10-Q 1 gkos-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2022

Or

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

Commission file number: 001-37463 

GLAUKOS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

33-0945406

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

229 Avenida Fabricante

San Clemente, California

92672

(Address of registrant’s principal executive offices)

(Zip Code)

(949) 367-9600

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

GKOS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company’’ and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 2, 2022, there were 47,333,554 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

GLAUKOS CORPORATION

Form 10-Q

For the Quarterly Period Ended March 31, 2022

Table of Contents

Page

PART I: FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

PART II: OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 6.

Exhibits

45

SIGNATURES

46

We use Glaukos, our logo, iStent, iStent inject, iStent infinite, iPrism, iDose, iPRIME, iAccess, Avedro, Photrexa, iLink, KXL, Epioxa, iLution, Retina XR and other marks as trademarks. This report contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

References throughout this document to “we,” “us,” “our,” the “Company,” or “Glaukos” refer to Glaukos Corporation and its consolidated subsidiaries.

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)

March 31, 

December 31, 

2022

2021

    

(unaudited)

    

 

Assets

Current assets:

Cash and cash equivalents

$

106,202

$

100,708

Short-term investments

309,211

313,343

Accounts receivable, net

34,804

33,438

Inventory

24,708

23,011

Prepaid expenses and other current assets

16,278

15,626

Total current assets

491,203

486,126

Restricted cash

9,416

9,416

Property and equipment, net

74,708

68,969

Operating lease right-of-use assets

26,539

28,142

Finance lease right-of-use asset

48,417

49,022

Intangible assets, net

326,553

332,781

Goodwill

66,134

66,134

Deposits and other assets

9,100

9,108

Total assets

$

1,052,070

$

1,049,698

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

7,998

$

7,333

Accrued liabilities

47,598

56,027

Total current liabilities

55,596

63,360

Convertible senior notes

280,370

280,026

Operating lease liability

29,304

29,650

Finance lease liability

72,594

72,699

Deferred tax liability, net

7,312

7,318

Other liabilities

9,330

9,494

Total liabilities

454,506

462,547

Commitments and contingencies (Note 12)

Stockholders' equity:

Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued and outstanding

-

-

Common stock, $0.001 par value; 150,000 shares authorized; 47,117 and 46,993 shares issued and 47,089 and 46,965 shares outstanding as of March 31, 2022 and December 31, 2021 respectively

47

47

Additional paid-in capital

960,870

952,432

Accumulated other comprehensive (loss) income

(3,387)

15

Accumulated deficit

(359,834)

(365,211)

Less treasury stock (28 shares as of March 31, 2022 and December 31, 2021)

(132)

(132)

Total stockholders' equity

597,564

587,151

Total liabilities and stockholders' equity

$

1,052,070

$

1,049,698

See accompanying notes to condensed consolidated financial statements.

3

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

Three Months Ended

March 31, 

    

2022

    

2021

    

Net sales

$

67,681

$

67,968

Cost of sales

17,063

16,633

Gross profit

50,618

51,335

Operating expenses:

Selling, general and administrative

43,949

41,921

Research and development

26,877

21,219

Litigation-related settlement

(30,000)

-

Total operating expenses

40,826

63,140

Income (loss) from operations

9,792

(11,805)

Non-operating expense:

Interest income

287

383

Interest expense

(3,416)

(3,229)

Other expense, net

(960)

(1,539)

Total non-operating expense

(4,089)

(4,385)

Income (loss) before taxes

5,703

(16,190)

Income tax provision

326

279

Net income (loss)

$

5,377

$

(16,469)

Basic net income (loss) per share

$

0.11

$

(0.36)

Diluted net income (loss) per share

$

0.11

$

(0.36)

Weighted average shares used to compute basic net income (loss) per share

47,050

45,709

Weighted average shares used to compute diluted net income (loss) per share

49,506

45,709

See accompanying notes to condensed consolidated financial statements.

