AXONICS, INC. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and the related notes thereto, and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , as filed with theSEC onMarch 1, 2021 . Overview We are a global medical technology company that develops and commercializes products to treat urinary and fecal dysfunction, including: (i) an implantable sacral neuromodulation (SNM) system to treat urinary urge incontinence (UUI) and urinary urgency frequency (UUF), together referred to as overactive bladder (OAB), as well as fecal incontinence (FI), and non-obstructive urinary retention (UR); and (ii) a urethral bulking agent to treat female stress urinary incontinence (SUI). OAB affects an estimated 87 million adults inthe United States andEurope . Another estimated 40 million adults are reported to suffer from FI and another estimated 20 million women suffer from SUI. SNM therapy is an effective and durable treatment for UUI, UUF, UR and FI that has been widely used and reimbursed inEurope andthe United States for the past two decades. Bulkamid is also an effective and durable 24 -------------------------------------------------------------------------------- Table of Contents treatment for SUI that has been widely used and reimbursed inEurope and other international markets. Bulkamid was approved by the FDA for use inthe United States in early 2020. SNM is the only OAB treatment with proven clinical superiority to standard medical therapy and OAB patients who receive SNM report significantly higher quality of life than patients undergoing drug treatment. We estimate the global SNM market is now approximately$650 million to$700 million and believe it is a growing market that is currently less than three percent penetrated. Until we entered the market, it was serviced by Medtronic as a single participant. We believe our proprietary rechargeable SNM system (r-SNM System), the first rechargeable SNM system marketed worldwide, offers significant advantages, and is well positioned to capture market share and penetrate and grow this attractive market. Our r-SNM System is designed to last 15 or more years in the human body, is only 5cc in volume, offers broad MRI access, ease of use, intuitive programmers, and the longest recharging interval among rechargeable SNM systems. We have marketing approvals for the r-SNM System inEurope ,Canada , andAustralia for all relevant clinical indications and initiated limited commercial efforts inEngland ,the Netherlands andCanada in late 2018 and subsequently inGermany andSwitzerland . Our initial premarket approval (PMA) application for our r-SNM System for the treatment of FI was approved by theU.S. Food and Drug Administration (FDA) onSeptember 6, 2019 , and our PMA application for our r-SNM System for the treatment of OAB and UR was approved by the FDA onNovember 13, 2019 . We are primarily focused on commercializing our products inthe United States , which accounts for the vast majority of SNM sales worldwide. We have established a significant commercial infrastructure of sales personnel and clinical specialists and we continue to make significant investments to build our commercial organization to market and support our products. When making hiring decisions for these roles, we prioritize individuals with strong sales backgrounds and experience in neurostimulation applications, and who also have existing relationships with urologists and urogynecologists. InFebruary 2021 , the FDA approved a third-generation INS for our r-SNM System under a PMA supplement. The third-generation INS upgrades the embedded software in the INS and the functionality of the patient remote control. These modifications give patients the ability to make broader stimulation parameter adjustments at home, including selecting a second therapy program that was set post-operatively based on interoperative findings. We intend to continue to make investments in research and development efforts to develop improvements and enhancements to our r-SNM System. OnFebruary 25, 2021 , we acquiredContura Limited (Contura) and its Bulkamid product, a urethral bulking agent indicated for the treatment of female SUI. In consideration for the acquisition, we paid approximately$141.3 million in cash and issued 1,096,583 shares of our common stock. We may pay an additional$35 million in the event Bulkamid sales in any consecutive 12-month period exceed$50 million beforeDecember 31, 2024 . As part of the transaction, we entered into a supply agreement with Contura International A/S (Contura International ) to manufacture Bulkamid for us (Manufacturing and Supply Agreement). We have a right to a technology transfer afterJune 30, 2022 that would enable us to insource the manufacturing of Bulkamid. Bulkamid received a CE Mark in 2003 and a PMA from the FDA in 2020 and is sold through a combination of a direct sales force and distributors. The acquisition of Contura is expected to expand our international operations. InMay 2021 , we received a CE Mark approval on our second generation rechargeable INS and wireless patient remote control with SmartMRI™ technology. InMay 2021 , the FDA approved the use of detachable extremity coils for patients undergoing 1.5T and 3.0T MRI scans. InJune 2021 , we filed a PMA supplement with the FDA for our newly developed, long-lived, non-rechargeable SNM system. The non-rechargeable INS will utilize a primary cell battery with an expected life of at least 10 years with standard stimulation parameters. In addition, the non-rechargeable INS that has been submitted for approval is 11cc in volume, utilizes constant current stimulation and a recharge-free patient remote control, and is expected to be MRI compatible with 1.5T and 3.0T scanners. 