The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
(amounts in thousands, except share and per share amounts or as otherwise noted)
1. Nature of Business
Anika Therapeutics, Inc. (“the Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, soft tissue repair and bone preserving joint technologies.
In early 2020, the Company expanded its overall technology platform through its strategic acquisitions of Parcus Medical, LLC (“Parcus Medical”), a sports medicine implant and instrumentation solutions provider focused on sports medicine and soft tissue repair, and Arthrosurface Incorporated (“Arthrosurface”), a company specializing in less invasive, bone preserving partial and total joint replacement solutions. These acquisitions broadened Anika's product portfolio, developed over its nearly 30 years of expertise in hyaluronic acid technology, into joint preservation and restoration, added high-growth revenue streams, increased its commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.
There continue to be uncertainties regarding the pandemic of the novel coronavirus (“COVID-19”), and the Company is closely monitoring the impact of COVID-19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, and business partners. The Company is unable to predict the specific impact that COVID-19 may have on its financial position and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions. The Company will continue to assess the evolving impact of COVID-19.
The Company is also subject to risks common to companies in the biotechnology and medical device industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S. Food and Drug Administration (“FDA”) and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Anika Therapeutics, Inc. and its wholly owned subsidiaries, Anika Securities, Inc., Anika Therapeutics S.r.l. (“Anika S.r.l.”), Anika Therapeutics Limited, Parcus Medical and Arthrosurface. All intercompany balances and transactions have been eliminated in consolidation.
Foreign Currency Translation
The functional currency of Anika S.r.l. is the Euro, and the functional currency of Anika Therapeutics Limited is the British Pound Sterling. Assets and liabilities of the foreign subsidiaries are translated using the exchange rate existing on each respective balance sheet date. Revenues and expenses are translated using the average exchange rates for the period. The translation adjustments resulting from this process are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) which resulted in a gain (loss) from foreign currency translation of $1.3 million, ($0.4) million, and ($0.7) million for the years ended December 31, 2020, 2019, and 2018, respectively.
Gains and losses resulting from foreign currency transactions are recognized in the consolidated statements of operations. Recorded balances that are denominated in a currency other than the functional currency are remeasured to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the statements of operations. The Company recognized a gain (loss) from foreign currency transactions of $0.3 million, ($0.3) million, and ($0.4) million during the years ended December 31, 2020, 2019, and 2018, respectively.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current and reasonable and supportable forecasts of future economic conditions, accounts receivable aging trends, and changes in the Company’s customer payment terms. A summary of activity in the allowance for doubtful accounts is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Balance, beginning of the year
|
|
$
|
962
|
|
|
$
|
1,525
|
|
|
$
|
1,914
|
|
Amounts provided
|
|
|
635
|
|
|
|
6
|
|
|
|
57
|
|
Amounts recovered
|
|
|
(86
|
)
|
|
|
(505
|
)
|
|
|
(360
|
)
|
Amounts written off
|
|
|
(78
|
)
|
|
|
(33
|
)
|
|
|
–
|
|
Translation adjustments
|
|
|
90
|
|
|
|
(31
|
)
|
|
|
(86
|
)
|
Balance, end of the year
|
|
$
|
1,523
|
|
|
$
|
962
|
|
|
$
|
1,525
|
|
Revenue Recognition
Pursuant to ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct or distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Product Revenue
The Company generate sales principally through three types of customers: (i) commercial partnerships (ii) hospitals and surgery centers, and (iii) distributors, referred to as the distribution model.
For commercial partnership sales, the Company sells its products directly to these partners, who perform the vast majority of the downstream sales and marketing activities to customers and end-users. These arrangements may include the grant of certain licenses, performance of development services, and the supply of product. The Company’s largest such customer, DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopaedics, Inc., part of the Johnson & Johnson Medical Companies (“Mitek”), represented 49% and 71% of total revenues for the years-ended December 31, 2020 and 2019 respectively. The Company completed the performance obligations related to granted licenses and development services under the agreements with Mitek prior to 2016 and has no remaining material performance obligations. The Company recognizes revenue from product sales when the customer obtains control of the Company’s product, which typically occurs upon shipment to the customer. Commercial partnership agreements may also include sales-based royalties and milestones. As the Company considered the license to be the predominant item to which the royalties relate for these agreements, sales-based royalties and milestones are only recognized when the later of the underlying sale occurs or the performance obligation to which some or all of the sales-based royalty has been satisfied (or partially satisfied). This is generally in the same period that the Company’s licensees complete their product sales in their territory, for which the Company is contractually entitled to a percentage-based royalty. The Company records royalty revenues based on estimated net sales of licensed products as reported to us by the Company’s commercial partners. Differences between actual and estimated royalty revenues have not been material and are typically adjusted in the following quarter when the actual amounts are known. Revenue from sales-based royalties is included in product revenues. The Company’s certain supply agreements represent a promise to deliver product at the customer’s discretion that are considered distributor options. The Company assesses if these options provide a material right to the licensee, and if so, they are accounted for as separate performance obligations. Substantially all of the Company’s supply agreements do not provide options that are considered material rights.
