INARI MEDICAL, INC.
You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes included in Part II, Item 8 of this Annual Report on Form
10-K.
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Exchange Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended ("the Exchange Act"). Forward-looking statements are identified by words
such as "believe," "will," "may," "estimate," "continue," "anticipate,"
"intend," "should," "plan," "expect," "predict," "could," "potentially" or the
negative of these terms or similar expressions. You should read these statements
carefully because they discuss future expectations, contain projections of
future results of operations or financial condition, or state other
"forward-looking" information. These statements relate to our future plans,
objectives, expectations, intentions and financial performance and the
assumptions that underlie these statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in this report in Part I, Item 1A - "Risk Factors," and
elsewhere in this report. Forward-looking statements are based on our
management's beliefs and assumptions and on information currently available to
our management. These statements, like all statements in this report, speak only
as of their date, and we undertake no obligation to update or revise these
statements in light of future developments. We caution investors that our
business and financial performance are subject to substantial risks and
uncertainties.
Overview
We are a commercial-stage medical device company focused on developing products to treat and transform the lives of patients suffering from venous diseases. Our initial product offering consists of two minimally-invasive, novel catheter-based mechanical thrombectomy devices. We purpose-built our products for the specific characteristics of the venous system and the treatment of the two distinct manifestations of venous thromboembolism, or VTE - deep vein thrombosis and pulmonary embolism. Our ClotTriever product is FDA-cleared for the treatment of DVT. Our FlowTriever product is the first thrombectomy system FDA-cleared for the treatment of pulmonary embolism, or PE, and is also FDA-cleared for clot in transit in the right atrium. We believe the best way to treat VTE and improve the quality of life of patients suffering from this disease is to safely and effectively remove the blood clot. With that in mind, we designed and purpose-built our ClotTriever and FlowTriever products to remove large clots from large vessels and eliminate the need for thrombolytic drugs. We believe our products are transformational and could be the catalyst to drive an evolution of treatment for venous diseases, establishing our products as the standard of care for DVT and PE. We believe our venous-focused commercial organization provides a significant competitive advantage. Our most important relationships are between our sales representatives and our treating physicians, which include interventional cardiologists, interventional radiologists and vascular surgeons. We have developed systems and processes to harness the information gained from these relationships and we leverage this information to rapidly iterate products, introduce and execute physician education and training programs and scale our sales organization. We market and sell our products to hospitals, which are reimbursed by various third-party payors. We have dedicated meaningful resources to building a direct sales force inthe United States , and we continue to expand our sales organization through additional sales representatives and territories. OnMay 27, 2020 , we completed our IPO, which resulted in the issuance and sale of 9,432,949 shares of common stock, including 1,230,384 shares sold pursuant to the exercise of the underwriters' over-allotment option, at the IPO price of$19.00 per share. We received net proceeds of approximately$163.0 million from the IPO, after deducting underwriters' discounts and commissions of$12.6 million and offering costs of$3.7 million . Prior to our IPO, our primary sources of capital were private placements of preferred stock, debt financing arrangements and revenue from sales of our products. Since inception, we had raised a total of approximately$54.2 million in net proceeds from private placements of preferred stock. As ofDecember 31, 2020 , we had cash and cash 97
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equivalents and short-term investments of
For the year ended
COVID-19
InDecember 2019 , a novel strain of coronavirus, SARS-CoV-2, was identified inWuhan, China . Since then, SARS-CoV-2, and the resulting disease, COVID-19, has spread to most countries, including all 50 states inthe United States . In response to the pandemic, numerous state and local jurisdictions imposed and may continue to impose from time to time "shelter-in-place" orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. For example, inthe United States , governmental authorities recommended, and in certain cases required, that elective, specialty and other procedures and appointments be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients. Similarly, inMarch 2020 , the governor ofCalifornia , where our headquarters are located, issued a "stay at home" order limiting non-essential activities, travel and business operations. InDecember 2020 , the governor ofCalifornia issued an additional regional "stay at home" order with tiered restrictions based on each region's ICU availability. Such orders or restrictions resulted in reduced operations at our headquarters (including our manufacturing facility), work stoppages, slowdowns and delays, travel restrictions and cancellation of events. Taken as a whole, these orders and restrictions significantly decreased the number of procedures performed using our products, particularly during the second quarter of 2020, and otherwise negatively impacted our operations, including new customer procurement and onboarding. In response to the impact of COVID-19, beginning in the second quarter of 2020, we implemented a variety of measures to help us manage through its impact and position us to resume operations quickly and efficiently once these restrictions were lifted. These measures existed across several operational areas and included:
• Continuing to build our team, including identifying and recruiting our
next group of new sales representatives;
• Enhancing our physician outreach and training with the launch of our
Clot Warrior Academy consisting of a series of live webinars and an
online education portal;
• Continuing to support procedures using our products both in-person and
virtually;
• Adapting, expanding and improving our sales training programs and
customer engagement to address the current environment;
• Continuing to expand our engineering infrastructure and focusing on
organic opportunities;
• Producing approximately four months' worth of inventory before
temporarily suspending production in April 2020 ;
• Continuing to protect and support our employees, including no layoffs,
furloughs or compensation reductions to date;
• Executing a successful work-from-home strategy for administrative
functions that includes launching various efficiency projects in
information technology, accounting and operations;
• Monitoring and reviewing recent case studies of VTE patients suffering
from COVID-19;
• Initiating market assessment and commercial entry planning for our
international expansion; and
• Accessing the remaining $10.0 million on our term loan on March 23,
2020 , which was repaid in full along with all our long term-debt in
August 2020 .
