ctrl_Current Folio_10Q

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2019

 

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 001-36017

 


 

Control4 Corporation

(Exact name of registrant as specified in its charter)

 


 

Delaware
(State or other jurisdiction of incorporation or organization)

    

42-1583209
(I.R.S. Employer Identification No.)

 

 

 

11734 S. Election Road
Salt Lake City, Utah
(Address of principal executive offices)

 

84020
(Zip Code)

 

(801) 523-3100
(Registrant’s telephone number, including area code)

 


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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

CTRL

The NASDAQ Stock Market LLC

 

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, 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 ☒

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 ☒

 

On May 3, 2019, 26,660,960 shares of the registrant’s Common Stock, $0.0001 par value, were outstanding.

 

 

 


 

Table of Contents

Control4 Corporation

 

Index

 

 

 

 

 

 

 

 

 

 

 

Part I — Financial Information 

    

 

 

 

 

 

 

Item 1. 

 

Condensed Consolidated Financial Statements:

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2019 and December 31, 2018

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2019 and 2018

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months Ended March 31, 2019 and 2018

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three Months Ended March 31, 2019 and 2018

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2019 and 2018

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

 

Item 2. 

 

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

 

26

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

41

 

 

 

 

 

Item 4. 

 

Controls and Procedures

 

42

 

 

 

 

 

Part II — Other Information 

 

 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

43

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

43

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

68

 

 

 

 

 

Item 6. 

 

Exhibits

 

69

 

 

 

 

 

Signatures 

 

70

 

 

 

 

 

 

 

 

 

 

 


 

Table of Contents

Control4 Corporation

 

PART I — Financial Information

 

ITEM 1. Condensed Consolidated Financial Statements

 

CONTROL4 CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2019

 

2018

 

 

 

(unaudited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,828

 

$

40,395

 

Restricted cash

 

 

264

 

 

259

 

Short-term investments

 

 

48,789

 

 

52,794

 

Accounts receivable, net

 

 

30,316

 

 

33,016

 

Inventories

 

 

45,867

 

 

42,684

 

Prepaid expenses and other current assets

 

 

9,633

 

 

6,100

 

Total current assets

 

 

154,697

 

 

175,248

 

Property and equipment, net

 

 

9,540

 

 

9,663

 

Operating lease right-of-use assets

 

 

10,567

 

 

 —

 

Long-term investments

 

 

3,201

 

 

 —

 

Intangible assets, net

 

 

25,389

 

 

20,651

 

Goodwill

 

 

31,403

 

 

21,530

 

Other assets

 

 

22,560

 

 

25,456

 

Total assets

 

$

257,357

 

$

252,548

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

23,083

 

$

26,213

 

Accrued liabilities

 

 

7,151

 

 

9,142

 

Current portion of deferred revenue

 

 

5,588

 

 

5,507

 

Current operating lease liability

 

 

3,924

 

 

 —

 

Total current liabilities

 

 

39,746

 

 

40,862

 

Long-term operating lease liability

 

 

7,924

 

 

 —

 

Other long-term liabilities

 

 

5,838

 

 

5,339

 

Total liabilities

 

 

53,508

 

 

46,201

 

Commitments and contingencies (Note 14)

 

 

 —

 

 

 —

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; 26,655,506 and 26,516,912 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

 3

 

 

 3

 

Additional paid-in capital

 

 

234,999

 

 

235,529

 

Accumulated deficit

 

 

(30,355)

 

 

(28,385)

 

Accumulated other comprehensive loss

 

 

(798)

 

 

(800)

 

Total stockholders’ equity

 

 

203,849

 

 

206,347

 

Total liabilities and stockholders’ equity

 

$

257,357

 

$

252,548

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

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CONTROL4 CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2019

    

2018

 

 

 

(unaudited)

 

Revenue

 

$

60,425

 

$

59,149

 

Cost of revenue

 

 

31,142

 

 

28,410

 

Gross margin

 

 

29,283

 

 

30,739

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

11,817

 

 

10,940

 

Sales and marketing

 

 

13,342

 

 

12,535

 

General and administrative

 

 

7,117

 

 

6,293

 

Total operating expenses

 

 

32,276

 

 

29,768

 

Income (loss) from operations

 

 

(2,993)

 

 

971

 

Other income (expense), net:

 

 

 

 

 

 

 

Interest, net

 

 

344

 

 

236

 

