ABIOMED, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our "Selected Financial Data" and the consolidated financial statements and the related notes included elsewhere in "Financial Statements and Supplementary Data." Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read "Part I, Item 1.A Risk Factors" in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a leading provider of medical devices that provide circulatory support and oxygenation. Our products are designed to enable the heart to rest by improving blood flow and/or provide sufficient oxygenation to those in respiratory failure. 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 primary 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 thousands of patients worldwide. We
expect that most of our product and service revenue in the near future will be
from our Impella devices. Our Impella 2.5, Impella CP, Impella 5.0, Impella LD,
Impella 5.5 and Impella RP devices have FDA and CE Mark approval which allows us
to market these devices in the
In
Acquisition of
We acquired Breethe, a
COVID-19 Pandemic
The ongoing COVID-19 pandemic has adversely impacted and is likely to further adversely impact nearly all aspects of our business and markets, including our workforce and the operations of our customers, suppliers, and business partners.
Beginning in
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While the COVID-19 pandemic remains fluid and continues to evolve differently
across various geographies, we believe we are likely to continue to experience
variable impacts on our business. Hospitals are generally managing the pandemic
better currently than they have in the earlier part of the pandemic due to more
testing, improved protocols, more experience with the effects of COVID-19 and a
greater number of vaccinated caregivers. During these challenging times, our
priorities have been to support our clinician partners, protect the well-being
of our employees and maintain continuous access to our life-saving technologies
while offering front-line in-hospital support. We have established onsite
COVID-19 testing for our employees in both
Our proactive testing program has reduced exposure with early detection, reduced employee anxiety and enabled our manufacturing facilities to operate at full capacity in line with local social distancing requirements. We also took proactive actions in the first half of fiscal year 2021 in order to mitigate the business impact of COVID-19 on our financial operations and we continue monitor closely the business impact of COVID-19. Despite the ongoing challenges posed by COVID-19, we continue to invest strategically in engineering, regulatory, clinical trials and manufacturing in order to support our future growth initiatives and sales and marketing activities, with a particular focus on training and education initiatives to drive utilization of our products and recovery awareness for acute heart failure patients.
We continue to closely monitor the impact of COVID-19 on all aspects of our
business and geographies, including its impact on our customers, employees,
suppliers, vendors, business partners and distribution channels. The full extent
to which the pandemic will directly or indirectly impact our business, results
of operations and financial condition, including but not limited to sales,
expenses, manufacturing, clinical trials, research and development costs,
reserves and allowances, fair value measurements, will depend on future
developments that are highly uncertain and difficult to predict. These
developments include, but are not limited to, the duration and spread of the
ongoing COVID-19 pandemic (including new variants of COVID-19), its severity,
the actions to contain the virus or address its impact, the timing,
distribution, and efficacy of vaccines and other treatments,
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting
principles generally accepted in
Revenue Recognition
Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer.
Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of the contract.
Service revenue is generally recognized over time as the services are rendered to the customer based on the extent of progress towards completion of the performance obligation. We recognize service revenue over the term of the service contract. Services are expected to be transferred to the customer throughout the term of the contract and we believe recognizing revenue ratably over the term of the contract best depicts the transfer of value to the customer. Revenue generated from preventative maintenance calls is recognized at a point in time when the services are provided to the customer.
Revenue from the sale of products and services are evidenced by either a contract with the customer or a valid purchase order or an invoice which includes all relevant terms of sale. We perform a review of each specific customer's credit worthiness and ability to pay prior to acceptance as a customer. Further, we perform periodic reviews of customers' creditworthiness.
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Income Taxes
Our provision for income taxes is composed of a current and a deferred portion. The current income tax provision is calculated as the estimated taxes payable or refundable on income tax returns for the current year. The deferred income tax provision is calculated for the estimated future tax effects attributable to temporary differences and net operating loss carryforwards and tax credits using expected tax rates in effect in the years during which the differences are expected to reverse.
Deferred income taxes are recognized for the tax consequences in future years as the differences between the tax bases of assets and liabilities and their financial reporting amounts at each fiscal year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to impact taxable income.
We regularly assess our ability to realize our deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. We consider whether a valuation allowance is needed on our deferred tax assets by evaluating all positive and negative evidence relative to our ability to recover deferred tax assets, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial results.
We recognize and measure uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit at the largest amount that is more likely than not of being realized upon ultimate settlement. We reevaluate these uncertain tax positions on an ongoing basis, when applicable. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, new information and technical insights, and changes in tax laws. Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. When applicable, we accrue for the effects of uncertain tax positions and the related potential penalties and interest through income tax expense.
Other Investments
We periodically make investments in medical device companies that focus on heart failure and heart pumps and other medical device technologies. For investments that do not have readily determinable market values, we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment. We monitor any events or changes in circumstances that may have a significant effect on the fair value of investments, either due to impairment or based on observable price changes, and make any necessary adjustments.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in " Note 2. Basis of Preparation and Summary of Significant Accounting Policies " to our consolidated financial statements in this Report.
Results of Operations for the Fiscal Years Ended
The following table sets forth certain consolidated statements of operations data for the periods indicated as a percentage of total revenues:
Fiscal Years Ended March 31,
2021 2020
Revenue 100.0 % 100.0 %
Costs and expenses as a percentage of total
revenue:
Cost of revenue 19.1 18.0
Research and development 14.4 11.7
Selling, general and administrative 39.4 40.6
Total costs and expenses 72.9 70.4
Income from operations 27.1 29.6
Other income and income tax provision, net 0.5 5.5
Net income as a percentage of total revenue 26.6 % 24.1 %
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Revenue
The following table disaggregates our revenue by products and services:
Fiscal Years Ended March 31,
2021 2020
(in $000 's)
Impella product revenue $ 806,322 $ 806,824
Service and other revenue 41,200 34,059
Total revenue $ 847,522 $ 840,883 The following table disaggregates our revenue by geographical location:
Fiscal Years Ended March 31,
2021 2020
(in $000 's)
U.S. $ 691,579 $ 705,409
Europe 105,320 94,266
Japan 42,868 35,215
Other International 7,755 5,993
Total revenue $ 847,522 $ 840,883 Impella product revenue encompasses Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5, Impella RP and Impella AIC product sales and related accessories. Service and other revenue represents revenue earned on service maintenance contracts and preventative maintenance calls. The following is a discussion of our revenues for fiscal year 2021.