Despite the negative impacts from COVID-19, for the year ended
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procedures in the year ended December 31, 2019 . During the second quarter of
2020, we experienced disruptions to our procedure volume beginning in mid-March
as a result of COVID-19, and weekly procedure volumes declined by approximately
40% by mid-April when compared to weekly procedure volumes in early March. The
decrease in procedure volume impacted DVT procedures and PE procedures
relatively equally, with both types of procedures declining during this period.
However, we saw a recovery in procedure volume in June that was higher than our
pre- COVID-19 peak. During the third and fourth quarters, we saw continued
sequential growth beyond previous quarters.
While we are encouraged by our third and fourth quarters results, we are aware
that the actual and perceived impact of COVID-19 is changing and cannot be
predicted. As a result, we cannot assure you that our recent procedure volumes
are indicative of future results or that we will not experience additional
negative impacts associated with COVID-19, which could be significant. The
COVID-19 pandemic has negatively impacted our business, financial condition and
results of operations by significantly decreasing and delaying the number of
procedures performed using our products, and we expect the pandemic could
continue to negatively impact our business, financial condition and results of
operations.
Procedure Volume
We regularly review various operating and financial metrics to evaluate our
business, measure our performance, identify trends affecting our business,
formulate our business plan and make strategic decisions. We believe the number
of procedures performed to treat DVT and PE using our products is an indicator
of our ability to drive adoption and generate revenue. We believe this is an
important metric for our business; however, we anticipate that additional
metrics may become important as our business grows. The following table lists
the number of procedures performed in each of the three-month periods as
indicated:
Three Months Ended
Sept 30, June 30, March 31, Sept 30, June 30, March 31,
Procedures(1) Dec 31, 2020 2020 2020
2020 Dec 31, 2019 2019 2019 2019
DVT 2,400 2,000 1,400 1,300 1,000 700 500 300
PE 2,200 1,700 1,100 1,100 800 600 400 300
4,600 3,700 2,500 2,400 1,800 1,300 900 600
(1) We define a procedure as any instance in which a physician treats DVT or PE
using our products. We estimate the number of procedures performed based on
records created by our sales representatives. This metric has limitations as
we only have records for the procedures where our sales representatives have
notice that a procedure has been performed. Revenue is recognized based on
hospital purchase orders, not based on the procedure records created by our
sales representatives. Numbers are rounded to the nearest hundred.
