ABIOMED INC : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Forward Looking Statements

This Report, including the documents incorporated by reference in this Report,
includes forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of
historical facts, may be forward-looking statements. These forward-looking
statements may be accompanied by such words as "anticipate," "believe,"
"estimate," "expect," "forecast," "intend," "may," "plan," "potential,"
"project," "target," "should," "likely," "will" and other words and terms of
similar meaning. Each forward-looking statement in this Report is subject to
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied by such statement. Factors that could cause
actual results or conditions to differ from those anticipated by these and other
forward-looking statements include: our dependence on Impella® products for all
of our revenues; our ability to successfully compete against our existing or
potential competitors; the acceptance of our products by cardiac surgeons and
interventional cardiologists, especially those with significant influence over
medical device selection and purchasing decisions; long sales and training
cycles associated with expansion into new hospital cardiac centers; reduced
market acceptance of our products due to lengthy clinician training process; our
ability to effectively manage our growth; our ability to successfully
commercialize our products; our ability to obtain regulatory approvals and
market and sell our products in certain jurisdictions; enforcement actions and
product liability suits relating to off-label uses of our products; unsuccessful
clinical trials or procedures relating to products under development; our
ability to maintain compliance with regulatory requirements; mandatory or
voluntary product recalls; shutdowns of the U.S. federal government; third-party
payers' failure to provide reimbursement of our products; changes in healthcare
reimbursement systems in the U.S. and other foreign jurisdictions; our failure
to comply with healthcare "fraud and abuse" laws; our failure to comply with the
U.S. Foreign Corrupt Practices Act and other anti-corruption laws, export
control laws, import and customs laws, trade and economic sanctions laws and
other laws governing our operations; uncertainties associated with our product
development efforts; our ability to increase manufacturing capacity to support
continued demand for our products; our or our vendors' failure to achieve and
maintain high manufacturing standards; our ability to attract and retain key
personnel; our suppliers' failure to provide the components we require; our
ability to expand our direct sales activities into international markets; the
economic effects of "Brexit"; poor performance of our distributors in the
international markets; our ability to sustain profitability; our potential
"ownership change" for U.S. federal income tax purposes and our limited
utilization of net operating losses from prior tax years; impact of changes in
tax laws, including recently enacted U.S. Tax Reform; our ability to develop and
commercialize new products or acquire desirable companies, products or
technologies; our failure to protect our intellectual property or develop or
acquire additional intellectual property; increased risk of material product
liability claims; inventory write-downs and other costs due to product quality
problems; liabilities due to failure to protect the confidentiality of patient
health information; disruptions of critical information systems or material
breaches in the security of our systems; risks and liabilities associated with
acquisitions of other companies or businesses; changes in accounting standards,
tax laws and financial reporting requirements; changes in methods, estimates and
judgments we use in applying our accounting policies; liabilities, expenses and
restrictions associated with environmental and health safety laws; fluctuations
in foreign currency exchange rates; the outcome of ongoing securities class
action litigation relating to our public disclosures and other factors discussed
in Part I, Item 1A. Risk Factors of our Form 10-K for the year ended March 31,
2019 and the filings subsequently filed with or furnished to the SEC. Readers
are cautioned not to place undue reliance on any forward-looking statements,
which speak only as of the date of this Report. Unless otherwise required by
law, the company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances that occur after the date of this Report or to reflect the
occurrence of unanticipated events.

Overview

We are a leading provider of temporary mechanical circulatory support devices,
and we offer a continuum of care to heart failure patients. We develop,
manufacture and market proprietary products that are designed to enable the
heart to rest, heal and recover by improving blood flow to the coronary arteries
and end-organs and/or temporarily assisting the pumping function of the heart.
Our products are used in the cardiac catheterization lab, or cath lab, by
interventional cardiologists, the electrophysiology lab, the hybrid lab and in
the heart surgery suite by cardiac surgeons. A physician may use our devices for
patients who are in need of hemodynamic support prophylactically, urgently or
emergently before, during or after angioplasty or heart surgery procedures. We
believe that heart recovery is the optimal clinical outcome for a patient
experiencing heart failure because it enhances the potential for the patient to
go home with their own heart, facilitating the restoration of quality of life.
In addition, we believe that, for the care of such patients, heart recovery is
often the most cost-effective solution for the healthcare system.

Our strategic focus and the driver of our revenue growth is the market
penetration of our family of Impella® heart pumps. The Impella device portfolio,
which includes the Impella 2.5®, Impella CP®, Impella 5.0®, Impella LD®, Impella
5.5® and Impella RP® devices has supported numerous patients worldwide. We
expect that all of our product and service revenue in the near future will be
from our Impella devices.

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Our Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5 and Impella RP
devices have U.S Food and Drug Administration ("FDA") and CE Mark which allows
us to market these devices in the U.S. and European Union. We expect to continue
to make additional PMA supplement submissions for our Impella portfolio of
devices for additional indications.