25 -------------------------------------------------------------------------------- Table of Contents Our ability to generate revenue and become profitable will depend on our ability to continue to successfully commercialize our products and any product enhancements we may advance in the future. We expect to derive future revenue by increasing patient and physician awareness of our products. If we are unable to accomplish any of these objectives, it could have a significant negative impact on our future revenue. If we fail to generate sufficient revenue in the future, our business, results of operations, financial condition, cash flows, and future prospects would be materially and adversely affected. Inthe United States , the cost required to treat each patient is reimbursed through various third-party payors, such as commercial payors and government agencies. Most large insurers have established coverage policies in place to cover SNM therapy. Certain commercial payors have a patient-by-patient prior authorization process that must be followed before they will provide reimbursement for SNM therapy. Outsidethe United States , reimbursement levels vary significantly by country and by region, particularly based on whether the country or region at issue maintains a single-payor system. SNM therapy is eligible for reimbursement inCanada ,Australia , and certain countries inEurope , such asGermany ,France , and theUnited Kingdom . Annual healthcare budgets generally determine the number of SNM systems that will be paid for by the payor in these single-payor system countries and regions. We currently outsource the manufacture of the implantable components of our r-SNM System. We plan to continue with an outsourced manufacturing arrangement for the foreseeable future. Our contract manufacturers are all recognized in their field for their competency to manufacture the respective portions of our r-SNM System and have quality systems established that meet FDA requirements. We believe the manufacturers we currently utilize have sufficient capacity to meet our launch requirements and are able to scale up their capacity relatively quickly with limited capital investment. Prior to obtaining FDA approval, we devoted substantially all of our resources to research and development activities related to our r-SNM System, including clinical and regulatory initiatives to obtain marketing approvals. We expect to spend a significant amount of our resources on sales and marketing activities as we commercialize and market our r-SNM System inthe United States . We incurred net losses of$47.7 million and$34.4 million for the six months endedJune 30, 2021 and 2020, respectively, and had an accumulated deficit of$282.2 million as ofJune 30, 2021 compared to$234.5 million atDecember 31, 2020 . As ofJune 30, 2021 , we had available cash and cash equivalents of approximately$231.1 million , current liabilities of approximately$24.4 million , and long-term liabilities of approximately$36.9 million .May 2020 Follow-On Offering OnMay 12, 2020 , we completed a follow-on offering by issuing 4,600,000 shares of common stock, at an offering price of$32.50 per share, inclusive of 600,000 shares of our common stock issued upon the exercise by the underwriters of their option to purchase additional shares. The gross proceeds to us from this follow-on offering were$149.5 million and the net proceeds were approximately$140.5 million , after deducting underwriting discounts, commissions and offering expenses payable by us.May 2021 Follow-On Offering OnMay 14, 2021 , we completed a follow-on offering by issuing 4,025,000 shares of common stock, at an offering price of$50.00 per share, inclusive of 525,000 shares of our common stock issued upon the exercise by the underwriters of their option to purchase additional shares. The gross proceeds to us from this follow-on offering were$201.3 million and the net proceeds were approximately$190.0 million , after deducting underwriting discounts, commissions and offering expenses payable by us. Impact of COVID-19 The COVID-19 pandemic negatively impacted our sales, primarily in the second quarter of 2020, by significantly decreasing and delaying the number of procedures performed using our r-SNM System, and we expect that the pandemic could negatively impact our business, financial condition and results of operations. Similar to the general trend in elective and other surgical procedures, the number of procedures performed using our r-SNM System decreased significantly as healthcare organizations inthe United States and globally, including inEurope andCanada , have prioritized the treatment of patients with COVID-19 or have altered their operations to prepare for 26 -------------------------------------------------------------------------------- Table