Components of our Results of Operations
Revenue
We currently derive all our revenue from the sale of our ClotTriever and FlowTriever products to hospitals inthe United States . Our customers typically purchase an initial stocking order of our products and then reorder replenishment product as procedures are performed. No single customer accounted for 10% or more of our revenue during the years endedDecember 31, 2020 , 2019 and 2018. For the year endedDecember 31, 2020 , approximately 55% of our customers used both of our products, 33% used ClotTriever only and 12% used FlowTriever only. We expect revenue to increase in absolute dollars as we expand our sales organization and sales territories, add customers, expand the base of physicians that are trained to use our products, expand awareness of our products with new and existing customers and as physicians perform more procedures using our products. Revenue for ClotTriever and FlowTriever products as a percentage of total revenue is as follows: Years Ended December 31, 2020 2019 2018 ClotTriever 37 % 38 % 41 % FlowTriever 63 % 62 % 59 % 99
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For the year ended
Cost of Goods Sold and Gross Margin
We manufacture and/or assemble all our products at our facility inIrvine, California . Cost of goods sold consists primarily of the cost of raw materials, components, direct labor and manufacturing overhead. Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management, including stock-based compensation. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs and royalty expense. Shipping costs billed to customers are reported as a reduction of cost of goods sold. We expect cost of goods sold to increase in absolute dollars as our revenue grows and more of our products are sold, however, we also expect to realize opportunities to increase operating leverage in our manufacturing operations. We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, headcount and cost-reduction strategies. Our gross margin could fluctuate from quarter to quarter as we introduce new products, adopt new manufacturing processes and technologies, and as we expand internationally. Treatments using the FlowTriever may involve one or more Triever aspiration catheters and one or more FlowTriever catheters. We charge customers the same price for each FlowTriever procedure, regardless of the number of components used. As a result, changes in the number of components used, the cost of these components and the introduction of additional components can impact our gross margin.
Research and Development Expenses
Research and development, or R&D, expenses consist primarily of engineering, product development, clinical studies to develop and support our products, regulatory expenses, and other costs associated with products that are in development. These expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility overhead expenses. Additionally, R&D expenses include costs associated with our clinical trials and registries, including clinical study design, clinical study site initiation and study costs, data management, and internal and external costs associated with our regulatory compliance, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings. We expense R&D costs as incurred. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trials and registries and other related activities.
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling and marketing functions, physician education programs, commercial operations and analytics, finance, information technology and human resource functions. Other SG&A expenses include sales commissions, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, physician training, professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses and facilities-related expenses. We expect SG&A expenses to continue to increase in absolute dollars as we expand our sales and marketing organization and infrastructure to both drive and support the anticipated growth in revenue and due to additional legal, accounting, insurance and other expenses associated with being a public company. Interest Income
Interest income consists primarily of interest income earned on our cash and cash equivalents.
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Interest Expense
Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our indebtedness.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities consists of gains and losses resulting from the remeasurement of the fair value of our preferred stock warrant liabilities at each balance sheet date. Upon the closing of our IPO, our outstanding preferred stock warrants automatically converted into warrants to purchase shares of our common stock. At such time, the final fair value of the warrant liability was reclassified to stockholders' equity (deficit). We will no longer record any related periodic fair value adjustments.
Results of Operations
Comparison of the years ended
The following table sets forth the components of our unaudited statements of
operations in dollars and as percentage of revenue for the periods presented
(dollars in thousands):
Years Ended December 31,
2020 % 2019 % Change $
Revenue $ 139,670 100.0 % $ 51,129 100.0 % $ 88,541
Cost of goods sold 13,106 9.4 % 5,911 11.6 % 7,195
Gross profit 126,564 90.6 % 45,218 88.4 % 81,346
Operating expenses:
Research and development 18,399 13.2 % 7,220 14.1 % 11,179
Selling, general and administrative 89,746 64.3 % 37,197 72.8 % 52,549
Total operating expenses 108,145 77.5 % 44,417 86.9 % 63,728
Income from operations 18,419 13.1 % 801 1.5 % 17,618
Other income (expense)
Interest income 484 0.3 % 89 0.2 % 395
Interest expense (1,135 ) (0.8 %) (920 ) (1.8 %) (215 )
Other expenses (662 ) (0.5 %) (205 ) (0.4 %) (457 )
Change in fair value of warrant
liabilities (3,317 ) (2.4 %) (957 ) (1.9 %) (2,360 )
Total other expenses, net (4,630 ) (3.4 %) (1,993 ) (3.9 %) (2,637 )
Net income (loss) $ 13,789 9.7 % $ (1,192 ) (2.4 %) $ 14,981
Revenue. Revenue increased $88.6 million , or 173%, to $139.7 million during the
year ended December 31, 2020 , compared to $51.1 million during the year ended
December 31, 2019 . The increase in revenue was due primarily to an increase in
the number of products sold. The increase in revenue was offset in part by the
negative impact of the COVID-19 pandemic on procedure volume and new orders
during the year ended December 31, 2020 .