Our Impella 2.5 and Impella 5.0 devices have regulatory approval from the
Ministry Health Labour and Welfare ("MHLW"), in Japan. In March 2019, we
received Pharmaceuticals and Medical Devices Agency ("PMDA") approval from MHLW
for our Impella CP heart pump in Japan. We began to sell the Impella CP heart
pump as an additional product offering in Japan in the quarter ending September
30, 2019.

Our Existing Products

Impella 2.5®

The Impella 2.5 device is a percutaneous micro heart pump with an integrated
motor and sensors. The device is designed primarily for use by interventional
cardiologists to support patients in the cath lab who may require assistance to
maintain circulation. The Impella 2.5 heart pump can be quickly inserted via the
femoral artery to reach the left ventricle of the heart, where it is directly
deployed to draw blood out of the ventricle and deliver it to the circulatory
system. This function is intended to reduce ventricular work and provide blood
flow to vital organs. The Impella 2.5 heart pump is introduced with normal
interventional cardiology procedures and can pump up to 2.5 liters of blood per
minute.

In March 2015, we received a PMA from the FDA for the use of the Impella 2.5
device during elective and urgent high-risk percutaneous coronary intervention,
or PCI, procedures. With this PMA, the Impella 2.5 device became the first FDA
approved hemodynamic support device for use during high-risk PCI procedures.
Under this PMA, the Impella 2.5 is a temporary (up to six hours) ventricular
support device indicated for use during high-risk PCI performed in elective or
urgent hemodynamically stable patients with severe coronary artery disease and
depressed left ventricular ejection fraction, when a heart team, including a
cardiac surgeon, has determined high-risk PCI is the appropriate therapeutic
option. Use of the Impella 2.5 device in these patients may prevent hemodynamic
instability that may occur during planned temporary coronary occlusions and may
reduce periprocedural and post-procedural adverse events. The product labeling
allows for the clinical decision by physicians to leave the Impella 2.5 device
in place beyond the intended duration of up to six hours should unforeseen
circumstances arise.

In April 2016, the FDA approved a PMA supplement for certain of our devices,
including our Impella 2.5 device, to provide treatment for ongoing cardiogenic
shock. This PMA supplement covers a set of indications related to the use of the
Impella devices in patients suffering cardiogenic shock following acute
myocardial infarction, or cardiac surgery, and allows for a longer duration of
support. The Impella 2.5 catheter, in conjunction with the Automated Impella
Controller, or AIC, was approved as a temporary ventricular support device
intended for short term use (? 4 days) and indicated for the treatment of
ongoing cardiogenic shock that occurs immediately (< 48 hours) following acute
myocardial infarction as a result of isolated left ventricular failure that is
not responsive to optimal medical management and conventional treatment
measures. The intent of the Impella system therapy is to reduce ventricular work
and to provide the circulatory support necessary to allow heart recovery and
early assessment of residual myocardial function. Optimal medical management and
convention treatment measures include volume loading and use of pressors and
inotropes, with or without an intra-aortic balloon pump, or IABP.

In September 2016, we received Pharmaceuticals and Medical Device Agency, or
PMDA, approval from the Japanese Ministry of Health, Labour & Welfare, or MHLW,
for our Impella 2.5 heart pump to provide treatment of drug-resistant acute
heart failure in Japan. In July 2017, we received approval from the MHLW for
reimbursement of the Impella 2.5 heart pump. Reimbursement in Japan for the
Impella 2.5 is equivalent to our average Impella sales price in the U.S.

In February 2018, we received two expanded PMAs from the FDA for certain of our
Impella heart pumps. The first expanded PMA includes the Impella 2.5 heart pump
for use on patients with cardiogenic shock associated with cardiomyopathy,
including peripartum and postpartum cardiomyopathy. The second expanded PMA
includes the Impella 2.5 heart pump for use during elective and high-risk PCI
procedures. This expanded PMA confirms Impella support as appropriate in
patients with severe coronary artery disease, complex anatomy and extensive
comorbidities, with or without depressed ejection fraction.

In September 2019, the Company announced the results of PROTECT III, the
ongoing, prospective, single-arm FDA post-approval study for the PMA approval of
Impella 2.5 and Impella CP in high-risk PCI. PROTECT III follows the PROTECT II
randomized controlled trial. The findings of this interim analysis on 898
patients demonstrates a reduction in the primary endpoint of death, stroke,
myocardial infarction and repeat procedures at 90 days with Impella-supported
Protected PCI, compared to PROTECT II.

The Impella 2.5 device has CE Mark approval in the European Union for up to five
days of use and is approved for use in up to 40 countries. The Impella 2.5
device also has Health Canada approval which allows us to market the device in
Canada.

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Impella CP®

The Impella CP device provides blood flow of approximately one liter more per
minute than the Impella 2.5 device and is primarily used by either
interventional cardiologists to support patients in the cath lab or by cardiac
surgeons in the heart surgery suite.

