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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, 2020

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 30, 2020, 45,047,262 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, 2020 and March 31, 2020

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2020 and 2019

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2020 and 2019

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2020 and 2019

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

Item 1A.

Risk Factors

37

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

38

 

 

 

Signatures

39

 

 

EXPLANATORY NOTES

Pending Trademarks and Registered Marks

Throughout this quarterly report on Form 10-Q (“this 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, Impella 5.5, Impella Connect, and SmartAssist are registered trademarks of Abiomed, Inc., and are registered in the U.S. and certain foreign countries. Impella ECP, Impella XR Sheath, Impella BTR, CVAD, STEMI DTU and Automated Impella Controller 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 (“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, 2020

 

 

March 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

214,827

 

 

$

192,341

 

Short-term marketable securities

 

 

212,536

 

 

 

250,775

 

Accounts receivable, net

 

 

82,084

 

 

 

84,650

 

Inventories

 

 

89,284

 

 

 

90,088

 

Prepaid expenses and other current assets

 

 

20,958

 

 

 

18,009

 

Total current assets

 

 

619,689

 

 

 

635,863

 

Long-term marketable securities

 

 

169,668

 

 

 

207,795

 

Property and equipment, net

 

 

170,346

 

 

 

164,931

 

Goodwill

 

 

76,783

 

 

 

31,969

 

In-process research and development

 

 

42,223

 

 

 

14,913

 

Long-term deferred tax assets, net

 

 

30,875

 

 

 

43,336

 

Other assets

 

 

139,928

 

 

 

117,655

 

Total assets

 

$

1,249,512

 

 

$

1,216,462

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

27,747

 

 

$

32,774

 

Accrued expenses

 

 

58,431

 

 

 

75,107

 

Deferred revenue

 

 

19,903

 

 

 

19,147

 

Other current liabilities

 

 

4,298

 

 

 

4,857

 

Total current liabilities

 

 

110,379

 

 

 

131,885

 

Contingent consideration

 

 

23,701

 

 

 

9,000

 

Long-term deferred tax liabilities

 

 

4,204

 

 

 

806

 

Other long-term liabilities

 

 

9,380

 

 

 

9,305

 

Total liabilities

 

 

147,664

 

 

 

150,996

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class B Preferred Stock, $.01 par value

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

 

450

 

 

 

451

 

Authorized - 100,000,000 shares; Issued - 47,698,298 shares at June 30, 2020 and 47,542,061 shares at March 31, 2020

 

 

 

 

 

 

 

 

Outstanding - 45,044,760 shares at June 30, 2020 and 45,008,687 shares  at March 31, 2020

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

749,440

 

 

 

739,133

 

Retained earnings

 

 

647,070

 

 

 

602,482

 

Treasury stock at cost - 2,653,538 shares at June 30, 2020 and 2,533,374 shares at March 31, 2020

 

 

(286,577

)

 

 

(265,411

)

Accumulated other comprehensive loss

 

 

(8,535

)

 

 

(11,189

)

Total stockholders' equity

 

 

1,101,848

 

 

 

1,065,466

 

Total liabilities and stockholders' equity

 

$

1,249,512

 

 

$

1,216,462

 

 

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,

 

 

 

2020

 

 

2019

 

Revenue

 

$

164,850

 

 

$

207,666

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenue

 

 

35,983

 

 

 

37,073

 

Research and development

 

 

26,357

 

 

 

23,790

 

Selling, general and administrative

 

 

68,444

 

 

 

86,078

 

 

 

 

130,784

 

 

 

146,941

 

Income from operations

 

 

34,066

 

 

 

60,725

 

Other income (expenses):

 

 

 

 

 

 

 

 

Investment income, net

 

 

2,397

 

 

 

3,049

 

Other income, net

 

 

24,613

 

 

 

39,364

 

 

 

 

27,010

 

 

 

42,413

 

Income before income taxes

 

 

61,076

 

 

 

103,138

 

Income tax provision

 

 

16,488

 

 

 

14,215

 

Net income

 

$

44,588

 

 

$

88,923

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.99

 

 

$

1.97

 

Basic weighted average shares outstanding

 

 

45,010

 

 

 

45,215

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

0.98

 

 

$

1.93

 

Diluted weighted average shares outstanding

 

 

45,549

 

 

 