of Contents and respond to the pandemic. Specifically, substantially all of the procedures using our r-SNM System were postponed or cancelled from middle ofMarch 2020 throughMay 2020 , but order flow began a gradual recovery inMay 2020 and continued to improve in the second half of 2020 through the second quarter of 2021. To protect the health of our employees, their families, and our communities, we have restricted access to our offices to personnel who must perform critical activities that must be completed on-site, limited the number of such personnel that can be present at our facilities at any one time, requested that many of our employees work remotely, and implemented strict travel restrictions. These restrictions and precautionary measures have not adversely affected our operations. Even as efforts to contain the pandemic have made progress and some restrictions have relaxed, new variants of the virus are causing additional outbreaks. The full extent of COVID-19's effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and additional protective measures implemented by the governmental authorities, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. However, if the pandemic continues to evolve into a long-term severe worldwide health crisis, there could be a material adverse effect on our business, results of operations, financial condition, and cash flows. AMF License Agreement OnOctober 1, 2013 , we entered into a license agreement (the License Agreement) with theAlfred E. Mann Foundation for Scientific Research (AMF), pursuant to which AMF licensed us certain patents and know-how (AMF IP ), relating to, in relevant part, an implantable pulse generator and related system components in development by AMF as of that date, in addition to any peripheral or auxiliary devices, including all components, that when assembled, comprise such device, excluding certain implantable pulse generators (AMF Licensed Products). Under the License Agreement, for each calendar year beginning in 2018, we are obligated to pay AMF a royalty on an AMF Licensed Product-by-AMF Licensed Product basis if one of the following conditions applies: (i) one or more valid claims within any of the patents licensed to us by AMF covers such AMF Licensed Products or the manufacture of such AMF Licensed Products or (ii) for a period of 12 years from the first commercial sale anywhere in the world of such AMF Licensed Product, in each case. The foregoing royalty is calculated as the greater of (a) 4% of all net revenue derived from the AMF Licensed Products, and (b) a minimum annual royalty (the Minimum Royalty), payable quarterly. The Minimum Royalty automatically increases each year, subject to a maximum amount of$200,000 per year. During the three and six months endedJune 30, 2021 , we have recorded royalties of$1.6 million and$2.9 million , respectively. During the three and six months endedJune 30, 2020 , we have recorded royalties of$0.6 million and$1.6 million , respectively. We have 60 days to pay AMF the royalty amount due under the License Agreement, and if we fail to pay AMF within such 60-day period, AMF may, at its election, convert the exclusive license to a non-exclusive license or terminate the License Agreement. 27 -------------------------------------------------------------------------------- Table of Contents Components of Our Results of OperationsNet Revenue Revenue during the three and six months endedJune 30, 2021 and 2020 are as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 SNM net revenue United States$ 39,243 $ 14,648 $ 70,988 $ 39,694 International markets 951 565 2,109 1,815$ 40,194 $ 15,213 $ 73,097 $ 41,509 Bulkamid net revenue United States$ 2,371 $ -$ 2,949 $ - International markets 3,304 - 4,196 -$ 5,675 $ -$ 7,145 $ - Total net revenue$ 45,869 $ 15,213 $ 80,242 $ 41,509 Cost of Goods Sold and Gross Margin Cost of goods sold consists primarily of acquisition costs of the components of our r-SNM System, third-party contract labor costs, overhead costs, as well as distribution-related expenses such as logistics and shipping costs. The overhead costs include the cost of material procurement and operations supervision and management personnel. We expect overhead costs as a percentage of revenue to decrease as our sales volume increases. Cost of goods sold also include other expenses such as scrap and inventory obsolescence. We expect cost of goods sold to increase in absolute dollars primarily as, and to the extent, our revenue grows. We expect gross margin to vary based on regional differences in pricing and discounts negotiated by customers. We calculate gross margin as gross profit divided by revenue. We expect future gross margin will be affected by a variety of factors, including manufacturing costs, the average selling price of our products, the implementation of cost-reduction strategies, inventory obsolescence costs, which may occur when new generations of our r-SNM System are introduced, and to a lesser extent, the sales mix betweenthe United States ,Canada ,Europe andAustralia as our average selling price inthe United States is expected to be higher than inCanada ,Europe andAustralia and foreign currency exchange rates. Our gross margin may increase over