Company Quick10K Filing
Vocera Communications
Price24.52 EPS-1
Shares32 P/E-45
MCap783 P/FCF125
Net Debt-90 EBIT-11
TEV693 TEV/EBIT-64
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-04
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-11-04
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-07
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-05
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-15
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-14
10-Q 2015-09-30 Filed 2015-11-05
10-Q 2015-06-30 Filed 2015-08-06
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-03-12
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-17
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-03-12
10-Q 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-14
8-K 2020-06-05
8-K 2020-05-04
8-K 2020-04-23
8-K 2020-04-22
8-K 2020-02-06
8-K 2019-10-24
8-K 2019-07-25
8-K 2019-05-31
8-K 2019-04-25
8-K 2019-04-08
8-K 2019-02-07
8-K 2018-10-25
8-K 2018-07-25
8-K 2018-06-01
8-K 2018-05-14
8-K 2018-05-14
8-K 2018-05-14
8-K 2018-04-26
8-K 2018-02-08

VCRA 10Q Quarterly Report

Part I: Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.01 vcra3312020-ex3101.htm
EX-31.02 vcra3312020-ex3102.htm
EX-32.01 vcra3312020-ex3201.htm

Vocera Communications Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.40.30.20.20.10.02012201420172020
Assets, Equity
0.10.10.0-0.0-0.1-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
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 March 31, 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: 001-35469

VOCERA COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
94-3354663
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Vocera Communications, Inc.
525 Race Street
San Jose, CA 95126
(408) 882-5100
(Address and telephone number of principal executive offices)
_____________________________________________
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
(Trading Symbol)
(Name of each exchange on which registered)
Common Stock, $0.0003 par value
VCRA
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 definition of “large accelerated filer,” “accelerated filer,” “small 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  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of April 30, 2020
Common Stock, $0.0003 par value per share
 
32,025,518




VOCERA COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
INDEX
PART I: FINANCIAL INFORMATION
 
 
Page No.
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II: OTHER INFORMATION
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


2


PART I: FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited)
Vocera Communications, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Par Amounts)
(Unaudited)
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
31,136

 
$
25,704

Short-term investments
202,632

 
204,164

Accounts receivable, net of allowance
26,283

 
42,547

Other receivables
6,374

 
6,312

Inventories
6,027

 
4,576

Prepaid expenses and other current assets
5,694

 
5,149

Total current assets
278,146

 
288,452

Property and equipment, net
8,251

 
8,661

Intangible assets, net
5,141

 
5,461

Goodwill
49,246

 
49,246

Deferred commissions
10,307

 
10,477

Other long-term assets
7,368

 
8,158

Total assets
$
358,459

 
$
370,455

Liabilities and stockholders' equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
3,142

 
$
6,036

Accrued payroll and other current liabilities
15,311

 
14,757

Deferred revenue, current
45,987

 
50,033

Total current liabilities
64,440

 
70,826

Deferred revenue, long-term
10,689

 
11,442

Convertible senior notes, net
118,913

 
117,178

Other long-term liabilities
6,310

 
7,184

Total liabilities
200,352

 
206,630

Commitments and contingencies (Note 9)

 

Stockholders' equity
 
 
 
Preferred stock, $0.0003 par value - 5,000,000 shares authorized as of March 31, 2020 and December 31, 2019; zero shares issued and outstanding

 

Common stock, $0.0003 par value - 100,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 31,802,779 and 31,660,709 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
9

 
9

Additional paid-in capital
319,671

 
313,963

Accumulated other comprehensive income (loss)
(777
)
 
179

Accumulated deficit
(160,796
)
 
(150,326
)
Total stockholders’ equity
158,107

 
163,825

Total liabilities and stockholders’ equity
$
358,459

 
$
370,455

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

3


Vocera Communications, Inc.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

Three months ended March 31,
 
2020
 
2019
Revenue
 
 
 
Product
$
17,850

 
$
14,003

Service
22,823

 
21,306

Total revenue
40,673

 
35,309

Cost of revenue
 
 
 
Product
6,364

 
5,334

Service
10,523

 
10,290

Total cost of revenue
16,887

 
15,624

Gross profit
23,786

 
19,685

Operating expenses
 
 
 
