Company Quick10K Filing
KVH Industries
Price10.68 EPS2
Shares18 P/E6
MCap193 P/FCF-17
Net Debt-9 EBIT33
TEV184 TEV/EBIT6
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-10-29
10-Q 2020-06-30 Filed 2020-07-31
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-03-02
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-09
10-K 2016-12-31 Filed 2017-03-09
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-03-14
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-17
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-17
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-09
10-K 2012-12-31 Filed 2013-04-02
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-31 Filed 2012-03-08
10-Q 2011-09-30 Filed 2011-11-04
10-Q 2011-06-30 Filed 2011-08-04
10-Q 2011-03-31 Filed 2011-05-05
10-K 2010-12-31 Filed 2011-03-14
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-04
10-K 2009-12-31 Filed 2010-03-09
8-K 2020-10-29
8-K 2020-09-15
8-K 2020-08-04
8-K 2020-07-31
8-K 2020-06-10
8-K 2020-06-10
8-K 2020-05-03
8-K 2020-05-01
8-K 2020-04-08
8-K 2020-02-28
8-K 2019-10-30
8-K 2019-10-04
8-K 2019-08-02
8-K 2019-06-04
8-K 2019-05-13
8-K 2019-05-02
8-K 2019-03-01
8-K 2018-10-31
8-K 2018-08-02
8-K 2018-06-05
8-K 2018-05-04
8-K 2018-03-02

KVHI 10Q Quarterly Report

Part I. Financial Information
Item 1. Interim Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 kvhi930202010qex311.htm
EX-31.2 kvhi930202010qex312.htm
EX-32.1 kvhi930202010qex321.htm

KVH Industries Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
240192144964802012201420172020
Assets, Equity
503826142-102012201420172020
Rev, G Profit, Net Income
35217-7-21-352012201420172020
Ops, Inv, Fin

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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: September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 0-28082
KVH Industries, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware05-0420589
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification Number)
50 Enterprise Center, Middletown, RI 02842
(Address of Principal Executive Offices) (Zip Code)
(401) 847-3327
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on which Registered
The NASDAQ Stock Market LLC
Common Stock, par value $0.01 per shareKVHI
(NASDAQ Global Select Market)


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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
DateClassOutstanding shares
October 26, 2020Common Stock, par value $0.01 per share18,302,659




KVH INDUSTRIES, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
  Page No.
ITEM 1.
Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019
Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019 (unaudited)
Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)
ITEM 2.
ITEM 4.
ITEM 1.
ITEM 1A.
RISK FACTORS
ITEM 2.
ITEM 6.
 
2



PART I. FINANCIAL INFORMATION
ITEM 1.    Interim Financial Statements
KVH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
September 30, 2020December 31, 2019
ASSETS(unaudited)
Current assets:
Cash and cash equivalents$18,149 $18,365 
Marketable securities22,502 29,907 
Accounts receivable, net of allowance for doubtful accounts of $1,821 and $1,589 as of September 30, 2020 and December 31, 2019, respectively
31,495 32,891 
Inventories, net24,663 23,465 
Prepaid expenses and other current assets 3,394 3,188 
Current contract assets1,323 1,458 
Total current assets101,526 109,274 
Property and equipment, net
55,884 53,584 
Intangible assets, net
4,138 4,943 
Goodwill15,146 15,408 
Right of use asset operating lease3,858 6,286 
Other non-current assets7,859 6,443 
Non-current contract assets2,780 3,408 
Non-current deferred income tax asset35 45 
Total assets$191,226 $199,391 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$11,361 $15,031 
Accrued compensation and employee-related expenses7,189 5,637 
Accrued other8,167 7,733 
Accrued product warranty costs2,133 2,194 
Current portion of long-term debt3,836  
Contract liabilities4,170 4,443 
Current operating lease liability1,316 2,831 
Liability for uncertain tax positions561 521 
Total current liabilities38,733 38,390 
Other long-term liabilities829 1,292 
Long-term operating lease liability2,580 3,482 
Long-term contract liabilities4,781 5,476 
Long-term debt, excluding current portion3,091  
Non-current deferred income tax liability760 762 
Total liabilities$50,774 $49,402 
Commitments and contingencies (Notes 2, 10, 12, and 19)
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued
  