46,092

 

 

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,

 

 

 

2020

 

 

2019

 

Net income

 

$

44,588

 

 

$

88,923

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

1,360

 

 

 

2,334

 

Unrealized loss on derivative instrument

 

 

(461

)

 

 

 

Net unrealized gains on marketable securities

 

 

1,755

 

 

 

600

 

Other comprehensive income

 

 

2,654

 

 

 

2,934

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

47,242

 

 

$

91,857

 

 

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)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional Paid

 

 

Retained

 

 

Accumulated Other

 

 

Total Stockholders'

 

 

 

Shares

 

 

Par value

 

 

Shares

 

 

Amount

 

 

in Capital

 

 

Earnings

 

 

Comprehensive Loss

 

 

Equity

 

Balance, April 1, 2020

 

 

45,008,687

 

 

$

450

 

 

 

2,533,374

 

 

$

(265,411

)

 

$

739,133

 

 

$

602,482

 

 

$

(11,189

)

 

$

1,065,466

 

Restricted stock units issued

 

 

124,749

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

31,488

 

 

 

 

 

 

 

 

 

 

 

 

1,010

 

 

 

 

 

 

 

 

 

1,010

 

Return of common stock to pay withholding taxes on restricted stock

 

 

(52,515

)

 

 

 

 

 

52,515

 

 

 

(9,857

)

 

 

 

 

 

 

 

 

 

 

 

(9,857

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,298

 

 

 

 

 

 

 

 

 

9,298

 

Stock repurchase program

 

 

(67,649

)

 

 

(1

)

 

 

67,649

 

 

 

(11,309

)

 

 

 

 

 

 

 

 

 

 

 

(11,310

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,654

 

 

 

2,654

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,588

 

 

 

 

 

 

44,588

 

Balance, June 30, 2020

 

 

45,044,760

 

 

$

450

 

 

 

2,653,538

 

 

$

(286,577

)

 

$

749,440

 

 

$

647,070

 

 

$

(8,535

)

 

$

1,101,848

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional Paid

 

 

Retained

 

 

Accumulated Other

 

 

Total Stockholders'

 

 

 

Shares

 

 

Par value

 

 

Shares

 

 

Amount

 

 

in Capital

 

 

Earnings

 

 

Comprehensive Loss

 

 

Equity

 

Balance, April 1, 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

 

 

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,

 

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

44,588

 

 

$

88,923

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,480

 

 

 

4,365

 

Bad debt expense

 

 

(277

)

 

 

(21

)

Stock-based compensation

 

 

9,298

 

 

 

13,121

 

Write-down of inventory and other

 

 

1,717

 

 

 

1,259

 

Accretion on marketable securities

 

 

94

 

 

 

(1,306

)

Change in fair value of other investments

 

 

(23,823

)

 

 

(39,654

)

Deferred tax provision

 

 

12,946

 

 

 

10,776

 

Change in fair value of contingent consideration

 

 

801

 

 

 

356

 

Other non-cash operating activities

 

 

970

 

 

 

1,003

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,014

 

 

 

4,801

 

Inventories

 

 

(211

)

 

 

(7,239

)

Prepaid expenses and other assets

 

 

485

 

 

 

(3,417

)

Accounts payable

 

 

(4,458

)

 

 

(1,463

)

Accrued expenses and other liabilities

 

 

(19,584

)

 

 

(6,643

)

Deferred revenue

 

 

719

 

 

 

(233

)

Net cash provided by operating activities

 

 

31,759

 

 

 

64,628

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(62,066

)

 

 

(124,067

)

Proceeds from the sale and maturity of marketable securities and other

 

 

139,813

 

 

 

93,180

 

Purchases of other investments and intangible assets

 

 

(2,000

)

 

 

(2,800

)

Acquisition of Breethe Inc., net of cash acquired

 

 

(51,947

)

 

 

 

Purchases of property and equipment

 

 

(10,044

)

 

 

(12,250

)

Net cash provided by (used for) investing activities

 

 

13,756

 

 

 

(45,937

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

1,010

 

 

 

1,260

 

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

 

 

(9,857

)

 

 

(40,536

)

Repurchase of common stock

 

 

(11,310

)

 

 

 

Net cash used for financing activities

 

 

(20,157

)

 

 

(39,276

)

Effect of exchange rate changes on cash

 

 

(2,872

)

 

 

612

 

Net increase (decrease) in cash and cash equivalents

 

 

22,486

 

 

 

(19,973

)

Cash and cash equivalents at beginning of period

 

 

192,341

 

 

 

121,021

 

Cash and cash equivalents at end of period

 

$

214,827

 

 

$

101,048

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

2,831

 

 

$

2,584

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Contingent consideration related to the acquisition of Breethe, Inc.