Research and development
9,032

 
8,146

Sales and marketing
16,963

 
16,019

General and administrative
6,391

 
6,580

Total operating expenses
32,386

 
30,745

Loss from operations
(8,600
)
 
(11,060
)
Interest income
1,120

 
1,279

Interest expense
(2,274
)
 
(2,121
)
Other income (expense), net
(591
)
 
131

Loss before income taxes
(10,345
)
 
(11,771
)
Benefit from (provision for) income taxes
(125
)
 
36

Net loss
$
(10,470
)
 
$
(11,735
)
 
 
 
 
Loss per share
 
 
 
     Basic
$
(0.33
)
 
$
(0.38
)
     Diluted
$
(0.33
)
 
$
(0.38
)
Weighted average shares used to compute net loss per share
 
 
 
     Basic
31,738

 
30,800

     Diluted
31,738

 
30,800



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


4


Vocera Communications, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In Thousands)
(Unaudited)

 
Three months ended March 31,
 
2020
 
2019
Net loss
$
(10,470
)
 
$
(11,735
)
Other comprehensive income (loss), net:
 
 
 
Change in unrealized gain (loss) on investments, net of tax
(956
)
 
425

Comprehensive loss
$
(11,426
)
 
$
(11,310
)

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

5


Vocera Communications, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Amounts)
(Unaudited)
 
 
 
Common stock
Additional
paid-in
capital
Accum. other
comprehensive
income (loss)
Accumulated
deficit
Total
stockholders’
equity
 
Shares
Amount
Balance at December 31, 2018
30,708,138

$
9

$
295,647

$
(443
)
$
(132,346
)
$
162,867

Exercise of stock options
122,376


1,564



1,564

RSUs released net of shares withheld for tax settlement
60,603


(1,271
)


(1,271
)
Employee stock-based compensation expense


5,544



5,544

Net loss




(11,735
)
(11,735
)
Other comprehensive loss



425


425

Balance at March 31, 2019
30,891,117

9

301,484

(18
)
(144,081
)
157,394

Balance at December 31, 2019
31,660,709

$
9

$
313,963

$
179

$
(150,326
)
$
163,825

Exercise of stock options
77,909


731



731

RSUs released net of shares withheld for tax settlement
64,161


(864
)


(864
)
Employee stock-based compensation expense


5,841



5,841

Net loss




(10,470
)
(10,470
)
Other comprehensive loss



(956
)

(956
)
Balance at March 31, 2020
31,802,779

$
9

$
319,671

$
(777
)
$
(160,796
)
$
158,107


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

6


Vocera Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
Three months ended March 31,
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net loss
$
(10,470
)
 
$
(11,735
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
1,333

 
1,890

Inventory provision
42

 

Change in lease-related performance obligations
(346
)
 
(266
)
Stock-based compensation expense
5,841

 
5,544

Amortization of debt discount and issuance costs
1,735

 
1,582

Other
729

 
24

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
16,264

 
15,681

Other receivables
(102
)
 
(1,156
)
Inventories
(1,494
)
 
(1,637
)
Prepaid expenses and other assets
(417
)
 
(414
)
Deferred commissions
171

 
(19
)
Accounts payable
(2,826
)
 
(1,173
)
Accrued payroll and other liabilities
(17
)
 
(1,689
)
Deferred revenue
(4,799
)
 
(5,687
)
Net cash provided by operating activities
5,644

 
945

Cash flows from investing activities
 
 
 
Purchase of property and equipment
(682
)
 
(853
)
Purchase of short-term investments
(28,009
)
 
(31,349
)
Maturities of short-term investments
28,569

 
29,624

Net cash used in investing activities
(122
)
 
(2,578
)
Cash flows from financing activities
 
 
 
Cash from lease-related performance obligations
43

 

Proceeds from exercise of stock options
731

 
1,564

Tax withholdings paid on behalf of employees for net share settlement
(864
)
 
(1,271
)
Net cash provided by (used in) financing activities
(90
)
 