For sales to hospitals and surgery centers, which generally pairs an in-house team of regional sales directors with local or regional distributors, the inventory is generally consigned to sales agents so that products are available when needed for surgical procedures. No revenue is recognized upon the placement of inventory into consignment, as the Company retains the ability to control the inventory. Revenue is typically recognized as of the date of surgical implantation of the product.
For distributor sales, the Company sells its products principally to a number of distributors, generally outside the United States, who subsequently resell the products to sub-distributors and health care providers, among others. The Company recognizes revenue from product sales when the distributor obtains control of the Company’s product, which typically occurs upon shipment to the distributor, in return for agreed-upon, fixed-price consideration. Performance obligations are generally settled quickly after purchase order acceptance; therefore, the value of unsatisfied performance obligations at the end of any reporting period is generally insignificant. The Company sells to a diversified base of distributors and, therefore, believes there is no material concentration of credit risk.
The Company’s payment terms are consistent with prevailing practice in the respective markets in which the Company does business. Most of the Company’s customers make payments based on contract terms, which are not affected by contingent events that could impact the transaction price. Payment terms fall within the one-year guidance for the practical expedient, which allows the Company to forgo adjustment of the contractual payment amount of consideration for the effects of a significant financing component. The Company’s contracts with customers do not customarily provide a right of return, unless certain product quality standards are not met.
Some of the Company’s distributor agreements have volume-based discounts with tiered pricing which are generally prospective in nature. These prospective discounts together with any free-of-charge sample units offered are evaluated as potential material rights. If the prospective discounts or free-of-charge sample units are considered material rights, these would be separate performance obligations and a portion of the sales transaction price is allocated to the material right. Revenue allocated to the material right is recognized when the additional goods are transferred to the customer or when the option expires. During 2020, the consideration allocated to material rights was not significant.
The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when its right to consideration is unconditional. Deferred revenue is $0.2 million and $0 as of December 31, 2020 and 2019, respectively.
Generally, customer contracts contain Free on Board (FOB) or Ex-Works (EXW) shipping point terms where the customer pays the shipping company directly for all shipping and handling costs. In those contracts in which the Company pays for the shipping and handling, the associated costs are generally recorded along with the product sale at the time of shipment in cost of revenue when control over the products has transferred to the customer. Value-add and other taxes collected by the Company concurrently with revenue-producing activities are excluded from revenue. The Company’s general product warranty does not extend beyond an assurance that the product or services delivered will be consistent with stated contractual specifications, which does not create a separate performance obligation. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred as the amortization period of the assets that the Company otherwise would have recognized is one year or less in accordance with the practical expedient in paragraph ASC 340-40-25-4. These costs are included in selling, general and administrative expenses.
Licensing, Milestone and Contract Revenue
The agreements with Mitek include variable consideration such as contingent development and regulatory milestones. Since 2016, there have been no remaining regulatory milestone related to the Mitek agreements. In general, variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable to occur.
Cash and Cash Equivalents
The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within 90 days from date of purchase to be cash equivalents. The Company’s cash equivalents consist of money market funds.
Investments
All of the Company’s investments are classified as available-for-sale which consist of U.S. treasury bills and are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss), net of related income taxes. For securities sold prior to maturity, the cost of securities sold is based on the specific identification method. Realized gains and losses on the sale of investments are recorded in interest and other income, net. Interest is recorded when earned. Investments with original maturities greater than approximately three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. The Company had no long-term investments as of December 31, 2020 and 2019.
All of the Company’s investments are subject to a periodic impairment review. For available-for-sale debt securities in an unrealized loss position we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through earnings. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in the consolidated statement of operations as a component of credit loss expense. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through earnings when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
During the years ended December 31, 2020, 2019 and 2018, the Company did not record any impairment charges on its available-for-sale securities because it is not more likely than not that the Company will be required to sell these securities before the recovery of their cost basis.