Common stock, $0.01 par value. Authorized 30,000,000 shares; 19,735,353 and 19,398,699 shares issued at September 30, 2020 and December 31, 2019, respectively; and 18,302,659 and 18,001,261 shares outstanding at September 30, 2020 and December 31, 2019, respectively
197 194 
Additional paid-in capital147,146 144,485 
Retained earnings9,235 19,538 
Accumulated other comprehensive loss(4,275)(2,767)
152,303 161,450 
Less: treasury stock at cost, common stock, 1,432,694 and 1,397,438 shares as of September 30, 2020 and December 31, 2019, respectively
(11,851)(11,461)
Total stockholders’ equity140,452 149,989 
Total liabilities and stockholders’ equity$191,226 $199,391 
See accompanying Notes to Unaudited Consolidated Financial Statements.
3


KVH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share amounts, unaudited)
 
Three Months EndedNine Months Ended
September 30,September 30,
 2020201920202019
Sales:
Product$16,650 $14,808 $43,693 $43,212 
Service24,462 24,503 70,913 72,205 
Net sales41,112 39,311 114,606 115,417 
Costs and expenses:
Costs of product sales10,422 10,823 29,612 31,756 
Costs of service sales14,875 15,029 44,448 45,781 
Research and development3,548 4,327 11,701 11,993 
Sales, marketing and support6,931 7,717 22,426 24,700 
General and administrative5,839 6,273 18,006 18,958 
Total costs and expenses41,615 44,169 126,193 133,188 
Loss from operations(503)(4,858)(11,587)(17,771)
Interest income229 451 759 1,626 
Interest expense2 73 9 1,016 
Other (expense) income, net(370)680 971 922 
Loss from continuing operations before income tax (benefit) expense(646)(3,800)(9,866)(16,239)
Income tax (benefit) expense(109)(492)437 (3,140)
Net loss from continuing operations$(537)$(3,308)$(10,303)$(13,099)
(Loss) income from discontinued operations, net of tax (1,036) 49,837 
Net (loss) income$(537)$(4,344)$(10,303)$36,738 
Net loss from continuing operations per common share
Basic and diluted$(0.03)$(0.19)$(0.58)$(0.75)
Net (loss) income from discontinued operations per common share
Basic and diluted$0.00 $(0.06)$0.00 $2.86 
Net (loss) income per common share
Basic and diluted$(0.03)$(0.25)$(0.58)$2.11 
Weighted average number of common shares outstanding:
Basic and diluted17,723 17,521 17,634 17,429 


See accompanying Notes to Unaudited Consolidated Financial Statements.
4


KVH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)
 
Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
Net (loss) income$(537)$(4,344)$(10,303)$36,738 
Other comprehensive income (loss), net of tax:
Unrealized loss on available-for-sale securities(1) (1) 
Foreign currency translation adjustment1,103 (1,109)(1,507)10,122 
Unrealized gain on derivative instruments, net   11 
Other comprehensive income (loss), net of tax(1)
1,102 (1,109)(1,508)10,133 
Total comprehensive income (loss)$565 $(5,453)$(11,811)$46,871 
(1) Tax impact was nominal for all periods.

See accompanying Notes to Unaudited Consolidated Financial Statements.
5


KVH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, unaudited)
 Common StockAdditional
Paid-in
Capital

Retained Earnings
Accumulated
Other
Comprehensive
Loss
Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balance at June 30, 202019,445 $194 $146,250 $9,772 $(5,377)(1,433)$(11,851)$138,988 
Net loss— — — (537)— — — (537)
Other comprehensive income— — — — 1,102 — — 1,102 
Stock-based compensation— — 912 — — — — 912 
Exercise of stock options and issuance of restricted stock awards, net of forfeitures290 (16)— — — — (13)
Balance at September 30, 202019,735 $197 $147,146 $9,235 $(4,275)(1,433)$(11,851)$140,452 
 Common StockAdditional
Paid-in
Capital