Other income (expense), net

 

 

(87)

 

 

(357)

 

Total other income (expense), net

 

 

257

 

 

(121)

 

Income (loss) before income taxes

 

 

(2,736)

 

 

850

 

Income tax benefit

 

 

(766)

 

 

(116)

 

Net income (loss)

 

$

(1,970)

 

$

966

 

Net income (loss) per common share:

 

 

 

 

 

 

 

Basic

 

$

(0.07)

 

$

0.04

 

Diluted

 

$

(0.07)

 

$

0.04

 

Weighted-average number of shares:

 

 

 

 

 

 

 

Basic

 

 

26,563

 

 

25,904

 

Diluted

 

 

26,563

 

 

27,526

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

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CONTROL4 CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2019

    

2018

 

 

 

(unaudited)

 

Net income (loss)

 

$

(1,970)

 

$

966

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

(53)

 

 

(51)

 

Net unrealized gains (losses) on available-for-sale investments, net of tax

 

 

55

 

 

(64)

 

Total other comprehensive income (loss)

 

 

 2

 

 

(115)

 

Comprehensive income (loss)

 

$

(1,968)

 

$

851

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

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Table of Contents

 

 

 

 

CONTROL4 CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Common Stock

 

 

Treasury Stock

 

Additional

 

 

 

 

Other

 

Total

 

 

Number of

 

 

 

 

 

Number of

 

 

 

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Equity

Balance at December 31, 2018

 

26,516,912

 

$

 3

 

 

 —

 

$

 —

 

$

235,529

 

$

(28,385)

 

$

(800)

 

$

206,347

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,970)

 

 

 —

 

 

(1,970)

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 2

Stock-based compensation

 

34,854

 

 

 —

 

 

 —

 

 

 —

 

 

3,529

 

 

 —

 

 

 —

 

 

3,529

Issuance of common stock upon exercise of stock options and vesting of restricted stock

 

243,522

 

 

 —

 

 

 —

 

 

 —

 

 

(1,537)

 

 

 —

 

 

 —

 

 

(1,537)

Repurchase of common stock for treasury

 

(139,782)

 

 

 —

 

 

139,782

 

 

(2,522)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,522)

Retirement of treasury stock

 

 —

 

 

 —

 

 

(139,782)

 

 

2,522

 

 

(2,522)

 

 

 —

 

 

 —

 

 

 —

Balance at March 31, 2019

 

26,655,506

 

$

 3

 

 

 —

 

$

 —

 

$

234,999

 

$

(30,355)

 

$

(798)

 

$

203,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Common Stock

 

 

Treasury Stock

 

Additional

 

 

 

 

Other

 

Total

 

 

Number of

 

 

 

 

 

Number of

 

 

 

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Equity

Balance at December 31, 2017

 

25,832,895

 

$

 3

 

 

 —

 

$

 —

 

$

242,281

 

$

(72,226)

 

$

(531)

 

$

169,527

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

966

 

 

 —

 

 

966

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(115)

 

 

(115)

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,921

 

 

 —

 

 

 —

 

 

2,921

Issuance of common stock upon exercise of stock options and vesting of restricted stock

 

475,399

 

 

 —

 

 

 —

 

 

 —

 

 

(1,525)

 

 

 —

 

 

 —

 

 

(1,525)

Repurchase of common stock for treasury

 

(300,000)

 

 

 —

 

 

300,000

 

 

(7,448)

 

 

 —

 

 

 —

 

 

 —

 

 

(7,448)

Retirement of treasury stock

 

 —

 

 

 —

 

 

(300,000)

 

 

7,448

 

 

(7,448)

 

 

 —

 

 

 —

 

 

 —

Balance at March 31, 2018

 

26,008,294

 

$

 3

 

 

 —

 

$

 —

 

$

236,229

 

$

(71,260)

 

$

(646)

 

$

164,326

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

 

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Table of Contents

CONTROL4 CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2019

    

2018

 

 

 

(unaudited)

 

Operating activities

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,970)

 

$

966

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation expense

 

 

1,109

 

 

969

 

Amortization of intangible assets

 

 

1,620

 

 

1,446

 

Loss on disposal of fixed assets

 

 

 —

 

 

14

 

Provision for doubtful accounts

 

 

 8

 

 

71

 

Investment discount and premium amortization, net

 

 

(169)

 

 

(83)

 

Stock-based compensation

 

