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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________________
FORM 10-Q
___________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION 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)
___________________________________________________
Delaware27-0494101
(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 securitiesTrading 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 x No o
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 x No o
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 filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 1, 2023, the registrant had 36,896,750 shares of common stock, $0.001 par value per share, outstanding.



Table of Contents
Page



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements relating to our expectations, projections, beliefs, and prospects, which are 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 “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “might,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they may relate to future expectations around growth, strategy, and anticipated trends in our business, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements are only predictions based on our current expectations, estimates, assumptions, and projections about future events and are applicable only as of the dates of such statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
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 ability to successfully execute our commercialization strategy for our approved or cleared products;
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;
the impact of government laws and 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 ability to scale our organizational culture of cooperative product development and commercial execution;
our ability to satisfy our payment obligations and remain in compliance with covenants under our debt agreements, including our convertible debt, or to refinance our indebtedness;
potential dilution from equity awards, convertible indebtedness and potential future convertible debt and stock issuances;
the expected benefits of our acquisition of Neovasc Inc. in April 2023, a corporation existing under the Canada Business Corporations Act;
the development, regulatory approval, efficacy and commercialization of competing products;
our ability to develop and maintain our corporate infrastructure, including our internal controls;
our estimates regarding expenses, future financial performance and capital requirements;
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; and
the impact of global business, political and macroeconomic conditions, including inflation, rising interest rates, uncertainty with respect to the federal budget, instability in the global banking system, volatile market conditions, supply chain disruptions, cybersecurity events, and global events, including regional conflicts around the world, on our operations, financial results, liquidity and capital resources, sales, expenses, supply chain, manufacturing, research and development activities, clinical trials and employees.
1


We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions and other 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 described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, together with any updates in the section titled “Risk Factors” of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023 and in this Quarterly Report on Form 10-Q, and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. There may also be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Except to the extent required by law, we undertake no obligation to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations.
2


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
SHOCKWAVE MEDICAL, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
3


(in thousands)
September 30,
2023
December 31,
20221
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$498,108 $156,586 
Short-term investments 419,225 147,907 
Accounts receivable, net 98,819 71,366 
Inventory97,180 75,112 
Prepaid expenses and other current assets15,210 8,292 
Total current assets1,128,542 459,263 
Operating lease right-of-use assets30,360 32,365 
Property and equipment, net62,017 48,152 
Equity method investment1,810 3,512 
Intangible assets, net93,775  
Goodwill39,789  
Deferred tax assets109,432 97,568 
Other assets8,234 5,229 
TOTAL ASSETS$1,473,959 $646,089 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$6,870 $6,721 
Accrued liabilities69,764 55,375 
Lease liability, current portion1,569 1,278 
Total current liabilities78,203 63,374 
Lease liability, noncurrent portion32,358 34,928 
Convertible debt, noncurrent portion730,926  
Debt, noncurrent portion 24,198 
Related party contract liability, noncurrent portion12,273 12,273 
Deferred tax liabilities9,647  
Other liabilities9,307  
TOTAL LIABILITIES872,714 134,773 
Commitments and contingencies (Note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock  
Common stock37 36 
Additional paid-in capital535,197 548,960 
Accumulated other comprehensive loss(149)(867)
Retained earnings (accumulated deficit)66,160 (36,813)
TOTAL STOCKHOLDERS’ EQUITY601,245 511,316 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,473,959 $646,089 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1 The condensed consolidated balance sheet as of December 31, 2022 is derived from the audited consolidated financial statements as of that date.
4


SHOCKWAVE MEDICAL, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenue:
Product revenue $186,020 $131,330 $527,251 $345,707 
Cost of revenue:
Cost of product revenue24,513 17,874 70,072 47,494 
Gross profit161,507 113,456 457,179 298,213 
Operating expenses:
Research and development39,526 20,177 103,326 57,956 
Sales and marketing56,907 42,082 167,656 118,558 
General and administrative21,451 14,434 70,386 39,988 
Total operating expenses117,884 76,693 341,368 216,502 
Income from operations43,623 36,763 115,811 81,711 
(Loss) income from equity method investment(733)97 (1,702)(1,414)
Interest expense(2,509)(316)(3,955)(917)
Other income (expense), net4,699 (1,423)8,667 (3,206)
Net income before taxes45,080 35,121 118,821 76,174 
Income tax provision10,094 118 15,848 1,089 
Net income $34,986 $35,003 $102,973 $75,085 
Unrealized gain (loss) on available-for-sale securities242 (275)723 (1,410)
Adjustment for net gain realized and included in other income  (5) 
Total comprehensive income $35,228 $34,728 $103,691 $73,675 
Net income per share
Basic$0.95 $0.97 $2.81 $2.10 
Diluted$0.92 $0.92 $2.70 $1.99 
Shares used in computing net income per share
Basic36,797,072 36,003,931 36,630,575 35,807,264 
Diluted38,196,780 37,948,049 38,184,299 37,813,107 
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)
Common Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
 Retained
Earnings
(Accumulated
Deficit)
Total
Stockholders
Equity
Shares Amount 
Balances — December 31, 202236,235,546 $36 $548,960 $(867)$(36,813)$511,316 
Exercise of stock options77,230 1 319 — — 320 
Unrealized gain on available-for-sale securities, net of tax — — — 505 — 505 
Net gain reclassified from
accumulated other comprehensive
income
— — — (5)— (5)
Issuance of common stock under employee stock purchase plan19,124 — 3,092 — — 3,092 
Issuance of common stock in connection with vesting of restricted stock units257,624 — — — — — 
Taxes withheld on net settled vesting of restricted stock units(19)— (3)— —  (3)
Stock-based compensation— — 16,337 — — 16,337 
Net income— — — — 39,125 39,125 
Balances — March 31, 202336,589,505 $37 $568,705 $(367)$2,312 $570,687 
Exercise of stock options48,282 $— $403 $— $— $403 
Unrealized loss on available-for-sale securities— — — (24)— (24)
Issuance of common stock in connection with vesting of restricted stock units90,837 — — — — — 
Taxes withheld on net settled vesting of restricted stock units(7)— (4)— — (4)
Stock-based compensation— — 16,988 — — 16,988 
Net income— — — — 28,862 28,862 
Balances — June 30, 202336,728,617 $37 $586,092 $(391)$31,174 $616,912 
Exercise of stock options66,444 $— $459 $— $— $459 
Unrealized gain on available-for-sale securities, net of tax— — — 242 — 242 
Issuance of common stock under employee stock purchase plan19,506 — 3,138 — — 3,138 
Issuance of common stock in connection with vesting of restricted stock units67,812 — — — — — 
Taxes withheld on net settled vesting of restricted stock units(139)— (34)— — (34)
Stock-based compensation— — 18,516 — — 18,516 
Purchase of capped calls related to convertible debt, net of tax— — (72,974)— — (72,974)
Net income— — — — 34,986 34,986 
Balances — September 30, 202336,882,240 $37 $535,197 $(149)$66,160 $601,245 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