Retained Earnings
Accumulated
Other
Comprehensive
Loss
Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balance at December 31, 201919,399 $194 $144,485 $19,538 $(2,767)(1,397)$(11,461)$149,989 
Net loss— — — (10,303)— — — (10,303)
Other comprehensive loss— — — — (1,508)— — (1,508)
Stock-based compensation— — 2,459 — — — — 2,459 
Issuance of common stock under employee stock purchase plan20 — 156 — — — — 156 
Acquisition of treasury stock— — — — — (36)(390)(390)
Exercise of stock options and issuance of restricted stock awards, net of forfeitures316 3 46 — — — — 49 
Balance at September 30, 202019,735 $197 $147,146 $9,235 $(4,275)(1,433)$(11,851)$140,452 
 Common StockAdditional
Paid-in
Capital
Retained EarningsAccumulated
Other
Comprehensive
Loss
Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balance at June 30, 201919,320 $193 $141,856 $27,365 $(3,489)(1,282)$(10,164)$155,761 
Net loss— — — (4,344)— — — (4,344)
Other comprehensive loss— — — — (1,109)— — (1,109)
Stock-based compensation— — 1,112 — — — — 1,112 
Issuance of common stock under employee stock purchase plan22 — 196 — — — — 196 
Exercise of stock options and issuance of restricted stock awards, net of forfeitures39 1 50 — — — — 51 
Balance at September 30, 201919,381 $194 $143,214 $23,021 $(4,598)(1,282)$(10,164)$151,667 

 Common StockAdditional
Paid-in
Capital
(Accumulated Deficit) Retained EarningsAccumulated
Other
Comprehensive Loss
Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balance at December 31, 201819,026 $190 $139,617 $(15,397)$(14,731)(1,282)$(10,164)$99,515 
Net income— — — 36,738 — — — 36,738 
Other comprehensive income— — — — 10,133 — — 10,133 
ASC 606 correction— — — 1,680 — — — 1,680 
Stock-based compensation— — 3,019 — — — — 3,019 
Issuance of common stock under employee stock purchase plan45 — 414 — — — — 414 
Exercise of stock options and issuance of restricted stock awards, net of forfeitures310 4 164 — — — — 168 
Balance at September 30, 201919,381 $194 $143,214 $23,021 $(4,598)(1,282)$(10,164)$151,667 
See accompanying Notes to Unaudited Consolidated Financial Statements.
6


KVH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited) 
Nine Months Ended
 September 30,
 20202019
Cash flows from operating activities:
Net (loss) income$(10,303)$36,738 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Provision for doubtful accounts490 (28)
Depreciation and amortization8,277 8,893 
Deferred income taxes 8 
Loss on disposals of fixed assets488 164 
Gain on sale of Videotel (53,701)
Compensation expense related to stock-based awards and employee stock purchase plan
2,459 3,019 
Unrealized currency translation gain(492)(799)
Changes in operating assets and liabilities:
Accounts receivable852 (1,637)
Inventories(1,198)(2,412)
Prepaid expenses, other current assets, and current contract assets(88)(235)
Other non-current assets and non-current contract assets(776)(729)
Accounts payable(3,391)(2,331)
Contract liabilities and long-term contract liabilities(937)2,229 
Accrued compensation, product warranty and other1,686 (612)
Other long-term liabilities5 (17)
Net cash used in operating activities$(2,928)$(11,450)
Cash flows from investing activities:
Capital expenditures(10,206)(9,335)
Cash paid for acquisition of intangible asset(58)(71)
Proceeds from sale of fixed assets6 103 
Proceeds from sale of Videotel, net of cash sold 88,447 
Purchases of marketable securities(6,095)(50,300)
Maturities and sales of marketable securities13,500 4,000 
Net cash (used in) provided by investing activities$(2,853)$32,844 
Cash flows from financing activities:
Repayments of mortgage loan (2,597)
Proceeds from PPP loan6,927  
Repayments of term note borrowings (21,938)
Repayments of line of credit borrowings (15,000)
Proceeds from line of credit borrowings 10,000 
Proceeds from stock options exercised and employee stock purchase plan207 558 
Repurchase of common stock(390) 
Payment of finance lease(468)(457)
Net cash provided by (used in) financing activities$6,276 $(29,434)
Effect of exchange rate changes on cash and cash equivalents(711)(767)
Net decrease in cash and cash equivalents(216)(8,807)
Cash and cash equivalents at beginning of period18,365 18,050 
Cash and cash equivalents at end of period$18,149 $9,243 
Supplemental disclosure of non-cash investing activities:
Changes in accrued other and accounts payable related to property and equipment additions$265 $86 
See accompanying Notes to Unaudited Consolidated Financial Statements.
7