293

Net increase in cash and cash equivalents
5,432

 
(1,340
)
Cash and cash equivalents at beginning of period
25,704

 
34,276

Cash and cash equivalents at end of period
$
31,136

 
$
32,936

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Property and equipment in accounts payable and accrued liabilities
$
390

 
$
161



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

7


Notes to Unaudited Condensed Consolidated Financial Statements

1.
The Company and Summary of Significant Accounting Policies
Organization and Business
Vocera Communications, Inc. and its subsidiaries (collectively the “Company” or “Vocera”) is a provider of secure, integrated, intelligent communication and clinical workflow solutions, focused on empowering mobile workers in healthcare, hospitality, retail, energy, education and other mission-critical mobile work environments, in the United States and internationally. The significant majority of the Company’s business is generated from sales of its solutions in the healthcare market to help its customers improve quality of care, safety, patient and staff experience and increase operational efficiency.
The Vocera communication and collaboration solution includes: an intelligent enterprise software platform; a lightweight, wearable, voice-controlled communication badge and newly introduced Smartbadge; and smartphone applications. The solution enables users to connect instantly with other staff simply by saying the name, function or group name of the desired recipient. It also delivers HIPAA-compliant secure text messages, alerts and alarms directly to the Vocera Badge, Vocera Smartbadge, smartphones and other mobile communication devices both inside and outside the hospital, replacing legacy pagers and in-building wireless phones.
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission, and include the accounts of Vocera and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The year-end condensed consolidated balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim consolidated financial information. The results for the quarter presented are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other interim period or any other future year.
Except for the change in certain accounting policies upon adoption of the accounting standards described below, there have been no material changes to the Company’s significant accounting policies compared to the accounting policies presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Use of Estimates
The preparation of the accompanying unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. The estimates include, but are not limited to, revenue recognition, warranty reserves, accounts receivable reserves, inventory reserves, bonuses, goodwill and intangible assets, stock-based compensation expense, provisions for income taxes and contingencies. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued new guidance related to the accounting for credit losses on instruments for both financial services and non-financial services entities. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance was effective for the Company beginning January 1, 2020. The Company applied the guidance using a modified retrospective approach requiring that the Company recognize the cumulative effect of initially applying the impairment standard as an adjustment to opening accumulated deficit in the period of initial application. There was no adjustment to the Company’s opening accumulated deficit in the period as there were no incremental impairment losses as a result of the adoption.

8


In January 2017, the FASB issued new guidance to simplify the accounting for goodwill impairment. The guidance simplifies the measurement of goodwill impairment by removing step 2 of the goodwill impairment test, which requires the determination of the fair value of individual assets and liabilities of a reporting unit.  The new guidance requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis.  The new standard was effective for the Company beginning January 1, 2020. The adoption of this guidance did not have an impact on the Company’s condensed consolidated financial statements.
Recent Accounting Pronouncements
In December 2019, the FASB issued new guidance to simplifying the accounting for income taxes, which removes certain exceptions for intra period allocations, recognizing deferred taxes for investments and calculating income taxes in interim periods. This guidance also reduces complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The new standard is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact of this new accounting guidance on its condensed consolidated financial statements.

2.
Revenue, deferred revenue and deferred commissions
Disaggregation of Revenue
A typical sales arrangement involves multiple arrangements, such as the sales of the Company’s proprietary communication device (“Vocera Badge”), perpetual software licenses, professional services and maintenance and support services which entitle customers to unspecified upgrades, patch releases and telephone-based support. The following table depicts the disaggregation of revenue according to revenue type and is consistent with how the Company evaluates its financial performance:
 
Three months ended March 31,
(in thousands)
2020
 
2019
Product revenue
 
 
 
Device
$
13,903

 
$
10,060

Software
3,947

 
3,943

Total product
17,850

 
14,003

 

 
 
Service revenue
 
 
 
Maintenance and support
18,069

 
16,393

Professional services and training
4,754

 
4,913

Total service
22,823

 
21,306

Total revenue
$
40,673

 
$
35,309


Contract balances
The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount and in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. Payment terms on invoiced amounts are typically 30 days. The balance of accounts receivable, net of allowance for doubtful accounts, as of March 31, 2020 and December 31, 2019 is presented in the accompanying condensed consolidated balance sheets. In situations where revenue recognition occurs before invoicing, an unbilled receivable is created, which represents a contract asset. As of March 31, 2020 and December 31, 2019, contract assets totaling $4.5 million and $4.3 million, respectively, were included in prepaid and other current assets in the condensed consolidated balance sheets.