In April 2016, the FDA approved a PMA supplement for certain of our devices,
including our Impella CP device, to provide treatment for ongoing cardiogenic
shock. This PMA supplement covers a set of indications related to the use of the
Impella devices in patients suffering cardiogenic shock following acute
myocardial infarction, or cardiac surgery, and allows for a longer duration of
support. The Impella CP catheter, in conjunction with the AIC, was approved as a
temporary ventricular support device intended for short term use (? 4 days) and
indicated for the treatment of ongoing cardiogenic shock that occurs immediately
(< 48 hours) following acute myocardial infarction as a result of isolated left
ventricular failure that is not responsive to optimal medical management and
conventional treatment measures. The intent of the Impella system therapy is to
reduce ventricular work and to provide the circulatory support necessary to
allow heart recovery and early assessment of residual myocardial
function. Optimal medical management and convention treatment measures include
volume loading and use of pressors and inotropes, with or without an
intra-aortic balloon pump, or IABP.

In December 2016, the FDA expanded a previously received PMA that granted
approval for the use of the Impella CP device during elective and urgent
high-risk PCI procedures in the U.S. With this indication, the Impella CP and
the Impella 2.5 devices provide the only minimally invasive treatment options
indicated for use during high-risk PCI procedures in the U.S.

In February 2018, we received two expanded PMAs from the FDA for certain of our
Impella heart pumps. The first expanded PMA includes the Impella CP heart pump
for use on patients with cardiogenic shock associated with cardiomyopathy,
including peripartum and postpartum cardiomyopathy. The second expanded PMA
includes the Impella CP heart pump for use during elective and high-risk PCI
procedures, and it confirms Impella support as appropriate in patients with
severe coronary artery disease, complex anatomy and extensive comorbidities,
with or without depressed ejection fraction. These PMAs allow the Impella CP to
be used as a temporary (? 6 hours) ventricular support system indicated for use
during high risk PCI procedures performed in elective or urgent hemodynamically
stable patients with severe coronary artery disease and depressed left
ventricular ejection fraction, when a heart team, including a cardiac surgeon,
has determined that high-risk PCI is the appropriate therapeutic option. The
product labeling allows for the clinical decision by physicians to leave the
Impella CP device in place beyond the intended duration of up to six hours
should unforeseen circumstances arise.

In April 2018, we received FDA approval for our Impella CP SmartAssistTM
platform. The SmartAssist platform includes optical sensor technology for
improved positioning, the use of algorithms that enable improved native heart
assessment during the weaning process and cloud-based technology that enables
secure, real-time, remote viewing of the Impella console for physicians and
hospital staff from anywhere with internet connectivity. The platform is
intended to provide enhanced monitoring capability, reduce setup time and
improve ease of use for physicians. The SmartAssist platform is also approved
under CE Mark in the European Union and other countries that require a CE Mark
approval. We have begun a controlled roll-out of the SmartAssist platform at
certain hospital sites.

In November 2018, we announced the results of our FDA approved prospective
multi-center feasibility study, "STEMI Door to Unloading with Impella CP system
in acute myocardial infarction" (STEMI DTU). The trial focused on the
feasibility and safety of unloading the left ventricle using the Impella CP
heart pump prior to primary PCI in patients presenting with ST segment elevation
myocardial infarction, or STEMI, without cardiogenic shock with the hypothesis
that this will potentially reduce infarct size. The study, which received FDA
investigational device approval to proceed in October 2016, enrolled 50 patients
at 10 sites. The hypothesis of this novel approach to treating STEMI patients,
based on extensive mechanistic research, is that unloading the left ventricle
prior to PCI reduces myocardial work load, oxygen demand and also initiates a
cardio-protective effect at the myocardial cell level, which may alleviate
myocardial damage caused by reperfusion injury at the time of revascularization.
The intent of this study was to help refine the protocol and lay the groundwork
for a future pivotal study with more sites and patients and will be designed for
statistical significance.

In April 2019, the FDA approved the initiation of the STEMI DTU pivotal
randomized controlled trial. The prospective, multi-center, two-arm trial plans
to enroll 668 patients undergoing treatment for a STEMI heart attack at up to 60
sites. Half the patients will be randomized to receive delayed reperfusion after
30 minutes of left ventricular unloading with the Impella CP. The other half
will receive immediate reperfusion, the current standard of care. The trial will
test the hypothesis that unloading the left ventricle for 30 minutes prior to
reperfusion will reduce myocardial damage from a heart attack and lead to a
reduction in future heart failure related events. We began the trial in the
third quarter of fiscal 2020 and we estimate that it will take three to four
years to complete enrollment. The trial allows for an adaptive design, which
permits adjustments to the study sample size after an interim analysis.

In March 2019, we received PMDA approval from MHLW for our Impella CP heart pump
in Japan. We began selling the Impella CP heart pump as an additional product
offering in Japan in fiscal 2020.

The Impella CP device has CE Mark approval in the European Union and other countries that require a CE Mark approval for up to five days of use.

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Impella 5.0® and Impella LD®

The Impella 5.0 and Impella LD devices are percutaneous micro heart pumps with integrated motors and sensors for use primarily in the heart surgery suite. These devices are designed to support patients who require higher levels of circulatory support as compared to the Impella 2.5.