KVH INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
(Unaudited, all amounts in thousands except per share amounts)

(1)    Description of Business

KVH Industries, Inc. (together with its subsidiaries, the Company or KVH) designs, develops, manufactures and markets mobile connectivity products and services for the marine and land markets, and inertial navigation products for both the commercial and defense markets. KVH's reporting segments are as follows:

the mobile connectivity segment and
the inertial navigation segment

KVH’s mobile connectivity products enable customers to receive voice and Internet services, and live digital television via satellite services in marine vessels, recreational vehicles, buses and automobiles. KVH sells its mobile connectivity products through an extensive international network of dealers and distributors. KVH also sells and leases products directly to end users.

KVH’s mobile connectivity service sales represent primarily sales earned from satellite voice and Internet airtime services. KVH provides, for monthly fixed and usage fees, satellite connectivity services, including broadband Internet, data and VoIP services, to its TracPhone V-series customers. AgilePlans, a mini-VSAT Broadband service offering, is a monthly subscription model providing global connectivity to commercial maritime customers, including hardware, installation, broadband Internet, Voice over Internet Protocol (VoIP), entertainment and training content and global support for a monthly fee with no minimum commitment. KVH offers AgilePlans customers a variety of airtime data plans with varying data speeds and fixed data usage levels with overage charges per megabyte, which is similar to the plans that the Company offers to its other customers. The Company recognizes the monthly subscription fee as service revenue over the service delivery period. The Company retains ownership of the hardware that it provides to AgilePlans customers, who must return the hardware to KVH if they decide to terminate the service. Because KVH does not sell the hardware under AgilePlans, the Company does not recognize any product revenue when the hardware is deployed to an AgilePlans customer. KVH records the cost of the hardware used by AgilePlans customers as revenue-generating assets and depreciates the cost over an estimated useful life of five years. Since the Company is retaining ownership of the hardware, it does not accrue any warranty costs for AgilePlans hardware; however, any maintenance costs on the hardware are expensed in the period these costs are incurred.

Mobile connectivity service sales also include the distribution of commercially licensed entertainment, including news, sports, music, and movies to commercial and leisure customers in the maritime, hotel, and retail markets through KVH Media Group. KVH also earns monthly usage fees from third-party satellite connectivity services, including voice, data and Internet services, provided to its Inmarsat and Iridium customers who choose to activate their subscriptions with KVH. Mobile connectivity service sales also include engineering services provided under development contracts, sales from product repairs, and extended warranty sales.