the long term to the extent our production volumes increase and we receive discounts on the costs charged by our contract manufacturers, thereby reducing our per unit costs. Additionally, our gross margin may fluctuate from quarter to quarter due to seasonality. Research and Development Expenses Research and development expenses consist primarily of employee compensation, including stock-based compensation, product development, including testing and engineering, and clinical studies to develop and support our r-SNM System, including clinical study management and monitoring, payments to clinical investigators, and data management. Other research and development expenses include consulting and advisory fees, royalty expense, travel expenses, and equipment-related expenses and other miscellaneous office and facilities expenses related to research and development programs. Research and development costs are expensed as incurred. We expect to continue incurring research and development expenses in the future as we develop next generation versions of our r-SNM System and expand to new markets. We expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts and new clinical development activities. 28 -------------------------------------------------------------------------------- Table of Contents The following table summarizes our research and development expenses by functional area for the three and six months endedJune 30, 2021 and 2020 (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Personnel related$ 4,856 $ 2,313 $ 9,734 $ 4,799 Clinical development 222 97 326 185 Contract fabrication and manufacturing 1,711 1,535 3,185 2,400 Contract R&D and consulting 2,076 1,940 4,743 4,905 Other R&D expenses 233 485 479 936 Total R&D expenses$ 9,098 $ 6,370 $ 18,467 $ 13,225 General and Administrative Expenses General and administrative expenses consist primarily of employee compensation, including stock-based compensation, and spending related to finance, information technology, human resource functions, consulting, legal, and professional service fees. Other general and administrative expenses include director and officer insurance premiums, investor relations costs, office-related expenses, facilities and equipment rentals, bad debt expense, and travel expenses. We expect our general and administrative expenses will significantly increase in absolute dollars as we increase our headcount and expand administrative personnel to support our growth and operations as a public company including finance personnel and information technology services. Additionally, we anticipate increased legal expenses associated with our patent infringement litigation with Medtronic. These expenses will further increase as we no longer qualify as an "emerging growth company" under the Jumpstart Our Business Startups (JOBS) Act, which requires us to comply with certain additional reporting requirements effectiveDecember 31, 2020 . We expect general and administrative expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows. Sales and Marketing Expenses Sales and marketing expenses consist primarily of employee compensation, including sales personnel commissions and stock-based compensation, trade shows, booth exhibition costs, and the related travel for these events. Other sales and marketing expenses include consulting and advisory fees. We expect sales and marketing expenses to continue to increase in absolute dollars as we expand our commercial infrastructure to both drive and support our expected growth in revenue. However, we expect sales and marketing expenses to decrease as a percentage of revenue in the long term primarily as, and to the extent, our revenue grows. Amortization of Intangible Assets Amortization of intangible assets consist primarily of amortization expense on patent license asset, manufacturing license asset, technology, and customer relationships. We amortize finite lived intangible assets over the period of estimated benefit using the straight-line method. Indefinite lived intangible assets are tested for impairment annually or whenever events or circumstances indicate that the carrying amount of the asset (asset group) may not be recoverable. If impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset. Fair value is generally determined using a discounted future cash flow analysis. Acquisition-Related Costs Acquisition-related costs consist of expenses incurred related to the Contura acquisition. Other Expense, Net Other expense, net consists primarily of interest expense payable under the Loan Agreement withSilicon Valley Bank and other debt arrangements, net of interest income earned on cash equivalents. 