 

 

2,934

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88,923

 

 

 

 

 

 

88,923

 

Balance, June 30, 2019

 

 

45,374,278

 

 

$

454

 

 

 

2,061,667

 

 

$

(179,386

)

 

$

704,884

 

 

$

488,396

 

 

$

(11,755

)

 

$

1,002,593

 

 

 

 

For the Three Months Ended June 30, 2018

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par value

 

 

Shares

 

 

Amount

 

 

Additional Paid in Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total Stockholders' Equity

 

Balance, March 31, 2018

 

 

44,375,337

 

 

$

444

 

 

 

1,725,312

 

 

$

(67,078

)

 

$

619,905

 

 

$

140,457

 

 

$

(4,204

)

 

$

689,524

 

Restricted stock units issued

 

 

384,887

 

 

 

4

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

282,368

 

 

 

3

 

 

 

 

 

 

 

 

 

5,795

 

 

 

 

 

 

 

 

 

5,798

 

Stock issued to directors

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

33

 

Return of common stock to pay withholding taxes on restricted stock

 

 

(166,401

)

 

 

(2

)

 

 

166,401

 

 

 

(67,596

)

 

 

 

 

 

 

 

 

 

 

 

(67,598

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,245

 

 

 

 

 

 

 

 

 

12,245

 

Other comprehensive (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,709

)

 

 

(6,709

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90,066

 

 

 

 

 

 

90,066

 

Balance, June 30, 2018

 

 

44,876,271

 

 

$

449

 

 

 

1,891,713

 

 

$

(134,674

)

 

$

637,974

 

 

$

230,523

 

 

$

(10,913

)

 

$

723,359

 

 

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

 

 

 

6


 

ABIOMED, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

For the Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

88,923

 

 

$

90,066

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,365

 

 

 

2,959

 

Bad debt (recoveries) expense

 

 

(21

)

 

 

188

 

Stock-based compensation

 

 

13,121

 

 

 

12,245

 

Write-down of inventory and other

 

 

1,259

 

 

 

897

 

Accretion on marketable securities

 

 

(1,306

)

 

 

(363

)

Change in fair value of other investments

 

 

(39,654

)

 

 

 

Deferred tax provision

 

 

10,776

 

 

 

(44,463

)

Change in fair value of contingent consideration

 

 

356

 

 

 

(159

)

Other non-cash operating activities

 

 

1,003

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,801

 

 

 

1,930

 

Inventories

 

 

(7,239

)

 

 

(7,794

)

Prepaid expenses and other assets

 

 

(3,417

)

 

 

(2,131

)

Accounts payable

 

 

(1,463

)

 

 

2,684

 

Accrued expenses and other liabilities

 

 

(6,643

)

 

 

(6,576

)

Deferred revenue

 

 

(233

)

 

 

(2,852

)

Net cash provided by operating activities

 

 

64,628

 

 

 

46,631

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(124,067

)

 

 

(24,702

)

Proceeds from the sale and maturity of marketable securities and other

 

 

93,180

 

 

 

75,782

 

Purchases of other investments and intangible assets

 

 

(2,800

)

 

 

(1,166

)

Purchases of property and equipment

 

 

(12,250

)

 

 

(15,147

)

Net cash (used for) provided by investing activities

 

 

(45,937

)

 

 

34,767

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

1,260

 

 

 

5,798

 

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

 

 

(40,536

)

 

 

(67,598

)

Net cash used for financing activities

 

 

(39,276

)

 

 

(61,800

)

Effect of exchange rate changes on cash

 

 

612

 

 

 

(1,285

)

Net (decrease) increase in cash and cash equivalents

 

 

(19,973

)

 

 

18,313

 

Cash and cash equivalents at beginning of period

 

 

121,021

 

 

 

42,975

 

Cash and cash equivalents at end of period

 

$

101,048

 

 

$

61,288

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

2,584

 

 

$

2,956

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Property and equipment in accounts payable and accrued expenses

 

 

3,619

 

 

 

3,196

 

Right-of-use assets obtained in exchange for lease liabilities

 

 

14,139

 

 

 

 

 

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

 

7


 

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, 2019 that has been filed with 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, 2019 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, 2019 that has been filed with the SEC.

Recently Adopted Accounting Pronouncements

Effective April 1, 2019, the Company adopted the Financial Accounting Standards Board, or FASB standard update ASU 2016-02 (“Topic 842”), “Leases,” which requires lessees with lease arrangements exceeding a one-year term, to record a right-of-use asset and lease obligation on the balance sheet, whether operating or financing, and related lease expenses for operating leases and amortization and interest expense for financing leases in the statement of operations. Additional information and disclosures required by this standard are contained in “Note 8. Leases.”

Recently Issued Accounting Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU 2016-13 (“Topic 326”), “Financial Instruments-Credit Losses”. This new guidance will require financial instruments to be measured at amortized cost, and accounts receivables to be presented at the net amount expected to be collected. The new model requires an entity to estimate credit losses based on historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. ASU 2016-13 is effective for annual reporting periods beginning after December 31, 2019. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. ASU 2016-13 will become effective for the Company in fiscal 2021.