The Impella 5.0 device can be inserted into the left ventricle via a femoral cut
down or through the axillary artery. The Impella 5.0 device is passed into the
ascending aorta, across the valve and into the left ventricle. The Impella LD
device is similar to the Impella 5.0 device, but it is implanted directly into
the ascending aorta through an aortic graft. Both devices are normally used by
cardiac surgeons in the surgery suite. The Impella 5.0 and Impella LD devices
can pump up to five liters of blood per minute, potentially providing full
circulatory support.

In April 2016, the FDA approved a PMA supplement for certain of our devices,
including our Impella 5.0 and Impella LD devices, to provide treatment for
ongoing cardiogenic shock. This PMA supplement covers a set of indications
related to the use of the Impella devices in patients suffering cardiogenic
shock following acute myocardial infarction, or cardiac surgery, and allows for
a longer duration of support. The Impella 5.0 and LD catheters, in conjunction
with the AIC, were approved as temporary ventricular support devices intended
for short term use (? 6 days) and indicated for the treatment of ongoing
cardiogenic shock that occurs immediately (< 48 hours) following acute
myocardial infarction as a result of isolated left ventricular failure that is
not responsive to optimal medical management and conventional treatment
measures. The intent of the Impella system therapy is to reduce ventricular work
and to provide the circulatory support necessary to allow heart recovery and
early assessment of residual myocardial function.

In September 2016, we received PMDA approval from the Japanese Ministry Health
Labour and Welfare, MHLW, for our Impella 5.0 heart pump to provide treatment of
drug-resistant acute heart failure in Japan. In July 2017, we received approval
from the Japanese MHLW for reimbursement for the Impella 5.0 heart pump.
Reimbursement in Japan for the Impella 5.0 is equivalent to our average Impella
sales price in the U.S.

In May 2019, we received an expanded PMA from the FDA for labeling of the
Impella 5.0 and Impella LD for the treatment of cardiogenic shock. The expansion
extends the duration of support for each pump from 6 days to 14 days. This
approval expands the previous indication for acute myocardial infarction,
cardiogenic shock and post-cardiotomy shock, or PCCS, received in April 2016,
and use of the Impella 5.0 and Impella LD heart pumps to provide treatment for
heart failure associated with cardiomyopathy leading to cardiogenic shock,
received in February 2018.

The Impella 5.0 and Impella LD devices have CE Mark approval in the European Union for up to ten days' duration and are approved for use in over 40 countries.

Impella RP®

The Impella RP is a percutaneous catheter-based axial flow pump that is designed
to allow greater than four liters of blood flow per minute and is intended to
provide the flow and pressure needed to compensate for right side heart failure.
The Impella RP is the first percutaneous single access heart pump designed for
right heart support to receive FDA approval. The Impella RP device is approved
to provide support of the right heart during times of acute failure for certain
patients who have received a left ventricle assist device or have suffered heart
failure due to AMI, a failed heart transplant, or following open heart surgery.

In September 2017, we received a PMA from the FDA for the Impella RP heart pump.
This latest approval follows the prior FDA humanitarian device exemption, or
HDE, received in January 2015 and adds the Impella RP heart pump to our platform
of devices with PMAs. The Impella RP heart pump is indicated for providing
temporary right ventricular support for up to 14 days in patients with a body
surface area ?1.5 m² who develop acute right heart failure or decompensation
following left ventricular assist device implantation, myocardial infarction,
heart transplant or open-heart surgery. With this approval, the Impella RP heart
pump is the only percutaneous temporary ventricular support device that is
FDA-approved as safe and effective for right heart failure as stated in the
indication.

In February 2019, the FDA released a letter to health care providers on the
Impella RP heart pump reiterating to physicians to follow proper protocols for
the use of Impella RP. In May 2019, the FDA issued an update to its February
2019 letter to inform the health care community of these interim post-approval
study results which validated that the Impella RP heart pump is safe and
effective for the treatment of right heart failure. The results showed a 64%
survival rate and 90% heart recovery for the subgroup of Impella RP post
approval study patients who met the enrollment criteria of Impella RP's
premarket clinical studies. Impella RP is the only percutaneous technology with
FDA approval designating it as safe and effective for right heart support

The Impella RP device has CE Mark approval for commercial sale in the European Union and other countries that require a CE Mark approval from commercial sales.

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Impella 5.5®

The Impella 5.5 device is designed to be a percutaneous micro heart pump with
integrated motors and sensors. Impella 5.5 delivers peak flows of greater than
six liters per minute. A motor housing that is thinner and 45% shorter than the
Impella 5.0 improves ease of pump insertion through the vasculature.

In September 2019, the Impella 5.5 device received FDA pre-market approval for
safety and efficacy in the therapy of cardiogenic shock for up to 14 days in the
U.S. The Impella 5.5 pump is being introduced in the U.S. through a controlled
rollout at hospitals with established heart recovery protocols beginning in the
third quarter of fiscal 2020. Impella 5.5 received CE marking approval in Europe
in April 2018 and was introduced in Europe through a similar controlled rollout.