Concentration of Credit Risk and Significant Customers
The Company has no significant off-balance sheet risks related to foreign exchange contracts, option contracts, or other foreign hedging arrangements. The Company’s cash equivalents and investments are held with two major international financial institutions.
The Company, by policy, routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited.
Mitek represented 49% and 71% of total revenues for the years-ended December 31, 2020 and 2019 respectively. As of December 31, 2020 and 2019, Mitek represented 44% and 70%, respectively, of the Company’s accounts receivable balance; no other single customer accounted for more than 10% of accounts receivable in either period.
Inventories
Inventories are primarily stated at the lower of standard cost and net realizable value, with approximate cost determined using the first-in, first-out method. Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead. Inventory costs associated with product candidates that have not yet received regulatory approval are capitalized if the Company believes there is probable future commercial use and future economic benefit.
The Company’s policy is to write-down inventory when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products and market conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors including, but not limited to, historical usage rates, forecasted sales or usage, product end of life dates, and estimated current or future market values. Purchasing requirements and alternative usage avenues are explored within these processes to mitigate inventory exposure.
When recorded, inventory write-downs are intended to reduce the carrying value of inventory to its net realizable value. If actual demand for the Company’s products deteriorates, or if market conditions are less favorable than those projected, additional inventory write-downs may be required. Other long-term assets include inventory expected to remain on hand beyond one year.
Leases
The Company adopted Leases (ASC 842) as of January 1, 2019 using the modified retrospective method which did not require it to restate prior periods, and did not have an impact on retained earnings. The transition guidance associated with ASC 842 also permits certain practical expedients. The Company has elected the “package of 3” practical expedients permitted under the transition guidance which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. The Company also adopted the practical expedient to use hindsight to determine the lease term. The Company adopted an accounting policy which provides that leases with an initial term of 12 months or less and no purchase option the Company is reasonably certain of exercising will not be included within the lease right-of-use assets and lease liabilities on its consolidated balance sheet. The Company elected an accounting policy to combine the non-lease components (which include common area maintenance, taxes and insurance) with the related lease component. The Company elected this practical expedient to all asset classes upon the adoption of ASC 842.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present and evaluates whether the lease is an operating lease or a finance lease at the commencement date. Operating and finance leases with a term greater than one year are recognized on the consolidated balance sheet as right-of-use assets, lease liabilities, and, if applicable, long-term lease liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Operating and finance lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the lease terms. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. Lease contracts do not include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid, incentives received or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the finance and operating lease liabilities by using revised inputs as of the reassessment date, and adjust the right-of-use asset. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense is recognized based on the effective-interest method over the lease term.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which are typically:
Asset
|
|
Estimated useful life
(in years)
|
Computer equipment and software
|
|
3
|
-
|
10
|
Furniture and fixtures
|
|
5
|
-
|
7
|
Equipment
|
|
5
|
-
|
20
|
Leasehold improvements
|
|
|
Shorter of useful life or term of lease
|
|
Maintenance and repairs are charged to expense when incurred; additions and improvements are capitalized. Fully depreciated assets are retained in the accounts until they are no longer used and no further charge for depreciation is made in respect of these assets. When an item is sold, retired or removed from service, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in income.
Construction-in-process is stated at cost, which includes the cost of construction and other direct costs attributable to the construction. Construction-in-process is not depreciated until such time as the relevant assets are completed and put into use.
Goodwill and IPR&D Assets
Goodwill is the amount by which the purchase price of acquired net assets in a business combination exceeded the fair values of net identifiable assets on the date of acquisition. Acquired In-Process Research and Development (“IPR&D”) represents the fair value assigned to research and development assets that the Company acquires that have not been completed at the date of acquisition or are pending regulatory approval in certain jurisdictions. The value assigned to the acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flows to present value.
Goodwill and IPR&D are not amortized but are evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our goodwill impairment assessment is performed by reporting unit. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. The Company has two reporting units: the legacy Anika reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform, and a joint preservation and restoration reporting unit established in 2020 upon the acquisitions of Parcus Medical and Arthrosurface. Factors the Company considers important, on an overall company basis, that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the Company’s use of the acquired assets or the strategy for its overall business, significant negative industry or economic trends, a significant decline in the Company’s stock price for a sustained period, or a reduction of its market capitalization relative to net book value.