 

3,529

 

 

3,335

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

2,064

 

 

3,235

 

Inventories

 

 

(1,741)

 

 

(2,003)

 

Prepaid expenses and other current assets

 

 

(3,034)

 

 

(916)

 

Other assets

 

 

1,784

 

 

194

 

Accounts payable

 

 

(3,887)

 

 

(3,923)

 

Accrued liabilities

 

 

(3,395)

 

 

(3,083)

 

Deferred revenue

 

 

25

 

 

163

 

Other long-term liabilities

 

 

(650)

 

 

84

 

Net cash provided by (used in) operating activities

 

 

(4,707)

 

 

469

 

Investing activities

 

 

 

 

 

 

 

Purchases of available-for-sale investments

 

 

(27,171)

 

 

(19,501)

 

Proceeds from sales of available-for-sale investments

 

 

1,800

 

 

1,000

 

Proceeds from maturities of available-for-sale investments

 

 

26,399

 

 

18,200

 

Purchases of property and equipment

 

 

(1,171)

 

 

(892)

 

Business acquisitions, net of cash acquired

 

 

(11,695)

 

 

 —

 

Net cash used in investing activities

 

 

(11,838)

 

 

(1,193)

 

Financing activities

 

 

 

 

 

 

 

Proceeds from exercise of options for common stock

 

 

310

 

 

2,089

 

Payments for withholding taxes related to net share settlement of equity awards

 

 

(1,847)

 

 

(3,614)

 

Repurchase of common stock

 

 

(2,522)

 

 

(7,448)

 

Payment of debt issuance costs

 

 

 —

 

 

(113)

 

Net cash used in financing activities

 

 

(4,059)

 

 

(9,086)

 

Effect of exchange rate changes on cash and cash equivalents

 

 

42

 

 

48

 

Net change in cash and cash equivalents

 

 

(20,562)

 

 

(9,762)

 

Unrestricted and restricted cash and cash equivalents at beginning of period

 

 

40,654

 

 

30,034

 

Unrestricted and restricted cash and cash equivalents at end of period

 

$

20,092

 

$

20,272

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid for interest

 

$

81

 

$

25

 

Cash paid for taxes

 

 

184

 

 

167

 

Supplemental schedule of non-cash investing and financing activities

 

 

 

 

 

 

 

Settlement of accounts receivable and other assets in business combinations

 

 

4,250

 

 

 —

 

Business acquisitions holdback liability

 

 

1,310

 

 

 —

 

Purchases of property and equipment financed by accounts payable

 

 

61

 

 

207

 

Net unrealized gains (losses) on available-for-sale investments

 

 

55

 

 

(64)

 

 

See accompanying notes to condensed consolidated financial statements (unaudited)

 

 

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Table of Contents

Control4 Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1. Description of Business and Summary of Significant Accounting Policies

 

Control4 Corporation (‘‘Control4’’ or the ‘‘Company’’) is a leading provider of professionally-installed smart home and business solutions that are designed to personalize and enhance how consumers engage with an ever-changing connected world. The Company’s entertainment, smart lighting, comfort and convenience, safety and security, and networking solutions unlock the potential of connected devices, making entertainment systems easier to use and more accessible, homes and businesses more comfortable and energy efficient, and individuals more connected and secure. The Company’s premium smart home and small business solutions provide consumers with the ability to integrate audio, video, lighting, temperature, security, communications, network management and other functionalities into a unified automation solution, customized to match their lifestyles and business needs. The Company’s advanced software, delivered through the controller and user-interface products together with various cloud services, power this customized experience, enabling cohesive interoperability with thousands of connected Control4 and third-party devices. The Company was incorporated in the state of Delaware on March 27, 2003.

 

Unaudited Interim Financial Statements

 

The accompanying condensed consolidated financial statements are unaudited. These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or any other future interim or annual period.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 11, 2019. The December 31, 2018 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date.

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in the unaudited condensed consolidated financial statements.

 

Segment Reporting

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one operating segment.

 

Concentrations of Risk

 

The Company’s accounts receivable are derived from revenue earned from its worldwide network of independent dealers and distributors. The Company’s sales to dealers and distributors located outside the United States are generally denominated in U.S. dollars, except for sales to dealers and distributors located in Australia, Canada, the European Union, New Zealand, Switzerland, and the United Kingdom, which are generally denominated in Australian dollars, Canadian dollars, euros, New Zealand dollars, Swiss francs, and pounds sterling, respectively. There were no individual account balances greater than 10% of total accounts receivable as of March 31, 2019 and December 31, 2018.