4

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

Three Months Ended

March 31, 

    

2022

    

2021

    

Net income (loss)

$

5,377

$

(16,469)

Other comprehensive (loss) income:

Foreign currency translation gain

492

541

Unrealized loss on short-term investments

(3,894)

(417)

Other comprehensive (loss) income

(3,402)

124

Total comprehensive income (loss)

$

1,975

$

(16,345)

See accompanying notes to condensed consolidated financial statements.

5

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

Accumulated

Additional

other

Common stock

paid-in

comprehensive

Accumulated

Treasury stock

Total

    

Shares

    

Amount

    

capital

    

income (loss)

    

deficit

    

Shares

    

Amount

    

equity

Balance at December 31, 2021

46,993

$

47

$

952,432

$

15

$

(365,211)

 

(28)

$

(132)

$

587,151

Common stock issued under stock plans

124

1,515

1,515

Stock-based compensation

6,923

6,923

Other comprehensive loss

(3,402)

(3,402)

Net income

5,377

5,377

Balance at March 31, 2022

47,117

$

47

$

960,870

$

(3,387)

$

(359,834)

 

(28)

$

(132)

$

597,564

Accumulated

Additional

other

Common stock

paid-in

comprehensive

Accumulated

Treasury stock

Total

    

Shares

    

Amount

    

capital

    

income

    

deficit

    

Shares

    

Amount

    

equity

Balance at December 31, 2020

45,275

$

45

$

976,590

$

1,004

$

(310,058)

 

(28)

$

(132)

$

667,449

Effect of adoption of ASU 2020-06

(81,553)

(5,560)

(87,113)

Common stock issued under stock plans

741

1

17,034

17,035

Stock-based compensation

8,748

8,748

Other comprehensive income

124

124

Net loss

(16,469)

(16,469)

Balance at March 31, 2021

46,016

$

46

$

920,819

$

1,128

$

(332,087)

 

(28)

$

(132)

$

589,774

See accompanying notes to condensed consolidated financial statements.

6

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Three Months Ended March 31, 

    

2022

    

2021

 

Operating Activities

Net income (loss)

$

5,377

$

(16,469)

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

Depreciation

1,382

1,150

Amortization of intangible assets

6,228

6,228

Amortization of lease right-of-use assets

1,271

1,170

Amortization of debt issuance costs

343

343

Deferred income tax benefit

(6)

(24)

Gain on disposal of fixed assets

(45)

-

Stock-based compensation

6,923

8,748

Unrealized foreign currency (gains) losses

(135)

1,101

Amortization of premium on short-term investments

236

256

Other liabilities

(163)

570

Changes in operating assets and liabilities:

Accounts receivable, net

(1,423)

(547)

Inventory

(1,750)

403

Prepaid expenses and other current assets

(669)

(1,803)

Accounts payable and accrued liabilities

(7,578)

3,023

Other assets

(217)

29

Net cash provided by operating activities

9,774

4,178

Investing activities

Purchases of short-term investments

(16,747)

(54,007)

Proceeds from sales and maturities of short-term investments

17,184

50,349

Purchases of property and equipment

(6,604)

(17,182)

Proceeds from disposal of property and equipment

55

-

Investment in company-owned life insurance

215

(423)

Net cash used in investing activities

(5,897)

(21,263)

Financing activities

Proceeds from exercise of stock options

548

16,552

Proceeds from share purchases under Employee Stock Purchase Plan

1,785

1,549

Payment of employee taxes related to vested restricted stock units

(818)

(1,065)

Principal paid on finance lease

(105)

(251)

Proceeds from tenant improvement allowance

-

629

Net cash provided by financing activities

1,410

17,414

Effect of exchange rate changes on cash and cash equivalents

207

(450)

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

5,494

(121)

Cash, cash equivalents and restricted cash at beginning of period

110,124

106,162

Cash, cash equivalents and restricted cash at end of period

$

115,618

$

106,041

Supplemental disclosures of cash flow information

Taxes paid (refunded)

$

91

$

(35)

Other interest paid

$

1,091

$

3,848

Supplemental schedule of noncash investing and financing activities

Purchases of property and equipment included in accounts payable and accrued liabilities

$

2,705

$

3,848

See accompanying notes to condensed consolidated financial statements.

