Restatement of Previously Issued Financial Statements

3 Months Ended

Mar. 31, 2023

Accounting Changes and Error Corrections [Abstract]

Restatement of Previously Issued Financial Statements

Background of Restatement

The accompanying unaudited condensed consolidated financial statements have been restated to correct errors related to (1) an accounting error identified as a result of a physical inventory count performed by the Company and (2) other accounting adjustments identified that were deemed immaterial. The details of the errors are further described below:

1.The Company determined that, as a result of an accounting error identified by the physical inventory count, there was a shortfall of inventory relative to the Company's system of record. The effect of this error was an overstatement of $1.2 million of inventory on the condensed consolidated balance sheet as of March 31, 2023. This error resulted in an associated understatement of $1.2 million of cost of revenue on the condensed consolidated statement of operations for the three months ended March 31, 2023.

2.The Company corrected certain other errors that were deemed immaterial to the related interim period and restated the financial statements for the quarter ended March 31, 2023. The details of these corrections are noted in the footnotes to the tables below.

The Company's basic and diluted losses per share for the three months ended March 31, 2023, increased by $0.16 per share. The Company's income tax expense for the three months ended March 31, 2023 did not change as a result of the restatement. The errors did not have an impact on the Company’s net cash or liquidity.

Effect of Restatement

The effects of the accounting error on the Company's condensed consolidated balance sheet as of March 31, 2023 are as follows (in thousands):


	March 31, 2023		Adjustments			March 31, 2023
	(As Reported)					(As Restated)
Assets
Current assets:
Cash and cash equivalents	$	166,828	$	—		$	166,828
Marketable investments	100,823		—			100,823
Accounts receivable, net of allowance	52,138		(391)		(f), (h)	51,747
Inventories, net	71,819		(2,028)		(a), (c), (d)	69,791
Other current assets and prepaid expenses	26,156		—			26,156
Restricted cash	700		—			700
Total current assets	418,464		(2,419)			416,045
Property and equipment, net	53,016		(800)		(b), (e)	52,216
Deferred tax assets	577		—			577
Goodwill	1,339		—			1,339
Operating lease right-of-use assets	12,059		—			12,059
Other long-term assets	14,343		—			14,343
Total assets	$	499,798	$	(3,219)		$	496,579

Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$	35,169	$	—		$	35,169
Accrued liabilities	58,660		—			58,660
Operating lease liabilities	2,722		—			2,722
Deferred revenue	12,243		(187)		(g)	12,056
Total current liabilities	108,794		(187)			108,607
Deferred revenue, net of current portion	1,643		—			1,643
Operating lease liabilities, net of current portion	10,652		—			10,652
Convertible notes, net of unamortized debt issuance costs	417,011		—			417,011
Other long-term liabilities	711		—			711
Total liabilities	538,811		(187)			538,624

Stockholders’ deficit:
Common stock	20		—			20
Additional paid-in capital	126,504		—			126,504
Accumulated other comprehensive income (loss)	(8)		—			(8)
Accumulated deficit	(165,529)		(3,032)		(j)	(168,561)
Total stockholders’ deficit	(39,013)		(3,032)			(42,045)
Total liabilities and stockholders’ deficit	$	499,798	$	(3,219)		$	496,579

The effects of the accounting error on the Company's condensed consolidated income statement for the three-month period ended March 31, 2023 are as follows (in thousands, except per share data):


	Three Months Ended March 31, 2023		Adjustments			Three Months Ended March 31, 2023
	(As Reported)					(As Restated)
Net revenue:
Products	$	49,588	$	(467)	(f), (g)	$	49,121
Service	5,405		—			5,405
Total net revenue	54,993		(467)			54,526
Cost of revenue:
Products	27,231		2,828		(a), (b), (c), (d), (e)	30,059
Service	2,835		—			2,835
Total cost of revenue	30,066		2,828			32,894
Gross profit	24,927		(3,295)			21,632

Operating expenses:
Sales and marketing	29,512		—			29,512
Research and development	6,468		—			6,468
General and administrative	12,516		(263)		(h)	12,253
Total operating expenses	48,496		(263)			48,233
Loss from operations	(23,569)		(3,032)			(26,601)
Interest and other expense, net:
Amortization of debt issuance costs	(552)		—			(552)
Interest on convertible notes	(2,939)		—			(2,939)