Total Revenue
Total revenue for fiscal year 2021 increased
The growth in total revenue for the fiscal year 2021 was adversely impacted by lower Impella product revenue in the first quarter of fiscal year 2021 caused by the impact of COVID-19 pandemic in reducing hospital procedures during that time, which was offset by sequential quarterly improvement during the second, third and fourth quarters of fiscal year 2021 as patient procedure volume trends and availability of healthcare resources have improved as certain restrictions were lifted and limitations eased during those periods.
Impella Product Revenue
Impella product revenue for fiscal year 2021 decreased slightly by
As described above, Impella procedure volumes have varied significantly since
the end of
While the COVID-19 pandemic remains fluid and continues to evolve differently
across various geographies, we believe we will likely continue to experience
variable impacts on our business. While we cannot reliably estimate the extent
to which the COVID-19 pandemic may continue to impact patient utilization and
revenues of our products, our focus is on increasing patient utilization of our
Impella devices in the
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Service and other revenue
Service and other revenue for fiscal year 2021 increased by
Costs and Expenses Cost of Revenue
Cost of revenue for fiscal year 2021 increased by
The increase in cost of product revenue and decrease in gross margin was
primarily due to increased investment in direct labor and overhead as we
expanded our manufacturing capacity of our facilities in the
We expect that our ongoing investment in manufacturing capacity and the expansion of our Impella SmartAssist platform and Impella Connect may decrease gross margin in the near future.
Research and Development Expenses
Research and development expenses for fiscal year 2021 increased by
We expect research and development expenses to continue to increase with our ongoing efforts to expand our engineering, product development and clinical spending related to our initiatives to improve our existing products and develop new technologies and conduct clinical studies. Research and development expenses can fluctuate with project timing on engineering programs and clinical trials.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal year 2021 decreased by
Despite the ongoing challenges posed by COVID-19, we expect to continue to invest in sales and marketing activities, with a particular focus on training and education initiatives to drive utilization of our Impella devices and recovery awareness for acute heart failure patients. We also expect to continue to incur legal expenses for the foreseeable future related to ongoing patent litigation, securities class action litigation and other legal matters discussed in "Note 16. Commitment and Contingencies" to our consolidated financial statements. For the impact of COVID-19 on our business, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic."
We continue to manage our discretionary costs closely in order to mitigate the business impact of COVID-19. Despite the ongoing challenges posed by COVID-19, including the recent global resurgence, we aim to continue to invest strategically in engineering, regulatory, clinical trials and manufacturing in order to support our future growth initiatives and sales and marketing activities, with a particular focus on training and education to drive utilization of our Impella devices and recovery awareness for acute heart failure patients.
Operating Income
Operating income decreased by
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Other Income (Expense), net
Other (expense) income, net increased by
Income Tax Provision
The income tax provision increased by
Net Income
In fiscal year 2021, net income was
In fiscal year 2020, net income was
Results of Operations for the Fiscal Years Ended
For a comparison of our results of operations for the fiscal years ended
Liquidity and Capital Resources
As of
A summary of our cash flow activities is as follows:
For the Year Ended March 31,
2021 2020
Net cash provided by operating activities
(223,344 ) (125,455 )
Net cash used for financing activities (8,067 ) (117,715 )
Effect of exchange rate changes on cash (2,798 ) (430 )
Net increase in cash and cash equivalents
For a discussion of our liquidity and capital resources as of and our cash flow
activities for the fiscal year ended
Cash Provided by Operating Activities
For fiscal year 2021, cash provided by operating activities consisted of net
income of
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of stock-based compensation expense, a change in fair value of our investments
in Shockwave Medical and other private medical technology companies of
For fiscal year 2020, cash provided by operating activities consisted of net
income of
Cash Used for Investing Activities
For fiscal year 2021, net cash used for investing activities included
For fiscal year 2020, net cash used for investing activities included
Capital expenditures for fiscal year 2022 are estimated to range from
Cash Used for Financing Activities
For fiscal year 2021, net cash used for financing activities included
For fiscal year 2020, net cash used for financing activities included
Operating Capital and Liquidity Requirements
Our sources of cash liquidity are primarily from existing cash and cash
equivalents, marketable securities and cash flows from operations. As of
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Our primary liquidity requirements are to fund the following: expansion of our
commercial and operational infrastructures; expansion of our manufacturing
capacity and office space; the procurement and production of inventory to meet
customer demand for our Impella devices; creation of new product and business
development initiatives; ongoing commercial launch in
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 primarily 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, our capital expenditures, 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.
We also took proactive actions in the first half of fiscal year 2021 in order to mitigate the business impact of COVID-19 on our financial operations and we continue to manage discretionary costs closely in order to mitigate the business impact of COVID-19. Despite the ongoing challenges posed by COVID-19, including the recent global resurgence, we continue to invest strategically in engineering, regulatory, clinical trials and manufacturing in order to support our future growth initiatives and sales and marketing activities, with a particular focus on training and education initiatives to drive utilization of our Impella devices and recovery awareness for acute heart failure patients. We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including its impact on our customers, employees, suppliers, vendors, business partners and distribution channels.
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.
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