7

GLAUKOS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1.  Organization and Basis of Presentation

Organization and business

Glaukos Corporation (Glaukos or the Company), incorporated in Delaware on July 14, 1998, is an ophthalmic medical technology and pharmaceutical company focused on developing novel therapies for the treatment of glaucoma, corneal disorders, and retinal disease. The Company developed Micro-Invasive Glaucoma Surgery (MIGS) to serve as an alternative to the traditional glaucoma treatment paradigm and launched its first MIGS device commercially in 2012. The Company also offers commercially a proprietary bio-activated pharmaceutical therapy for the treatment of a corneal disorder, keratoconus, that was approved by the U.S. Food and Drug Administration (FDA) in 2016 and is developing a pipeline of sustained pharmaceutical therapies, surgical devices, and implantable biosensors intended to treat glaucoma progression, corneal disorders such as keratoconus, dry eye and refractive vision correction, and retinal diseases such as neovascular age-related macular degeneration, diabetic macular edema and retinal vein occlusion.

The accompanying condensed consolidated financial statements include the accounts of Glaukos and its wholly-owned subsidiaries. All significant intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States of America (U.S.) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X.

The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements. As permitted under those rules, certain footnotes and other financial information that are normally required by GAAP have been condensed or omitted.  In the opinion of management, the unaudited interim financial statements reflect all adjustments necessary for the fair presentation of the Company’s financial information contained herein. All such adjustments are of a normal and recurring nature. The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements.  These interim financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2021, which are contained in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2022. The Company’s results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period.

Recent Developments

Settlement of Patent Litigation

On September 14, 2021, the Company entered into a settlement agreement (Settlement Agreement) with Ivantis, Inc. (Ivantis), pursuant to which the Company and Ivantis agreed to terminate the patent infringement lawsuit the Company had filed against Ivantis on April 14, 2018 in the U.S. District Court for the Central District of California, Southern Division (the Lawsuit). In the Lawsuit, the Company alleged that Ivantis’ Hydrus® Microstent device infringes the Company’s U.S. Patent Nos. 6,626,858 and 9,827,143. Pursuant to the terms of the Settlement Agreement, Ivantis was required to pay the Company a cash payment of $60.0 million, $30.0 million of which was paid to the Company during the year ended December 31, 2021, and $30.0 million of which would be paid by the earlier of (i) December 31, 2022, or (ii) 30 days after the consummation of the sale to a third party of all or substantially all of Ivantis’ equity or assets such that the third-party controls Ivantis. The second $30.0 million cash payment, which was received by the Company during the quarter ended March 31, 2022 is included in litigation-related settlement as a reduction of operating expenses on the condensed consolidated statements of operations.

8

Additionally, Ivantis will make quarterly royalty payments to the Company in the amount of 10% of Ivantis’ Hydrus Microstent U.S. sales and any international sales supplied out of the U.S. beginning in the fourth quarter of 2021 through April 26, 2025, subject to a per-unit minimum payment.

Note 2.  Summary of Significant Accounting Policies

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2022, as compared with those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates and assumptions. Management considers many factors in selecting appropriate financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, this process may result in actual results differing materially from those estimated amounts used in the preparation of the condensed consolidated financial statements.

The Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2022 reflect the Company’s estimates of the impact of the ongoing COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are uncertain, including the duration and severity of the COVID-19 outbreak, the severity and transmission rates of new and more contagious and/or vaccine-resistant variants of COVID-19, and the actions taken to contain it or treat COVID-19, including the availability, distribution, rate of public acceptance and efficacy of vaccines for COVID-19, as well as the economic impact on local, regional, national and international customers and markets. As a result, there may be changes to the Company’s estimates regarding the impact of COVID-19 in future periods.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that equate to the amount reported in the condensed consolidated statement of cash flows as of the beginning and end of the three months ended March 31, 2022 (in thousands):

March 31, 

December 31, 

2022

2021

Cash and cash equivalents

$

106,202

$

100,708

Restricted cash

9,416

9,416

Cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows

$

115,618

$

110,124

Recently Adopted Accounting Pronouncements

The Company has not adopted any recent accounting pronouncements that had a material impact on its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

The Company reviewed recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

9

Note 3.  Balance Sheet Details

Short-term Investments

Short-term investments consisted of the following (in thousands):

At March 31, 2022

 

Maturity

Amortized cost

Unrealized

Unrealized

Estimated

 

    

(in years)

    

or cost

    

gains

    

losses

    

fair value

  

U.S. government bonds

less than 2

$

76,772

$

-

$

(923)

$

75,849

U.S. government agency bonds

less than 3

123,693

13

(2,099)

121,607

Bank certificates of deposit

less than 2

15,499

4

(29)

15,474

Commercial paper

less than 1

 

2,999

 

 

(2)

 

2,997

Corporate notes

less than 3

 

52,349

 

5

 

(817)

 

51,537

Asset-backed securities

less than 2

 

23,900

 

8

 

(216)

 

23,692

Municipal bonds

less than 3

18,471

(416)

18,055

Total

$

313,683

$

30

$

(4,502)

$

309,211

At December 31, 2021

 

Maturity

Amortized cost

Unrealized

Unrealized

Estimated

 

    

(in years)

    

or cost

    

gains

    

losses

    

fair value

 

U.S. government agency bonds

less than 3

123,803

8

(540)

123,271

U.S. government bonds

less than 1

$

76,765

$

$

(240)

$

76,525

Bank certificates of deposit

less than 1

12,500

1

(9)

12,492

Commercial paper

less than 1

 

2,998

 

-

 

(1)

 

2,997

Corporate notes

less than 3

 

55,178

 

37

 

(183)

 

55,032

Asset-backed securities

less than 2

 

23,761

 

44

 

(31)

 

23,774

Municipal bonds

less than 3

19,350

-

(98)

19,252

Total

$

314,355

$

90

$

(1,102)

$

313,343

Accounts Receivable, Net

Accounts receivable consisted of the following (in thousands):

March 31, 

December 31, 

    

2022

    

2021

  

Accounts receivable

$

36,131

$

34,805

Allowance for credit losses

(1,327)

(1,367)

$

34,804

$

33,438

The Company’s allowance for credit losses represents management’s estimate of current expected credit losses and there were immaterial bad-debt write offs charged during the three months ended March 31, 2022.

Additionally, no customers accounted for more than 10% of net accounts receivable as of March 31, 2022 or December 31, 2021.

Inventory

Inventory consisted of the following (in thousands):

March 31, 

December 31, 

    

2022

    

2021

  

Finished goods

$

8,683

$

6,495

Work in process

6,870

7,010

Raw material

9,155

9,506

$

24,708

$

23,011

10

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

March 31, 

December 31, 

    

2022

    

2021

Accrued bonuses

$

6,129

$

17,015

Accrued vacation benefits

4,524

4,196

Other accrued liabilities

36,945

34,816

$

47,598

$

56,027

Note 4.  Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The carrying amounts of cash equivalents, accounts receivable, accounts payable, and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.

The valuation of assets and liabilities is subject to fair value measurements using a three-tiered approach and fair value measurements are classified and disclosed by the Company in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

At March 31, 2022

Quoted prices

Significant

in active

other

Significant

markets for

observable

unobservable

March 31, 

identical assets

inputs

inputs

    

2022

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

Cash equivalents:

Money market funds (i)

$

1,060

$

1,060

$

-

$

-

Available for sale securities:

U.S. government agency bonds (ii)

$

121,607

$

-

$

121,607

$

-

U.S. government bonds (ii)

75,849

-

75,849

-

Bank certificates of deposit (ii)

15,474

-

15,474

-

Commercial paper (ii)(iii)