Cost of Goods Sold and Gross Margin. Cost of goods sold increased $7.2 million ,
or 122%, to $13.1 million during the year ended December 31, 2020 , compared to
$5.9 million during the year ended December 31, 2019 . This increase was due to
the increase in the number of products sold and additional manufacturing
overhead costs incurred as we invested significantly in our operational
infrastructure to support anticipated future growth. Cost of goods sold for the
year ended December 31, 2020 was also impacted by $1.1 million in idle
production capacity costs associated with the COVID-19 pandemic. Gross margin
for the year ended December 31, 2020 increased to 90.6%, compared to 88.4% for
the year ended December 31, 2019 due to an increase in the average selling
prices of our products and improved operating leverage.
Research and Development Expenses. R&D expenses increased
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increase in R&D expenses was primarily due to increases of
Selling, General and Administrative Expenses. SG&A expenses increased$52.5 million , or 141%, to$89.7 million during the year endedDecember 31, 2020 , compared to$37.2 million during the year endedDecember 31, 2019 . The increase in SG&A costs was primarily due to an increase of$41.9 million in personnel-related expenses as a result of increased headcount across our organization and increased commissions due to higher revenue, an increase of$3.8 million in professional fees, an increase of$2.4 million in insurance costs, an increase of$0.8 million in facility costs, and an increase in$0.8 million in travel costs. Interest Income. Interest income increased by$395,000 to$484,000 during the year endedDecember 31, 2020 , compared to$89,000 during the year endedDecember 31, 2019 . The increase in interest income was primarily due to an increase in average cash, cash equivalents and short-term investments during the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 , resulting from the receipt of IPO proceeds inMay 2020 . Interest Expense. Interest expense increased by$0.2 million or 23% during the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 . This increase was primarily due to higher average borrowings under our credit facilities during the year endedDecember 31, 2020 . Change in Fair Value of Warrant Liabilities. Change in fair value of warrant liabilities increased$2.4 million to$3.3 million for the year endedDecember 31, 2020 , compared to$0.9 million for year endedDecember 31, 2019 . This increase was due to the fair value remeasurement of our convertible preferred stock warrant liabilities. Other expenses. Other expenses for the year endedDecember 31, 2020 consisted primarily of a$0.7 million loss on extinguishment of debt related to the payoff of our debt facility with Signature Bank.
Comparison of the years ended
The following table sets forth the components of our statements of operations in
dollars and as percentage of revenue for the periods presented (dollars in
thousands):
Years Ended December 31,
2019 % 2018 % Change $
Revenue $ 51,129 100.0 % $ 6,829 100.0 % $ 44,300
Cost of goods sold 5,911 11.6 % 1,281 18.8 % 4,630
Gross profit 45,218 88.4 % 5,548 81.2 % 39,670
Operating expenses:
Research and development 7,220 14.1 % 3,990 58.4 % 3,230
Selling, general and administrative 37,197 72.8 % 10,698 156.7 % 26,499
Total operating expenses 44,417 86.9 % 14,688 215.1 % 29,729
Income (loss) from operations 801 1.5 % (9,140 ) (133.9 %) 9,941
Other income (expense)
Interest income 89 0.2 % 92 1.3 % (3 )
Interest expense (920 ) (1.8 %) (887 ) (13.0 %) (33 )
Other expenses (205 ) (0.4 %) (133 ) (1.9 %) (72 )
Change in fair value of warrant
liabilities (957 ) (1.9 %) (85 ) (1.2 %) (872 )
Total other expenses, net (1,993 ) (3.9 %) (1,013 ) (14.8 %) (980 )
Net loss $ (1,192 ) (2.4 %) $ (10,153 ) (148.7 %) $ 8,961
Revenue. Revenue increased $44.3 million , or 648.7%, to $51.1 million during the
year ended December 31, 2019 , compared to $6.8 million during the year ended
December 31, 2018 . The increase in revenue was due to an increase in the number
of products sold and an increase in the average selling prices of our products.
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Cost of Goods Sold and Gross Margin. Cost of goods sold increased $4.6 million ,
or 361.4%, to $5.9 million during the year ended December 31, 2019 , compared to
$1.3 million during the year ended December 31, 2018 . This increase was due to
the increase in the number of products sold and additional manufacturing
overhead costs as we relocated to our new facility in Irvine, California and
invested significantly in our operational infrastructure to support anticipated
future growth. Gross margin for the year ended December 31, 2019 increased to
88.4%, compared to 81.2% in the year ended December 31, 2018 due to an increase
in the average selling prices of our products and improved operating leverage.