Under the US GAAP, the Company has the option to perform a qualitative assessment to determine if it is necessary to perform the impairment test. If the Company concludes, based on a qualitative assessment, it is not more likely than not that the Goodwill or the IPR&D asset is impaired, the Company is not required to perform the quantitative test. The Company has an unconditional option to bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test.
To conduct quantitative impairment tests of goodwill, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value, not to exceed the recorded amount of goodwill. The Company’s annual assessment for impairment of goodwill as of November 30, 2020 indicated that the carrying value of the joint preservation and restoration reporting unit exceeded the fair value of the reporting unit. Therefore, the Company recorded an impairment loss during the year ended December 31, 2020. Please see Note 8 - Goodwill for further details. The Company did not record any impairment loss during the year ended December 31, 2019.
Long-Lived Assets
Long-lived assets primarily include property and equipment and intangible assets with finite lives. The Company’s intangible assets are comprised of purchased developed technologies, patents, trade names, customer relationships and distributor relationships. These intangible assets are carried at cost, net of accumulated amortization. Amortization is recorded on a straight-line basis over the intangible assets' useful lives, which range from approximately five to sixteen years. The Company reviews long-lived assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis.
In determining the useful lives of intangible assets, we consider the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors. For technology-based intangible assets, we consider the expected life cycles of products, absent unforeseen technological advances, which incorporate the corresponding technology.
Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs that may be used to measure fair value are:
|
•
|
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange.
|
|
•
|
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are directly observable in the market.
|
|
•
|
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions market participants would use in pricing the instrument.
|
The Company’s financial assets have been classified as Level 1. The Company’s financial assets (which include cash equivalents and investments) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services. The Company’s financial liabilities have been classified as Level 3. The Company’s financial liabilities (which include contingent considerations as discussed in Note 4 – Fair Value Measurements) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing a third-party valuation specialist.
Research and Development
Research and development costs consist primarily of clinical trials, salaries and related expenses for personnel, and fees paid to outside consultants and outside service providers. Research and development costs are expensed as incurred.
Stock-Based Compensation
The Company has stock-based compensation plans under which it grants various types of equity-based awards, the cost of which is based on the grant-date fair value of the underlying award and recognized over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period.
For performance-equity awards with market-based conditions, compensation cost is measured at the date of the award and is recorded over the vesting period, regardless of the likelihood of achievement of the market-based performance criteria. For performance-based equity awards with financial and business milestone achievement targets, compensation cost is based on the probable outcome of the performance conditions. Changes to the probability assessment and the estimated shares expected to vest will result in adjustments to the related stock-based compensation expense that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized, and any previously recognized compensation cost is reversed.
See Note 13 – Equity Incentive Plan, for a description of the types of stock-based awards granted, the compensation expense related to such awards, and detail of equity-based awards outstanding.
Income Taxes
The Company’s income tax expense includes U.S. and international income taxes. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effects of these timing differences are reported as deferred tax assets and liabilities. Deferred tax assets are recognized for the estimated future tax effects of deductible temporary differences, tax operating losses, and tax credit carryforwards (including investment tax credits). Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that it is more likely than not that all or a portion of deferred tax assets will not be realized, the Company establishes a valuation allowance to reduce the deferred tax assets to the appropriate valuation. To the extent the Company establishes a valuation allowance or increases or decreases this allowance in a given period, it includes the related tax expense or tax benefit within the tax provision in the consolidated statement of operations in that period.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments. For the purposes of comprehensive income (loss) disclosures, the Company does not record tax provisions or benefits for the net changes in the foreign currency translation adjustment, as it intends to indefinitely reinvest undistributed earnings of its foreign subsidiary. Accumulated other comprehensive income (loss) is reported as a component of stockholders' equity.
Segment Information
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its President and Chief Executive Officer. Based on the criteria established by ASC 280, Segment Reporting, the Company has one operating and reportable segment.
