abmd-10q_20160630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

o

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  x    No  o

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  x    No  o

Indicate by check mark whether the registrant is, a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

x

Accelerated filer

o

 

 

 

 

Non-accelerated filer

o  (Do not check if a smaller reporting company)

Smaller reporting company

o

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

As of July 31, 2016, 43,034,341 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 Financial Statements (unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2016 and March 31, 2016

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2016 and 2015

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2016 and 2015

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2016 and 2015

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

Item 2.

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

 

16

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

Item 4.

Controls and Procedures

 

24

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

25

 

 

 

 

Item 1A.

Risk Factors

 

25

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

26

 

 

 

 

Item 4.

Mine Safety Disclosures

 

26

 

 

 

 

Item 5.

Other Information

 

26

 

 

 

 

Item 6.

Exhibits

 

27

 

 

 

 

SIGNATURES

 

28

 

 

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 CP and IMPELLA RP are trademarks of ABIOMED, Inc., and are registered in the U.S. and certain foreign countries. AB5000, IMPELLA 2.5, IMPELLA 5.0, IMPELLA LD 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, 2016

 

 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,274

 

 

$

48,231

 

Short-term marketable securities

 

 

184,900

 

 

 

163,822

 

Accounts receivable, net

 

 

41,280

 

 

 

42,821

 

Inventories

 

 

29,093

 

 

 

26,740

 

Prepaid expenses and other current assets

 

 

6,741

 

 

 

6,778

 

Total current assets

 

 

300,288

 

 

 

288,392

 

Long-term marketable securities

 

 

 

 

 

1,000

 

Property and equipment, net

 

 

25,950

 

 

 

23,184

 

Goodwill

 

 

32,272

 

 

 

33,003

 

In-process research and development

 

 

15,055

 

 

 

15,396

 

Long-term deferred tax assets, net

 

 

51,296

 

 

 

58,534

 

Other assets

 

 

4,451

 

 

 

4,422

 

Total assets

 

$

429,312

 

 

$

423,931

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,372

 

 

$

9,381

 

Accrued expenses

 

 

26,257

 

 

 

28,382

 

Deferred revenue

 

 

8,590

 

 

 

8,778

 

Total current liabilities

 

 

43,219

 

 

 

46,541

 

Other long-term liabilities

 

 

213

 

 

 

220

 

Contingent consideration

 

 

7,739

 

 

 

7,563

 

Long-term deferred tax liabilities

 

 

814

 

 

 

832

 

Total liabilities

 

 

51,985

 

 

 

55,156

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class B Preferred Stock, $.01 par value

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

 

430

 

 

 

426

 

Authorized - 100,000,000 shares; Issued - 44,543,177 shares at June 30, 2016

   and 43,973,119 shares at March 31, 2016;

 

 

 

 

 

 

 

 

Outstanding - 43,008,100 shares at June 30, 2016 and 42,596,228 shares at March 31, 2016

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

520,842

 

 

 

508,624

 

Accumulated deficit

 

 

(86,165

)

 

 

(99,075

)

Treasury stock at cost - 1,535,077 shares at June 30, 2016 and 1,376,891 shares

at March 31, 2016

 

 

(41,691

)

 

 

(26,660

)

Accumulated other comprehensive loss

 

 

(16,089

)

 

 

(14,540

)

Total stockholders' equity

 

 

377,327

 

 

 

368,775

 

Total liabilities and stockholders' equity

 

$

429,312

 

 

$

423,931

 

 

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,

 

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

 

102,989

 

 

$

 

73,426

 

Funded research and development

 

 

 

6

 

 

 

 

6

 

 

 

 

 

102,995

 

 

 

 

73,432

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

 

15,070

 

 

 

 

10,868

 

Research and development

 

 

 

15,660

 

 

 

 

10,210

 

Selling, general and administrative

 

 

 

51,032

 

 

 

 

37,323

 

 

 

 

 

81,762

 

 

 

 

58,401

 

