UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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: 001-38829

 

Shockwave Medical, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-0494101

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

5403 Betsy Ross Drive

Santa Clara, California

95054

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 279-4262

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class of securities

Trading symbol(s)

Name of each national exchange and principal

U.S. market for the securities

Shockwave Medical, Inc., common stock, par

value $0.001 per share

SWAV

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

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.     Yes      No  

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).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

Non-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      No 

As of May 6, 2020, the registrant had 31,860,263 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

Signatures

31

 

 

 

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements about:

 

the impact of the COVID-19 pandemic on our operations, financial results, and liquidity and capital resources, including on sales, expenses, supply chain, manufacturing, research and development activities, clinical trials and employees;

 

our ability to design, develop, manufacture and market innovative products to treat patients with challenging medical conditions, particularly in peripheral artery disease, coronary artery disease and aortic stenosis;

 

our expected future growth, including growth in international sales;

 

the size and growth potential of the markets for our products, and our ability to serve those markets;

 

the rate and degree of market acceptance of our products;

 

coverage and reimbursement for procedures performed using our products;

 

the performance of third parties in connection with the development of our products, including third-party suppliers;

 

regulatory developments in the United States and foreign countries;

 

our ability to obtain and maintain regulatory approval or clearance of our products on expected timelines;

 

our plans to research, develop and commercialize our products and any other approved or cleared product;

 

our ability to scale our organizational culture of cooperative product development and commercial execution;

 

the development, regulatory approval, efficacy and commercialization of competing products;

 

the loss of key scientific or management personnel;

 

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

 

our ability to develop and maintain our corporate infrastructure, including our internal controls;

 

our financial performance and capital requirements; and

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing the intellectual property rights of others.

These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as updated in the section entitled “Risk Factors” of this Quarterly Report on Form 10-Q. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. We undertake no obligation to update any of these forward-looking statements for any reason, even if new information becomes available in the future, except as may be required by law.

 

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SHOCKWAVE MEDICAL, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

 

 

 

 

(1)

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

123,111

 

 

$

139,045

 

Short-term investments

 

 

47,278

 

 

 

56,304

 

Accounts receivable, net

 

 

7,811

 

 

 

7,377

 

Inventory

 

 

15,921

 

 

 

12,074

 

Prepaid expenses and other current assets

 

 

3,485

 

 

 

1,897

 

Total current assets

 

 

197,606

 

 

 

216,697

 

Operating lease right-of-use assets

 

 

8,495

 

 

 

8,825

 

Property and equipment, net

 

 

13,084

 

 

 

4,910

 

Other assets

 

 

1,553

 

 

 

1,506

 

TOTAL ASSETS

 

$

220,738

 

 

$

231,938

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,150

 

 

$

2,790

 

Term notes, current portion

 

 

 

 

 

6,667

 

Accrued liabilities

 

 

15,826

 

 

 

13,777

 

Lease liability, current portion

 

 

787

 

 

 

774

 

Total current liabilities

 

 

18,763

 

 

 

24,008

 

Lease liability, noncurrent portion

 

 

8,077

 

 

 

8,125

 

Term notes, noncurrent portion

 

 

16,126

 

 

 

7,152

 

TOTAL LIABILITIES

 

 

42,966

 

 

 

39,285

 

Commitments and contingencies

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

 

32

 

 

 

31

 

Additional paid-in capital

 

 

374,386

 

 

 

370,561

 

Accumulated other comprehensive income

 

 

103

 

 

 

35

 

Accumulated deficit

 

 

(196,749

)

 

 

(177,974

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

177,772

 

 

 

192,653

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

220,738

 

 

$

231,938

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

(1)

The consolidated balance sheet as of December 31, 2019 is derived from the audited consolidated financial statements as of that date.

