Description of Business and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Description of Business and Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

Unaudited Interim Financial Statements

The accompanying condensed consolidated financial statements are unaudited. These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or any other future interim or annual period.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 11, 2019. The December 31, 2018 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date.

Basis of Presentation

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in the unaudited condensed consolidated financial statements.

Segment Reporting

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one operating segment.

Concentrations of Risk

Concentrations of Risk

The Company’s accounts receivable are derived from revenue earned from its worldwide network of independent dealers and distributors. The Company’s sales to dealers and distributors located outside the United States are generally denominated in U.S. dollars, except for sales to dealers and distributors located in Australia, Canada, the European Union, New Zealand, Switzerland, and the United Kingdom, which are generally denominated in Australian dollars, Canadian dollars, euros, New Zealand dollars, Swiss francs, and pounds sterling, respectively. There were no individual account balances greater than 10% of total accounts receivable as of March 31, 2019 and December 31, 2018.

No dealer or distributor accounted for more than 10% of total revenue for the three months ended March 31, 2019 and 2018.

While the Company partners with many manufacturers, generally one manufacturer is the Company’s sole source for a particular product or product family. A significant disruption in the operations of one of these manufacturers would impact the production of the Company’s products for a substantial period of time, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Use of Accounting Estimates

Use of Accounting Estimates

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, sales returns, provisions for doubtful accounts, product warranty, inventory obsolescence, litigation, determination of fair value of stock options, deferred tax asset valuation allowances and income taxes. Actual results may differ from those estimates.

Limited Product Warranties

Limited Product Warranties

The Company provides its customers a limited product warranty of two,  three, or ten years depending on product type and brand. The limited product warranties require the Company, at its option, to repair or replace defective products during the warranty period at no cost to the customer or refund the purchase price. The Company estimates the costs that may be incurred to replace, repair or issue a refund for defective products and records a reserve at the time revenue is recognized. Factors that affect the Company’s warranty liability include the cost of the products sold, the Company’s historical experience, and management’s judgment regarding anticipated rates of product warranty returns, net of refurbished products. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary. Warranty costs accrued include amounts accrued for products at the time of shipment, adjustments for changes in estimated costs for warranties on products shipped in the period, and changes in estimated costs for warranties on products shipped in prior periods. It is not practicable for the Company to determine the amounts applicable to each of these components.

The following table presents the changes in the product warranty liability for the three months ended March 31, 2019 (in thousands):

	Warranty Liability
Balance at December 31, 2018	$	2,524
Warranty costs accrued		905
Warranty claims		(1,030)
Balance at March 31, 2019	$	2,399

Net Income (Loss) Per Common Share

Net Income (Loss) Per Common Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net income (loss) per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options and settlement of restricted stock units.

The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands):

	Three Months Ended
	March 31,
	2019		2018
Numerator:
Net income (loss)	$	(1,970)	$	966
Denominator:
Weighted average common stock outstanding for basic net income (loss) per common share		26,563		25,904
Effect of dilutive securities—stock options and restricted stock units		—		1,622
Weighted average common shares and dilutive securities outstanding		26,563		27,526

Potentially dilutive securities, including common equivalent shares, in which the assumed proceeds exceed the average market price of common stock for the applicable period, were not included in the calculation of diluted net income (loss) per share as their impact would be anti-dilutive. The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands):

	Three Months Ended
	March 31,
	2019	2018
Options to purchase common stock	1,065	—
Restricted stock units	1,114	166
Total	2,179	166

Restricted Cash

Restricted Cash

Restricted cash as of March 31, 2019 and December 31, 2018 is composed of a guarantee made by the Company’s subsidiary in the United Kingdom to HM Revenue & Customs related to a customs duty deferment account.

Leases

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which supersedes the guidance in ASC 840, “Leases.” The guidance requires balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The Company adopted the standard effective January 1, 2019 and elected the package of practical expedients available under the standard. The Company also elected to apply the simplified transition option that allows entities to not apply the new leases standard in the comparative periods presented in financial statements in the year of adoption. Internal controls have been implemented to enable the preparation of financial information on adoption.

The adoption of the standard resulted in recording right-of-use (“ROU”) assets of $10.0 million and lease liabilities of $11.9 million as of January 1, 2019. The ROU assets are lower than the lease liabilities as existing deferred rent and lease incentive liabilities were recorded against the right-of-use assets at adoption in accordance with the standard. The standard did not materially affect our condensed consolidated statements of operations or condensed consolidated statements of cash flows.

The Company determines if an arrangement is a lease at inception. Operating lease activity is included in operating lease right-of-use assets, and current and long-term operating lease liabilities on the condensed consolidated balance sheets for leases with terms greater than 12 months.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when its reasonably certain the Company will exercise that option.