 

 

13,900

 

 

 

 

Property and equipment in accounts payable and accrued expenses

 

 

2,044

 

 

 

3,619

 

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

 

 

804

 

 

 

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, 2020 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. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from these estimates.

There have been no changes in the Company’s significant accounting policies for the three months ended June 30, 2020 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, 2020 that has been filed with the SEC.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from these estimates.

COVID-19 Pandemic

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic is developing and information is rapidly evolving. Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, continue to create significant negative economic impacts on a global basis.

Due to these impacts and measures, the Company has experienced, and may continue to experience, significant and unpredictable reductions in the demand for its products as healthcare customers divert medical resources and priorities towards the treatment of COVID-19. In addition, the Company’s customers may delay, cancel, or redirect planned purchases in order to focus resources on COVID-19 or in response to economic disruption related to COVID-19. Beginning in mid-March 2020 and continuing into the first quarter of fiscal 2021, the Company experienced a significant decline in patient utilization in the U.S., Europe and Japan as healthcare systems diverted resources to meet the increasing demands of managing COVID-19. The Company also experienced temporary delays in clinical trial enrollment or encountered interruption or delays in the operations of FDA or other regulatory authorities due to the COVID-19 pandemic, which may impact review and approval timelines. The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on its customers, all of which are uncertain and cannot be predicted.

Impella procedure volumes have varied greatly since the end of March 2020 by geography, and even by hospital, as patients and their physicians managed through the COVID-19 pandemic. In the last few weeks of the fourth quarter of fiscal 2020, procedure volumes related to the Company’s Impella products dropped significantly. Worldwide Impella heart pump revenue was impacted by lower patient utilization in the first quarter of fiscal 2021 due to the impact of the COVID-19 pandemic on elective medical procedures, surgeries and fewer patients seeking treatment at hospitals. Total revenue for the three months ended June 30, 2020 decreased by $42.8 million, or 21%, to $164.9 million from $207.7 million for the three months ended June 30, 2019. The decrease in total revenue was due to lower utilization caused by the impact of COVID-19 on hospitals in the first quarter of fiscal 2021.

During the first quarter of fiscal 2021, patient procedure volume trends began to improve gradually over the course of the quarter as both demand for procedures and availability of healthcare resources began to return to more normalized, pre-COVID-19

8


 

levels. The Company’s business was most impacted in April, in terms of the decline in patients and revenue from the shelter-in-place restrictions in a majority of countries and limitations on procedures in hospitals. The Company experienced sequential improvement globally in May and June as restrictions were lifted and limitations eased. In the month of June specifically, the Company experienced year over year growth in both patients and revenue in U.S., Germany, and Japan.

While the Company currently expects to see sequential quarterly improvement in the remainder of fiscal 2021, the COVID-19 pandemic remains fluid and continues to evolve differently across various geographies. The Company believes it is likely to continue to experience variable impacts on its business based on some of the resurgence that occurring in cities across the globe. Given the uncertainty, the Company cannot reliably estimate the extent to which the COVID-19 pandemic may continue to impact patient utilization and revenues of its products in the second quarter of fiscal 2021 and beyond.

The Company is closely monitoring the impact of COVID-19 on all aspects of its business and geographies, including the impact on its customers, employees, suppliers, vendors, business partners and distribution channels. The extent to which the COVID-19 global pandemic impacts the Company’s business, results of operations, and financial condition will depend on future developments, which are highly uncertain and are difficult to predict; these developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts on its financial condition and results of operations. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326).” This new standard requires 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. The Company adopted this standard in the first quarter of fiscal 2021, and it did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350).” This new standard 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. The Company adopted this standard in the first quarter of fiscal 2021, and it did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” This new standard modifies the disclosure requirements on fair value measurements, including the removal of disclosures of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The guidance also adds certain disclosure requirements related to Level 3 fair value measurements. The Company adopted this standard in the first quarter of fiscal 2021, and it did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Effective

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740).” This amendment to the guidance on income taxes is intended to simplify the accounting for income taxes. The amendment eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amendment also clarifies existing guidance related to the evaluation of a step up in the tax basis of goodwill and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. ASU 2019-12 will become effective for the Company in fiscal 2022.