 

4


SHOCKWAVE MEDICAL, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Product revenue

 

$

15,197

 

 

$

7,269

 

Cost of revenue:

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

5,651

 

 

 

3,072

 

Gross profit

 

 

9,546

 

 

 

4,197

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

11,890

 

 

 

7,484

 

Sales and marketing

 

 

10,411

 

 

 

5,871

 

General and administrative

 

 

6,224

 

 

 

3,001

 

Total operating expenses

 

 

28,525

 

 

 

16,356

 

Loss from operations

 

 

(18,979

)

 

 

(12,159

)

Interest expense

 

 

(277

)

 

 

(245

)

Change in fair value of warrant liability

 

 

 

 

 

(609

)

Other income, net

 

 

504

 

 

 

221

 

Net loss before taxes

 

 

(18,752

)

 

 

(12,792

)

Income tax provision

 

 

23

 

 

 

7

 

Net loss

 

$

(18,775

)

 

$

(12,799

)

Unrealized gain on available-for-sale securities

 

 

68

 

 

 

 

Total comprehensive loss

 

$

(18,707

)

 

$

(12,799

)

Net loss per share, basic and diluted

 

$

(0.59

)

 

$

(1.37

)

Shares used in computing net loss per share, basic and diluted

 

 

31,644,041

 

 

 

9,364,755

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5


 

Shockwave Medical, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share data)

 

 

 

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance — December 31, 2019

 

 

 

 

$

 

 

 

 

31,446,787

 

 

$

31

 

 

$

370,561

 

 

$

35

 

 

$

(177,974

)

 

$

192,653

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

356,128

 

 

 

1

 

 

 

1,112

 

 

 

 

 

 

 

 

 

1,113

 

Unrealized gain on available-for-

   sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68

 

 

 

 

 

 

68

 

Issuance of common stock under

   employee stock purchase plan

 

 

 

 

 

 

 

 

 

24,691

 

 

 

 

 

 

842

 

 

 

 

 

 

 

 

 

842

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,871

 

 

 

 

 

 

 

 

 

1,871

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,775

)

 

 

(18,775

)

Balance — March 31, 2020

 

 

 

 

$

 

 

 

 

31,827,606

 

 

$

32

 

 

$

374,386

 

 

$

103

 

 

$

(196,749

)

 

$

177,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

Balance — December 31, 2018

 

 

18,670,328

 

 

$

152,806

 

 

 

 

1,824,852

 

 

$

2

 

 

$

4,275

 

 

$

 

 

$

(126,865

)

 

$

(122,588

)

Exercise of common stock warrants

   for cash

 

 

 

 

 

 

 

 

 

50,331

 

 

 

 

 

 

110

 

 

 

 

 

 

 

 

 

110

 

Issuance of common stock upon

   net exercise of warrants

 

 

 

 

 

 

 

 

 

101,744

 

 

 

 

 

 

133

 

 

 

 

 

 

 

 

 

133

 

Conversion of preferred stock to

   common stock upon initial public

   offering

 

 

(18,670,328

)

 

 

(152,806

)

 

 

 

18,670,328

 

 

18

 

 

 

152,788

 

 

 

 

 

 

 

 

 

152,806

 

Conversion of Series A-1 warrants

   to common stock warrants upon

   initial public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

789

 

 

 

 

 

 

 

 

 

789

 

Issuance of common stock in

   connection with initial public

   offering, net of issuance costs of

   $11.3 million

 

 

 

 

 

 

 

 

 

6,555,000

 

 

7

 

 

 

100,132

 

 

 

 

 

 

 

 

 

100,139

 

Issuance of common stock in

   connection with private placement

 

 

 

 

 

 

 

 

 

588,235

 

 

1

 

 

 

9,999

 

 

 

 

 

 

 

 

 

10,000

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

80,515

 

 

 

 

 

 

169

 

 

 

 

 

 

 

 

 

169

 

Vesting of early exercised options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

 

 

 

412

 

Settlement of fractional shares

   resulting from reverse stock split

 

 

 