Income from operations

 

 

 

21,233

 

 

 

 

15,031

 

Other income:

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

 

269

 

 

 

 

63

 

Other (expense) income, net

 

 

 

(77

)

 

 

 

53

 

 

 

 

 

192

 

 

 

 

116

 

Income before income taxes

 

 

 

21,425

 

 

 

 

15,147

 

Income tax provision

 

 

 

8,515

 

 

 

 

6,288

 

Net income

 

$

 

12,910

 

 

$

 

8,859

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

 

0.30

 

 

$

 

0.21

 

Basic weighted average shares outstanding

 

 

 

42,811

 

 

 

 

41,696

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

 

0.29

 

 

$

 

0.20

 

Diluted weighted average shares outstanding

 

 

 

45,178

 

 

 

 

44,410

 

 

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,

 

 

 

2016

 

 

2015

 

Net income

 

$

12,910

 

 

$

8,859

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Foreign currency translation (losses) gains

 

 

(1,699

)

 

 

1,598

 

Net unrealized gains on marketable securities

 

 

150

 

 

 

10

 

Other comprehensive (loss) income

 

 

(1,549

)

 

 

1,608

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

11,361

 

 

$

10,467

 

 

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,

 

 

 

2016

 

 

2015

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

12,910

 

 

$

8,859

 

Adjustments required to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

1,406

 

 

 

663

 

Bad debt expense

 

 

(31

)

 

 

(37

)

Stock-based compensation

 

 

8,397

 

 

 

4,799

 

Write-down of inventory

 

 

708

 

 

 

299

 

Excess tax benefit from stock-based awards

 

 

(1,041

)

 

 

(81

)

Deferred tax provision

 

 

7,000

 

 

 

5,805

 

Change in fair value of contingent consideration

 

 

176

 

 

 

151

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,517

 

 

 

(2,456

)

Inventories

 

 

(3,393

)

 

 

(4,549

)

Prepaid expenses and other assets

 

 

7

 

 

 

463

 

Accounts payable

 

 

(145

)

 

 

(1,767

)

Accrued expenses and other liabilities

 

 

(952

)

 

 

(2,063

)

Deferred revenue

 

 

(179

)

 

 

828

 

Net cash provided by operating activities

 

 

26,380

 

 

 

10,914

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(67,318

)

 

 

(42,661

)

Proceeds from the sale and maturity of marketable securities

 

 

47,090

 

 

 

50,263

 

Purchases of property and equipment

 

 

(5,099

)

 

 

(1,863

)

Net cash (used for) provided by investing activities

 

 

(25,327

)

 

 

5,739

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

2,770

 

 

 

4,589

 

Excess tax benefit from stock-based awards

 

 

1,041

 

 

 

81

 

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

 

 

(15,033

)

 

 

(3,465

)

Proceeds from the issuance of stock under employee stock purchase plan

 

 

 

 

 

5

 

Net cash (used for) provided by financing activities

 

 

(11,222

)

 

 

1,210

 

Effect of exchange rate changes on cash

 

 

212

 

 

 

167

 

Net (decrease) increase in cash and cash equivalents

 

 

(9,957

)

 

 

18,030

 

Cash and cash equivalents at beginning of period

 

 

48,231

 

 

 

22,401

 

Cash and cash equivalents at end of period

 

$

38,274

 

 

$

40,431

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

420

 

 

$

274

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment in accounts payable and accrued expenses

 

 

996

 

 

 

123

 

 

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 and Basis of Preparation

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.

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, 2016 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 adjustments, which are of a normal recurring nature and 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, 2016 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, 2016 that has been filed with the SEC.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers to provide updated guidance on revenue recognition. 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 today’s 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. ASU 2014-09 will become effective for the Company beginning in fiscal 2019 under either full or modified retrospective adoption, with early adoption permitted as of the original effective date of ASU 2014-09.  The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which applies to inventory that is measured using first-in, first-out or average cost methods. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, last-out. ASU-2015-11 is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company does not expect the adoption of ASU 2015-11 to have a material impact on its consolidated financial statements.