Contingencies
In the normal course of business, the Company is involved from time-to-time in various legal proceedings and other matters such as contractual disputes, which are complex in nature and have outcomes that are difficult to predict. The Company records accruals for loss contingencies to the extent that it concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company considers all relevant factors when making assessments regarding these contingencies. Although the outcomes of any potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of any potential legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), which amends ASU No. 2015-05, Customers Accounting for Fees in a Cloud Computing Agreement, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The most significant change aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. Accordingly, the amendments in ASU 2018-15 require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as assets related to the service contract and which costs to expense. ASU 2018-15 is effective for fiscal years and interim periods beginning after December 15, 2019. The Company adopted ASU 2018-15 using the prospective method as of January 1, 2020. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019 and requires the modified retrospective approach. The Company adopted ASU 2016-13 as of January 1, 2020. The adoption primarily impacted its trade receivables. The Company assesses its customer's ability to pay by conducting a credit review which includes an assessment of the customer's creditworthiness. The Company monitors the credit exposure through active review of customer balances. The Company's expected loss methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' account balances. Concentrations of credit risks are limited due to the large number of customers and their dispersion across a number of geographic areas. The historical credit losses have not been significant due to this dispersion and the financial stability of its customers. The Company considers credit losses immaterial to its business and, therefore, has not provided all the disclosures otherwise required by the standard.
Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. Upon adopting ASU 2016-13, the Company did not record an allowance as of January 1, 2020 with respect to its available-for-sale debt securities as these securities consist of treasury bills for which the risk of loss is minimal.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 of the previous goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment. Under ASU 2017-04, a goodwill impairment loss will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. The Company adopted this ASU effective January 1, 2020. Adoption of this ASU impacted the measurement of goodwill impairment.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosures, such as the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and adds new disclosure requirements for Level 3 measurements. The Company adopted this ASU effective January 1, 2020, with certain provisions of the ASU applied retrospectively and other provisions provided prospectively. Adoption of this ASU did not impact the Company’s consolidated balance sheet, statements of operations, or cash flows; however, adoption of the ASU did result in modified disclosures in Note 4 – Fair Value Measurements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance if certain criteria are met for entities that have contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The Company has not adopted the ASU as of December 31, 2020, however will continue to monitor the impact of reference rates and will elect to apply this guidance in our consolidated financial statements in the event that we are impacted by reference rate reform.
3. Business Combinations
Parcus Medical, LLC
On January 24, 2020, the Company completed the acquisition of Parcus Medical pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Parcus Medical Merger Agreement”), by and among the Company, Parcus Medical, the Unitholder Representative, and Sunshine Merger Sub LLC, a Wisconsin limited liability company and a wholly-owned subsidiary of the Company. At the closing date, Parcus Medical became a wholly-owned subsidiary of the Company. Parcus Medical is a sports medicine implant and instrumentation solutions provider focused on surgical repair and reconstruction of soft tissue.
The acquisition of Parcus Medical has been accounted for as a business combination under ASC 805. Under ASC 805, assets acquired and liabilities assumed in a business combination must be recorded at their fair value as of the acquisition date. Anika’s consolidated financial statements include results of operations for Parcus Medical from the January 24, 2020 acquisition date.
Consideration Transferred
Pursuant to the Parcus Medical Merger Agreement, the Company acquired all outstanding equity of Parcus Medical for estimated total purchase consideration of $75.1 million, as of January 24, 2020 which consisted of:
Cash consideration
|
|
$
|
32,794
|
|
Deferred consideration
|
|
|
1,642
|
|
Estimated fair value of contingent consideration
|
|
|
40,700
|
|
Estimated total purchase consideration
|
|
$
|
75,136
|
|
Contingent consideration represents additional payments that the Company may be required to make in the future, which totals up to $60.0 million depending on the level of net sales of Parcus Medical products generated in 2020 through 2022. The fair value of contingent consideration related to net sales was determined based on a Monte Carlo simulation model in an option pricing framework at the acquisition date, whereby a range of possible scenarios were simulated. Deferred consideration is related to certain purchase price holdbacks which are expected to be resolved within one year of the acquisition date in accordance with the Parcus Merger Agreement and were recorded in accounts payable as of December 31, 2020. The liability for contingent and deferred consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. See Note 4, Fair Value Measurements, for additional discussion of contingent consideration as of December 31, 2020.
Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred approximately $1.9 million in transaction costs related to the Parcus Medical acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.
Fair Value of Net Assets Acquired
The estimate of fair value as of the acquisition date required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable, however, actual results may differ from these estimates.