6


Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Shares Amount
Balances — December 31, 202135,444,472 $35 $494,806 $(202)$(252,809)$241,830 
Exercise of stock options54,913 1 390 — — 391 
Unrealized loss on available-for-sale securities— — — (815)— (815)
Issuance of common stock under employee stock purchase plan14,172 — 2,135 — — 2,135 
Issuance of common stock in connection with vesting of restricted stock units210,835 — — — — — 
Taxes withheld on net settled vesting of restricted stock units(31)— (6)— — (6)
Stock-based compensation— — 9,767 — — 9,767 
Net income— — — — 14,521 14,521 
Balances — March 31, 202235,724,361 $36 $507,092 $(1,017)$(238,288)$267,823 
Exercise of stock options111,601 $— $500 $— $— $500 
Unrealized loss on available-for-sale securities— — — (320)— (320)
Issuance of common stock in connection with vesting of restricted stock units71,491 — — — — — 
Stock-based compensation— — 11,504 — — 11,504 
Net income— — — — 25,561 25,561 
Balances — June 30, 202235,907,453 $36 $519,096 $(1,337)$(212,727)$305,068 
Exercise of stock options170,620 $— $1,303 $— $— $1,303 
Unrealized loss on available-for-sale securities— — — (275)— (275)
Issuance of common stock under employee stock purchase plan15,473 — 2,352 — — 2,352 
Issuance of common stock in connection with vesting of restricted stock units40,053 — — — — — 
Stock-based compensation— — 12,479 — — 12,479 
Net income— — — — 35,003 35,003 
Balances — September 30, 202236,133,599 $36 $535,230 $(1,612)$(177,724)$355,930 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


SHOCKWAVE MEDICAL, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income $102,973 $75,085 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization7,283 3,318 
Loss from equity method investment1,702 1,414 
Stock-based compensation51,423 32,247 
Non-cash lease expense2,393 2,300 
Amortization of premium and discount on available-for-sale securities(3,777)303 
Loss on write down of fixed assets140  
Loss on debt extinguishment710  
Deferred income taxes9,756  
Amortization of debt issuance costs562 473 
Foreign currency remeasurement262 2,887 
Changes in operating assets and liabilities:
Accounts receivable(26,064)(27,113)
Inventory(20,618)(24,372)
Prepaid expenses and other current assets(6,094)(3,615)
Other assets(3,347)(1,174)
Accounts payable(1,574)109 
Accrued and other current liabilities11,295 4,377 
Lease liabilities(2,675)(943)
Net cash provided by operating activities124,350 65,296 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities(398,330)(85,252)
Proceeds from maturities of available-for-sale securities131,750 72,423 
Purchase of property and equipment(22,474)(14,045)
Business combination, net of cash acquired(94,411) 
Net cash used in investing activities(383,465)(26,874)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of taxes withheld on net settled vesting of restricted stock units(41)(6)
Proceeds from stock option exercises1,182 1,672 
Proceeds from issuance of common stock under employee stock purchase plan6,230 4,487 
Proceeds from convertible debt, net730,809  
Purchases of capped calls related to convertible debt(96,375) 
Principal payment of debt(105,000)(2,750)
Proceeds from debt financing80,000  
Payment of assumed warrant liability (16,240) 
Net cash provided by financing activities600,565 3,403 
Effect of exchange rate changes on cash and cash equivalents(303)(2,755)
Net increase in cash, cash equivalents and restricted cash341,147 39,070 
Cash, cash equivalents and restricted cash at beginning of period158,302 90,874 
Cash, cash equivalents and restricted cash equivalents at end of period$499,449 $129,944 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid$1,755 $442 
Income tax paid$6,230 $1,415 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment purchases included in accounts payable and accrued liabilities$2,661 $6,221 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8


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 and commercialization of novel technologies that transform the care of patients with cardiovascular disease. The Company is focused on the improvement of its 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. Additionally, the Company continues to develop its coronary sinus reducer (“Reducer”) technology for the treatment of refractory angina.
The Company, which is headquartered in Santa Clara, California and operates primarily in the United States, began commercial and manufacturing operations in 2016. The unaudited condensed financial statements include the accounts of Shockwave Medical, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
As of September 30, 2023, the Company had cash, cash equivalents and short-term investments of $917.3 million, which are available to fund future working capital requirements, investments, acquisitions, or repayments of outstanding indebtedness. The Company believes that its cash, cash equivalents, and short-term investments as of September 30, 2023, will be sufficient for the Company to continue as a going concern for at least 12 months from the date these 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.
Risk and Uncertainties
The Company is subject to continuing risks and uncertainties in connection with the current global business, political and macroeconomic environments, including inflation, rising interest rates, uncertainty with respect to the federal budget, instability in the global banking system, volatile market conditions, supply chain disruptions, cybersecurity events, and global events, including regional conflicts around the world. The Company is closely monitoring the impact of these factors on all aspects of its business, including the impacts on its customers, patients, employees, suppliers, vendors, business partners and distribution channels.
In particular, while the Company has not experienced material disruptions in its supply chain to date, the Company has been and continues to be impacted by disruptions in the operations of certain of its third-party suppliers, resulting in increased lead-times, higher component costs and lower allocations for the purchase of some components. In certain cases, the Company has incurred higher logistical expenses. The Company is continuing to work closely with its manufacturing partners and suppliers to source key components and maintain appropriate inventory levels to meet customer demand.
The Company’s future results of operations and liquidity could be adversely impacted by a variety of factors, including those discussed in the section titled “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023 (the “2022 Annual Report”), together with any updates in the section titled “Risk Factors” of the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023 and in this Quarterly Report on Form 10-Q. As of the date of issuance of these condensed consolidated financial statements, the extent to which the current macroeconomic environment may materially impact the Company’s financial condition, liquidity, or results of operations remains uncertain.
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 the SEC regarding interim financial reporting.
9