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 evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09,   Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as

7


classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-09 on its consolidated financial statements.

 

 

Note 2. 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. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same. The Company’s basic and diluted net income per share for the three months ended June 30, 2016 and 2015 were as follows (in thousands, except per share data):

 

 

For the Three Months Ended June 30,

 

 

2016

 

 

2015

 

Basic Net Income Per Share

 

 

 

 

 

 

 

 

 

Net income

$

 

12,910

 

 

$

 

8,859

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing basic net

   income per share

 

 

42,811

 

 

 

 

41,696

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

$

 

0.30

 

 

$

 

0.21

 

 

 

For the Three Months Ended June 30,

 

 

2016

 

 

2015

 

Diluted Net Income Per Share

 

 

 

 

 

 

 

 

 

Net income

$

 

12,910

 

 

$

 

8,859

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing basic net

   income per share

 

 

42,811

 

 

 

 

41,696

 

Effect of dilutive securities

 

 

2,367

 

 

 

 

2,714

 

Weighted average shares used in computing diluted

   net income per share

 

 

45,178

 

 

 

 

44,410

 

 

 

 

 

 

 

 

 

 

 

Net income per share - diluted

$

 

0.29

 

 

$

 

0.20

 

 

For the three months ended June 30, 2016, approximately 48,000 shares underlying out-of-the-money stock options were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 241,000 restricted shares in each of the three months ended June 30, 2016, 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, 2015, approximately 2,000 shares underlying out-of-the-money stock options were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 234,000 restricted shares in each of the three months ended June 30, 2015 related to performance-based awards for which milestones had not been met were not included in the computation of diluted earnings per share.

 

 

Note 3. 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.

8


The Company’s marketable securities at June 30, 2016 and March 31, 2016 are invested in the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury mutual fund securities

 

$

45,595

 

 

$

23

 

 

$

 

 

$

45,618

 

Short-term government-backed securities

 

 

112,642

 

 

 

73

 

 

 

(1

)

 

 

112,714

 

Short-term corporate debt securities

 

 

26,449

 

 

 

119

 

 

 

-

 

 

 

26,568

 

 

 

$

184,686

 

 

$

215

 

 

$

(1

)

 

$

184,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

March 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury mutual fund securities

 

$

45,635

 

 

$

21

 

 

$

 

 

$

45,656

 

Short-term government-backed securities

 

 

118,125

 

 

 

45

 

 

 

(4

)

 

 

118,166

 

Long-term government-backed securities

 

 

999

 

 

 

1

 

 

 

-

 

 

 

1,000

 

 

 

$

164,759

 

 

$

67

 

 

$

(4

)

 

$

164,822

 

 

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, 2016:

 

(in $000's)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury mutual fund securities

 

$

 

 

$

45,618

 

 

$

 

 

$

45,618

 

Short-term government-backed securities

 

 

 

 

 

112,714

 

 

 

 

 

 

112,714

 

Short-term corporate debt securities

 

 

 

 

 

26,568

 

 

 

 

 

 

26,568

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

 

 

 

 

 

 

7,739

 

 

 

7,739

 

9


 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

March 31, 2016:

 

(in $000's)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury mutual fund securities

 

$

 

 

$

45,656

 

 

$

 

 

$

45,656

 

Short-term government-backed securities

 

 

 

 

 

118,166

 

 

 

 

 

 

118,166

 

Long-term government-backed securities

 

 

 

 

 

1,000

 

 

 

 

 

 

1,000

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

 

 

 

 

 

 

7,563

 

 

 

7,563

 

 

The Company’s investments in U.S. Treasury mutual fund securities, short-term government-backed securities, short-term corporate debt securities and long-term government-backed securities are reported as Level 2 financial assets as they are not exchange-traded instruments.

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. 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 income approach, using various revenue and cost assumptions and applying a probability to each outcome.