Our Product Pipeline

Impella ECP™

The Impella ECP pump is designed for blood flow of greater than three liters per
minute. It is intended to be delivered on a standard sized catheter and will
include an expandable inflow in the left ventricle. We expect to conduct a
first-in-human trial outside of the U.S. in calendar year 2020. The Impella ECP
pump is still in development and has not been approved for commercial use or
sale.

Impella BTR™

The Impella BTR device is designed to be a percutaneous micro heart pump with
integrated motors and sensors. The Impella BTR device is designed to be smaller,
provide up to one year of hemodynamic support and is expected to allow for
greater than five liters of blood flow per minute. The Impella BTR device also
includes a wearable driver designed for hospital discharge. The Impella BTR pump
is still in development and has not been approved for commercial use or sale.

Critical Accounting Policies and Estimates

Other than the accounting policy changes discussed in   "Note 2. Basis of
Preparation and Summary of Significant Accounting Policies"   to our
consolidated financial statements, which is incorporated herein by reference,
there have been no significant changes in our critical accounting policies
during the three and nine months ended December 31, 2019, as compared to the
critical accounting policies disclosed in Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2019.

Recently Issued Accounting Pronouncements Not Yet Effective

Information regarding recent accounting pronouncements is included in   "Note 2.
Basis of Preparation and Summary of Significant Accounting Policies"   to our
consolidated financial statements and is incorporated herein by reference.

Results of Operations for the Three and Nine Months Ended December 31, 2019 compared with the Three and Nine Months Ended December 31, 2018

The following table sets forth certain condensed consolidated statements of operations data for the periods indicated as a percentage of total revenue:

                                         For the Three Months Ended          For the Nine Months Ended
                                                December 31,                       December 31,
                                           2019               2018            2019               2018
Revenue                                      100.0     %        100.0   %       100.0     %        100.0   %
Costs and expenses as a percentage of
total revenue:
Cost of revenue                               18.1               17.0            17.6               16.8
Research and development                      11.6               11.9            11.6               12.1
Selling, general and administrative           38.7               40.0            40.6               42.8
Total costs and expenses                      68.3               68.9            69.9               71.7
Income from operations                        31.7               31.1            30.1               28.3
Other income (loss) and income tax             0.5                8.7            (3.1 )             (4.6 )
provision (benefit)
Net income as a percentage of total           31.2     %         22.4   %        27.0     %         32.9   %
revenue




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Revenue

The following table categorizes our revenue by products and services:

                                       For the Three Months Ended             For the Nine Months Ended
                                              December 31,                          December 31,
                                          2019                 2018             2019                 2018
                                               (in $000's)                           (in $000's)
Impella product revenue             $    212,626         $    193,253     $    609,430         $    542,198
Service and other revenue                  8,958                7,310           24,795               20,153
Total revenue                       $    221,584         $    200,563     $    634,225         $    562,351

The following table categorizes our revenue by geographical location:

                                       For the Three Months Ended             For the Nine Months Ended
                                              December 31,                          December 31,
                                          2019                 2018             2019                 2018
                                               (in $000's)                           (in $000's)
U.S. revenue                        $    185,569         $    172,548     $    533,070         $    488,386
International revenue                     36,015               28,015          101,155               73,965
Total revenue                       $    221,584         $    200,563     $    634,225         $    562,351




Impella product revenue encompasses Impella 2.5, Impella CP, Impella 5.0,
Impella LD, Impella RP, Impella 5.5 and Impella AIC product sales. Service and
other revenue represents revenue earned on service maintenance contracts and
preventative maintenance calls.

Total revenue for the three months ended December 31, 2019 increased by $21.0
million, or 10%, to $221.6 million from $200.6 million for the three months
ended December 31, 2018. Total revenue for the nine months ended December 31,
2019 increased $71.8 million, or 13%, to $634.2 million from $562.4 million for
the nine months ended December 31, 2018. The increase in total revenue was
primarily due to higher Impella product revenue from increased utilization in
the U.S, Europe, and Japan and the commercial launch of Impella 5.5 in the U.S.
and Europe.

Impella product revenue for the three months ended December 31, 2019 increased
by $19.3 million, or 10%, to $212.6 million from $193.3 million for the three
months ended December 31, 2018. Impella product revenue for the nine months
ended December 31, 2019 increased $67.2 million, or 12%, to $609.4 million from
$542.2 million for the nine months ended December 31, 2018. Most of the increase
in Impella product revenue was from increased device sales in the U.S., as we
focus on increasing utilization of our disposable catheter products through
continued investment in our field organization and physician training programs.
Impella product revenue outside of the U.S. also increased primarily due to
increased utilization in Germany and our continued launch of Impella in Japan.
We expect worldwide revenue from our Impella devices to continue to increase
with our recent PMA approvals in the U.S. and our continued focus on Impella
device utilization outside of the U.S., with a primary focus on Germany and
Japan.