 

 

 

 

 

 

(114

)

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,799

)

 

 

(12,799

)

Balance — March 31, 2019

 

 

 

 

$

 

 

 

 

27,870,891

 

 

$

28

 

 

$

268,822

 

 

$

 

 

$

(139,664

)

 

$

129,186

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

 

SHOCKWAVE MEDICAL, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)  

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,775

)

 

$

(12,799

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

426

 

 

 

255

 

Stock-based compensation

 

 

1,871

 

 

 

412

 

Amortization of right-of-use assets

 

 

369

 

 

 

249

 

Accretion of discount on available-for-sale securities

 

 

114

 

 

 

 

Loss on write down of fixed assets

 

 

 

 

 

19

 

Change in fair value of warrant liability

 

 

 

 

 

609

 

Amortization of debt issuance costs

 

 

153

 

 

 

104

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(434

)

 

 

(1,089

)

Inventory

 

 

(3,807

)

 

 

(1,883

)

Prepaid expenses and other current assets

 

 

(1,588

)

 

 

(1,396

)

Other assets

 

 

(47

)

 

 

(19

)

Accounts payable

 

 

(542

)

 

 

369

 

Accrued and other current liabilities

 

 

(1,855

)

 

 

991

 

Lease liabilities

 

 

(74

)

 

 

(237

)

Net cash used in operating activities

 

 

(24,189

)

 

 

(14,415

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of available-for-sale securities

 

 

(16,020

)

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

25,000

 

 

 

 

Purchase of property and equipment

 

 

(4,655

)

 

 

(420

)

Net cash provided by (used in) investing activities

 

 

4,325

 

 

 

(420

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial public

   offering, net of issuance costs paid

 

 

 

 

 

102,977

 

Proceeds from issuance of common stock in private placement

 

 

 

 

 

10,000

 

Payments of offering costs

 

 

(179

)

 

 

 

Principal payments of term loan

 

 

(1,111

)

 

 

 

Net proceeds from term loan

 

 

3,265

 

 

 

 

Proceeds from stock option exercises

 

 

1,113

 

 

 

169

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

842

 

 

 

 

Proceeds from warrant exercises

 

 

 

 

 

110

 

Net cash provided by financing activities

 

 

3,930

 

 

 

113,256

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(15,934

)

 

 

98,421

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

140,495

 

 

 

40,093

 

Cash, cash equivalents and restricted cash equivalents at end of period

 

$

124,561

 

 

$

138,514

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Interest paid

 

$

108

 

 

$

132

 

Income tax paid

 

$

 

 

$

4

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Common stock issued on conversion of convertible preferred stock

 

$

 

 

$

152,806

 

Common stock issued upon net exercise of warrants

 

$

 

 

$

133

 

Common stock warrants issued on conversion of preferred stock

   warrants and the reclassification of the warrant liability

 

$

 

 

$

789

 

Deferred offering costs included in accounts payable and accrued liabilities

 

$

 

 

$

2,215

 

Right-of-use asset obtained in exchange for lease liability

 

$

39

 

 

$

73

 

Property and equipment purchases included in accounts payable and accrued liabilities

 

$

4,036

 

 

$

93

 

Transfer of fixed assets to inventory

 

$

40

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


 

SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

1. Organization and Basis of Presentation

Shockwave Medical, Inc. (the “Company”) was incorporated on June 17, 2009. The Company is primarily engaged in the development of Intravascular Lithotripsy (“IVL”) technology for the treatment of calcified plaque in patients with peripheral vascular, coronary vascular and heart valve disease. Built on a balloon catheter platform, the IVL technology uses lithotripsy to disrupt both superficial and deep vascular calcium, while minimizing soft tissue injury, and an integrated angioplasty balloon to dilate blockages at low pressures, restoring blood flow.