In January 2017, the FASB issued ASU 2017-04, (“Topic 350”), “Intangibles - Goodwill and Other.” The new guidance simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which required companies to estimate the implied fair value of goodwill and recognize an impairment charge by the amount in which the carrying value exceeds the implied fair value. Under the new guidance, if the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge will be recorded, even if the difference is attributable to the fair value of other assets in the reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. ASU 2017-04 will become effective for the Company in fiscal 2021.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” which modifies the disclosure requirements on fair value measurements. The Company has investments accounted for and disclosed under Topic 820 and will modify disclosures as applicable to conform with the new guidance. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company does not expect the adoption of this standard and the required disclosure changes to have a material impact on its consolidated financial statements. ASU 2018-13 will become effective for the Company in fiscal 2021.

8


 

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, 2019 and 2018 were as follows (in thousands, except per share data):

 

 

 

For the Three Months Ended June 30,

 

Basic Net Income Per Share

 

 

2019

 

 

 

2018

 

Net income

 

$

88,923

 

 

$

90,066

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

 

45,215

 

 

 

44,546

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

 

$

1.97

 

 

$

2.02

 

 

 

 

For the Three Months Ended June 30,

 

Diluted Net Income Per Share

 

 

2019

 

 

 

2018

 

Net income

 

$

88,923

 

 

 

90,066

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

 

45,215

 

 

 

44,546

 

Effect of dilutive securities

 

 

877

 

 

 

1,623

 

Weighted average shares - diluted

 

 

46,092

 

 

 

46,169

 

 

 

 

 

 

 

 

 

 

Net income per share - diluted

 

$

1.93

 

 

$

1.95

 

 

For the three months ended June 30, 2019, approximately 117,200 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 98,290 restricted shares in the three months ended June 30, 2019, related to performance-based awards for which milestones were not met at that time, were not included in the computation of diluted earnings per share.

For the three months ended June 30, 2018, approximately 36,000 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 85,000 restricted shares in the three months ended June 30, 2018, 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.

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 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 months ended June 30, 2019.

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 earns revenue from preventative maintenance service contracts and maintenance calls.

9


 

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

Identification of 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 with customers and there is only variable consideration in limited instances. 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. An expected value method may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics whereas the most likely amount method may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes. 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.  

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 and shipment of product or service provided has been incurred. 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.

10


 

Disaggregation of Revenue

The Company generally sells most of its products and services through a direct sales force in the U.S., Germany and Japan and through direct sales or distribution agreements in other international markets (e.g., certain other European markets, Canada, Latin America, and 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 June 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

(in $000's)

 

Impella product revenue

 

$

199,864

 

 

$

173,675

 

Service and other revenue

 

 

7,802

 

 

 

6,335

 

Total revenue

 

$

207,666

 

 

$

180,010

 

 

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

 

 

 

For the Three Months Ended June 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

(in $000's)

 

U.S. revenue

 

$

175,486

 

 

$

157,595

 

International revenue

 

 

32,180

 

 

 

22,415

 

Total revenue

 

$

207,666

 

 

$

180,010

 

 

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 a liability. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual and statutory requirements, 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 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. Revenue adjustments that relate to performance obligations satisfied in prior periods during the three months ended June 30, 2019 and 2018, were not material.

Contract Balances

The timing of revenue recognition, billings, shipments and cash collections results in accounts 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 range from 60 to 120 days. The Company’s contracts with customers do not typically include extended payment terms.

11


 

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 $16.2 million as of June 30, 2019 and $16.4 million as of March 31, 2019 respectively, and it was due 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 months ended June 30, 2019, the Company recognized $8.5 million of revenue that was included in the deferred revenue balance as of March 31, 2019. During the three months ended June 30, 2018, the Company recognized $8.6 million of revenue that was included in the deferred revenue balance as of March 31, 2018.

 

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.

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

The Company’s cash equivalents and marketable securities at June 30, 2019 and March 31, 2019 are classified on the balance sheet as follows:

 

 

 

June 30, 2019

 

 

March 31, 2019

 

 

 

(in $000's)

 

Cash equivalents

 

$

46,433

 

 

$

80,089

 

Short-term marketable securities

 

 

385,624

 

 

 

370,677

 

Long-term marketable securities

 

 

40,032

 

 

 

21,718

 

 

 

$

472,089

 

 

$

472,484

 

 

12


 

The Company’s cash equivalents and marketable securities at June 30, 2019 and March 31, 2019 are invested in the following:

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

June 30, 2019:

 

(in $000's)

 

Money market funds

 

$

26,433

 

 

$

 

 

$

 

 

$

26,433

 

Repurchase agreements

 

 

20,000

 

 

 

 

 

 

 

 

 

20,000

 

Short-term U.S. Treasury mutual fund securities

 

 

47,166

 

 

 

57

 

 

 

 

 

 

47,223

 

Short-term government-backed securities

 

 

152,317

 

 

 

191

 

 

 

 

 

 

152,508

 

Short-term corporate debt securities

 

 

127,268

 

 

 

234

 

 

 

(1

)

 

 

127,501

 

Short-term commercial paper

 

 

58,319

 

 

 

73

 

 

 

 

 

 

58,392

 

Long-term government-backed securities