29 -------------------------------------------------------------------------------- Table of Contents Income Tax Expense Income tax expense consists of deferred tax liabilities in our foreign operations and state income taxes inCalifornia , net of income tax benefit from deferred tax assets in our foreign operations. We maintain a full valuation allowance for deferred tax assets in our domestic operations, including net operating loss carryforwards and research and development credits and other tax credits. Results of Operations The following table shows our results of operations for the three and six months endedJune 30, 2021 and 2020 (in thousands, except percentages): Period to Period Period to Period Three Months Ended June 30, Change Six Months Ended June 30, Change 2021 2020 2021 2020 Sacral neuromodulation net revenue$ 40,194 $ 15,213 $ 24,981$ 73,097 $ 41,509 $ 31,588 Bulkamid net revenue 5,675 - 5,675 7,145 - 7,145 Total net revenue 45,869 15,213 30,656 80,242 41,509 38,733 Cost of goods sold 17,135 8,463 8,672 31,109 18,358 12,751 Gross profit 28,734 6,750 21,984 49,133 23,151 25,982 Gross Margin 62.6 % 44.4 % 61.2 % 55.8 % Operating Expenses Research and development 9,098 6,370 2,728 18,467 13,225 5,242 General and administrative 8,035 5,537 2,498 14,661 13,190 1,471 Sales and marketing 25,411 14,220 11,191 46,339 30,789 15,550 Amortization of intangible assets 2,200 28 2,172 2,878 57 2,821 Acquisition-related costs - - - 4,414 - 4,414 Total operating expenses 44,744 26,155 18,589 86,759 57,261 29,498 Loss from operations (16,010) (19,405) 3,395 (37,626) (34,110) (3,516) Other Income (Expense) Interest income 7 65 (58) 15 707 (692) Interest and other expense (5,849) (443) (5,406) (7,299) (995) (6,304) Other expense, net (5,842) (378) (5,464) (7,284) (288) (6,996) Loss before income tax expense (21,852) (19,783) (2,069) (44,910) (34,398) (10,512) Income tax expense 3,296 - 3,296 2,741 1 2,740 Net loss (25,148) (19,783) (5,365) (47,651) (34,399) (13,252) Foreign currency translation adjustment 859 (108) 967 (1,343) (285) (1,058) Comprehensive loss$ (24,289) $ (19,891) $ (4,398)$ (48,994) $ (34,684) $ (14,310) Comparison of the Three Months EndedJune 30, 2021 and 2020 Net Revenue Net revenue was$45.9 million for the three months endedJune 30, 2021 and was primarily derived from the sale of our r-SNM System and Bulkamid to customers inthe United States and certain international markets. Net revenue was$15.2 million for the three months endedJune 30, 2020 and was derived from the sale of our r-SNM System to customers inthe United States ,Europe andCanada . The increase in net revenue is primarily due to increased sales of our r-SNM System as we expanded our customer base in theU.S. and international markets and 30 -------------------------------------------------------------------------------- Table of Contents the addition of$5.7 million in Bulkamid sales. Sales during the three months endedJune 30, 2020 were negatively impacted by the COVID-19 global pandemic, with a gradual recovery that began inMay 2020 . Cost of Goods Sold and Gross Margin We incurred$17.1 million of cost of goods sold for the three months endedJune 30, 2021 . We incurred$8.5 million of cost of goods sold for the three months endedJune 30, 2020 . Gross margin was 62.6% in the three months endedJune 30, 2021 , compared to 44.4% for the three months endedJune 30, 2020 . The increase in gross margin is primarily due to increased efficiencies resulting in higher absorption rates. Research and Development Expenses Research and development expenses increased$2.7 million , or 42.8%, to$9.1 million in the three months endedJune 30, 2021 , compared to$6.4 million in the three months endedJune 30, 2020 . The increase in research and development expenses was primarily attributable to an increase of$2.5 million in personnel costs including salaries and wages, stock-based compensation and other employee-related benefits. General and Administrative Expenses General and administrative expenses increased$2.5 million , or 45.1%, to$8.0 million in the three months endedJune 30, 2021 , compared to$5.5 million in the three months endedJune 30, 2020 , primarily as a result of an increase of$1.2 million in personnel costs including salaries and wages, stock-based compensation and other employee-related benefits and an increase of$1.2 million in legal and consulting costs. Sales and Marketing Expenses Sales and marketing expenses increased$11.2 million , or 78.7%, to$25.4 million in the three months endedJune 30, 2021 , compared to$14.2 million in the three months endedJune 30, 2020 . The increase in sales and marketing expenses was primarily due to an increase of$7.1 million related to personnel costs including salaries, wages, sales personnel commissions, stock-based compensation and other employee-related benefits, an increase of$1.3 million related to advertising expenses, and an increase of$1.3 million related to travel expenses. Amortization of Intangible Assets Amortization of intangible assets increased to$2.2 million in the three months endedJune 30, 2021 , compared to minimal amortization of intangible assets in the three months endedJune 30, 2020 . The increase in amortization of intangible assets was primarily due to an increase of technology and customer relationships acquired related to the Contura acquisition. Acquisition-Related Costs We recorded no acquisition-related costs for the three months endedJune 30, 2021 and 2020. Other Expense, Net Other expense, net was$5.8 million in the three months endedJune 30, 2021 consisting primarily of interest expense incurred related to the Loan Agreement withSilicon Valley Bank . Other expense, net was$0.4 million in the three months endedJune 30, 2020 consisting primarily of interest expense incurred related to the Loan Agreement withSilicon Valley Bank , partially