In 2016, the Company began commercial and manufacturing operations, and began selling catheters based on the IVL technology. The Company’s headquarters are in Santa Clara, California. The Company is located and operates primarily in the United States and has a subsidiary in Germany.

Need for Additional Capital

The Company has incurred significant losses and has negative cash flows from operations. As of March 31, 2020, the Company had an accumulated deficit of $196.7 million. Management expects to continue to incur additional substantial losses for the foreseeable future.

As of March 31, 2020, the Company had cash, cash equivalents and short-term investments of $170.4 million, which are available to fund future operations. The Company believes that its cash, cash equivalents and short-term investments as of March 31, 2020, will be sufficient for the Company to continue as a going concern for at least 12 months from the date the unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (“SEC”). The Company’s future capital requirements will depend on many factors, including its growth rate, the timing and extent of its spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities and the impact of the COVID-19 pandemic.

Risk and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. There are many uncertainties regarding the current COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, patients that would benefit from procedures utilizing the Company’s products, employees, suppliers, vendors, business partners and distribution channels. The capital markets and economies worldwide have been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. As such the Company's future results of operations and liquidity could be adversely impacted by a variety of factors related to the COVID-19 pandemic, including those discussed in the section entitled “Risk Factors” of this Quarterly Report on Form 10-Q. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain. Given the ongoing uncertainty of the scope and duration of the COVID-19 pandemic, the Company is currently unable to accurately estimate the scale and duration of the impact on its business, including procedure volumes, clinical activities and product development, and by extension the Company’s financial results.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of SEC regarding interim financial reporting.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date. The unaudited condensed consolidated

8


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020.

Reclassifications

Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts.

Restricted cash as of March 31, 2020 and December 31, 2019 relates to a letter of credit established for the Company’s office lease and is recorded as other assets on the condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

123,111

 

 

$

139,045

 

Restricted cash

 

 

1,450

 

 

 

1,450

 

Total cash, cash equivalents, and restricted cash

 

$

124,561

 

 

$

140,495

 

Short-Term Investments

Short-term investments have been classified as available-for-sale and are carried at estimated fair value based upon quoted market prices or pricing models for similar securities. The Company determines the appropriate classification of its investments in debt securities at the time of purchase. Available-for-sale securities with original maturities beyond three months at the date of purchase are classified as current based on their availability for use in current operations.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss, except for credit-related impairment losses. The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary and if they are related to deterioration in credit risk. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. The Company also assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on marketable securities are included in other income, net. Effective January 1, 2020, any unrealized losses on available-for-sale debt securities that are attributed to credit risk are recorded to earnings through an allowance for credit losses. The cost of investments sold is based on the specific-identification method. Interest on marketable securities is included in other income, net.

Fair Value of Financial Instruments

The Company’s cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. Management believes that its term notes bear interest at the prevailing market rates for instruments with similar characteristics; accordingly, the carrying value of this instrument approximates its fair value.

9


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Revenue

The Company records product revenue primarily from the sale of its IVL catheters. The Company sells its products to hospitals, primarily through direct sales representatives, as well as through distributors in selected international markets. Additionally, a significant portion of the Company’s revenue is generated through a consignment model under which inventory is maintained at hospitals.

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 revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs 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.

For products sold through direct sales representatives, control is transferred upon delivery to customers. For products sold to distributors internationally and products sold to customers that utilize stocking orders, control is transferred upon shipment or delivery to the customer’s named location, based on the contractual shipping terms. For consignment inventory, control is transferred at the time the IVL catheters are consumed in a procedure.

The Company generally provides for the use of an IVL generator and connector cable under an agreement to customers at no charge to facilitate use of the IVL catheters. These agreements do not contain contractually enforceable minimum commitments and are generally cancellable by either party with 30 days’ notice.

Recently Adopted Accounting Pronouncements

Effective January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments. Unrealized losses on available-for-sale debt securities that are attributed to credit risk are recorded through earnings rather than to other comprehensive income. Credit losses relating to available-for-sale debt securities are now recorded through an allowance for credit losses. The adoption of this guidance did not result in a cumulative effect adjustment as of the date of the adoption.