Costs to obtain and fulfill a contract
The Company capitalizes certain incremental contract acquisition costs consisting primarily of commissions paid and the related payroll taxes when customer contracts are signed. The Company determines whether costs should be deferred based on its sales compensation plans, if the commissions are incremental and would not have been incurred absent the execution of the customer contract. Sales commissions for renewals of customer contracts are not commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective contract values.

9


Commissions paid upon the initial acquisition of a contract are amortized over the estimated period of benefit, which may exceed the term of the initial contract. Accordingly, amortization of deferred costs is recognized on a systematic basis that is consistent with the pattern of revenue recognition allocated to each performance obligation and is included in sales and marketing expense in the condensed consolidated statements of operations. The Company determines its estimated period of benefit by evaluating the expected renewals of its customer contracts, the duration of its relationships with its customers and other factors. Deferred costs are periodically reviewed for impairment. Changes in the balance of total deferred commissions (contract asset) during the three months ended March 31, 2020 are as follows:
(in thousands)
December 31, 2019
 
Additions
 
Commissions Recognized
 
March 31, 2020
Deferred commissions
$
10,477

 
$
2,489

 
$
(2,659
)
 
$
10,307


Of the $10.3 million total deferred commissions balance as of March 31, 2020, the Company expects to recognize approximately 48% as commission expense over the next 12 months and the remainder thereafter.
Deferred revenue
The Company records deferred revenue when cash payments are received in advance of the performance under the contract. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the condensed consolidated balance sheet date. Changes in the balance of total deferred revenue (contract liability) during the three months ended March 31, 2020 are as follows:
(in thousands)
December 31, 2019
 
Additions
 
Revenue Recognized
 
March 31, 2020
Deferred revenue
$
61,475

 
$
14,945

 
$
(19,744
)
 
$
56,676


Revenue recognized during the three months ended March 31, 2020 from deferred revenue balances at the beginning of the period was $18.5 million. Revenue recognized during the three months ended March 31, 2019 from deferred revenue balances at the beginning of the period was $15.2 million.
The “contracted but not recognized” performance obligations represent the Company’s deferred revenue and non-cancelable backlog amounts. This balance as of March 31, 2020 was $112.5 million, of which the Company expects to recognize approximately 66% as revenue over the next 12 months and the remainder thereafter.

3.
Fair Value of Financial Instruments
The Company’s cash, cash equivalents and short-term investments are carried at their fair values with any differences from their amortized cost recorded in equity as unrealized gains (losses) on marketable securities. As a basis for determining the fair value of its assets and liabilities, the Company follows a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. During the three months ended March 31, 2020, there have been no transfers between Level 1 and Level 2 fair value instruments and no transfers in or out of Level 3.
The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The fair value of the Company’s Level 2 fixed income securities is obtained from independent pricing services, which may use quoted market prices for identical or comparable instruments or model-driven valuations using observable market data or other inputs, corroborated by observable market data. The Company does not have any financial instruments which are valued using Level 3 inputs.
In addition to its cash, cash equivalents and short-term investments, the Company measures the fair value of its Convertible Senior Notes on a quarterly basis for disclosure purposes. The Company considers the fair value of the Convertible Senior Notes at March 31, 2020 to be a Level 2 measurement due to limited trading activity of the Convertible Senior Notes. Refer to Note 8 to the condensed consolidated financial statements for further information.