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
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 and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the 2022 Annual Report.
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.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated statements of cash flows:
September 30,
2023
September 30,
2022
(in thousands)
Cash and cash equivalents$498,108 $127,779 
Restricted cash1,341 2,165 
Total cash, cash equivalents, and restricted cash$499,449 $129,944 
Restricted cash as of September 30, 2023 and December 31, 2022 relates to corporate credit card security, customer bank guarantee security, and letters of credit established for the real estate property leases relating to the Company’s office buildings, and is recorded as other assets on the condensed consolidated balance sheets.
Equity Method Investments
Entities for which the Company has significant influence over the activities of the entity, but does not control, are accounted for under the equity method of accounting in accordance with Topic 323, Investments - Equity Method and Joint Ventures. The Company’s carrying value in the equity method investment is reported as equity method investment on the Company’s consolidated balance sheets. The Company records its proportionate share of the underlying income or loss which is recognized in earnings or loss from the equity method investment. The Company eliminates a portion of intra-entity profit to the extent the goods sold by the Company have not yet been sold through by the equity method investee to an end customer at the end of the reporting period. The profit earned by the Company from the equity method investee for items not yet sold through is eliminated through equity method earnings or loss which is recognized in income (loss) from equity method investment.
The Company assesses its equity method investment for impairment when events or circumstances suggest that the carrying amount of the investment may be impaired. The Company considers all available evidence in assessing whether a decline in fair value is other than temporary. If the decline in fair value is determined to be other than temporary, the difference between the carrying amount of the investment and estimated fair value is recognized as an impairment charge.
Revenue
To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, Revenue from Contracts with Customers, 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.
10


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Product Revenue
The Company records product revenue primarily from the sale of its IVL catheters and Reducer. The Company sells its products to hospitals, primarily through direct sales representatives, as well as through distributors in selected international markets. Additionally, a portion of the Company’s revenue is generated through a consignment model under which inventory is maintained at hospitals.
Product revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.
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 has elected to account for shipping and handling activities that occur after the customer has obtained control as a fulfillment activity, and not a separate performance obligation.
The Company may provide 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 generally do not contain contractually enforceable minimum commitments and are generally cancellable by either party with 30 days notice.
License Revenue
For arrangements that contain a license of the Company’s functional intellectual property with a customer, the Company considers whether the license grant is distinct from other performance obligations in the arrangement. A license grant of functional intellectual property is generally considered to be capable of being distinct if a customer can benefit from the license on its own or together with other readily available resources. License revenue for licenses of functional intellectual property is recognized at a point in time when the Company satisfies its performance obligation of transferring the license to the customer.
Consideration received in advance of the satisfaction of a performance obligation is recognized as a contract liability. No license revenues were recognized for the three and nine months ended September 30, 2023.
Stock-Based Compensation
The Company accounts for share-based payments at fair value. The fair value of stock options is measured using the Black-Scholes option-pricing model. For share-based awards that vest subject to the satisfaction of a service requirement, the fair value measurement date for stock-based compensation awards is the date of grant and the expense is recognized on a straight-line basis, over the vesting period. For share-based awards that vest upon the satisfaction of a performance target, the related compensation cost is recognized over the requisite service period based on the expected achievement of the performance target. The Company accounts for forfeitures as they occur.
Business combinations
The Company applies the provisions of ASC 805, Business Combinations (“ASC 805”), in accounting of its acquisitions. ASC 805 requires recognition of assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses to be recognized separately from the business combination and expensed as incurred; requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset until completion or abandonment; and requires that changes in accounting for deferred tax asset valuation allowances and acquired uncertain tax positions after the measurement period be recognized as a component of provision for taxes.
When an integrated set of assets and activities does not meet the practical screen test and otherwise meets the definition of a “business” under ASC 805, the Company accounts for such acquisitions as business combinations. The purchase price of an acquisition is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The Company bases the estimated fair value of identifiable intangible assets acquired in an acquisition on independent third-party valuations that use information and
11