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, 2016:

 

 

 

For the Three Months Ended June 30,

 

 

 

 

2016

 

 

 

2015

 

 

 

(in $000's)

 

Level 3 liabilities, beginning balance

 

$

7,563

 

 

$

6,510

 

Additions

 

 

 

 

 

 

Payments

 

 

 

 

 

 

Change in fair value

 

 

176

 

 

 

151

 

Level 3 liabilities, ending balance

 

$

7,739

 

 

$

6,661

 

 

The change in fair value of the contingent consideration was due to an increase in fair value resulting from the passage of time on the fair value measurement of milestones related to the ECP acquisition and continued progress on the development of the underlying technology. Adjustments associated with the change in fair value of contingent consideration are included in research and development expenses in the Company’s condensed consolidated statements of operations.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements as of June 30, 2016 classified as Level 3:

 

 

 

Fair Value at

 

 

 

 

 

 

Weighted Average

 

 

June 30, 2016

 

 

 

 

Significant

 

(range, if

 

 

(in $000's)

 

 

Valuation Methodology

 

Unobservable Input

 

applicable)

Contingent consideration

 

$

7,739

 

 

Probability weighted income approach

 

Milestone dates

 

2018 to 2021

 

 

 

 

 

 

 

 

Discount rate

 

8% to 12%

 

 

 

 

 

 

 

 

Probability of occurrence

 

Probability adjusted level

of 40% for the base case

scenario and 5% to 30%

for various upside and

downside scenarios

 

Other Investments

The Company periodically makes investments in private medical device companies that focus on heart failure and heart pump technologies.  The aggregate carrying amount of the Company’s other investments was $4.4 million at each of June 30, 2016 and March 31, 2016, respectively, and is classified within other assets in the unaudited condensed consolidated balance sheets. These

10


investments are accounted for using the cost method and are measured at fair value only if there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of these investments.

 

 

Note 4. Goodwill and In-Process Research and Development

The carrying amount of goodwill at June 30, 2016 and March 31, 2016 was $32.3 million and $33.0 million, respectively, and has been recorded in connection with the Company’s acquisition of Impella Cardiosystems AG (“Impella Cardiosystems”), in May 2005 and ECP and AIS in July 2014. The goodwill activity is as follows:

 

 

 

(in $000's)

 

Balance at March 31, 2016

 

$

33,003

 

Foreign currency translation impact

 

 

(731

)

Balance at June 30, 2016

 

$

32,272

 

 

The Company evaluates goodwill and in-process research and development assets (“IPR&D”) assets at least annually at October 31, as well as whenever events or changes in circumstances suggest that the carrying amount may not be recoverable.  The Company has no accumulated impairment losses on goodwill or IPR&D assets.

The carrying amount of IPR&D assets at June 30, 2016 and March 31, 2016 was $15.1 million and $15.4 million, respectively, and has been recorded in conjunction with the Company’s acquisition of ECP and AIS, in July 2014. The estimated fair value of IPR&D assets at the acquisition date was determined using a probability-weighted income approach, which discounts expected future cash flows to present value. The projected cash flows from the expandable catheter pump technology were based on certain key assumptions, including estimates of future revenue and expenses, taking into account the stage of development of the technology at the acquisition date and the time and resources needed to complete development. The Company used a discount rate of 22.5% and cash flows that have been probability adjusted to reflect the risks of product commercialization, which the Company believes are appropriate and representative of market participant assumptions.

