swav-10q_20190331.htm

 

 

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, 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: 001-38829

 

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

 

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  

 

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)

 

As of May 1, 2019, the registrant had 28,012,387 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

4

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

Signatures

28

 

 

 

2


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SHOCKWAVE MEDICAL, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

(1)

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

138,064

 

 

$

39,643

 

Accounts receivable, net

 

 

3,939

 

 

 

2,850

 

Inventory

 

 

7,014

 

 

 

5,131

 

Prepaid expenses and other current assets

 

 

2,508

 

 

 

1,112

 

Total current assets

 

 

151,525

 

 

 

48,736

 

Operating lease right-of-use assets

 

 

2,645

 

 

 

 

Property and equipment, net

 

 

2,803

 

 

 

2,619

 

Other assets

 

 

566

 

 

 

2,066

 

TOTAL ASSETS

 

$

157,539

 

 

$

53,421

 

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND

   STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,967

 

 

$

1,487

 

Term notes, current portion

 

 

3,333

 

 

 

1,667

 

Accrued liabilities

 

 

6,439

 

 

 

6,217

 

Lease liability, current portion

 

 

877

 

 

 

 

Total current liabilities

 

 

14,616

 

 

 

9,371

 

Lease liability, noncurrent portion

 

 

1,916

 

 

 

 

Term notes, noncurrent portion

 

 

11,821

 

 

 

13,383

 

Convertible preferred stock warrant liability

 

 

 

 

 

313

 

Other liabilities

 

 

 

 

 

136

 

TOTAL LIABILITIES

 

 

28,353

 

 

 

23,203

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Convertible preferred stock

 

 

 

 

 

152,806

 

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

28

 

 

 

2

 

Additional paid-in capital

 

 

268,822

 

 

 

4,275

 

Accumulated other comprehensive loss

 

 

 

 

 

 

Accumulated deficit

 

 

(139,664

)

 

 

(126,865

)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

129,186

 

 

 

(122,588

)

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND

   STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

157,539

 

 

$

53,421

 

 

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

(1) The consolidated balance sheet as of December 31, 2018 is derived from the audited consolidated financial statements as of that date.

 

3


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,

 

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

Product revenue

 

$

7,269

 

 

$

1,322

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

3,072

 

 

 

794

 

Research and development

 

 

7,484

 

 

 

5,516

 

Sales and marketing

 

 

5,871

 

 

 

3,438

 

General and administrative

 

 

3,001

 

 

 

1,376

 

Total operating expenses

 

 

19,428

 

 

 

11,124

 

Loss from operations

 

 

(12,159

)

 

 

(9,802

)

Interest expense

 

 

(245

)

 

 

(18

)

Change in fair value of warrant liability

 

 

(609

)

 

 

41

 

Other income, net

 

 

221

 

 

 

185

 

Net loss before taxes

 

 

(12,792

)

 

 

(9,594

)

Income tax provision

 

 

7

 

 

 

 

Net loss

 

$

(12,799

)

 

$

(9,594

)

Unrealized gain on available-for-sale securities

 

 

 

 

 

1

 

Total comprehensive loss

 

$

(12,799

)

 

$

(9,593

)

Net loss per share, basic and diluted

 

$

(1.37

)

 

$

(5.63

)

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

 

 

9,364,755

 

 

 

1,705,144

 

 

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

 

 

 

4


 

Shockwave Medical, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share data)

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

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

 

Adjustment for 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

 

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

(Deficit)

 

Balance — December 31, 2017

 

 

17,510,045

 

 

$

137,469

 

 

 

1,627,032

 

 

$

2

 

 

$

2,470

 

 

$

(1

)

 

$

(85,763

)

 

$

(83,292

)

Exercise of Series A-1 warrants

 

 

52,169

 

 

 

312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104

 

 

 

 

 

 

 

 

 

104

 

Exercise of stock options

 

 

 

 

 

 

 

 

143,422

 

 

 

 

 

 

215

 

 

 

 

 

 

 

 

 

215

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Vesting of early exercised options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

273

 

 

 

 

 

 

 

 

 

273

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,594

)

 

 

(9,594

)

Balance — March 31, 2018

 

 

17,562,214

 

 

$

137,781

 

 

 

1,770,454

 

 

$

2

 

 

$

3,084

 

 

$

 

 

$

(95,357

)

 

$

(92,271

)

 

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

 

 

5


 

 

SHOCKWAVE MEDICAL, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)  

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,799

)

 

$

(9,594

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

255

 

 

 

129

 

Stock-based compensation

 

 

412

 

 

 

273

 

Amortization of right-of-use assets

 

 

249

 

 

 

 

Loss on write down of fixed assets

 

 

19

 

 

 

 

Change in fair value of warrant liability

 

 

609

 

 

 