Research and Development Expenses. R&D expenses increased $3.2 million , or
80.9%, to $7.2 million during the year ended December 31, 2019 , compared to $4.0
million during the year ended December 31, 2018 . The increase in R&D expenses
was primarily due to an increase of $1.3 million of personnel-related expenses,
$1.1 million of clinical study and registry expenses and $0.5 million in
materials and supplies.
Selling, General and Administrative Expenses. SG&A expenses increased $26.5
million , or 247.7%, to $37.2 million during the year ended December 31, 2019 ,
compared to $10.7 million during the year ended December 31, 2018 . The increase
in SG&A costs was primarily due to an increase of $20.1 million in personnel-
related expenses as a result of increased headcount of our sales organization,
increased commissions due to higher revenue and an increase in the number of
products sold, an increase of $2.1 million in professional fees, an increase of
$1.6 million in travel costs and an increase of $1.2 million in marketing and
event costs.
Interest Income. Interest income decreased by 3.3% during the year ended
December 31, 2019 , compared to the year ended December 31, 2018 . The decrease in
interest income was primarily due to a decrease in average cash and cash
equivalents during the year ended December 31, 2019 , compared to the year ended
December 31, 2018 .
Interest Expense. Interest expense increased by 3.7% during the year ended
December 31, 2019 , compared to the year ended December 31, 2018 . This increase
was primarily due to $10.0 million of additional borrowings drawn under the
credit facility with Signature Bank in December 2019 . As of December 31, 2018 ,
the aggregate outstanding principal balance under the amended and restated loan
and security agreement with East West Bank was $10.0 million . As of December 31,
2019 , the aggregate outstanding principal balance under the credit facility with
Signature Bank was $20.0 million .
Change in Fair Value of Warrant Liabilities. Change in fair value of warrant
liabilities increased $0.9 million to $1.0 million for the year ended December
31, 2019 , compared to $0.1 million for the year ended December 31, 2018 . This
increase was due to the fair value remeasurement of our convertible preferred
stock warrant liabilities.
Other Expenses. Other expenses increased to
Selected Unaudited Quarterly Financial Information
The following table represents certain unaudited quarterly information for the
periods presented. The unaudited quarterly information set forth below has been
prepared on a basis consistent with our audited annual financial statements
included elsewhere in this Annual Report and includes, in our opinion, all
normal recurring adjustments necessary for the fair presentation of the results
of operations for the periods presented. Our historical unaudited quarterly
results are not necessarily indicative of the results that may be expected in
the future.
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The following unaudited quarterly financial information for 2020 and 2019 should
be read in conjunction with our audited financial statements and related notes
thereto included elsewhere in this Annual Report (in thousands, except share and
per share amounts):
2020 Quarters ended
March 31 June 30 September 30 December 31
Revenue $ 26,953 $ 25,392 $ 38,715 $ 48,610
Cost of goods sold 2,706 3,487 3,228 3,686
Gross profit 24,247 21,905 35,487 44,924
Operating expenses
Research and development 3,018 3,628 5,217 6,535
Selling, general and administrative 16,393 18,880 23,080 31,393
Total operating expenses 19,411 22,508 28,297 37,928
Income (loss) from operations 4,836 (603 ) 7,190 6,996
Other income (expense)
Interest income 55 146 208 75
Interest expense (346 ) (463 ) (251 ) (75 )
Change in fair value of warrant
liabilities (433 ) (2,884 ) - -
Other expenses - - (651 ) (11 )
Total other expenses (724 ) (3,201 ) (694 ) (11 )
Net income (loss) $ 4,112 $ (3,804 ) $ 6,496 $ 6,985
Net income (loss) per share
Basic $ 0.64 $ (0.16 ) $ 0.13 $ 0.14
Diluted $ 0.09 $ (0.16 ) $ 0.12 $ 0.13
Weighted average common shares used to
compute net
income (loss) per share,
Basic 6,398,897 24,295,900 48,335,443 48,742,302
Diluted 44,952,704 24,295,900 55,355,846 55,221,012
2019 Quarters ended
March 31 June 30 September 30 December 31
Revenue $ 6,945 $ 10,072 $ 14,225 $ 19,887
Cost of goods sold 931 1,331 1,510 2,139
Gross profit 6,014 8,741 12,715 17,748
Operating expenses
Research and development 1,209 1,580 1,722 2,709
Selling, general and administrative 5,426 7,803 10,100 13,868
Total operating expenses 6,635 9,383 11,822 16,577
Income (loss) from operations (621 ) (642 ) 893 1,171
Other income (expense)
Interest income 23 24 19 23
Interest expense (227 ) (229 ) (226 ) (238 )
Change in fair value of warrant
liabilities (123 ) (118 ) (320 ) (395 )
Other expenses - - - (205 )
Total other expenses (327 ) (323 ) (527 ) (815 )
Net income (loss) $ (948 ) $ (965 ) $ 366 $ 356
Net income (loss) per share
Basic $ (0.17 ) $ (0.17 ) $ 0.06 $ 0.06
Diluted $ (0.17 ) $ (0.17 ) $ 0.01 $ 0.01
Weighted average common shares used to
compute net