10


The Company’s assets that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of March 31, 2020 and December 31, 2019, are summarized as follows (in thousands):
 
March 31, 2020
 
December 31, 2019
 
Level 1

Level 2

Total

 
Level 1

Level 2

Total

Assets
 
 
 
 
 
 
 
Money market funds
$
3,855

$

$
3,855

 
$
4,086

$

$
4,086

Commercial paper

17,899

17,899

 

12,854

12,854

U.S. government agency securities



 

3,000

3,000

Corporate debt securities

186,725

186,725

 

188,310

188,310

Total assets measured at fair value
$
3,855

$
204,624

$
208,479

 
$
4,086

$
204,164

$
208,250



4.
Cash, Cash Equivalents and Short-Term Investments
The following tables present cash, cash equivalents and short-term investments (in thousands) as of March 31, 2020 and December 31, 2019:
 
As of March 31, 2020
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair value
Cash and cash equivalents:
 
 
 
 
 
 
 
Demand deposits and other cash
$
25,289

 
$

 
$

 
$
25,289

Money market funds
3,855

 

 

 
3,855

Commercial paper
1,994

 

 
(2
)
 
1,992

Total cash and cash equivalents
31,138

 

 
(2
)
 
31,136

 
 
 
 
 
 
 
 
Short-Term Investments:
 
 
 
 
 
 
 
Commercial paper
15,911

 
10

 
(14
)
 
15,907

Corporate debt securities
187,238

 
296

 
(809
)
 
186,725

Total short-term investments
203,149

 
306

 
(823
)
 
202,632

Total cash, cash equivalents and short-term investments
$
234,287

 
$
306

 
$
(825
)
 
$
233,768



11


 
As of December 31, 2019
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair value
Cash and cash equivalents:
 
 
 
 
 
 
 
Demand deposits and other cash
$
21,618

 
$

 
$

 
$
21,618

Money market funds
4,086

 

 

 
4,086

Commercial paper

 

 

 

Total cash and cash equivalents
25,704

 

 

 
25,704

Short-Term Investments:
 
 
 
 
 
 
 
Commercial paper
12,861

 

 
(7
)
 
12,854

U.S. government agency securities
3,000

 

 

 
3,000

U.S. Treasury securities

 

 

 

Corporate debt securities
187,866

 
499

 
(55
)
 
188,310

Total short-term investments
203,727

 
499

 
(62
)
 
204,164

Total cash, cash equivalents and short-term investments
$
229,431

 
$
499

 
$
(62
)
 
$
229,868

 
 
 
 
 
 
 
 

The Company has determined that the unrealized losses on its short-term investments as of March 31, 2020 and December 31, 2019 do not constitute an “other than temporary impairment.” The unrealized losses for the short-term investments have all been in a continuous unrealized loss position for less than twelve months. The Company’s conclusion of no “other than temporary impairment” is based on the high credit quality of the securities, their short remaining maturity and the Company’s intent and ability to hold such loss securities until maturity.
Classification of the cash, cash equivalents and short-term investments by contractual maturity was as follows:
(in thousands)
One year or shorter

 
Between 1 and 2 years

 
Total

Balances as of March 31, 2020
 
 
 
 
 
Cash and cash equivalents (1)
$
31,136

 
$

 
$
31,136

Short-term investments
130,834

 
71,798

 
202,632

Cash, cash equivalents and short-term investments
$
161,970

 
$
71,798

 
$
233,768

 
 
 
 
 
 
Balances as of December 31, 2019
 
 
 
 
 
Cash and cash equivalents (1)
$
25,704

 
$

 
$
25,704

Short-term investments
113,010

 
91,154

 
204,164

Cash, cash equivalents and short-term investments
$
138,714

 
$
91,154

 
$
229,868

 
 
 
 
 
 
(1) Includes demand deposits and other cash, money market funds and other cash equivalent securities, all with 0-90 day maturity at purchase.



12


5.
Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):
 
Three months ended March 31,
 
2020
 
2019
 
 
 
 
Numerator:
 
 
 
Net loss
$
(10,470
)
 
$
(11,735
)
 
 
 
 
Denominator:
 
 
 
Weighted average shares used to compute net loss per common share - basic
31,738

 
30,800

Weighted-average shares used to compute net loss per common share - diluted
31,738

 
30,800

 
 
 
 
Net loss per share
 
 
 
   Basic
$
(0.33
)
 
$
(0.38
)
   Diluted
$
(0.33
)
 
$
(0.38
)

The following securities were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:
 