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
assumptions provided by the Companys management and considers inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded in earnings.
In addition, uncertain tax positions and tax related valuation allowances assumed in a business combination are initially estimated as of the acquisition date and therefore are also provisional by nature. The Company reevaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to its preliminary estimates being recorded to goodwill if identified within the measurement period.
Goodwill
In accordance with ASC 350, Intangibles-Goodwill and Other, the acquired goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company performs annual impairment reviews of its goodwill balance during the fourth fiscal quarter or more frequently if business factors indicate. In testing for impairment, the Company compares the fair value of its reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. The Company did not incur any goodwill impairment losses during the nine months ended September 30, 2023.
In-process research and development
Intangible assets related to in-process research and development costs are considered indefinite-lived intangible assets until the completion or abandonment of the associated research and development efforts. If and when development is complete, the associated assets would be deemed finite-lived intangible assets and would then be amortized based on their respective estimated useful lives at that point in time. Prior to the completion or abandonment of the associated research and development efforts, the assets are not amortized but are tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the in-process research and development projects below their respective carrying amounts.
During the fourth fiscal quarter and if business factors indicate more frequently, the Company performs an assessment of the qualitative factors affecting the fair value of its in-process research and development projects. If the fair value exceeds the carrying value, there is no impairment. Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of an asset to its carrying value, without consideration of any recoverability test.
Intangible assets
Amortizable intangible assets include customer relationships and developed technology acquired as part of the business combination. Customer relationships and developed technology acquired through business combinations subject to amortization are amortized using the straight-line method over their estimated useful lives ranging from five to 20 years. All intangible assets subject to amortization are reviewed for impairment during the fourth fiscal quarter or more frequently if business factors indicate in accordance with ASC 360, Property, Plant and Equipment.
Contingent Consideration Liabilities Related to Business Combination
At each reporting period, the Company evaluates the likelihood of any expected future payments and the associated discount rate to determine the fair value of the contingent consideration. The Company remeasures the fair value of contingent consideration liabilities each reporting period, based on new developments, and records any necessary adjustments as a component of total operating expenses within the condensed consolidated statements of operations until either the contingent consideration obligation is satisfied through payment upon the achievement of, or the obligation no longer exists due to the failure to achieve, the specified milestones. Contingent consideration liabilities are recorded within other liabilities in the condensed consolidated balance sheets.
12


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Convertible Debt
The Company applies the provisions of Accounting Standards Update (“ASU”) 2020-06-Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entitys Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entitys Own Equity (“ASU 2020-06”) which simplify the accounting related to convertible debt instruments by removing major separation models required under current GAAP.
Accordingly, the Company does not bifurcate the liability and equity components of the convertible debt on the condensed consolidated balance sheets. The Company’s convertible debt is are reflected as a liability on the Company’s condensed consolidated balance sheets, with the initial carrying amount equal to the principal amount of the debt, net of issuance costs. The issuance costs are treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the instruments utilizing the effective interest method.
The Company accounts for its convertible debt as a single liability with no separate accounting for embedded conversion features. The remaining consideration transferred, after reducing the carrying amount of the convertible debt, is recorded as a reduction to additional paid‐in capital on the Company’s condensed consolidated balance sheets.
3. Financial Instruments and Fair Value Measurements
The following tables summarize the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy:
September 30, 2023
Level 1Level 2Level 3Total
(in thousands)
Assets:
U.S. Treasury securities$362,160 $ $ $362,160 
Money market funds383,946   383,946 
Commercial paper 25,316  25,316 
Corporate bonds 12,202  12,202 
U.S. agency securities  13,790  13,790 
Asset-backed securities  5,757  5,757 
Total assets$746,106 $57,065 $ $803,171 
Liabilities:
Contingent consideration liability$ $ $9,307 $9,307 
Convertible debt 720,000  720,000 
Total liabilities$ $720,000 $9,307 $729,307 
December 31, 2022
Level 1Level 2Level 3Total
(in thousands)
Assets:
U.S. Treasury securities$111,631 $ $ $111,631 
Money market funds12,076   12,076 
Commercial paper 8,039  8,039 
Corporate bonds 18,808  18,808 
U.S. agency securities 9,429  9,429 
Total assets$123,707 $36,276 $ $159,983 
13


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
During the three and nine months ended September 30, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3.
Contingent Consideration Liabilities Related to Business Combination
In connection with the Company’s acquisition of Neovasc Inc. (“Neovasc”), a preliminary fair value of $9.3 million was recorded for the Neovasc contingent consideration, which consisted of estimated amounts in relation to the CVR (as defined below), on April 11, 2023, the date on which the closing conditions for the acquisition were met and the transaction was consummated. There were no changes in the estimated fair value of the contingent consideration liability as of September 30, 2023. See Note 5 “Business Combination” for information regarding existing contingent consideration liabilities as of September 30, 2023.
Convertible Debt
As of September 30, 2023, the fair value of the Company’s convertible debt was $720.0 million. The Company measures the fair value of its convertible debt for disclosure purposes. The fair value was determined based on the quoted price of the convertible debt in an over-the-counter market on the last trading day of the reporting period and has been classified as Level 2 in the fair value hierarchy. See Note 10 “Convertible Debt” for information regarding the Company’s convertible debt as of September 30, 2023.
14


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:
September 30, 2023
Amortized
Cost Basis
Unrealized
Gains
Unrealized
Losses
Fair Value
(in thousands)
U.S. Treasury securities$362,243 $32 $(115)$362,160 
Money market funds383,910 36  383,946 
Commercial paper25,391  (75)25,316 
Corporate bonds12,197 32 (27)12,202 
U.S. agency securities13,866  (76)13,790 
Asset-backed securities 5,7616(10)5,757 
Total$803,368 $106 $(303)$803,171 
Reported as:
Cash equivalents$383,946 
Short-term investments419,225 
Total$803,171 
December 31, 2022
Amortized
Cost Basis
Unrealized
Gains
Unrealized
Losses
Fair Value
(in thousands)
U.S. Treasury securities$112,719 $3 $(1,091)$111,631 
Money market funds12,076   12,076 
Commercial paper8,039   8,039 
Corporate bonds18,876 8 (76)18,808 
U.S. agency securities9,432 4 (7)9,429 
Total$161,142 $15 $(1,174)$159,983 
Reported as:
Cash equivalents$12,076 
Short-term investments147,907 
Total$159,983 
There were $63.8 million and $123.8 million of investments in unrealized loss positions of $0.3 million and $1.2 million as of September 30, 2023 and December 31, 2022, respectively. During the three and nine months ended September 30, 2023 and 2022, the Company did not record any other-than-temporary impairment charges on its available-for-sale securities. Based on the Company’s procedures under the expected credit loss model, including an assessment of unrealized losses on the portfolio, the Company concluded that the unrealized losses for its marketable securities were not attributable to credit and therefore an allowance for credit losses for these securities has not been recorded as of September 30, 2023 and December 31, 2022. Also, based on the scheduled maturities of the investments, the Company was more likely than not to hold these investments for a period of time sufficient for a recovery of the Company’s cost basis.
15


