UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM
_________________________________________________
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
_________________________________________________
ASENSUS SURGICAL, INC.
(Exact name of registrant as specified in its charter)
_________________________________________________
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated Filer | ☐ | |
| | ☒ | Smaller reporting company | | |
| Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
|
| | |
The number of shares outstanding of the registrant’s common stock, as of November 7, 2022 was
ASENSUS SURGICAL, INC.
TABLE OF CONTENTS FOR FORM 10-Q
| PART I. |
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| Item 1. |
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| Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) |
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| Condensed Consolidated Statements of Stockholders’ Equity (unaudited) |
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| Notes to Condensed Consolidated Financial Statements (unaudited) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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FORWARD-LOOKING STATEMENTS
In addition to historical financial information, this report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report, including statements regarding future events, our future financial performance, our future business strategy and the plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “in the event that,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements, including the impact of the coronavirus (COVID-19) pandemic on our operating results. Readers are urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business, operating results, financial condition and stock price, including without limitation the disclosures made under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Financial Statements,” “Notes to Condensed Consolidated Financial Statements “and “Risk Factors” in this report, as well as the disclosures made in the Asensus Surgical, Inc. Annual Report on Form 10-K for the year ended December 31, 2021 (the “Fiscal 2021 Form 10-K”), and other filings we make with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations except as required by applicable law. To the extent that our business is negatively impacted due to a variety of factors, including, but not limited to, the impact of COVID-19 and other geopolitical factors on our operating results, and the demand for our products, we may implement longer-term cost reduction efforts in order to mitigate such impact. References in this report to “we,” “our,” “us,” or the “Company” refer to Asensus Surgical, Inc., including its subsidiaries Asensus Surgical US, Inc., Asensus International, Inc., Asensus Surgical Italia S.r.l., Asensus Surgical Europe S.à.r.l., Asensus Surgical Taiwan Ltd., Asensus Surgical Japan K.K., Asensus Surgical Israel Ltd., Asensus Surgical Netherlands B.V., and Asensus Surgical Canada, Inc.
Any disclosure in this report regarding the receipt of CE Mark or Section 510(k) clearance for any of the Company’s products does not mean or infer any endorsement of the Company’s products by any government agency including, without limitation, the U.S. Food and Drug Administration, or FDA.
Asensus Surgical, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Product | $ | $ | $ | $ | ||||||||||||
| Service | ||||||||||||||||
| Lease | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Product | ||||||||||||||||
| Service | ||||||||||||||||
| Lease | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||||||||||
| Property and equipment impairment | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense), net | ||||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Employee retention tax credit | ||||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Other Income (Expense), net | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax (expense) benefit | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized gain (loss) on available-for-sale investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share attributable to common stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares used in computing net loss per common share - basic and diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Asensus Surgical, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments, available-for-sale | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Employee retention tax credit receivable | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Restricted cash | ||||||||
| Long-term investments, available-for-sale | ||||||||
| Inventories, net of current portion | ||||||||
| Property and equipment, net | ||||||||
| Intellectual property, net | ||||||||
| Net deferred tax assets | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Other long-term assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued employee compensation and benefits | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities - current portion | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Contingent consideration | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 14) | ||||||||
| Stockholders' Equity: | ||||||||
| Common stock $ par value, shares authorized at September 30, 2022 and December 31, 2021; and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding at September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Asensus Surgical, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands)
(Unaudited)
| Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) |
Total Stockholders' Equity | |||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Award of restricted stock units | ||||||||||||||||||||||||||||||||