(41

)

Amortization of debt issuance costs

 

 

104

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,089

)

 

 

(503

)

Inventory

 

 

(1,883

)

 

 

(1,168

)

Prepaid expenses and other current assets

 

 

(1,396

)

 

 

11

 

Other assets

 

 

(19

)

 

 

(143

)

Accounts payable

 

 

369

 

 

 

346

 

Accrued and other current liabilities

 

 

991

 

 

 

(678

)

Lease liabilities

 

 

(237

)

 

 

 

Other liabilities

 

 

 

 

 

(9

)

Net cash used in operating activities

 

 

(14,415

)

 

 

(11,377

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

 

 

 

1,807

 

Purchase of property and equipment

 

 

(420

)

 

 

(315

)

Net cash (used in) provided by investing activities

 

 

(420

)

 

 

1,492

 

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

 

 

 

 

Proceeds from stock option exercises

 

 

169

 

 

 

315

 

Proceeds from warrant exercises

 

 

110

 

 

 

101

 

Net cash provided by financing activities

 

 

113,256

 

 

 

416

 

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

 

 

98,421

 

 

 

(9,469

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

40,093

 

 

 

51,923

 

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

 

$

138,514

 

 

$

42,454

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Interest paid

 

$

132

 

 

$

18

 

Income tax paid

 

$

4

 

 

$

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Common stock issued on conversion of convertible preferred stock

 

$

152,806

 

 

$

 

Issuance of Series A-1 convertible preferred stock on net exercise of warrants

 

$

 

 

$

211

 

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

 

$

73

 

 

$

 

Property and equipment purchases included in accounts payable

 

$

93

 

 

$

74

 

Issuance of common stock warrants in connection with debt financing

 

$

 

 

$

104

 

 

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

 

6


 

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.

Initial Public Offering

On March 11, 2019, the Company completed an initial public offering (“IPO”) of its common stock.  As part of the IPO, the Company issued and sold 6,555,000 shares of its common stock, which included 855,000 shares sold pursuant to the exercise of the underwriters’ over-allotment option, at a public offering price of $17.00 per share. The Company received net proceeds of approximately $100.1 million from the IPO, after deducting underwriters’ discounts and commissions of $7.1 million and offering costs of $4.2 million, of which $1.5 million was incurred as of December 31, 2018. Prior to the completion of the IPO, all shares of Series A, A-1, B, C and D convertible preferred stock then outstanding were converted into 18,670,259 shares of common stock on a one-to-one basis.

In addition, on the completion of the IPO, all the Company’s outstanding preferred stock warrants were converted into 54,903 common stock warrants, which resulted in the reclassification of the convertible preferred stock warrant liability to additional paid-in capital. Furthermore, 101,744 shares of common stock were issued upon net exercise of warrants at the time of the IPO. 

Concurrent with the IPO, the Company issued 588,235 shares of its common stock in a private placement for net proceeds of $10.0 million.

Reverse Stock Split

In February 2019, the Company’s board of directors approved an amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock and convertible preferred stock on a 12.2-for-one basis (the “Reverse Stock Split”). The par values of the common stock and convertible preferred stock were not adjusted as a result of the Reverse Stock Split. All references to common stock, convertible preferred stock, warrants to purchase common stock, warrants to purchase convertible preferred stock, options to purchase common stock, early exercised options, share data, per share data and related information contained in the financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. The number of shares of the Company’s common stock contained in the financial statements includes fractional shares resulting from the Reverse Stock Split, aggregating to 45 whole shares of common stock and 69 whole shares of preferred stock for the period presented, which fractional shares will be settled in cash in fiscal 2019.

Need for Additional Capital

The Company has incurred significant losses and has negative cash flows from operations. As of March 31, 2019, the Company had an accumulated deficit of $139.7 million. Management expects to continue to incur additional substantial losses in the foreseeable future.

As of March 31, 2019, the Company had cash and cash equivalents of $138.1 million, which are available to fund future operations. The Company believes that its cash and cash equivalents as of March 31, 2019, together with available borrowings under a revolving line of credit, 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 and the timing and cost of establishing additional sales and marketing capabilities.

7


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

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 interim condensed consolidated balance sheet as of March 31, 2019, the condensed consolidated statements of operations and comprehensive loss, the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) and the statements of cash flows for the three months ended March 31, 2019 and 2018 are unaudited. The unaudited 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 as of March 31, 2019 and its results of operations and cash flows for the three months ended March 31, 2019 and 2018. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three month periods are also unaudited. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the prospectus dated March 6, 2019 (“Prospectus”) that forms a part of the Company's Registration Statements on Form S-1 (File No. 333-229590), as filed with the SEC pursuant to Rule 424(b)(4) promulgated under the Securities Act of 1933, as amended.