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
The remaining contractual maturities of the Company’s cash equivalents and short-term investments were as follows:
September 30,
2023
Fair Value
(in thousands)
Money market funds
$383,946 
One year or less 409,382 
Greater than one year and less than two years 9,843 
Total$803,171 
5. Business Combination
Neovasc Inc.
On January 16, 2023, the Company entered into a definitive agreement to acquire Neovasc, a company focused on the minimally invasive treatment of refractory angina. On April 11, 2023, the closing conditions were met and the transaction was consummated. Upon the closing of the transaction, the Company acquired all of Neovasc’s issued and outstanding common stock equity for a cash payment of $27.25 per share. During the three and nine months ended September 30, 2023, the Company incurred $0.7 million and $5.6 million of buyer related transaction costs related to the acquisition of Neovasc, which were recorded as general and administrative expenses.
The purchase price consideration for the acquisition totaled $121.4 million, which was comprised of cash paid of $112.1 million to the selling shareholders, and the estimated fair value of the contingent consideration liability in the amount of $9.3 million.
The contingent consideration liability consisted of estimated amounts in relation to a contingent value right (a “CVR”) entitling the holders of Neovasc common stock and eligible equity awards to receive an additional cash payment of up to $12.00 per share or per share underlying an eligible equity award (equivalent to a maximum cash payment of $47.0 million) contingent on the attainment of a milestone. The milestone is defined as the grant by the United States Food and Drug Administrations final approval of the premarket approval application for Neovasc’s coronary sinus reducer (“Reducer”) product for the treatment of angina. The milestone achievement timeline and respective payment per share ranges from $12.00 per CVR if the milestone is achieved on or prior to June 30, 2026, $8.00 per CVR if the milestone is achieved between July 1, 2026 and December 31, 2026 and $4.00 per CVR if the milestone is achieved between January 1, 2027 and December 31, 2027. The Company estimated the fair value of the contingent consideration liability using the probability-weighted discounted cash flow method based on the probability of achieving the milestone on each specified milestone date and consequently calculated the fair value of the CVR in the amount of $9.3 million as of the acquisition date.
The material factors that may impact the fair value of the contingent consideration are (i) the number of diluted shares outstanding as of the acquisition date that are eligible for the CVR, (ii) the probabilities and timing of achievement of the milestone, and (iii) discount rates, all of which are unobservable Level 3 inputs not supported by market activity. Significant changes in any of these inputs may result in a significant change in fair value, which is estimated at each reporting date with changes reflected as general and administrative expense.
The following table summarizes the purchase price consideration for Neovasc:
Purchase Price(in thousands)
Cash transferred$112,129 
Contingent consideration liability9,307 
Total $121,436 
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and Level 3 inputs and assumptions used by the Company. While the Company believes that its estimates and assumptions
16


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the residual amount of goodwill. The following table summarizes the preliminary fair values of assets acquired and liabilities assumed through the Companys Neovasc acquisition at the acquisition date based on management’s best estimates and assumptions as of the reporting date:
Purchase Price(in thousands)
Cash and cash equivalents$17,273 
Accounts receivable, net1,345 
Inventory918 
Prepaid expenses and other current assets841 
Operating lease right-of-use assets310 
Property and equipment156 
Intangible assets95,500 
Other assets502 
Total identifiable assets acquired116,845 
Accounts payable3,334 
Accrued liabilities4,082 
Lease liability, current portion253 
Lease liability, noncurrent portion64 
Deferred tax liabilities11,185 
Other liabilities16,280 
Total liabilities assumed35,198 
Net identifiable assets acquired81,647 
Goodwill39,789 
Total purchase price$121,436 
The purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets acquired and liabilities assumed becomes available, primarily related to the Company’s deferred tax liability and the related impact to goodwill. Additional information that existed as of the acquisition date but at the time was unknown to the Company may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. As of September 30, 2023, there were no changes to the preliminary allocation of the purchase consideration.
The Company measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible assets acquired are the developed technology related to Neovasc’s Reducer, in-process research and development for its Reducer technology, and Neovasc’s customer relationships in place at the time of acquisition. The fair value of the intangible assets acquired as of the acquisition date and, the method used to value these assets as well as the estimated economic lives for amortizable intangible assets were as follows (in thousands, except estimated useful life which is in years):
Fair valueEstimated useful life Valuation method
Customer relationships$2,900 5 yearsAvoided cost / lost profit
Developed technology 61,200 20 yearsMulti-period excess earnings
In-process research and development31,400 N/AMulti-period excess earnings
Total$95,500 
17


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The acquisition of Neovasc resulted in the recognition of $39.8 million of goodwill which the Company believes relates primarily to the anticipated benefits of synergies created through the acquisition and assembled workforce.
The intangible assets and goodwill created as a result of the acquisition of Neovasc are not deductible for tax purposes. As such, the Company recorded deferred tax liabilities of $11.2 million related to the intangible assets in connection with the Company’s acquisition of Neovasc.
Supplemental Unaudited Pro Forma Information
The following are the supplemental condensed consolidated financial results of the Company and Neovasc on an unaudited pro forma basis, as if the Neovasc acquisition had been consummated on January 1, 2022.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)(in thousands)
Net revenue$186,020 $132,253 $528,720 $348,059 
Net income $30,072 $27,287 $69,010 $45,815 
The unaudited pro forma financial information presented is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Neovasc acquisition was actually consummated on January 1, 2022 and is not indicative of future operating results. The pro forma results include adjustments related to purchase accounting, primarily amortization of acquisition-related intangible assets, and expense from assumed stock-based compensation awards, warrant and interest expense.
18