In addition, Topic 326 also provides new guidance related to the measurement of expected credit losses on the Company’s allowance for bad debt for accounts receivable, which is estimated upon assessment of various factors including historical collection experience, current and future economic market conditions and a review of the current aging status and financial condition of the Company’s customers. During the three months ended March 31, 2020, the Company recorded an additional allowance for bad debt in response to an assessment of the evolving credit environment under the COVID-19 pandemic. The Company will continue to update its estimate of credit losses from accounts receivable in future periods in response to the uncertainties caused by the COVID-19 pandemic.

 

10


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

3. Financial Instruments and Fair Value Measurements

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:

 

 

 

March 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

36,267

 

 

$

 

 

$

 

 

$

36,267

 

Money market funds

 

 

110,893

 

 

 

 

 

 

 

 

 

110,893

 

Commercial paper

 

 

 

 

 

10,968

 

 

 

 

 

 

10,968

 

Corporate bonds

 

 

 

 

 

5,043

 

 

 

 

 

 

5,043

 

Total assets

 

$

147,160

 

 

$

16,011

 

 

$

 

 

$

163,171

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

43,245

 

 

$

 

 

$

 

 

$

43,245

 

Money market funds

 

 

29,386

 

 

 

 

 

 

 

 

 

29,386

 

Reverse repurchase agreements

 

 

 

 

 

10,000

 

 

 

 

 

 

10,000

 

Commercial paper

 

 

 

 

 

6,958

 

 

 

 

 

 

6,958

 

Corporate bonds

 

 

 

 

 

8,096

 

 

 

 

 

 

8,096

 

Total assets

 

$

72,631

 

 

$

25,054

 

 

$

 

 

$

97,685

 

The Company’s convertible preferred stock warrants were converted into common stock warrants upon the closing of an initial public offering of the Company’s common stock (“IPO”) in March 2019. The change in the fair value of the warrant liability for the three months ended March 31, 2019 is summarized below (in thousands):

 

Balance at December 31, 2018

 

$

313

 

Change in fair value of warrant liability

 

 

609

 

Net exercise of warrants

 

 

(133

)

Conversion of Series A preferred stock warrants to common

   stock warrants upon the closing of the IPO

 

 

(789

)

Balance at March 31, 2019

 

$

 

 

The valuation of the Company’s convertible preferred stock warrant liability contains unobservable inputs that reflect the Company’s own assumptions for which there is little, if any, market activity for at the measurement date. Accordingly, the Company’s convertible preferred stock warrant liability is measured at fair value on a recurring basis using unobservable inputs and are classified as Level 3 inputs, and any change in fair value is recognized as change in fair value of warrant liability in the condensed consolidated statements of operations and comprehensive loss.

The fair value of the warrants was determined using the Black-Scholes option pricing model and the following assumptions:

 

 

 

March 31,

2019

 

Expected term (in years)

 

5.3

 

Expected volatility

 

43.9%

 

Risk-free interest rate

 

2.5%

 

Expected dividend yield

 

0%

 

 

11


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

4. Cash Equivalents and Short-Term Investments

The following is a summary of the Company’s cash equivalents and short-term investments:

 

 

 

March 31, 2020

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

U.S. Treasury securities

 

$

36,160

 

 

$

107

 

 

$

 

 

$

36,267

 

Money market funds

 

 

110,893

 

 

 

 

 

 

 

 

 

110,893

 

Commercial paper

 

 

10,968

 

 

 

 

 

 

 

 

 

10,968

 

Corporate bonds

 

 

5,047

 

 

 

 

 

 

(4

)

 

 

5,043

 

Total

 

$

163,068

 

 

$

107

 

 

$

(4

)

 

$

163,171

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

115,893

 

Short-term investments