 

 

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, 2019 and December 31, 2018 relates to a letter of credit established for a lease entered into in May 2018 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,

2019

 

 

December 31,

2018

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

138,064

 

 

$

39,643

 

Restricted cash

 

 

450

 

 

 

450

 

Total cash, cash equivalents, and restricted cash

 

$

138,514

 

 

$

40,093

 

 

Fair Value of Financial Instruments

The Company’s cash and cash equivalents, restricted cash, 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.

8


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.

Leases

The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) using the modified retrospective approach with a cumulative-effect adjustment as of January 1, 2019.

Upon adoption of Topic 842, on January 1, 2019, the Company recorded operating right-of-use assets of $2.9 million and operating lease liabilities of $3.0 million and derecognized the deferred rent liability of $0.1 million. Results for the three months ended March 31, 2019 are presented under Topic 842. Prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under previous lease guidance, ASC 840: Leases (Topic 840). 

For its long-term operating lease, the Company recognized a right-of-use asset and a lease liability on its condensed consolidated balance sheet. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. The lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise.

Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses on the condensed consolidated statements of operations and comprehensive loss. Variable lease payments include lease operating expenses.

The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for its long-term real estate leases.

Deferred Offering Costs

Offering costs, consisting of legal, accounting, printer and filing fees related to the IPO, were deferred until the completion of the IPO. As of December 31, 2018, $1.5 million of deferred offering costs were recorded as other assets on the condensed consolidated balance sheet. In March 2019, upon the closing of the IPO, all deferred costs were offset against the Company’s IPO proceeds.

Convertible Preferred Stock Warrant Liability

The Company has accounted for its freestanding warrants to purchase shares of the Company’s convertible preferred stock as liabilities at fair value upon issuance primarily because the shares underlying the warrants contain contingent redemption features outside the control of the Company. The warrants are subject to re-measurement at each balance sheet date and any change in fair value is recognized as the change in fair value of warrant liability. The carrying value of the warrants will continue to be adjusted until such time as these instruments are exercised, expire or convert into warrants to purchase shares of the Company’s common stock upon the completion of a liquidation event, including the completion of the IPO, which occurred on March 11, 2019. At that time, the preferred stock warrant liability was reclassified to additional paid-in capital, a component of stockholders’ equity (deficit).

9


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

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 certain customers that purchase stocking orders in the United States, 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.

 

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, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

111,801

 

 

$

 

 

$

 

 

$

111,801

 

Total assets

 

$

111,801

 

 

$

 

 

$

 

 

$

111,801

 

 

 

 

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

21,680

 

 

$

 

 

$

 

 

$

21,680

 

Total assets

 

$

21,680

 

 

$

 

 

$

 

 

$

21,680

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock warrant liability

 

$

 

 

$

 

 

$

313

 

 

$

313

 

Total liabilities

 

$

 

 

$

 

 

$

313

 

 

$

313

 

 

There were no transfers between Levels 1, 2 or 3 for the periods presented.

10


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

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 change in the fair value of the warrant liability for the three months ended March 31, 2018 is summarized below (in thousands):

 

Balance at December 31, 2017

 

$

577

 

Exercise of warrants

 

 

(211

)

Expiration of warrants, included in change in fair value of

  warrant liability

 

 

(87

)

Change in fair value of warrant liability

 

 

46

 

Balance at March 31, 2018

 

$

325

 

 

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:

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Expected term (in years)

 

 

5.28

 

 

6.21

 

Expected volatility

 

43.9%

 

 

42.8%

 

Risk-free interest rate

 

2.49%

 

 

2.62%

 

Expected dividend yield

 

0%

 

 

0%

 

 

4. Cash Equivalents

The following is a summary of the Company’s cash equivalents:

 

 

 

March 31, 2019

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market funds

 

$

111,801

 

 

$

 

 

$

 

 

$

111,801

 

Total

 

$

111,801

 

 

$

 

 

$

 

 

$

111,801

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

111,801

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

$

111,801

 

11


SHOCKWAVE MEDICAL, INC.

Notes to Condensed Consolidated Financial Statements

 

 

 

 

December 31, 2018

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market funds

 

$

21,680

 

 

$

 

 

$

 

 

$

21,680

 

Total

 

$

21,680

 

 

$

 

 

$

 

 

$

21,680

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

21,680

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

$

21,680

 

 

 

5. Balance Sheet Components

Inventory

Inventory consists of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Raw material

 

$

1,915

 

 

$

1,084

 

Work in progress

 

 

1,103

 

 

 

634

 

Finished goods

 

 

2,643

 

 

 

2,313

 

Consigned inventory

 

 

1,353

 

 

 

1,100

 

Total inventory

 

$

7,014

 

 

$

5,131

 

 

Accrued Liabilities

Accrued liabilities consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018