Service and other revenue for the three months ended December 31, 2019 increased
by $1.7 million, or 23%, to $9.0 million from $7.3 million for the three months
ended December 31, 2018. Service and other revenue for the nine months ended
December 31, 2019 increased $4.6 million, or 23%, to $24.8 million from $20.2
million for the nine months ended December 31, 2018. The increase in service
revenue was primarily due to an increase in preventative maintenance service
contracts. We have expanded the number of Impella AIC consoles at many of our
existing higher volume customer sites and continue to sell additional consoles
to new customer sites. We expect revenue growth for service revenue to be
consistent with recent history as most of these using sites in the U.S. have
service contracts that normally have three year terms.

Costs and Expenses

Cost of Revenue

Cost of revenue for the three months ended December 31, 2019 increased by $6.0
million, or 18%, to $40.0 million from $34.0 million for the three months ended
December 31, 2018. Gross margin was 82.0% for the three months ended December
31, 2019 and 83.0% for the three months ended December 31, 2018.

Cost of revenue for the nine months ended December 31, 2019 increased by $17.2
million, or 18%, to $111.9 million from $94.7 million for the nine months ended
December 31, 2018. Gross margin was 82.4% for the nine months ended December 31,
2019 and 83.2% for the nine months ended December 31, 2018.

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The increase in cost of product revenue was related to higher demand for our
Impella devices and higher production volume and costs to support demand for our
Impella devices. The decrease in gross margin for the three and nine months
ended December 31, 2019 was primarily due to increased investment in direct
labor and overhead as we expand our manufacturing capacity in both our
manufacturing facilities in the U.S. and Germany and our initial launch of
Impella 5.5 and Impella CP SmartAssist, which enlists optical sensor technology
in our pumps.

We expect that our ongoing investment in manufacturing capacity and the expansion of our Impella CP SmartAssist platform may decrease gross margin slightly in the near future.

Research and Development Expenses

Research and development expenses for the three months ended December 31, 2019
increased by $1.7 million, or 7%, to $25.7 million from $24.0 million for three
months ended December 31, 2018. Research and development expense for the nine
months ended December 31, 2019 increased $5.4 million, or 8%, to $73.4 million
from $68.0 million for the nine months ended December 31, 2018. The increase in
research and development expenses was primarily due to product development
initiatives relating to our existing and pipeline products, such as optical
sensor technology related to the development of Impella 5.5® and Impella ECPTM
devices, the expansion of our engineering organization, increased clinical
spending primarily related to our ongoing clinical studies, including the STEMI
DTU pivotal randomized controlled trial, and our continued focus on quality
initiatives for our Impella products.

We expect research and development expenses to continue to increase as we continue to increase clinical spending related to our ongoing and potential future clinical studies and as we continue to focus on engineering initiatives to improve our existing products and develop new technologies.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended December
31, 2019 increased by $5.5 million, or 7%, to $85.7 million from $80.2 million
for the three months ended December 31, 2018. Selling, general, and
administrative expenses for the nine months ended December 31, 2019 increased
$17.4 million, or 7%, to $257.7 million from $240.3 million for the nine months
ended December 31, 2018. The increase in selling, general and administrative
expenses was primarily due to the hiring of additional field sales and clinical
personnel in the U.S., Germany and Japan, increased spending on marketing
initiatives as we continue to educate physicians on the benefits to patients of
hemodynamic support with our Impella products, and legal expenses related to
ongoing patent litigation and other legal matters discussed in "Note 13.
Commitments and Contingencies" to our consolidated financial statements,
partially offset by lower stock-based compensation expense.

We expect to continue to increase our expenditures on sales and marketing
activities, with particular investments in field sales and clinical personnel
with cath lab expertise to drive recovery awareness for acute heart failure
patients. We also plan to increase our marketing, service and training
investments in the U.S. for our Impella devices and as we continue our expansion
in Germany, Japan and other new markets outside of the U.S. We expect to
continue to have significant stock-based compensation expense in the future. We
also expect to continue to incur significant legal expenses for the foreseeable
future related to ongoing patent litigation, securities class action litigation
and other legal matters discussed in "Note 13. Commitment and Contingencies" to
our consolidated financial statements.

Income Tax Provision

Our income tax provision was $27.8 million and $19.6 million for the three
months ended December 31, 2019 and 2018, respectively and our income tax
provision was $46.3 million for the nine months ended December 31, 2019 and an
income tax benefit of $20.2 million for the nine months ended December 31, 2018.
Our effective tax rate was 28.7% and 30.5% for the three months ended December
31, 2019 and 2018, respectively, and 21.3% and (12.3)% for the nine months ended
December 31, 2019 and 2018, respectively. The increase in the effective income
tax rate was due primarily to lower excess tax benefits recognized associated
with stock-based awards of $0.5 million and $1.7 million as an income tax
benefit for the three months ended December 31, 2019 and 2018, respectively, and
of $13.8 million and $68.5 million recorded as an income tax benefit for the
nine months ended December 31, 2019 and 2018, respectively. These recognized
excess tax benefits resulted from restricted stock units that vested or stock
options that were exercised during the three and nine months ended December 31,
2019, respectively.