The carrying value of the Company’s IPR&D assets and the change in the balance for the three months ended June 30, 2016 are as follows:

 

 

 

(in $000's)

 

Balance at March 31, 2016

 

$

15,396

 

Foreign currency translation impact

 

 

(341

)

Balance at June 30, 2016

 

$

15,055

 

 

 

Note 5. Accrued Expenses

Accrued expenses consist of the following:

 

 

 

June 30, 2016

 

 

March 31, 2016

 

 

 

(in $000's)

 

Employee compensation

 

$

15,835

 

 

$

18,359

 

Research and development

 

 

2,456

 

 

 

1,587

 

Sales and income taxes

 

 

2,436

 

 

 

2,527

 

Professional, legal and accounting fees

 

 

1,983

 

 

 

1,764

 

Marketing

 

 

628

 

 

 

1,146

 

Warranty

 

 

966

 

 

 

998

 

Other

 

 

1,953

 

 

 

2,001

 

 

 

$

26,257

 

 

$

28,382

 

 

Employee compensation consists primarily of accrued bonuses, accrued commissions and accrued employee benefits at June 30, 2016 and March 31, 2016.

 

 

11


Note 6. Stock-Based Compensation

The following table summarizes stock-based compensation expense by financial statement line item in the Company’s condensed consolidated statements of operations for the three months ended June 30, 2016 and 2015:

 

 

 

For the Three Months Ended June 30,

 

 

 

 

2016

 

 

 

2015

 

 

 

(in $000's)

 

Cost of product revenue

 

$

299

 

 

$

237

 

Research and development

 

 

1,255

 

 

 

931

 

Selling, general and administrative

 

 

6,843

 

 

 

3,631

 

 

 

$

8,397

 

 

$

4,799

 

Stock Options

The following table summarizes the stock option activity for the three months ended June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

Aggregate

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Intrinsic

 

 

 

Options

 

 

Exercise

 

 

Contractual

 

 

Value

 

 

 

(in thousands)

 

 

Price

 

 

Term (years)

 

 

(in thousands)

 

Outstanding at beginning of period

 

 

2,244

 

 

$

20.55

 

 

 

5.19

 

 

 

 

 

Granted

 

 

110

 

 

 

99.65

 

 

 

 

 

 

 

 

 

Exercised

 

 

(197

)

 

 

14.10

 

 

 

 

 

 

 

 

 

Cancelled and expired

 

 

(3

)

 

 

46.63

 

 

 

 

 

 

 

 

 

Outstanding at end of period

 

 

2,154

 

 

$

25.12

 

 

 

5.42

 

 

$

181,299

 

Exercisable at end of period

 

 

1,657

 

 

$

16.00

 

 

 

4.48

 

 

$

154,565

 

Options vested and expected to vest at end of period

 

 

2,100

 

 

$

24.53

 

 

 

5.34

 

 

$

178,007

 

 

The aggregate intrinsic value of options exercised was $16.5 million for the three months ended June 30, 2016. The total fair value of options that vested during the three months ended June 30, 2016 was $3.0 million.

The remaining unrecognized stock-based compensation expense for unvested stock option awards at June 30, 2016 was approximately $9.2 million, net of forfeitures, and the weighted-average period over which this cost will be recognized is 2.6 years.

The Company estimates the fair value of each stock option granted at the grant date using the Black-Scholes option valuation model. The weighted average grant-date fair values and weighted average assumptions used in the calculation of fair value of options granted during the three months ended June 30, 2016 and 2015 was as follows:

 

 

 

For the Three Months Ended June 30,

 

 

 

 

2016

 

 

 

2015

 

Weighted average grant-date fair value

 

$

40.33

 

 

$

27.33

 

 

 

 

 

 

 

 

 

 

Valuation assumptions:

 

 

 

 

 

 

 

 

Risk-free interest rate

 

 

1.38

%

 

 

1.57

%

Expected option life (years)

 

 

4.13

 

 

 

4.15

 

Expected volatility

 

 

49.8

%

 

 

50.4

%

12


Restricted Stock Units

 

The following table summarized activity of restricted stock units for the three months ended June 30, 2016:

 

 

 

Number of

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

 

(in thousands)

 

 

(per share)

 

Restricted stock and restricted stock units at beginning of

   period

 

 

1,263

 

 

$

57.95

 

Granted

 

 

254

 

 

$

98.45

 

Vested

 

 

(373

)

 

$

32.40

 

Forfeited

 

 

(5

)