offset by interest income earned on cash equivalents. Income Tax Expense Income tax expense was$3.3 million for the three months endedJune 30, 2021 primarily related to deferred tax liabilities generated in our foreign operations related to the Contura acquisition. We recorded no income tax expense for the three months endedJune 30, 2020 . Comparison of the Six Months EndedJune 30, 2021 and 2020 Net Revenue Net revenue was$80.2 million for the six months endedJune 30, 2021 and was primarily derived from the sale of our r-SNM System and Bulkamid to customers inthe United States and certain international markets. Net revenue was$41.5 million for the six months endedJune 30, 2020 and was derived from the sale of our r-SNM 31 -------------------------------------------------------------------------------- Table of Contents System to customers inthe United States ,Europe andCanada . The increase in net revenue is primarily due to increased sales of our r-SNM System as we expanded our customer base in theU.S. and international markets and the addition of$7.1 million in Bulkamid sales. Sales during the six months endedJune 30, 2020 were negatively impacted by the COVID-19 global pandemic, with a gradual recovery that began inMay 2020 . Cost of Goods Sold and Gross Margin We incurred$31.1 million of cost of goods sold for the six months endedJune 30, 2021 . We incurred$18.4 million of cost of goods sold for the six months endedJune 30, 2020 . Gross margin was 61.2% in the six months endedJune 30, 2021 , compared to 55.8% for the six months endedJune 30, 2020 . The increase in gross margin is primarily due to increased efficiencies resulting in higher absorption rates. Research and Development Expenses Research and development expenses increased$5.2 million , or 39.6%, to$18.5 million in the six months endedJune 30, 2021 , compared to$13.2 million in the six months endedJune 30, 2020 . The increase in research and development expenses was primarily attributable to an increase of$4.9 million in personnel costs including salaries and wages, stock-based compensation and other employee-related benefits. General and Administrative Expenses General and administrative expenses increased$1.5 million , or 11.2%, to$14.7 million in the six months endedJune 30, 2021 , compared to$13.2 million in the six months endedJune 30, 2020 , primarily as a result of an increase of$1.6 million in personnel costs including salaries and wages, stock-based compensation and other employee-related benefits, partially offset by a decrease of$0.6 million in bad debt expense. Sales and Marketing Expenses Sales and marketing expenses increased$15.6 million , or 50.5%, to$46.3 million in the six months endedJune 30, 2021 , compared to$30.8 million in the six months endedJune 30, 2020 . The increase in sales and marketing expenses was primarily due to an increase of$10.3 million related to personnel costs including salaries, wages, sales personnel commissions, stock-based compensation and other employee-related benefits, an increase of$2.3 million related to advertising expenses, and an increase of$1.0 million related to travel expenses. Amortization of Intangible Assets Amortization of intangible assets increased to$2.9 million in the six months endedJune 30, 2021 , compared to$0.1 million in the six months endedJune 30, 2020 . The increase in amortization of intangible assets was primarily due to an increase of technology and customer relationships acquired related to the Contura acquisition. Acquisition-Related Costs Acquisition-related costs was$4.4 million in the six months endedJune 30, 2021 related to the Contura acquisition. Other Expense, Net Other expense, net was$7.3 million in the six months endedJune 30, 2021 consisting primarily of interest expense incurred related to the Loan Agreement withSilicon Valley Bank . Other expense, net was$0.3 million in the six months endedJune 30, 2020 consisting primarily of interest expense incurred related to the Loan Agreement withSilicon Valley Bank , partially offset by interest income earned on cash equivalents. Income Tax Expense Income tax expense was$2.7 million for the six months endedJune 30, 2021 primarily related to deferred tax liabilities generated in our foreign operations related to the Contura acquisition. We recorded minimal income tax expense for the six months endedJune 30, 2020 . 32 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources We only began full-scale commercialization of our r-SNM System in late 2019. We have expended significant resources on research and development activities, growing our operations organization and building and training our sales organization. We incurred net losses of$47.7 million and$34.4 million for the six months endedJune 30, 2021 and 2020, respectively, and had an accumulated deficit of$282.2 million as ofJune 30, 2021 compared to$234.5 million atDecember 31, 2020 . We expect to continue to spend a significant amount of our existing resources on sales and marketing activities as we continue to commercialize and market our products inthe United States and internationally. As ofJune 30, 2021 , we had cash and cash equivalents of$231.1 million compared to$241.2 million atDecember 31, 2020 . We expect that our cash and cash