Net Income

For the three months ended December 31, 2019, net income was $69.2 million, or
$1.53 per basic share and $1.51 per diluted share, compared to $44.9 million, or
$1.00 per basic share and $0.97 per diluted share, for three months ended
December 31, 2018. For the nine months ended December 31, 2019, net income was
$171.2 million, or $3.79 per basic share and $3.73 per diluted share, compared
to $185.1 million, or $4.13 per basic share and $4.01 per diluted share for the
nine months ended December 31, 2018.

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Our net income for three and nine months ended December 31, 2019 was also driven by higher Impella product revenue due to greater utilization of our Impella devices and our focus on managing expenses in line with revenues.

Net income for the three months ended December 31, 2019 included excess tax
benefits related to stock-based awards of $0.5 million, or $0.01 per basic and
diluted share, and a $17.8 million unrealized gain, net of tax, or $0.39 per
basic and diluted share, related to our investment in Shockwave Medical. Net
income for the nine months ended December 31, 2019 included excess tax benefits
related to stock-based awards of $13.8 million, or $0.30 per basic and diluted
share, and a $13.3 million unrealized gain, net of tax, or $0.29 per basic and
diluted share, related to our investment in Shockwave Medical. Net income for
the three months ended December 31, 2018, included excess tax benefits of $1.7
million, or $0.04 per basic share and diluted share. Net income for the nine
months ended December 31, 2018 included excess tax benefits of $68.5 million, or
$1.53 per basic share and $1.48 per diluted share.

Liquidity and Capital Resources

At December 31, 2019, our total cash, cash equivalents and marketable securities
totaled $595.5 million, an increase of $82.1 million compared to $513.4 million
at March 31, 2019. The increase in our cash, cash equivalents and marketable
securities during the nine months ended December 31, 2019 was primarily due to
cash flows provided by operating activities offset by cash used to fund our
stock repurchase program, annual bonuses, taxes paid related to net settlement
of vesting of stock awards during the period and purchases of property and
equipment.

Following is a summary of our cash flow activities:

                                                         For the Nine Months Ended December
                                                                         31,
                                                            2019                  2018
Net cash provided by operating activities               $     228,327       $         181,806
Net cash used for by investing activities                    (135,416 )               (80,701 )
Net cash used for financing activities                        (95,950 )               (58,794 )
Effect of exchange rate changes on cash                           (12 )                (1,105 )

Net (decrease) increase in cash and cash equivalents $ (3,051 ) $ 41,206

Cash Provided by Operating Activities

For the nine months ended December 31, 2019, cash provided by operating
activities consisted of net income of $171.2 million, adjustments for non-cash
items of $70.2 million and cash used in working capital of $13.1 million. The
change in net income was primarily due to higher revenue from increased
utilization of our Impella devices and an unrealized gain related to our
investment in Shockwave Medical. Adjustments for non-cash items consisted
primarily of $37.0 million of stock-based compensation expense, $30.6 million in
deferred tax provision, $14.4 million of depreciation and amortization expense,
$2.7 million in accretion on marketable securities, and $4.0 million in
inventory and other write-downs. The change in cash from working capital
included a $13.3 million increase in inventory to support demand for our Impella
devices, $10.3 million increase in accounts receivable due to timing of
collections offset by a $12.0 million increase in accounts payable and accrued
expenses and a $2.8 million increase in deferred revenue.

For the nine months ended December 31, 2018, cash provided by operating
activities consisted of net income of $185.1 million, adjustments for non-cash
items of $29.8 million and cash used in working capital of $33.1 million. The
increase in net income was primarily due to higher revenue from increased
utilization of our Impella devices. Adjustments for non-cash items consisted
primarily of $43.8 million of stock-based compensation expense, a $26.0 million
change in deferred tax provision, $9.9 million of depreciation and amortization
expense, $3.2 million in inventory and other write-downs, and $1.6 million in
accretion on marketable securities. Cash used in working capital consisted of a
$19.3 million increase in accounts receivable due to increased sales and a $26.5
million increase in inventory to support growing demand for our Impella devices,
offset by an $11.8 million increase in accounts payable and accrued expenses
primarily due to increased expenditures.

Cash Used for Investing Activities

For the nine months ended December 31, 2019, net cash used for investing
activities primarily consisted of $81.1 million in maturities (net of purchases)
of marketable securities and $33.5 million used in the purchase of property and
equipment primarily related to continued expansion of manufacturing capacity,
office space and research development facilities in Danvers and Aachen,
Germany. We invested an additional $20.9 million of investments in other assets
and intangible assets during fiscal 2020.

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For the nine months ended December 31, 2018, net cash used for investing
activities primarily consisted of $14.8 million in maturities (net of purchases)
of marketable securities and $35.5 million for the purchase of property and
equipment primarily related to continued expansion of manufacturing capacity,
office space and research development facilities in Danvers, Massachusetts and
Aachen, Germany. We also made $30.4 million of investments in other assets and
intangible assets.