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements

6. Goodwill and intangible assets
Goodwill
The changes in the carrying amounts of goodwill were as follows:
(in thousands)
Balance as of December 31, 2022$ 
Goodwill acquired - Neovasc39,789 
Goodwill deductions or impairment 
Balance as of September 30, 2023$39,789 
The Company performs annual impairment reviews of goodwill during the fourth fiscal quarter or more frequently if required.
Intangible assets
The following table presents details of the acquired intangible assets as of September 30, 2023 (in thousands, except useful life and estimated remaining useful life which are in years):
Gross Carrying AmountAccumulated
Amortization
ImpairmentIntangible Assets, Net
Useful Life

Estimated Remaining
Useful Life
Customer relationships$2,900 $275 $ $2,625 5 years4.5 years
Developed technology61,200 1,450  59,750 20 years19.5 years
In-process research and development31,400 — — 31,400 N/AN/A
Total$95,500 $1,725 $ $93,775 19.3 years18.8 years

Acquisition-related intangible assets included in the above table are finite-lived, other than in-process research and development which has an indefinite life, and are carried at cost less accumulated amortization. Customer relationships and developed technology are amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. Amortization expense was $0.9 million and $1.7 million for the three and nine months ended September 30, 2023, respectively, and was recorded to sales and marketing for customer relationships and to cost of revenue for developed technology.
The following table summarizes the estimated future amortization expense of intangible assets with finite lives as of September 30, 2023:
Years ending December 31,
(in thousands)
2023 (remainder)$918 
20243,640 
20253,640 
20263,640 
20273,640 
Thereafter46,897 
Total estimated future amortization expense$62,375 
19


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Actual amortization expense to be reported in future periods could differ from these estimates as a result of asset impairments, acquisitions, or other facts and circumstances. The Company performs annual impairment reviews of its intangible assets during the fourth fiscal quarter or more frequently if business factors indicate.
20


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
7. Balance Sheet Components
Inventory
Inventory consists of the following:
September 30,
2023
 December 31,
2022
(in thousands)
Raw materials$24,289 $18,456 
Work in progress17,493 7,666 
Finished goods54,907 48,735 
Consigned inventory491 255 
Total inventory$97,180 $75,112 
Accrued Liabilities
Accrued liabilities consist of the following:
September 30,
2023
December 31,
2022
(in thousands)
Employee compensation$35,264 $32,885 
Research and development costs7,943 4,007 
Asset purchases4,718 4,600 
Professional services6,970 4,044 
Excise, sales, income and other taxes6,033 4,036 
Other8,836 5,803 
Total accrued liabilities$69,764 $55,375 
8. Commitments and Contingencies
Operating Leases
The Company’s operating leases consist of leased facilities for the Company’s headquarter offices, leased facilities for Neovasc, and leased facilities for laboratory and manufacturing space. Also included in operating leases are leases for vehicles, for use by certain employees of the Company, which were not material for the periods presented.
Short-term leases are leases having a term of 12 months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases. As of September 30, 2023, the Company has no material finance leases.
In September 2021, the Company entered into an office lease agreement (“3003 Bunker Hill Lease”) for the 3003 Bunker Hill facility which expires in December 2031. Concurrently, the Company entered into an Amendment to Office Lease (Net) (the “First Lease Amendment”) which extended the lease terms of the 5353 Betsy Ross and 5403 Betsy Ross facilities to December 2031. The 5403 Betsy Ross lease (“5403 Lease”) continued in its existing terms (and with no changes to its terms, including its base rent) until its expiration in August 2022, at which point the leased space under the 5403 Lease became subject to the terms of the First Lease Amendment. The 3003 Bunker Hill Lease and the First Lease Amendment contain options to extend the lease term at the respective facilities for up to two additional five-year terms at the then fair market rate. As of September 30, 2023, the Company is not reasonably certain it will exercise these extension options.
21


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Additionally, included in the First Lease Amendment was an expansion option that stipulated that the Company had an option to lease the space in the adjacent building located at 5303 Betsy Ross (“5303 Lease”). The Company exercised this expansion option by entering into a Second Amendment to Office Lease (Net) (the “Second Lease Amendment”) on May 26, 2023. The 5303 Lease will commence on February 1, 2024 and will expire on December 31, 2031.
The Company recognizes rent expense for these operating leases on a straight-line basis over the lease period. The components of lease costs, which the Company includes in operating expenses in the condensed consolidated statements of operations and comprehensive income, were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)(in thousands)
Operating lease cost$1,223 $1,168 $3,651 $3,451 
Variable lease cost366 453 955 696 
Total lease cost$1,589 $1,621 $4,606 $4,147 
During the three months ended September 30, 2023 and 2022, the Company recorded operating lease cost of $1.2 million and $1.2 million, respectively, and paid $1.4 million and $1.0 million of operating lease payments, respectively, related to the lease liabilities.
During the nine months ended September 30, 2023 and 2022, the Company recorded operating lease cost of $3.7 million and $3.5 million, respectively, and paid $4.1 million and $2.1 million of operating lease payments, respectively, related to the lease liabilities.
The Company includes operating lease payments in net cash used in operating activities in the condensed consolidated statements of cash flows.
The weighted average remaining lease term and discount rate used to measure the Company’s operating lease liabilities were 8.2 years and 5.2%, respectively. The Company estimated the discount rate using the incremental borrowing rate as the rate implicit in the lease was not readily determinable.
As of September 30, 2023, the maturities of the payments due under the Company’s operating lease liabilities were as follows:
Years ending December 31,
(in thousands)
2023 (remainder)$1,383 
20245,517 
20255,526 
20265,690 
20275,832 
Thereafter24,959 
Total minimum lease payments$48,907 
Less: imputed interest (9,312)
Less: Lease incentive(5,668)
Total lease liability$33,927 
Less: current portion(1,569)
Lease liability, noncurrent portion$32,358 
22