| Return of common stock to pay withholding taxes on restricted stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Award of restricted stock units | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Award of restricted stock units | ||||||||||||||||||||||||||||||||
| Return of common stock to pay withholding taxes on restricted stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | ||||||||||||||||||||||||||||||||
| Award of restricted stock units | ||||||||||||||||||||||||||||||||
| Return of common stock to pay withholding taxes on restricted stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | ||||||||||||||||||||||||||||||||
| Award of restricted stock units | ||||||||||||||||||||||||||||||||
| Return of common stock to pay withholding taxes on restricted stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive gain | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | ||||||||||||||||||||||||||||||||
| Award of restricted stock units | ||||||||||||||||||||||||||||||||
| Return of common stock to pay withholding taxes on restricted stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive gain | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Asensus Surgical, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| Operating Activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: |
||||||||
| Depreciation |
||||||||
| Amortization of intangible assets |
||||||||
| Amortization of discounts and premiums on investments, net |
||||||||
| Stock-based compensation |
||||||||
| Gain on extinguishment of debt |
( |
) | ||||||
| Deferred tax expense (benefit) |
( |
) | ||||||
| Change in inventory reserves |
||||||||
| Bad debt expense |
||||||||
| Property and equipment impairment |
||||||||
| Loss on disposal of property and equipment |
||||||||
| Change in fair value of warrant liabilities |
||||||||
| Change in fair value of contingent consideration |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ( |
) | ||||
| Operating lease right-of-use assets |
( |
) | ||||||
| Prepaid expenses |
( |
) | ||||||
| Employee retention tax credit receivable |
( |
) | ||||||
| Other current and long-term assets |
( |
) | ||||||
| Accounts payable |
||||||||
| Accrued expenses |
( |
) | ||||||
| Deferred revenue |
( |
) | ( |
) | ||||
| Operating lease liabilities |
( |
) | ||||||
| Net cash and cash equivalents used in operating activities |
( |
) | ( |
) | ||||
| Investing Activities: |
||||||||
| Purchase of available-for-sale investments |
( |
) | ( |
) | ||||
| Proceeds from maturities of available-for-sale investments |
||||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||||
| Net cash and cash equivalents provided by (used in) investing activities |
( |
) | ||||||
| Financing Activities: |
||||||||
| Proceeds from issuance of common stock, net of issuance costs |
||||||||
| Taxes paid related to net share settlement of vesting of restricted stock units |
( |
) | ( |
) | ||||
| Proceeds from exercise of stock options and warrants |
||||||||
| Net cash and cash equivalents (used in) provided by financing activities |
( |
) | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
( |
) | ( |
) | ||||
| Net (decrease) increase in cash, cash equivalents and restricted cash |
( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period |
||||||||
| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Supplemental Disclosure for Cash Flow Information |
||||||||
| Cash paid for leases |
$ | $ | ||||||
| Cash paid for taxes |
$ | $ | ||||||
| Supplemental Schedule of Non-cash Investing and Financing Activities: |
||||||||
| Transfer of inventories to property and equipment |
$ | $ | ||||||
| Reclass of warrant liability to common stock and additional paid-in-capital |
$ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets |
$ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Asensus Surgical, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 1. | Description of the Business |
Asensus Surgical, Inc. (formerly known as TransEnterix, Inc.) (the "Company") is a medical device company that is digitizing the interface between the surgeon and the patient to pioneer a new era of Performance-Guided Surgery™ by unlocking clinical intelligence for surgeons to enable consistently superior outcomes and a new standard of surgery. The Company is focused on the market development for and commercialization of the Senhance® Surgical System, which digitizes laparoscopic minimally invasive surgery, or MIS. The Senhance System is the first and only digital, multi-port laparoscopic platform designed to maintain laparoscopic MIS standards while providing digital benefits such as haptic feedback, robotic precision, comfortable ergonomics, advanced instrumentation including 3mm microlaparoscopic instruments, 5mm articulating instruments, eye-sensing camera control and fully-reusable standard instruments to help maintain per-procedure costs similar to traditional laparoscopy.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The results reported in these unaudited interim condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Fiscal 2021 Form 10-K. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in the accompanying interim condensed consolidated financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, necessary for a fair statement of its financial position, results of operations, and cash flows of the Company for all periods presented.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries, Asensus Surgical US, Inc., Asensus International, Inc., Asensus Surgical Italia S.r.l., Asensus Surgical Europe S.à.r.l., Asensus Surgical Taiwan Ltd., Asensus Surgical Japan K.K., Asensus Surgical Israel Ltd., Asensus Surgical Netherlands B.V., and Asensus Surgical Canada, Inc. All inter-company accounts and transactions have been eliminated in consolidation.