Three months ended March 31,
(in thousands)
2020
 
2019
Options to purchase common stock, including ESPP
620

 
724

Restricted stock units
1,635

 
1,850



6.
Goodwill and Intangible Assets
Goodwill
As of March 31, 2020 and December 31, 2019, the Company had $49.2 million and $49.2 million of goodwill, respectively, with $41.2 million and $8.0 million allocated to the Company’s Product and Services operating segments, respectively. As of March 31, 2020, there were no changes in circumstances indicating that the carrying values of goodwill or acquired intangibles may not be recoverable.
Intangible Assets
Acquisition-related intangible assets are amortized either straight-line, or over the life of the assets on a basis that resembles the economic benefit of the assets. This yields amortization in the latter case that is higher in earlier periods of the useful life.

13


The estimated useful lives and carrying value of acquired intangible assets are as follows:
 
 
 
March 31, 2020
 
December 31, 2019
(in thousands)
Range of
Useful Life
(years)
 
Gross
 Carrying
 Amount
 
Accumulated
Amortization
 
Net
 Carrying
 Amount
 
Gross
 Carrying
 Amount
 
Accumulated
Amortization
 
Net
 Carrying
 Amount
Developed technology
3 to 7
 
$
10,050

 
$
9,854

 
$
196

 
$
10,050

 
$
9,803

 
$
247

Customer relationships
7 to 9
 
10,920

 
6,088

 
4,832

 
10,920

 
5,819

 
5,101

Backlog
3
 
1,400

 
1,287

 
113

 
1,400

 
1,287

 
113

Non-compete agreements
2 to 4
 
460

 
460

 

 
460

 
460

 

Trademarks
3 to 7
 
1,110

 
1,110

 

 
1,110

 
1,110

 

Intangible assets, net book value
 
 
$
23,940

 
$
18,799

 
$
5,141

 
$
23,940

 
$
18,479

 
$
5,461


Amortization expense was $0.3 million and $1.0 million for the three months ended March 31, 2020 and 2019, respectively.
Amortization of acquired intangible assets is reflected in the cost of revenue for developed technology and backlog and in operating expenses for the other intangible assets. The estimated future amortization of existing acquired intangible assets as of March 31, 2020 was as follows:
(in thousands)
 
Future amortization
2020 (remaining nine months)
 
$
1,036

2021
 
1,130

2022
 
1,050

2023
 
1,050

2024
 
875

     Future amortization expense
 
$
5,141




14


7.
Balance Sheet Components
Inventories
(in thousands)
March 31,
2020
 
December 31,
2019
Raw materials
$
962

 
$
831

Finished goods
5,065

 
3,745

        Total inventories
$
6,027

 
$
4,576


Property and equipment, net
(in thousands)
March 31,
2020
 
December 31,
2019
Computer equipment and software
$
14,088

 
$
13,596

Furniture, fixtures and equipment
2,554

 
2,430

Leasehold improvements
5,351

 
5,283

Manufacturing tools and equipment
2,476

 
2,435

Construction in process
131

 
582

        Property and equipment, at cost
24,600

 
24,326

Less: Accumulated depreciation
(16,349
)
 
(15,665
)
        Property and equipment, net
$
8,251

 
$
8,661

Depreciation and amortization expense for property and equipment was $1.0 million and $0.9 million for the three months ended March 31, 2020 and 2019, respectively.
Net investment in sales-type leases
The Company has sales-type leases with terms of 3 to 4 years. Sales-type lease receivables are collateralized by the underlying equipment. The components of the Company’s net investment in sales-type leases are as follows:
(in thousands)
March 31,
2020
 
December 31,
2019
Minimum payments to be received on sales-type leases
$
1,796

 
$
2,078

Less: Unearned interest income and executory revenue portion
(1,097
)
 
(1,190
)
Net investment in sales-type leases
699

 
888

Less: Current portion
(346
)
 
(452
)
Non-current net investment in sales-type leases
$
353

 
$
436

Sales-type lease activity recognized in the condensed consolidated statement of operations are as follows:
 
Three months ended March 31,
(in thousands)
2020
 
2019
Lease revenue
$
435

 
$
661

Less: Cost of lease shipments
(10
)
 
(52
)
Gross profit
425

 
609

 
 