equivalents on hand will be sufficient to fund our operations through at least the next 12 months. We fund our operations through a combination of proceeds from public offerings of our common stock, cash receipts from sales of our r-SNM System and proceeds from our Loan Agreement withSilicon Valley Bank . As ofJune 30, 2021 , we had$0.1 million in outstanding borrowings. We may need to raise additional financing in the future to facilitate our business operations. If we raise additional funds by issuing equity securities, our stockholders could experience dilution. Debt financing, if available, may involve covenants further restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing when needed to satisfy our liquidity requirements, we may be required to scale back our operations. Cash Flows The following table presents a summary of our cash flow for the periods indicated (in thousands): Six Months Ended June 30, 2021 2020
Net cash provided by (used in)
Operating activities$ (37,536) $ (36,282) Investing activities (141,234) 11,325 Financing activities 168,788 141,839
Effect of exchange rate changes on cash and cash equivalents (59)
(285)
Net (decrease) increase in cash and cash equivalents$ (10,041)
Net cash used in operating activities Net cash used in operating activities was$37.5 million for the six months endedJune 30, 2021 and consisted primarily of a net loss of$47.7 million and a decrease from changes in net operating assets of$13.1 million , partially offset by non-cash charges of$23.2 million . Net operating assets consisted primarily of inventory and accounts receivable due to the commercial growth of our r-SNM System inthe United States and the addition of Bulkamid sales. Non-cash charges consisted primarily of stock-based compensation. Net cash used in operating activities was$36.3 million for the six months endedJune 30, 2020 and consisted primarily of a net loss of$34.4 million and a decrease from changes in net operating assets of$11.4 million , partially offset by non-cash charges of$9.6 million . Net operating assets consisted primarily of accounts receivable and inventory due to the commercial launch of our r-SNM System inthe United States . Non-cash charges consisted primarily of stock-based compensation. 33 -------------------------------------------------------------------------------- Table of Contents Net cash (used in) provided by investing activities Net cash used in investing activities was$141.2 million for the six months endedJune 30, 2021 and consisted primarily of the$140.7 million paid for the acquisition of Contura. Net cash provided by investing activities was$11.3 million for the six months endedJune 30, 2020 and consisted primarily of sales and maturities of short-term investments, partially offset by purchases of property and equipment. Net cash provided by financing activities Net cash provided by financing activities was$168.8 million for the six months endedJune 30, 2021 and consisted primarily of$190.0 million in net proceeds received in theMay 2021 follow-on offering, partially offset by a net debt repayment of$26.0 million . Net cash provided by financing activities was$141.8 million for the six months endedJune 30, 2020 and consisted primarily of$140.5 million in net proceeds received in theMay 2020 follow-on offering. Indebtedness InJune 2021 , the principal amount, accrued interest, accrued loan fees, and prepayment fees related to the term loan under the Loan and Security Agreement withSilicon Valley Bank entered into inFebruary 2021 , were paid in full. The unamortized debt issuance costs of$4.4 million as ofMarch 31, 2021 was expensed and recognized as interest expense during the three months endedJune 30, 2021 . InJanuary 2021 , the principal amount, accrued interest, accrued loan fees, and prepayment fees related to the term loan under the Loan and Security Agreement withSilicon Valley Bank entered into inFebruary 2018 , were paid in full. The unamortized debt issuance costs of$0.4 million as ofDecember 31, 2020 was expensed and recognized as interest expense during the three months endedMarch 31, 2021 . We have no further indebtedness arrangements. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, as defined by applicable regulations of theSEC , that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Contractual Obligations Refer to the Liquidity and Capital Resources-Indebtedness section above for changes in debt obligations during the first half of fiscal year 2021; there were no other material changes to our long-term contractual obligations as reported in our most recent Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , as filed with theSEC onMarch 1, 2021 Critical Accounting Policies and Estimates Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , as filed with theSEC onMarch 1, 2021 . We have reviewed and determined that those critical accounting policies and estimates remain our critical accounting policies and estimates as of and for the six months endedJune 30, 2021 . Recent Accounting Pronouncements We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a significant impact on our condensed consolidated financial statements or do not otherwise apply to our operations. 34
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