In January 2020, the FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815),” an amendment clarifying the interaction between accounting standards related to equity securities, equity method investments, and certain derivative instruments. The guidance is effective for fiscal years beginning after December 15, 2020. ASU 2020-01 will become effective for the Company in fiscal 2022.

Note 3. Acquisition

Acquisition of Breethe, Inc.

9


 

The Company acquired Breethe, Inc. (“Breethe”), a Maryland corporation on April 24, 2020. Breethe is engaged in research and development of a novel extracorporeal membrane oxygenation (“ECMO”) system that the Company expects will complement and expand its product portfolio to more comprehensively serve the needs of patients whose lungs can no longer provide sufficient oxygenation, including some patients suffering from cardiogenic shock, or respiratory failure, such as ARDS, H1N1, or COVID-19. The Company acquired Breethe for $55.0 million in cash, with additional potential payouts up to a maximum of $55.0 million payable based on the achievement of certain technical, regulatory and commercial milestones.

Preliminary Purchase Price Allocation

The acquisition was accounted for as a business combination. The purchase price for the acquisition has been allocated to the assets acquired and liabilities assumed based on their estimated fair values. The purchase price allocation presented herein is preliminary. The final purchase price allocation will be determined after completion of an analysis to determine the fair value of all assets acquired and liabilities assumed, but in no event later than one year following completion of the acquisition. Accordingly, the final acquisition accounting adjustments could differ materially from the preliminary amounts presented herein. Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as compared to the information shown herein, could also change the portion of purchase price allocated to goodwill and could impact the operating results of the Company following the acquisition due to differences in purchase price allocation, depreciation and amortization related to some of these assets and liabilities.

The acquisition-date fair value of the consideration transferred is as follows:

 

 

Total Acquisition Date Fair Value (in thousands)

 

Cash and other considerations

$

57,351

 

Contingent consideration

 

13,900

 

Total consideration transferred

$

71,251

 

 

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed on April 24, 2020, the date of acquisition (in thousands):

 

Acquired assets:

 

 

 

Cash and cash equivalents

$

3,404

 

Property and equipment

 

744

 

Goodwill

 

44,149

 

In-process research and development

 

27,000

 

Other assets acquired

 

895

 

Total assets acquired

 

76,192

 

Liabilities assumed:

 

 

 

Accounts payable and other liabilities

 

1,562

 

Long-term deferred tax liabilities

 

3,379

 

 

 

 

 

Net assets acquired

$

71,251

 

 

Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes.

In process research and development (“IPR&D”) is the estimated fair value of the Breethe ECMO technology which had not reached commercial technological feasibility nor had alternative future use at the time of the acquisition and is therefore considered IPR&D.  The assigned values are allocated among the various IPR&D assets acquired.

10


 

Transaction costs such as legal, insurance and other costs related to the acquisition, aggregating approximately $0.9 million, have been expensed as incurred and are included in selling, general and administrative expenses in our condensed consolidated statements of operations.

Note 4. 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, 2020 and 2019 were as follows (in thousands, except per share data):

 

 

 

For the Three Months Ended June 30,

 

Basic Net Income Per Share

 

 

2020

 

 

 

2019

 

Net income

 

$

44,588

 

 

$

88,923

 

 

 

 

 

 

 

 

 

 

Weighted average shares – basic

 

 

45,010

 

 

 

45,215

 

 

 

 

 

 

 

 

 

 

Net income per share – basic

 

$

0.99

 

 

$

1.97

 

 

 

 

For the Three Months Ended June 30,

 

Diluted Net Income Per Share

 

 

2020

 

 

 

2019

 

Net income

 

$

44,588

 

 

 

88,923

 

 

 

 

 

 

 

 

 

 

Weighted average shares – basic

 

 

45,010

 

 

 

45,215

 

Effect of dilutive securities

 

 

539

 

 

 

877

 

Weighted average shares – diluted

 

 

45,549

 

 

 

46,092