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
The table below summarizes the undiscounted future non-cancellable lease payments for the 5303 Lease facility under the Second Lease Amendment, which had not yet commenced as of September 30, 2023.
Years ending December 31,
(in thousands)
2023 (remainder)$ 
2024476 
20251,173 
20261,207 
20271,244 
Thereafter5,359 
Total undiscounted lease payments$9,459 
Contingent Consideration Liabilities Related to Business Combination
See Note 5 “Business Combination” for information regarding existing contingent consideration liabilities as of September 30, 2023.
9. Debt
On October 19, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Bank, National Association, as swingline lender and an issuing lender, Wells Fargo Securities, LLC and Silicon Valley Bank, as joint lead arrangers and joint bookrunners, Silicon Valley Bank, as syndication agent, and the several lenders party thereto. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $175.0 million with the right to request increases to the revolving commitments (subject to certain conditions) of up to the greater of (x) $100 million or (y) the Company’s consolidated EBITDA for the four fiscal quarter period most recently ended prior to the date of such increase.
Concurrent with entering into the Credit Agreement, the Company drew down $25.0 million thereunder. The Company repaid the $25.0 million drawn under the Credit Agreement on August 29, 2023. The Company recognized a loss on debt extinguishment of $0.7 million in connection with this repayment, which is included in interest expense in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023.
On March 16, 2023, the Company drew down an additional $80.0 million under the Credit Agreement. The Company repaid the $80.0 million drawn under the Credit Agreement on April 26, 2023.
The revolving credit facility accrues for interest, at the election of the Company, at (A) the Base Rate (as defined below) plus a margin ranging from 0% to 1% depending on the Companys Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) (which rate is currently 0%) or (B) the applicable secured overnight financing rate (“SOFR”) plus a margin from 1% to 2%, depending on the Companys Consolidated Total Net Leverage Ratio (which rate is currently 2%). Base Rate means, at any time, the highest of (a) the Wells Fargo Bank, National Associations announced prime rate, (b) the federal funds rate plus 0.5% and (c) Term SOFR for a one-month tenor in effect on such day plus 1%. The Credit Agreement matures on October 19, 2027. The interest rate was 7.3% as of August 29, 2023.
The Company recorded interest expense of $0.4 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively.
The Company recorded interest expense of $1.8 million and $0.9 million for the nine months ended September 30, 2023 and 2022, respectively.
10. Convertible Debt
On August 15, 2023, the Company issued $750.0 million in aggregate principal amount of 1.0% convertible senior notes due 2028 (the “Notes”). The issuance included the full exercise of an option granted by the Company to the initial purchasers of the Notes to purchase an additional $100.0 million in aggregate principal amount of Notes. The Notes were
23


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
issued pursuant to and subject to the terms of an indenture, dated August 15, 2023, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Indenture”). The Indenture includes customary covenants and sets forth certain events of default, including certain types of bankruptcy and insolvency events, after which the Notes may be declared immediately due and payable. The Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
The Notes are senior, unsecured obligations of the Company. The Notes will mature on August 15, 2028, unless earlier converted, redeemed, or repurchased in accordance with their terms. The Notes bear interest at a rate of 1.0% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2024. The Notes are convertible, in multiples of $1,000.0 principal amount and at the option of the noteholder, on or after May 15, 2028. Prior to May 15, 2028, holders of the Notes may convert all or a portion of their Notes, in multiples of $1,000.0 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after December 31, 2023 (and only during such calendar quarter) if the closing price of the Company’s common stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the then applicable conversion price for the Notes on each applicable trading day; (2) during the five business days immediately after any five consecutive trading day period in which the trading price (as defined in the Indenture) per $1,000.0 principal amount of Notes for each day of that period was less than 98% of the product of the closing price of the Company’s common stock and the then applicable conversion rate; (3) if the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption; or (4) upon the occurrence of specific corporate events as specified in the Indenture. The Company will settle any conversions of Notes by paying or delivering, as applicable, cash up to the aggregate principal amount of the Notes to be converted and by paying or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the election of the Company, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the Notes being converted.
The conversion rate for the Notes was initially 3.4595 shares of common stock per $1,000.0 principal amount of Notes, which is equivalent to an initial conversion price of approximately $289.06 per share of common stock. The initial conversion price of the Notes represents a premium of approximately 30% over the $222.35 per share last reported sale price of common stock on August 10, 2023. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture, with a maximum conversion rate of 4.4974 shares of common stock per $1,000.0 principal amount of Notes.
The Company may not redeem the Notes prior to August 20, 2026. The Company may redeem, for cash equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest, all or any portion of the Notes, at its option, on or after August 20, 2026, if the last reported sales price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of the redemption. No sinking fund is provided for the Notes and therefore the Company is not required to redeem or retire the Notes periodically.
If the Company undergoes a fundamental change, as defined in the Indenture, then subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Notes at a price equal to 100% of the principal amount of the Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the repurchase date. In addition, under certain circumstances, holders of the Notes are entitled to an increase in the conversion rate. The conditions allowing holders of the Notes to convert were not met this quarter.
As of September 30, 2023, the Notes were classified as a long-term liability, net of issuance costs of $19.5 million, on the condensed consolidated balance sheets. As of September 30, 2023, the net carrying amount of the Notes approximates fair value as the Notes were issued on August 15, 2023. Interest expense recognized related to the Notes for each of the three and nine months ended September 30, 2023 was $1.4 million. The Notes were issued at par and costs associated with
24