6,997

-

6,997

-

Corporate notes (ii)

51,537

-

51,537

-

Asset-backed securities (ii)

23,692

-

23,692

-

Municipal bonds (ii)

18,055

-

18,055

-

Investments held for deferred compensation plans

7,197

-

7,197

-

Total Assets

$

321,468

$

1,060

$

320,408

$

-

Liabilities

Deferred compensation plans

$

7,083

$

-

$

7,083

$

-

Total Liabilities

$

7,083

$

-

$

7,083

$

-

(i)Included in cash and cash equivalents with a maturity of three months or less from date of purchase on the condensed consolidated balance sheets.
(ii)Included in short-term investments on the condensed consolidated balance sheets.

11

(iii)As of March 31, 2022, a commercial paper investment totaling $4,000 (in thousands) is included in cash and cash equivalents on the condensed consolidated balance sheets, as the investment had a maturity of three months or less from the date of purchase on the condensed consolidated balance sheets.

At December 31, 2021

Quoted prices

Significant

in active

other

Significant

markets for

observable

unobservable

December 31, 

identical assets

inputs

inputs

    

2021

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

Cash equivalents:

Money market funds (i)

$

4,212

$

4,212

$

-

$

-

Available for sale securities:

U.S. government agency bonds (ii)

$

123,271

$

-

$

123,271

$

-

U.S. government bonds (ii)

76,525

-

76,525

-

Bank certificates of deposit (ii)

12,492

-

12,492

-

Commercial paper (ii)

2,997

-

2,997

-

Corporate notes (ii)

55,032

-

55,032

-

Asset-backed securities (ii)

23,774

-

23,774

-

Municipal bonds (ii)

19,252

-

19,252

-

Investments held for deferred compensation plans

7,412

7,412

-

Total Assets

$

324,967

$

4,212

$

320,755

$

-

Liabilities

Deferred compensation plans

$

7,302

$

-

$

7,302

$

-

Total Liabilities

$

7,302

$

-

$

7,302

$

-

(i)Included in cash and cash equivalents with a maturity of three months or less from date of purchase on the condensed consolidated balance sheets.
(ii)Included in short-term investments on the condensed consolidated balance sheets.

Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

U.S. government agency bonds, U.S. government bonds, bank certificates of deposit, commercial paper, municipal bonds, corporate notes and asset-backed securities are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of each measurement date. Pursuant to the Company’s deferred compensation plan (the Deferred Compensation Plan), the Company has also established a rabbi trust that serves as an investment to shadow the Deferred Compensation Plan liability. The investments of the rabbi trust and Deferred Compensation Plan liability consist of company-owned life insurance policies (COLIs) and the pricing on these investments can be independently evaluated. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

There were no transfers between levels within the fair value hierarchy during the periods presented.

The Company did not have any assets or liabilities measured at fair value on a recurring basis within Level 3 fair value measurements as of March 31, 2022 and December 31, 2021.

Convertible Senior Notes

As of March 31, 2022 and December 31, 2021, the fair value of the Company’s 2.75% convertible notes due 2027 (Convertible Notes) was $383.4 million and $341.8 million, respectively. The fair value was determined on the

12

basis of the market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. See Note 9, Convertible Senior Notes for additional information.

Note 5.   Leases

The Company has operating and finance leases for facilities and certain equipment.  Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company’s leases have remaining non-cancelable lease terms of approximately one year to thirteen years, some of which include options to extend the leases for up to ten years, and some of which include options to terminate the lease within one year. The exercise of lease renewal options is at the Company’s sole discretion. In certain of the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for common area maintenance, landlord incentives and/or inflation.

The Company’s office building lease in Aliso Viejo, California (Aliso Facility) is one property containing three existing office buildings, comprising approximately 160,000 rentable square feet of space which was accounted for as a finance lease. The term of the Aliso Facility commenced on April 1, 2019 for expense recognition and continues for thirteen years. The lease agreement contains an option to extend the lease for two additional