Cash Used for Financing Activities

For the nine months ended December 31, 2019, net cash used for financing
activities included $41.6 million in payments in lieu of issuance of common
stock for payroll withholding taxes upon vesting of certain equity awards and
$59.9 million for the repurchase of our common stock. These amounts were offset
by $3.2 million in proceeds from the exercise of stock options and $2.4 million
in proceeds from the issuance of stock under the employee stock purchase plan.

For the nine months ended December 31, 2018, net cash used for financing activities included $71.2 million in payments in lieu of issuance of common stock for payroll withholding taxes upon vesting of certain equity awards. This amount was offset by $11.0 million in proceeds from the exercise of stock options and $1.4 million in proceeds from the issuance of stock under the employee stock purchase plan.

Operating Capital and Liquidity Requirements

We believe that cash receipts from our revenue together with existing resources
will be sufficient to fund our operations for at least the next twelve months,
exclusive of activities involving any future acquisitions of products or
companies that complement or augment our existing line of products.

Our primary liquidity requirements are to fund the expansion of our commercial
and operational infrastructure, increase our manufacturing capacity, increase
our inventory levels in order to meet growing customer demand for our Impella
devices, fund new product development initiatives, continue our controlled
commercial launch of Impella devices in Japan and expand to potential new
markets, increase clinical spending, cover legal expenses related to ongoing
patent litigation, cover payments in lieu of issuing of common stock for payroll
withholding taxes upon vesting of certain equity awards, fund our stock
repurchase program, fund business development initiatives and provide for
general working capital needs. To date, we have primarily funded our operations
through product sales and, to a lesser extent the sale of equity securities.

Capital expenditures for fiscal 2020 are estimated to range from $40 million to
$60 million, including additional capital expenditures for manufacturing
capacity expansions in our Danvers and Aachen facilities, additional office
space, building and leasehold improvements and information systems development
projects.

Our liquidity is influenced by our ability to sell our products in a competitive
industry and our customers' ability to pay for our products. Factors that may
affect liquidity include our ability to penetrate the market for our products,
our ability to maintain or reduce the length of the selling cycle for our
products, capital expenditures, investments in collaborative arrangements with
other partners, and our ability to collect cash from customers after our
products are sold. We also expect to continue to incur legal expenses for the
foreseeable future related to ongoing patent litigation and other legal matters.
We continue to review our short-term and long-term cash needs on a regular
basis. At December 31, 2019 we had no long-term debt outstanding.

In August 2019, our Board of Directors authorized a stock repurchase program for
up to $200 million of shares of its common stock. Under this stock repurchase
program, we are authorized to repurchase shares through open market purchases,
privately negotiated transactions or otherwise in accordance with applicable
federal securities laws, including through Rule 10b5-1 trading plans and under
Rule 10b-18 of the Exchange Act. The stock repurchase program has no time limit
and may be suspended for periods or discontinued at any time. The Company is
funding the stock repurchase program with its available cash and marketable
securities. Through December 31, 2019, the Company has repurchased a total of
318,361 shares for $59.9 million under the stock repurchase program. The
remaining authorization under the stock repurchase program was $140.1 million as
of December 31, 2019.

The following table provides share repurchase activities:

                                               For the Three Months Ended       For the Nine Months Ended
                                                      December 31,                    December 31,
                                                 2019             2018           2019             2018
Shares repurchased                               137,432                  -      318,361                  -
Average price per share                          $181.94                  -      $188.08                  -
Value of shares repurchased (in millions)          $25.0                  -        $59.9                  -




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Marketable securities at December 31, 2019 and March 31, 2019 consisted of
$477.6 million and $392.4 million, respectively, held in investment funds that
are invested in U.S. Treasury, government-backed and corporate debt securities,
and commercial paper. As of December 31, 2019, the Company is not a party to any
interest rate swaps and have no exposure to auction rate securities markets.

Cash and cash equivalents held by our foreign subsidiaries totaled $20.9 million
and $25.2 million at December 31, 2019 and March 31, 2019, respectively. Our
operating income outside the U.S. is deemed to be permanently reinvested in
foreign jurisdictions. Since most of our cash and cash equivalents held by
foreign subsidiaries which are disregarded entities for domestic tax purposes,
any repatriation of foreign subsidiary earnings to the U.S. would likely have a
nominal tax impact.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third-party
obligations during the periods presented. An "off-balance sheet arrangement"
generally entails a transaction, agreement or other contractual arrangement to
which an entity unconsolidated with us, is a party under which we have any
obligation arising under a guarantee contract, derivative instrument or variable
interest or a retained or contingent interest in assets transferred to such
entity or similar arrangement that serves as credit, liquidity or market risk
support for such assets.

Contractual Obligations and Commercial Commitments

We have various contractual obligations, which are recorded as liabilities in
our consolidated condensed financial statements. Other items are not recognized
as liabilities in our consolidated condensed financial statements but are
required to be disclosed. There have been no material changes, outside of the
ordinary course of business, to our contractual obligations as previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31,
2019.

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