income (loss) per share,
Basic 5,599,815 5,753,332 5,962,665 6,226,610
Diluted 5,599,815 5,753,332 43,911,252 44,660,631
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Liquidity and Capital Resources
To date, our primary sources of capital have been the net proceeds we received through private placements of preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. OnMay 27, 2020 , we completed our IPO, including the underwriters full exercise of their over-allotment option, selling 9,432,949 shares of our common stock at$19.00 per share. Upon completion of our IPO, we received net proceeds of approximately$163.0 million , after deducting underwriting discounts and commissions and offering expenses. InAugust 2020 , we repaid in full the$30.0 million of principal owed under the credit facility with Signature Bank. As ofDecember 31, 2020 , we had cash and cash equivalents of$114 million , short-term investments of$50.0 million , and an accumulated deficit of$27.4 million . InSeptember 2020 , we entered into a new revolving Credit Agreement withBank of America which provides for loans up to a maximum of$30 million . As ofDecember 31, 2020 , we had no principal outstanding under the Credit Agreement and the amount available to borrow was approximately$28.5 million .
Based on our current planned operations, we expect that our cash and cash equivalents and available borrowings will enable us to fund our operating expenses for at least 12 months from the date hereof.
If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products as a result of the risks described in this Annual Report, we may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us. Additional capital may not be available on reasonable terms, or at all.
Cash Flows
The following table summarizes our cash flows for each of periods indicated (in
thousands):
Years Ended December 31,
2020 2019 2018
Net Cash (used in) provided by:
Operating activities $ 1,912 $ (4,936 ) $ (10,892 )
Investing activities (55,437 ) (3,144 ) (753 )
Financing activities 144,115 10,223 26,758
Net increase in cash and cash equivalent $ 90,590 $ 2,143 $ 15,113 Net cash provided by operating activities for the year endedDecember 31, 2020 was$1.9 million , consisting primarily of net income of$13.8 million and non-cash charges of$9.3 million , offset by an increase in net operating assets of$21.2 million . The increase in net operating assets was primarily due to increases in accounts receivable of$16.7 million and inventories of$6.6 million to support the growth of our operations, an increase in prepaid and other assets of$2.5 million primarily from prepaid insurance, which were partially offset by increases in accounts payable of$0.5 million and accrued liabilities of$4.1 million due to timing of payments and growth of our operations. The non-cash charges primarily consisted of$3.3 million in change in fair value of the preferred stock warrant liabilities, stock-based compensation of$3.5 million ,$1.4 million in depreciation, and$0.6 million in loss on extinguishment of debt. Net cash used in operating activities for the year endedDecember 31, 2019 was$4.9 million , consisting primarily of a net loss of$1.2 million and an increase in net operating assets of$6.3 million , partially offset by non-cash charges of$2.5 million . The increase in net operating assets was primarily due to increases in accounts receivable of$9.0 million and inventories of$2.9 million to support the growth of our operations, an increase in 105 -------------------------------------------------------------------------------- prepaid and other assets of$1.2 million from deferred offering costs, partially offset by increases in accounts payable of$1.8 million and accrued liabilities of$4.9 million due to timing of payments and growth of our operations. The non-cash charges primarily consisted of$0.6 million in depreciation, stock-based compensation of$0.5 million , non-cash interest expense and other charges related to the amended and restated loan and security agreement withEast West Bank and credit facility with Signature Bank of$0.3 million , and the change in fair value of the preferred stock warrant liability of$1.0 million . Net cash used in operating activities for the year endedDecember 31, 2018 was$10.9 million , consisting primarily of a net loss of$10.2 million and an increase in net operating assets of$1.5 million , partially offset by non-cash charges of$0.8 million . The increase in net operating assets was primarily due to an increase in accounts receivable of$2.2 million due to increase in sales and inventories of$0.6 million to support the growth of our operations, partially offset by increases in accounts payable of$0.4 million and accrued liabilities of$0.8 million due to timing of payments and growth of our operations. Non-cash charges consisted primarily of$0.3 million in depreciation, stock-based compensation of$0.3 million , non-cash interest expense and other charges related to the amended and restated loan and security agreement withEast West Bank of$0.1 million and the change in fair value of the convertible preferred stock warrants of$0.1 million .