 
 
Interest income (expense), net on lease receivable
$
(6
)
 
$
(3
)
Initial direct cost incurred
$
23

 
$
31



15


There were no allowances for doubtful accounts on these leases as of March 31, 2020 and December 31, 2019. There is no guaranteed or unguaranteed residual value on the leased equipment. The current and non-current net investments in sales-type leases are reported as components of the condensed consolidated balance sheet captions “other receivables” and “other long-term assets,” respectively.
The minimum payments expected to be received for future years under sales-type leases as of March 31, 2020 were as follows:
(in thousands)
Future lease payments
2020 (remaining nine months)
$
716

2021
615

2022
387

2023
78

     Total
$
1,796


Accrued payroll and other current liabilities
(in thousands)
March 31,
2020
 
December 31,
2019
Payroll and related expenses
$
7,276

 
$
6,053

Accrued payables
1,707

 
2,674

Operating lease liabilities, current portion
2,336

 
2,323

Lease financing, current portion
898

 
1,033

Product warranty
440

 
420

Customer prepayments
665

 
631

Sales and use tax payable
469

 
599

Other
1,520

 
1,024

        Total accrued payroll and other current liabilities
$
15,311

 
$
14,757


The changes in the Company’s product warranty reserve are as follows:
 
Three months ended March 31,
(in thousands)
2020
 
2019
Warranty balance at the beginning of the period
$
420

 
$
376

Warranty expense accrued for shipments during the period
108

 
77

Changes in estimate related to pre-existing warranties
(31
)
 
(31
)
Warranty settlements made
(57
)
 
(48
)
Total product warranty
$
440

 
$
374



Leases
The Company has operating leases for office space at its headquarters and subsidiaries under non-cancelable operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. The Company’s leases have remaining lease terms of approximately ten months to approximately five years. Operating lease cost, including short-term operating leases was $0.7 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively.
Supplemental balance sheet information related to leases was as follows:

16


(in thousands)
March 31,
2020
Other long-term assets
$
5,590

 
 
Accrued payroll and other current liabilities
2,336

Other long-term liabilities
4,116

Total operating lease liabilities
$
6,452

Other information related to leases was as follows:
 
Three months ended March 31,
Three months ended March 31,
(in thousands)
2020
2019
Supplemental Cash Flow Information
 
 
Cash paid for amounts included in the measurement of lease liabilities
$
712

$
630

Right-of-use assets obtained in exchange for lease obligations
$

$
689

Weighted average remaining lease term
2.39 years

3.11 years

Weighted average discount rate
8
%
8
%

Maturities of lease liabilities as of March 31, 2020 are as follows:
(in thousands)
Operating leases
2020 (remaining nine months)
$
2,191

2021
2,960

2022
1,326

2023
403

2024
319

Total maturities of lease liabilities
7,199

Less imputed interest
$
(747
)
Total
$
6,452



8.
Convertible Senior Notes
In May 2018, the Company issued $143.75 million aggregate principal amount of 1.50% Convertible Senior Notes due 2023, including $18.75 million aggregate principal amount of such notes pursuant to the exercise in full of options granted to the initial purchasers, collectively the “Notes.” The Notes are unsecured, unsubordinated obligations and bear interest at a fixed rate of 1.50% per annum, payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2018. The total net proceeds from the offering, after deducting initial purchase discounts and estimated debt issuance costs, were approximately $138.9 million.
Each $1,000 principal amount of the Notes will initially be convertible into 31.0073 shares of the Company’s common stock, the “Conversion Option,” which is equivalent to an initial conversion price of approximately $32.25 per share, subject to adjustment upon the occurrence of specified events. The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding February 15, 2023, only under the following circumstances:
(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the Company common stock for at least 20 trading days (whether or not consecutive) during 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 conversion price of the Notes on each applicable trading day;
(2) during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that ten day consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate of the Notes on such trading day; or

17


(3) upon the occurrence of specified corporate events (as set forth in the indenture governing the Notes).
On or after February 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. If certain specified fundamental changes occur (as set forth in the indenture governing the Notes) prior to the maturity date, holders of the Notes may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to