On May 13, 2019, the Company and its wholly owned subsidiary, KVH Media Group Limited (KMG), entered into a Share Purchase Agreement (the Purchase Agreement) with Pelican Holdco Limited, an affiliate of Oakley Capital IV Master SCSp, a UK company (together, "Oakley"), pursuant to which KMG sold all of the issued share capital of Super Dragon Limited and Videotel Marine Asia Limited (together referred to as "Videotel") to Oakley for $89,387 in cash, on a cash-free, debt-free basis, subject to a working capital adjustment. Videotel comprised the Company’s maritime training business, which offered video, animation, eLearning computer-based training and interactive distance learning services to the maritime industry. The sale was completed immediately upon execution of definitive agreements. The Company received payment of the initial purchase price pursuant to a loan agreement (the "Bridge Loan") on June 21, 2019. The Bridge Loan was secured by a charge (a type of foreign security interest) over the shares of Super Dragon Limited and Videotel Marine Asia Limited and was further backed by an equity commitment letter from Oakley Capital IV Master SCSp. The Bridge Loan’s interest rate was 5% per year during the period from closing until and including the 15th business day after the closing and increased to 12% per year during the period after the 15th business day until the maturity date. In December 2019, the Company finalized the working capital adjustment, which reduced the proceeds from the sale of Videotel to $88,447. The Company does not have any continuing involvement in these operations other than to provide short-term transition services, which are being recorded in other income in continuing operations. The Company determined that the sale met the requirements for reporting as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20. Please see Note 20 for the discontinued operations disclosures.

KVH's inertial navigation products offer precision fiber optic gyro (FOG)-based systems that enable platform and optical stabilization, navigation, pointing and guidance. KVH’s inertial navigation products also include tactical navigation systems
8


that provide uninterrupted access to navigation and pointing information in a variety of military vehicles, including tactical trucks and light armored vehicles. KVH’s inertial navigation products are sold directly to U.S. and foreign governments and government contractors, as well as through an international network of authorized independent sales representatives. In addition, KVH's inertial navigation technology is used in numerous commercial products, such as navigation and positioning systems for various applications including precision mapping, dynamic surveying, autonomous vehicles, train location control and track geometry measurement systems, industrial robotics and optical stabilization.

KVH’s inertial navigation service sales include product repairs, engineering services provided under development contracts and extended warranty sales.

(2)     Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated interim financial statements of KVH Industries, Inc. and its wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company has evaluated all subsequent events through the date of this filing. All significant intercompany accounts and transactions have been eliminated in consolidation.

The 2019 consolidated interim financial statements reflect the sale of Videotel as discontinued operations. See Notes 1 and 20 for further information on the sale of Videotel.

The consolidated interim financial statements have not been audited by the Company’s independent registered public accounting firm and include all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations, and cash flows for the periods presented. These consolidated interim financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2019 filed on February 28, 2020 with the Securities and Exchange Commission. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of operating results for the remainder of the year.

Significant Estimates and Assumptions and Other Significant Non-Recurring Transactions

The preparation of interim financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim financial statements and the reported amounts of sales and expenses during the reporting periods. As described in the Company’s annual report on Form 10-K, the most significant estimates and assumptions by management affect the Company’s revenue recognition, valuation of accounts receivable, valuation of inventory, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of long-lived assets, including goodwill, amortization methods and periods, certain accrued expenses and other related charges, stock-based compensation, contingent liabilities, forfeitures and key valuation assumptions for its share-based awards, estimated fulfillment costs for warranty obligations, tax reserves and recoverability of the Company’s net deferred tax assets and related valuation allowance, and the valuation of right-of-use assets and lease liabilities. The Company has reviewed these estimates and determined that these remain the most significant estimates for the nine months ended September 30, 2020.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

During the second quarter of 2019, the Company sold Videotel. Please see Notes 1 and 20 for further discussion.

During the third quarter of 2019, the Company identified an out-of-period immaterial error related to the implementation and application of ASC 606 with respect to the recognition of revenue associated with sales-type leases, which impacted our September 30, 2019 consolidated interim financial statements. Please see Note 16 for further discussion.

9


(3)     Accounting Standards Issued and Not Yet Adopted

ASC Update No. 2016-13, ASC Update No. 2018-19, ASC Update No. 2019-04, ASC Update No. 2019-05, ASC Update No. 2019-10, ASC Update No. 2019-11 and ASC Update No. 2020-02.

In June 2016, the FASB issued ASC Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The purpose of Update No. 2016-13 is to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates.

In November 2018, the FASB issued ASC Update No. 2018-19, Codification Improvements: Financial Instruments – Credit Losses (Topic 326). This update introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. The amendment also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.