Net cash used in investing activities for the year endedDecember 31, 2020 was$55.4 million consisting of purchases of short-term securities of$50.0 million and purchases of property and equipment of$5.4 million . Net cash used in investing activities for the years endedDecember 31, 2019 and 2018 was$3.1 million and$0.8 million , respectively, consisting of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year endedDecember 31, 2020 was$144.1 million primarily consisting of net IPO proceeds of$164.4 million and net proceeds of$10.0 million received from additional borrowings under the credit facility with Signature Bank, partially offset by the$30.3 million repayment of the amount outstanding under the credit facility. Net cash provided by financing activities for the year endedDecember 31, 2019 was$10.2 million primarily consisting of net proceeds of$10.0 million received from additional borrowings under the credit facility with Signature Bank,$0.8 million in proceeds received from subscription receivable,$0.5 million in deferred financing costs paid, and$0.1 million in proceeds received from the exercise of stock options. Net cash provided by financing activities for the year endedDecember 31, 2018 of$26.8 million primarily relates to net proceeds of$26.9 million from the issuance of our Series C convertible preferred stock and$0.2 million of debt financing costs.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by applicable regulations of theU.S. Securities and Exchange Commission , that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations and Commitments
The following table shows our contractual obligations due by period as ofDecember 31, 2020 : Less than More than 1 year 1-3 years 4-5 years 5 years Total Operating lease obligations$ 1,506 $ 4,636 $ 4,536 $ 13,672 $ 24,350 Total$ 1,506 $ 4,636 $ 4,536 $ 13,672 $ 24,350 106
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Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. While our significant accounting policies are more fully described in the Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Revenue Recognition
OnJanuary 1, 2019 , we adopted Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, using the modified retrospective method applied to contracts which were not completed as of that date. Revenue for reporting periods beginning afterJanuary 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605, Revenue Recognition. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine whether revenue recognition for arrangements is within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Product sales of the FlowTriever and ClotTriever systems are made to hospitals inthe United States utilizing our direct sales force. Revenue is comprised of product revenue net of returns, administration fees and sales rebates. Performance Obligation-We have revenue arrangements that consist of a single performance obligation, delivery of our products. The satisfaction of this performance obligation occurs with the transfer of control of our product to our customers, either upon shipment or delivery of the product. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as rebate and administrative fees, where applicable. We provide a 30-day unconditional right of return period. We establish estimated provisions for returns at the time of sale based on historical experience. Historically, the actual product returns have been immaterial to our consolidated financial statements. Assuming all other revenue recognition criteria have been met, we recognize revenue for arrangements where the Company has satisfied its performance obligation of delivering the product. For sales where our sales representatives hand deliver products directly to the hospital, control of the products transfers to the customer upon such hand delivery. For sales where products are shipped, control of the products transfers either upon shipment or delivery of the products to the customer, depending on the shipping terms and conditions. As ofDecember 31, 2020 and 2019, we recorded$498,000 and$330,000 , respectively, of unbilled receivables, which are included in accounts receivable, net, in the accompanying consolidated balance sheets. 107
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Revenue for ClotTriever and FlowTriever products as a percentage of total revenue was derived as follow:
Years Ended December 31,
2020 2019 2018
ClotTriever 37 % 38 % 41 %
FlowTriever 63 % 62 % 59 %
We offer payment terms to our customers of less than three months and these terms do not include a significant financing component. We exclude taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.