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
the issuance of the Notes are amortized to interest expense over the contractual term of the Notes. As of September 30, 2023, the effective interest rate of the Notes was 1.5%.
Capped Call Transactions
On August 10, 2023, in connection with the pricing of the Notes and the initial purchasers’ exercise of their option to purchase additional Notes, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”). The Capped Call Transactions initially covered, subject to customary anti-dilution adjustments, the number of shares of common stock that underlie the Notes. The cap price of the Capped Call Transactions was initially $444.70 per share, which represents a premium of 100% over the last reported sale price of the Companys common stock of $222.35 per share on August 10, 2023, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Company used approximately $96.4 million of the proceeds from the offering of Notes to pay the cost of the Capped Call Transactions.
The Company evaluated the Capped Call Transactions and determined that they should be accounted for separately from the Notes. The cost of $96.4 million to purchase the Capped Call Transactions was recorded as a reduction to additional paid-in capital in the condensed consolidated balance sheet as of September 30, 2023 as the Capped Call Transactions are indexed to the Company's own stock and met the criteria to be classified in stockholders equity.
11. Stock-Based Compensation
Total stock-based compensation was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)(in thousands)
Cost of product revenue$1,321 $388 $3,649 $1,559 
Research and development4,559 2,695 12,230 7,409 
Sales and marketing7,117 4,901 20,176 13,241 
General and administrative5,413 3,748 15,368 10,038 
Total stock-based compensation$18,410 $11,732 $51,423 $32,247 
Stock-based compensation of $0.1 million and $0.7 million was capitalized into inventory for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation of $0.4 million and $1.5 million was capitalized into inventory for the nine months ended September 30, 2023 and 2022, respectively. Stock-based compensation capitalized into inventory is recognized as cost of product revenue when the related product is sold.
2009 Equity Incentive Plan and 2019 Equity Incentive Plan
On June 17, 2009, the Company adopted the 2009 Equity Incentive Plan (the “2009 Plan”) under which the Companys Board of Directors (the “Board”) had the authority to issue stock options to employees, directors and consultants.
In February 2019, the Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”), which became effective in connection with the Companys initial public offering (the “IPO”). As a result, effective as of March 6, 2019, the Company may not grant any additional awards under the 2009 Plan. The 2009 Plan will continue to govern outstanding equity awards granted thereunder. The Company initially reserved 2,000,430 shares of common stock for the issuance of a variety of awards under the 2019 Plan, including stock options, stock appreciation rights, awards of restricted stock and awards of restricted stock units (“RSUs”). In addition, the number of shares of common stock reserved for issuance under the 2019 Plan will automatically increase on the first day of January for a period of up to ten years, which commenced on January 1, 2020, in an amount equal to 3% of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year, or a lesser number of shares determined by the Board. As of September 30, 2023, there were 3,617,756 shares available for issuance under the 2019 Plan.
25


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Stock Options
Option activity under the 2009 Plan and 2019 Plan is set forth below:
Number
of Shares
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Term
Aggregate
Intrinsic
Value
(in years)(in thousands)
Balance, December 31, 20221,122,009 $5.87 4.60$224,115 
Options exercised(191,956)6.15 
Options cancelled(6,133)2.41 
Balance, September 30, 2023923,920 $5.83 3.86$213,029 
Vested and exercisable,
September 30, 2023
923,920 $5.83 3.86$213,029 
Vested and expected to vest, 
September 30, 2023
923,920 $5.83 3.86$213,029 
Restricted Stock Units
RSUs are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. RSUs generally vest over a four-year period with straight-line quarterly vesting with a one year cliff or straight-line annual vesting, provided the employee remains continuously employed with the Company. The fair value of RSUs is equal to the closing price of the Company’s common stock on the grant date.
In February 2022 and 2023, the Company granted performance-based restricted stock units (“PRSUs”) to certain key executives. The vesting of these PRSUs is dependent on the achievement of certain performance targets related to the Company’s compound annual growth rate of revenue over a two or three year performance period, provided the executives remain employed with the Company at the time of vesting. The number of PRSUs that vest will vary from 0% to 200% of the target which will be determined based on the level of performance attained for each performance period. The fair value of these PRSUs is equal to the closing price of the Company’s common stock on the grant date. Compensation cost for PRSUs is recognized over the requisite service period based on the expected achievement of performance targets.
26


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
RSU and PRSU activity under the 2019 Plan is set forth below. Grant activity for all PRSUs is disclosed at target (100%):
Restricted Stock UnitsPerformance-Based Restricted Stock Units
Number
of Shares
Weighted-
Average
Grant Date
Fair Value
Per Share
Number
of Shares
Weighted-
Average
Grant Date
Fair Value
Per Share
Balance, December 31, 20221,125,991 $127.39 38,797 $165.74 
RSUs and PRSUs granted489,260 217.33 29,473 191.36
RSUs and PRSUs forfeited(68,149)161.93 (713)265.17
RSUs and PRSUs vested(416,063)110.39 (210)266.73
Balance, September 30, 20231,131,039 170.46 67,347 175.58 
Employee Stock Purchase Plan
In February 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective in connection with the IPO on March 6, 2019. The Company initially reserved 300,650 shares of common stock for purchase under the ESPP. Each offering under the ESPP to Company employees to purchase stock under the ESPP begins on each September 1 and March 1 and ends on the following February 28 or 29 and August 31, respectively. On each purchase date, which falls on the last date of each offering period, ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of (1) the fair market value per share of the common stock on the offering date or (2) the fair market value of the common stock on the purchase date. The occurrence and duration of offering periods under the ESPP are subject to the determinations of the Company’s Compensation Committee of the Board, in its sole discretion.
The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model. The Company recorded $0.6 million and $0.8 million of stock-based compensation expense related to the ESPP for the three months ended September 30, 2023 and 2022, respectively. The Company recorded $2.5 million and $1.6 million of stock-based compensation expense related to the ESPP for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, a total of 1,521,021 shares were available for issuance under the ESPP.
12. Net Income Per Share
Basic net income per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding for the period, without consideration of potential dilutive shares of common stock. Diluted net income per share attributable to the Company’s stockholders is calculated based on the weighted-average number of shares of its common stock and other dilutive securities outstanding.
Potentially dilutive common shares from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding RSUs. Prior to conversion of the Company’s convertible debt, the Company will include, in the diluted net income per common share calculation, the effect of the additional shares that may be issued when the Company’s common stock price exceeds the conversion price using the if‐converted method. The Company’s convertible debt has no impact on diluted net income per
27


SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
common share unless the average price of the Company’s common stock exceeds the conversion price because the Company is required to settle the principal amount of the convertible debt in cash upon conversion.
The components of basic and diluted net income per share were as follows (in thousands, except share and per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Numerator:
Net income $34,986 $35,003 $102,973 $75,085 
Denominator:
Basic:</