In May 2019, the FASB issued ASC Update No. 2019-04, Codification Improvements: Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Financial Instruments (Topic 825). This update introduced clarifications of the Board’s intent with respect to accrued interest, the transfer between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures, and extension and renewal options.

In May 2019, the FASB issued ASC Update No. 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. The amendments in the update ease the transition for entities adopting ASC Update 2016-13 and increase the comparability of financial statement information. With the exception of held-to-maturity debt securities, the amendments allow entities to irrevocably elect to apply the fair value option to financial instruments that were previously recorded at amortized cost basis within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.

In November 2019, the FASB issued ASC Update No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. The amendments in this update change some effective dates for certain new accounting standards for certain types of entities. The update amends ASC 326 and ASC 350's effective date for all SEC filers other than smaller reporting companies to be the fiscal years beginning after December 15, 2019, and interim periods therein. The effective date for all other entities, including smaller reporting companies, will be the fiscal years beginning after December 15, 2022, and interim periods therein. The update does not change the effective date of ASC 815 and ASC 842 for public business entities (PBEs), but amends the effective date for all other entities to be the fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

In November 2019, the FASB issued ASC Update No. 2019-11, Codification Improvements: Financial Instruments – Credit Losses (Topic 326). The purpose of Update No. 2019-11 is to clarify the scope of the recovery guidance to purchased financial assets with credit deterioration. For entities that have not yet adopted the amendments in Update 2016-13 as of the issuance date of this Update, the effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in Update 2016-13.

In February 2020, the FASB issued ASC Update No. 2020-02, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842). The purpose of Update No. 2020-02 is to amend SEC paragraphs in the ASC that describe SEC guidance or SEC staff views that the Financial Accounting Standards Board (FASB) includes as a convenience to Codification users.

As a current smaller reporting entity, the effective date will be the fiscal year beginning after December 15, 2022. The adoption of Update Nos. 2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-02 are not expected to have a material impact on the Company's financial position or results of operations.

10


ASC Update No. 2019-12

In December 2019, the FASB issued ASC Update No. 2019-12, Income Taxes (Topic 740). The update is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period, for public business entities for periods for which interim financial statements have not yet been issued. The purpose of Update No. 2019-12 is to remove certain exceptions for recognizing deferred taxes for investments and simplify the accounting for income taxes in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. It amends the requirements relating to the accounting for "hybrid" tax regimes. Update No. 2019-12 is not expected to have a material impact on the Company's financial position or results of operations.

There are no other recent accounting pronouncements issued by the FASB that are expected to have a material impact on the Company's interim financial statements.

(4)    Marketable Securities

Marketable securities as of September 30, 2020 and December 31, 2019 consisted of the following:
September 30, 2020Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Money market mutual funds$7,507 $ $ $7,507 
United States treasuries14,996  (1)14,995 
Total marketable securities designated as available-for-sale$22,503 $ $(1)$22,502 
 
December 31, 2019Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Money market mutual funds$29,907 $ $ $29,907 
Total marketable securities designated as available-for-sale$29,907 $ $ $29,907 

The effective maturity date of the United States treasuries is less than one year.

Interest income from marketable securities was $5 and $267 during the three months ended September 30, 2020 and 2019, respectively, and $132 and $299 during the nine months ended September 30, 2020 and 2019, respectively.

(5)     Stockholder's Equity
(a) Stock Equity and Incentive Plan
The Company recognizes stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation. On June 10, 2020, at the Company's 2020 Annual Meeting of Stockholders, the stockholders of the Company approved an amendment and restatement of the Company’s current equity compensation plan to increase the number of shares of common stock reserved for issuance under the plan by 1,800 shares, from 3,000 shares to 4,800 shares (excluding rollover shares). Stock-based compensation expense, excluding compensation charges related to our employee stock purchase plan, or the ESPP, was $899 and $1,093 for the three months ended September 30, 2020 and 2019, respectively, and $2,430 and $2,970 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there was $3,864 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.84 years. As of September 30, 2020, there was $4,418 of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 2.71 years.