 

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No dealer or distributor accounted for more than 10% of total revenue for the three months ended March 31, 2019 and 2018.

 

While the Company partners with many manufacturers, generally one manufacturer is the Company’s sole source for a particular product or product family. A significant disruption in the operations of one of these manufacturers would impact the production of the Company’s products for a substantial period of time, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Use of Accounting Estimates

 

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, sales returns, provisions for doubtful accounts, product warranty, inventory obsolescence, litigation, determination of fair value of stock options, deferred tax asset valuation allowances and income taxes. Actual results may differ from those estimates.

 

Limited Product Warranties

 

The Company provides its customers a limited product warranty of two, three, or ten years depending on product type and brand. The limited product warranties require the Company, at its option, to repair or replace defective products during the warranty period at no cost to the customer or refund the purchase price. The Company estimates the costs that may be incurred to replace, repair or issue a refund for defective products and records a reserve at the time revenue is recognized. Factors that affect the Company’s warranty liability include the cost of the products sold, the Company’s historical experience, and management’s judgment regarding anticipated rates of product warranty returns, net of refurbished products. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary. Warranty costs accrued include amounts accrued for products at the time of shipment, adjustments for changes in estimated costs for warranties on products shipped in the period, and changes in estimated costs for warranties on products shipped in prior periods. It is not practicable for the Company to determine the amounts applicable to each of these components.

 

The following table presents the changes in the product warranty liability for the three months ended March 31, 2019 (in thousands):

 

 

 

 

 

 

 

    

Warranty Liability

 

Balance at December 31, 2018

 

$

2,524

 

Warranty costs accrued

 

 

905

 

Warranty claims

 

 

(1,030)

 

Balance at March 31, 2019

 

$

2,399

 

 

Net Income (Loss) Per Common Share

 

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net income (loss) per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options and settlement of restricted stock units.

 

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The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2019

    

2018

 

Numerator:

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,970)

 

$

966

 

Denominator:

 

 

 

 

 

 

 

Weighted average common stock outstanding for basic net income (loss) per common share

 

 

26,563

 

 

25,904

 

Effect of dilutive securities—stock options and restricted stock units

 

 

 —

 

 

1,622

 

Weighted average common shares and dilutive securities outstanding

 

 

26,563

 

 

27,526

 

 

Potentially dilutive securities, including common equivalent shares, in which the assumed proceeds exceed the average market price of common stock for the applicable period, were not included in the calculation of diluted net income (loss) per share as their impact would be anti-dilutive. The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands):

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2019

 

2018

 

Options to purchase common stock

 

1,065

 

 —

 

Restricted stock units

 

1,114

 

166

 

Total

 

2,179

 

166

 

 

Restricted Cash

 

Restricted cash as of March 31, 2019 and December 31, 2018 is composed of a guarantee made by the Company’s subsidiary in the United Kingdom to HM Revenue & Customs related to a customs duty deferment account.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which supersedes the guidance in ASC 840, “Leases.” The guidance requires balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The Company adopted the standard effective January 1, 2019 and elected the package of practical expedients available under the standard. The Company also elected to apply the simplified transition option that allows entities to not apply the new leases standard in the comparative periods presented in financial statements in the year of adoption. Internal controls have been implemented to enable the preparation of financial information on adoption.

 

The adoption of the standard resulted in recording right-of-use (“ROU”) assets of $10.0 million and lease liabilities of $11.9 million as of January 1, 2019. The ROU assets are lower than the lease liabilities as existing deferred rent and lease incentive liabilities were recorded against the right-of-use assets at adoption in accordance with the standard. The standard did not materially affect our condensed consolidated statements of operations or condensed consolidated statements of cash flows.

The Company determines if an arrangement is a lease at inception. Operating lease activity is included in operating lease right-of-use assets, and current and long-term operating lease liabilities on the condensed consolidated balance sheets for leases with terms greater than 12 months.

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Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when its reasonably certain the Company will exercise that option.  