Interest income	2,479		—			2,479
Other expense, net	(163)		—			(163)
Total interest and other expense, net	(1,175)		—			(1,175)
Loss before income taxes	(24,744)		(3,032)			(27,776)
Income tax expense	272		—			272
Net loss	$	(25,016)	$	(3,032)	(j)	$	(28,048)

Net loss per share:
Basic	$	(1.26)	$	(0.16)		$	(1.42)
Diluted	$	(1.26)	$	(0.16)		$	(1.42)
Weighted-average number of shares used in per share calculation:
Basic	19,776		19,776			19,776
Diluted	19,776		19,776			19,776

The effects of the accounting errors on the Company's condensed consolidated statement of cash flows for the three-month period ended March 31, 2023 are as follows (in thousands):


	Three Months Ended March 31,
	2023		Adjustments			2023
	(As Reported)					(As Restated)
Cash flows from operating activities:
Net loss	$	(25,016)	$	(3,032)	(j)	$	(28,048)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	3,386		—			3,386
Depreciation and amortization	1,409		—			1,409
Amortization of contract acquisition costs	2,178		—			2,178
Amortization of debt issuance costs	552		—			552


Deferred tax assets	13		—			13

Provision for credit losses	488		(263)		(h)	225

Unrealized gain on foreign exchange forward	(623)		—			(623)
Accretion of discount on investment securities and investment income, net	(880)		846		(i)	(34)
Changes in assets and liabilities:
Accounts receivable	(7,064)		654		(f)	(6,410)
Inventories	(8,191)		2,028		(a), (c), (d)	(6,163)
Other current assets and prepaid expenses	(2,053)		—			(2,053)
Other long-term assets	(2,011)		—			(2,011)
Accounts payable	(1,330)		—			(1,330)
Accrued liabilities	1,706		—			1,706
Operating leases, net	(16)		—			(16)
Deferred revenue	388		(187)		(g)	201
Net cash used in operating activities	(37,064)		46			(37,018)
Cash flows from investing activities:
Acquisition of property and equipment	(11,153)		800		(b), (e)	(10,353)

Proceeds from maturities of marketable investments	95,000		(846)		(i)	94,154
Purchase of marketable investments	(23,467)		—			(23,467)
Net cash provided by (used in) investing activities	60,380		(46)			60,334
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan	109		—			109
Taxes paid related to net share settlement of equity awards	(2,397)		—			(2,397)





Payments on finance lease obligations	(124)		—			(124)
Net cash used in financing activities	(2,412)		—			(2,412)
Net increase (decrease) in cash, cash equivalents and restricted cash	20,904		—			20,904
Cash, cash equivalents, and restricted cash at beginning of period	146,624		—			146,624
Cash, cash equivalents, and restricted cash at end of period	$	167,528	$	—		$	167,528
Supplemental non-cash investing and financing activities:
Assets acquired under finance lease	$	33	$	—		$	33
Assets acquired under operating lease	$	57	$	—		$	57

Acquisition of property and equipment	$	6,894	$	—		$	6,894
Supplemental disclosure of cash flow information:
Cash paid for interest	$	778	$	—		$	778
Income tax paid	$	483	$	—		$	483

Footnote to tables:

(a) Correction of the accounting error for the overstatement of inventory identified as a result of the physical inventory count ($1.2 million)

(b) Correction of the accounting error related to AviClear devices identified as a result of the physical inventory count ($1.0 million)

(d) Correction of the overstatement of demonstration and field inventory ($0.4 million)

(e) Correction of AviClear capitalized labor cost incorrectly expensed in previous period ($0.2 million)

(f) Correction of AviClear treatment revenue incorrectly recognized in the period ended June 30, 2023 ($0.7 million)

(g) Correction of AviClear sales and lease arrangements incorrectly allocated to deferred revenue in previous period ($0.2 million)

(h) Correction of the overstatement of the provision for credit losses associated with other receivables ($0.3 million)

(i) Correction of the classification error related to the cash interest received on investments in marketable securities purchased at a discount ($0.8 million)

(j) Net change in net loss for the three-month period ended March 31, 2023

The impact of the restatement on the Company’s condensed consolidated statement of stockholders’ deficit and condensed consolidated statement of comprehensive loss for the three months ended March 31, 2023 is limited to the understatement of net loss, comprehensive loss, accumulated deficit, and total stockholders' deficit of $3.0 million.

The related notes to the condensed consolidated financial statements have also been restated to reflect the error corrections described above.