Stock Options

During the three months ended September 30, 2020, no stock options were exercised for common stock. Additionally, during the three months ended September 30, 2020, 654 stock options were granted and 18 stock options expired, were canceled or were forfeited.

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During the nine months ended September 30, 2020, 6 stock options were exercised for common stock, $51 of which was delivered to the Company as payment for the exercise price and none of which were surrendered for minimum tax withholding obligations. Additionally, during the nine months ended September 30, 2020, 654 stock options were granted and 124 stock options expired, were canceled or were forfeited. The Company has estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions utilized to determine the fair value of options granted during the nine months ended September 30, 2020 and 2019 are as follows:
Nine Months Ended September 30,
 20202019
Risk-free interest rate0.21 %1.91 %
Expected volatility44.03 %36.94 %
Expected life (in years)4.294.27
Dividend yield0 %0 %

As of September 30, 2020, there were 2,148 options outstanding with a weighted average exercise price of $9.20 per share and 692 options exercisable with a weighted average exercise price of $9.51 per share.

Restricted Stock

During the three months ended September 30, 2020, 297 shares of restricted stock were granted with a weighted average grant date fair value of $8.13 per share and 7 shares of restricted stock were forfeited. Additionally, during the three months ended September 30, 2020, 14 shares of restricted stock vested, of which no shares of common stock were surrendered to the Company as payment by employees in lieu of cash to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock.

During the nine months ended September 30, 2020, 317 shares of restricted stock were granted with a weighted average grant date fair value of $8.19 per share and 7 shares of restricted stock were forfeited. Additionally, during the nine months ended September 30, 2020, 235 shares of restricted stock vested, of which no shares of common stock were surrendered to the Company as payment by employees in lieu of cash to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock.
As of September 30, 2020, there were 573 shares of restricted stock outstanding that were still subject to service-based vesting conditions.

As of September 30, 2020, the Company had no unvested outstanding options and no outstanding shares of restricted stock that were subject to performance-based or market-based vesting conditions.

(b) Employee Stock Purchase Plan

The Company's Amended and Restated 1996 Employee Stock Purchase Plan (ESPP) affords eligible employees the right to purchase common stock, via payroll deductions, through various offering periods at a purchase price equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. During the three and nine months ended September 30, 2020, 0 and 20 shares were issued under the ESPP plan, respectively. During the three and nine months ended September 30, 2019, 22 and 45 shares were issued under the ESPP plan, respectively. The Company recorded compensation charges related to the ESPP of $13 and $19 for the three months ended September 30, 2020 and 2019, respectively, and $29 and $49 for the nine months ended September 30, 2020 and 2019, respectively.

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(c) Stock-Based Compensation Expense
The following table presents stock-based compensation expense, including under the ESPP, in the Company's consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Cost of product sales$41 $69 $115 $171 
Research and development118 221 408 589 
Sales, marketing and support163 226 456 620 
General and administrative590 596 1,480 1,639 
$912 $1,112 $2,459 $3,019 

(d) Accumulated Other Comprehensive Loss (AOCI)

Comprehensive income (loss) includes net income (loss), unrealized gains and losses from foreign currency translation, unrealized gains and losses from available for sale marketable securities and changes in fair value related to interest rate swap derivative instruments, net of tax attributes. The components of the Company’s comprehensive income (loss) and the effect on earnings for the periods presented are detailed in the accompanying consolidated statements of comprehensive income (loss).

The balances for the three months ended September 30, 2020 and 2019 are as follows:
Foreign Currency TranslationUnrealized Loss on Available for Sale Marketable SecuritiesTotal Accumulated Other Comprehensive Loss
Balance, June 30, 2020$(5,377)$ $(5,377)
Other comprehensive income (loss)1,103 (1)1,102 
Net other comprehensive income (loss)1,103 (1)1,102 
Balance, September 30, 2020$(4,274)$(1)$(4,275)