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements For Defined Benefit Plans.” The new standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The new standard is effective for public business entities for annual periods ending after December 31, 2020; early adoption is permitted, and the amendments are applied on a retrospective basis to all periods presented. The Company is currently evaluating the impact of this update on the consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. For trade receivables, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The guidance is effective for fiscal years beginning after December 31, 2019, including interim periods within those years. Early application of the guidance is permitted for all entities for fiscal years beginning after December 15, 2018, including the interim periods within those fiscal years. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of this update on the consolidated financial statements.

 

 

 

 

2. Balance Sheet Components

 

Inventories consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2019

 

2018

 

Finished goods

 

$

42,213

 

$

39,142

 

Component parts

 

 

3,630

 

 

3,490

 

Work-in-process

 

 

24

 

 

52

 

 

 

$

45,867

 

$

42,684

 

 

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Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

2019

 

2018

Income tax receivable

 

$

4,215

 

$

2,073

Prepaid expenses

 

 

2,436

 

 

1,683

Other

 

 

2,982

 

 

2,344

 

 

$

9,633

 

$

6,100

 

Property and equipment, net consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2019

 

2018

 

Leasehold improvements

 

$

6,426

 

$

5,954

 

Lab and warehouse equipment

 

 

6,137

 

 

5,938

 

Computer equipment and software

 

 

5,788

 

 

5,380

 

Manufacturing tooling and test equipment

 

 

4,697

 

 

4,598

 

Furniture and fixtures

 

 

4,645

 

 

4,670

 

Other

 

 

1,159

 

 

1,159

 

 

 

 

28,852

 

 

27,699

 

Less: accumulated depreciation

 

 

(19,312)

 

 

(18,036)

 

 

 

$

9,540

 

$

9,663

 

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2019

 

2018

 

Compensation accruals

 

$

3,054

 

$

5,444

 

Sales returns and current portion of warranty liability

 

 

2,564

 

 

2,539

 

Other accrued liabilities

 

 

1,533

 

 

1,159

 

 

 

$

7,151

 

$

9,142

 

 

Other long-term liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

2019

 

2018

Deferred revenue

 

$

3,156

 

$

3,192

Other

 

 

1,855

 

 

1,272

Warranty

 

 

827

 

 

875

 

 

$

5,838

 

$

5,339

 

 

 

 

3. Financial Instruments

 

Fair Value Measurements

 

The Company’s financial assets that are measured at fair value on a recurring basis consist of money market funds and available-for-sale investments. The following three levels of inputs are used to measure the fair value of financial instruments:

 

Level 1: Quoted prices in active markets for identical assets or liabilities;

 

Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3: Unobservable inputs are used when little or no market data is available.

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The fair values for substantially all of the Company’s financial assets are based on quoted prices in active markets or observable inputs. For Level 2 securities, the Company uses a third-party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information.

 

Cash, Cash Equivalents and Marketable Securities

 

The Company determines realized gains or losses on the sale of marketable securities on a specific identification method. During the three months ended March 31, 2019 and 2018, the Company did not record significant realized gains or losses on the sales of available-for-sale investments.

 

The following tables show the Company’s cash and available-for-sale investments’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category, recorded as cash and cash equivalents or short- or long-term investments as of March 31, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and

 

 

 

 

 

 

 

 

 

Adjusted

 

Unrealized

 

Unrealized

 

 

 

 

Cash

 

Short-term

 

Long-term

 

 

    

Cost

    

Gains

    

Losses

    

Fair Value

    

Equivalents

    

Investments

    

Investments

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash 

 

$

14,782

 

$

 —

 

$

 —

 

$

14,782

 

$

14,782

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds 

 

 

5,046

 

 

 —

 

 

 —

 

 

5,046

 

 

5,046

 

 

 —

 

 

 —

 

U.S. government notes

 

 

15,083

 

 

 1

 

 

 —

 

 

15,084

 

 

 —

 

 

15,084

 

 

 —

 

Subtotal 

 

 

20,129

 

 

 1

 

 

 —

 

 

20,130

 

 

5,046

 

 

15,084

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds 

 

 

22,098

 

 

 9

 

 

(5)

 

 

22,102

 

 

 —

 

 

18,901

 

 

3,201

 

Commercial paper 

 

 

14,804

 

 

 —

 

 

 —

 

 

14,804

 

 

 —

 

 

14,804

 

 

 —

 

Subtotal 

 

 

36,902

 

 

 9

 

 

(5)

 

 

36,906

 

 

 —

 

 

33,705

 

 

3,201

 

Total 

 

$

71,813

 

$

10