Risk and Uncertainties
The Company is subject to risks similar to other similarly sized companies in the medical device industry. These risks include, without limitation: negative impacts on the Company's operations caused by the COVID-19 pandemic and other geopolitical factors; the historical lack of profitability; the Company’s ability to raise additional capital; the success of its market development efforts; its ability to successfully develop, clinically test and commercialize its products; the timing and outcome of the regulatory review process for its products; changes in the health care and regulatory environments of the United States, the European Union, Japan, Taiwan, and other countries in which the Company operates or intends to operate; its ability to attract and retain key management, marketing and scientific personnel; its ability to successfully prepare, file, prosecute, maintain, defend and enforce patent claims and other intellectual property rights; its ability to successfully transition from a research and development company to a marketing, sales and distribution company; competition in the market for robotic surgical devices; and its ability to identify and pursue development of additional products.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include impairment considerations for long-lived assets, fair value estimates related to contingent consideration, stock compensation expense, revenue recognition, accounts receivable reserves, short-term and long-term investments, excess and obsolete inventory reserves, inventory classification between current and non-current, measurement of lease liabilities and corresponding right-of-use (“ROU”) assets, and deferred tax asset valuation allowances.
Significant Accounting Policies
There have been no new or material changes to the significant accounting policies discussed in the Company’s audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Reclassifications
Certain amounts reported previously have been reclassified to conform to current year presentation, with no effect on stockholders’ equity or net loss as previously reported. These reclassifications relate to revenue and cost of revenue for leases which historically were included in product and service revenue and corresponding cost of revenue on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021.
Impact of Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”), issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company adopted ASU 2016-13 as of January 1, 2022, on a modified retrospective basis. The cumulative-effect adjustment related to the adoption was not material.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) guidance on the accounting for convertible debt instruments and contracts in an entity’s own equity. The guidance simplifies the accounting for convertible instruments by reducing the various accounting models that can require the instrument to be separated into a debt component and equity component or derivative component. The Company adopted ASU 2020-06 as of January 1, 2022. The adoption did not have a material impact to the consolidated financial statements.
The Company has evaluated all other issued and ASUs not yet adopted and believes the adoption of these standards will not have a material impact on its consolidated financial statements.
| 3. | Revenue Recognition |
The following table presents revenue disaggregated by type and geography:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||
| U.S. | |||||||||||||||||
| Systems | $ | $ | $ | $ | |||||||||||||
| Instruments and accessories | |||||||||||||||||
| Services | |||||||||||||||||
| Leases | |||||||||||||||||
| Total U.S. revenue | |||||||||||||||||
| Outside of U.S. ("OUS") | |||||||||||||||||
| Systems | |||||||||||||||||
| Instruments and accessories | |||||||||||||||||
| Services | |||||||||||||||||
| Leases | |||||||||||||||||
| Total OUS revenue | |||||||||||||||||
| Total | |||||||||||||||||
| Systems | |||||||||||||||||
| Instruments and accessories | |||||||||||||||||
| Services | |||||||||||||||||
| Leases | |||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||
Remaining Performance Obligations
Transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not yet been recognized. A significant portion of this amount relates to service obligations performed under the Company's system sales contracts that will be invoiced and recognized as revenue in future periods. Transaction price allocated to remaining performance obligations as of September 30, 2022 was $
Contract Assets and Liabilities
The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Deferred revenue for the periods presented was primarily related to service obligations, for which the service fees are billed up-front, generally annually. The associated deferred revenue is generally recognized ratably over the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented. Revenue recognized for the three months ended September 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of each reporting period was $
The following information summarizes the Company’s contract assets and liabilities:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| (in thousands) | ||||||||
| Contract Assets | $ | $ | ||||||
| Deferred Revenue | $ | $ | ||||||
Senhance System Leasing
The Company enters into lease arrangements with certain qualified customers. Revenue related to arrangements including lease elements are allocated to lease and non-lease elements based on their relative standalone selling prices. Lease elements generally include a Senhance System, while non-lease elements generally include instruments, accessories, and services. For some lease arrangements, the customers are provided with the option to purchase the leased System at some point during and/or at the end of the lease term. In some arrangements lease payments are based on the usage of the System. For the three and nine months ended September 30, 2022, and 2021, variable lease revenue related to usage-based arrangements was not material.