We offer a standard warranty to all customers. We do not sell any warranties on a standalone basis. Our warranty provides that its products are free of material defects and conform to specifications, and we offer to repair, replace or refund the purchase price of defective products. This assurance does not constitute a service and is not considered a separate performance obligation. We estimate warranty liabilities at the time of revenue recognition and record it as a charge to cost of goods sold. Costs associated with product sales include commissions and are recorded in selling, general and administrative expenses. We apply the practical expedient and recognizes commissions as expense when incurred because the amortization period is less than one year.
Cash, Cash Equivalents and Short-Term Investments
We consider cash on hand, cash in demand deposit accounts including money market funds, and instruments with a maturity date of 90 days or less at date of purchase to be cash and cash equivalents. We maintain our cash, cash equivalent and restricted cash balances with banks. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, deposits of up to$250,000 atFDIC -insured institutions are covered byFDIC insurance. At times, deposits may be in excess of theFDIC insurance limit; however, management does not believe we are exposed to any significant related credit risk. Short-term investments have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. We determine the appropriate classification of our investments in debt securities at the time of purchase. Available-for-sale securities with original maturities less than 12 months at the date of purchase are considered short-term investments.
Accounts Receivable, net
We record trade accounts receivable at the invoiced amount, net of any allowance for doubtful accounts. Any allowance for doubtful accounts is developed based upon several factors including the customers' credit quality, historical write-off experience and any known specific issues or disputes which exist as of the balance sheet date. Account receivable balances are written off against the allowance after appropriate collection efforts are exhausted. The allowance for doubtful accounts was$62,000 as ofDecember 31, 2020 and 2019, and no accounts receivable write offs were recognized during the years endedDecember 31, 2020 , 2019 and 2018. Despite the Company's efforts to minimize credit risk exposure, customers could be adversely affected if future economic and industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. The full effects of COVID-19 on the Company's customers are highly uncertain and cannot be predicted. As a result, the Company's future collection experience can differ significantly from historical collection trends. If the Company's clients experience a negative impact on their cash flows, it could have a material adverse effect on the Company's results of operations and financial condition. 108
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Inventories, net
Inventories, which includes material, labor and overhead costs, are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. We regularly review inventory quantities in process and on hand, and when appropriate, record a provision for obsolete and excess inventory after consideration of actual loss experience, projected future demand, and remaining shelf life. Our policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected requirements based on future demand and as compared to remaining shelf life. The estimate of excess quantities is subjective and primarily dependent on our estimates of future demand for a particular product. If the estimate of future demand is inaccurate based on actual sales, we may increase the write down for excess inventory for that component and record a charge to inventory impairment in the accompanying consolidated statements of operations and comprehensive income (loss).
Stock-Based Compensation
We maintain an equity incentive plan that permits the grant of share-based
awards, such as stock grants and incentives and non-qualified stock options to
employees, directors, consultants and advisors. We also offer an employee stock
purchase plan which allows participating employees to purchase shares of our
common stock at a discount through payroll deductions.
We recognize equity-based compensation expense for awards of equity instruments
to employees and directors based on the grant date fair value of those awards.
We estimate the fair value of our stock option awards made to employees
and non-employees based on the estimated fair values as of the grant date using
the Black-Scholes option-pricing model, net of estimated forfeitures. The fair
value of restricted stock unit ("RSU") awards is determined based on the number
of units granted and the closing price of the Company's common stock as of the
grant date. The fair value of each purchase under the employee stock purchase
plan ("ESPP") is estimated at the beginning of the offering period using the
Black-Scholes option pricing model.
The model requires us to make a number of assumptions including expected
volatility, expected term, risk-free interest rate and expected dividend yield.
We expense the fair value of our equity-based compensation awards on a
straight-line basis over the requisite service period, which is the period in
which the related services are received.
Recent Accounting Pronouncements
Please refer to Note 2 to our consolidated financial statements appearing under Part 2, Item 8 for a discussion of new accounting standards updates that may impact us.
JOBS Act Accounting Election
As an emerging growth company under the JOBS Act, we are eligible to take
advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not emerging growth companies.
Thus, an emerging growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We
have elected to take advantage of this extended transition period and, as a
result, our operating results and financial statements may not be comparable to
the operating results and financial statements of companies who have adopted the
new or revised accounting standards.
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