Trade Accounts Receivable
The allowance for expected credit losses is based on the Company’s assessment of collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for expected credit losses was $
| 4. | Fair Value |
The following are categories of assets and liabilities measured at fair value on a recurring basis using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
| September 30, 2022 | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Assets measured at fair value | ||||||||||||||||
| Cash and cash equivalents (1) | $ | $ | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||||
| Short-term investments | ||||||||||||||||
| Long-term investments | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities measured at fair value | ||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| (1) | Includes investments that are readily convertible to cash with original maturities of 90 days or less. |
| December 31, 2021 | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Assets measured at fair value | ||||||||||||||||
| Cash and cash equivalents (1) | $ | $ | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||||
| Short-term investments | ||||||||||||||||
| Long-term investments | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities measured at fair value | ||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| (1) | Includes investments that are readily convertible to cash with original maturities of 90 days or less. |
The carrying values of accounts receivable, prepaid expenses, employee retention tax credit receivables, other current assets, accounts payable, accrued employee compensation and benefits, accrued expenses, deferred revenue, and other current liabilities as of September 30, 2022, and December 31, 2021, approximate their fair values due to the short-term nature of these items.
The Company’s financial liabilities consisted of contingent consideration payable to Three Heads Investment S.r.l., related to the Company’s 2015 acquisition of the Senhance Surgical System from an assignor to Three Heads Investment S.r.l. (the “Senhance Acquisition”). Adjustments associated with the change in fair value of contingent consideration are included in the Company’s condensed consolidated statements of operations and comprehensive loss.
The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements for contingent consideration utilizing a Monte-Carlo simulation as of September 30, 2022 and December 31, 2021:
| Valuation Methodology | Significant Unobservable Input | September 30, 2022 | December 31, 2021 | ||||||||
| Contingent consideration | Probability weighted income approach | Milestone dates | 2031 | 2031 | |||||||
| Discount rate | % | % | |||||||||
| Revenue volatility | % | % | |||||||||
| EUR-to-USD exchange rate | |||||||||||
The following table summarizes the change in fair value, as determined by Level 3 inputs for the contingent consideration for the nine months ended September 30, 2022 and 2021:
| Fair Value Measurement at Reporting Date (Level 3) | ||||
| (in thousands) | ||||
| Contingent consideration | ||||
| Balance at December 31, 2021 | $ | |||
| Change in fair value | ( | ) | ||
| Balance at September 30, 2022 | $ | |||
| Current portion | $ | |||
| Long-term portion | ||||
| Balance at September 30, 2022 | $ | |||
| Balance at December 31, 2020 | $ | |||
| Exercise of warrants | ||||
| Change in fair value | ||||
| Balance at September 30, 2021 | $ | |||
| Current portion | $ | |||
| Long-term portion | ||||
| Balance at September 30, 2021 | $ | |||
| 5. | Investments, available-for-sale |
The aggregate fair values of investment securities along with unrealized gains and losses determined on an individual investment security basis and included in other comprehensive loss are as follows:
| September 30, 2022 | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | Short-term investments | Long-term investments | |||||||||||||||||||
| Commercial Paper | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Corporate Bonds | ( | ) | ||||||||||||||||||||||
| U.S. Government Agencies | ( | ) | ||||||||||||||||||||||
| Total Investments | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
|
December 31, 2021 | ||||||||||||||||||||||||
| (in thousands)
| ||||||||||||||||||||||||
| Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | Short-term investments | Long-term investments | |||||||||||||||||||
| Commercial Paper | $ | $ | $ | ( | ) | $ | $ | $ | - | |||||||||||||||
| Corporate Bonds | ( | ) | ||||||||||||||||||||||
| Total Investments | $ | $ | $ | ( | ) | |||||||||||||||||||