The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of January 24, 2020, and is as follows:
Recognized identifiable assets acquired and liabilities assumed:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
196
|
|
Accounts receivable
|
|
|
2,029
|
|
Inventories
|
|
|
10,968
|
|
Prepaid expenses and other current assets
|
|
|
364
|
|
Property and equipment, net
|
|
|
1,099
|
|
Right-of-use assets
|
|
|
944
|
|
Intangible assets
|
|
|
44,000
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
(2,763
|
)
|
Other long-term liabilities
|
|
|
(594
|
)
|
Lease liabilities
|
|
|
(735
|
)
|
Net assets acquired
|
|
|
55,508
|
|
Goodwill
|
|
|
19,628
|
|
Estimated total purchase consideration
|
|
$
|
75,136
|
|
Subsequent to the acquisition date, during the three-month period ended September 30, 2020, the Company completed the identification and confirmation of Parcus Medical inventory in the possession of its direct and distributor sales force, which resulted in an increase to the fair value of inventory of $1.9 million as of the January 24, 2020 acquisition date. As a result, the Company recorded this addition to inventory with a corresponding reduction to goodwill as a measurement period adjustment which was reflected to the Goodwill amount included in the table above. The impact to the consolidated statement of operations related to this adjustment was not material.
The acquired intangible assets based on estimates of fair value as of January 24, 2020 are as follows:
Developed technology
|
|
$
|
41,100
|
|
Trade name
|
|
|
1,800
|
|
Customer relationships
|
|
|
1,100
|
|
Total acquired intangible assets
|
|
$
|
44,000
|
|
The fair value of the developed technology intangible assets has been estimated using the multi-period excess earnings method, which is based on the principle that the value of an intangible asset is equal to the present value of the incremental after-tax cash flow attributable to the asset, after charges for other assets employed by the business. The fair value of the customer relationships has been estimated using the avoided costs/lost profits method, which is based on the principle that the value of an intangible asset is based on consideration of the total costs that would be avoided by having this asset in place. The fair value of the trade name has been estimated using the relief from royalty method of the income approach, which is based on the principle that the value of an intangible asset is equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. Key estimates and assumptions used in these models are projected revenues and expenses related to the asset, estimated contributory asset charges, estimated costs to recreate the asset, and a risk-adjusted discount rate used to calculate the present value of the future expected cash inflows or cash outflows avoided from the asset.
The fair value of developed technology will be amortized over a useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of the trade name over 5 years.
The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The goodwill is attributable to the workforce of the business and the value of future technologies expected to arise after the acquisition. Goodwill will not be amortized and is expected to be deductible for income tax purposes as the acquisition of the limited liability company is an asset purchase for tax purposes. See Note 8, Goodwill, for further discussion.
Revenue and Net Loss
The Company recorded revenue from Parcus Medical of $11.6 million and a net loss of ($7.7) million in the period from January 24, 2020 through December 31, 2020, excluding the Goodwill impairment.
Arthrosurface, Inc.
On February 3, 2020, the Company completed the acquisition of Arthrosurface pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Arthrosurface Merger Agreement”), by and among the Company, Arthrosurface, the Stockholder Representative, and Button Merger Sub, a Delaware corporation and a wholly-owned subsidiary of the Company. At the closing date, Arthrosurface became a wholly-owned subsidiary of the Company. Arthrosurface is a joint preservation technology company specializing in less invasive, bone-preserving partial and total joint replacement solutions.
The acquisition of Arthrosurface has been accounted for as a business combination under ASC 805. Under ASC 805, assets acquired and liabilities assumed in a business combination must be recorded at their fair values as of the acquisition date. Anika’s consolidated financial statements include results of operations for Arthrosurface from the February 3, 2020 acquisition date.
Consideration Transferred
Pursuant to the Arthrosurface Merger Agreement, the Company acquired all outstanding equity of Arthrosurface for estimated total purchase consideration of $90.3 million, as of February 3, 2020 which consisted of:
Cash consideration
|
|
$
|
61,909
|
|
Estimated fair value of contingent consideration
|
|
|
28,376
|
|
Estimated total purchase consideration
|
|
$
|
90,285
|
|
The Company may be required to make future payments of up to $40.0 million depending on the achievement of regulatory milestones and the level of net sales of Arthrosurface products in 2020 through 2021. The fair value of contingent consideration related to regulatory milestones was determined through a scenario-based discounted cash flow analysis using scenario probabilities and regulatory milestone dates. The fair value of contingent consideration related to net sales was determined based upon a Monte Carlo simulation approach at acquisition date, whereby a range of possible scenarios were simulated. The liability for contingent consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. See Note 4, Fair Value Measurements, for additional discussion of contingent consideration as of December 31, 2020.
Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred approximately $2.2 million in transaction costs related to the Arthrosurface acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.
Fair Value of Net Assets Acquired
The estimate of fair value required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.
The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of February 3, 2020, as follows:
Recognized identifiable assets acquired and liabilities assumed:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,072
|
|
Accounts receivable
|
|
|
5,368
|
|
Inventories
|
|
|
15,652
|
|
Prepaid expenses and other current assets
|
|
|
535
|
|
Property, plant and equipment
|
|
|
3,394
|
|
Other long-term assets
|
|
|
7,548
|
|
Intangible assets
|
|
|
48,900
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(3,929
|
)
|
Deferred tax liabilities
|
|
|
(11,147
|
)
|
Net assets acquired
|
|
|
67,393
|
|
Goodwill
|
|
|
22,892
|
|
Estimated total purchase consideration
|
|
$
|
90,285
|
|
Intangible assets acquired consist of:
|
|
|
|
|
Developed technology
|
|
$
|
37,000
|
|
Trade name
|
|
|
3,400
|
|
Customer relationships
|
|
|
7,900
|
|
IPR&D
|
|
|
600
|
|
Total acquired intangible assets
|
|
$
|
48,900
|
|
The fair value of the developed technology intangible assets has been estimated using the multi-period excess earnings method, which is based on the principle that the value of an intangible asset is equal to the present value of the incremental after-tax cash flow attributable to the asset, after charges for other assets employed by the business. The fair value of the customer relationships has been estimated using the avoided costs/lost profits method, which is based on the principle that the value of an intangible asset is based on consideration of the total costs that would be avoided by having this asset in place. The fair value of the trade name has been estimated using the relief from royalty method of the income approach, which is based on the principle that the value of an intangible asset is equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. Key estimates and assumptions used in these models are projected revenues and expenses related to the asset, estimated contributory asset charges, estimated costs to recreate the asset, and a risk-adjusted discount rate used to calculate the present value of the future expected cash inflows or cash outflows avoided from the asset.
The fair value of developed technology that will be amortized over an estimated useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of trade names over 5 years. A total of $0.6 million represents the fair value of IPR&D with an indefinite useful life that will be evaluated for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The goodwill is attributable to the workforce of the business and the value of future technologies expected to arise after the acquisition. Goodwill will not be amortized and is not expected to be deductible for income tax purposes as the acquisition of the corporation is a stock purchase for tax purposes See Note 8, Goodwill, for further discussion.
Revenue and Net Loss
The Company recorded revenue from Arthrosurface of $23.9 million and a net loss of ($10.7) million in the period from February 3, 2020 through December 31, 2020, excluding the Goodwill impairment.
Pro forma Information
The Parcus Medical and Arthrosurface acquisitions were both completed in the first quarter of 2020. Both acquired companies have similar businesses with all of their products in the Joint Preservation and Restoration product family, serving orthopedic surgeons, ambulatory surgical centers and hospitals. The Company has combined legacy Anika, Parcus Medical and Arthrosurface pro forma supplemental information as follows.
The unaudited pro forma information for the year ended December 31, 2020 and 2019 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. The pro forma financial information presents the combined results of operations of Anika, Parcus Medical and Arthrosurface as if the acquisitions had occurred on January 1, 2019 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisitions.
These pro forma adjustments include: (i) a net increase in amortization expense to record amortization expense for the aforementioned acquired identifiable intangible assets, (ii) an adjustment to cost of revenue based on the preliminary inventory step-up and the anticipated inventory turnover, (iii) a net decrease in interest expense as a result of eliminating interest expense and interest income related to borrowings that were settled in accordance with the respective Parcus Medical Merger Agreement and Arthrosurface Merger Agreement, (iv) an adjustment to record the acquisition-related transaction costs in the period required, and (v) the tax effect of the pro forma adjustments using the anticipated effective tax rate. The effective tax rate of the combined company could be materially different from the rate presented in this unaudited pro forma combined financial information. As a result of the transaction, the combined company may be subject to annual limitations on its ability to utilize pre-acquisition net operating loss carryforwards to offset future taxable income. The amount of the annual limitation is determined based on the value of Anika immediately prior to the acquisition. As further information becomes available, any such adjustment described above could be material to the amounts presented in the unaudited pro forma combined financial statements. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.
The following table presents unaudited supplemental pro forma information:
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total revenue
|
|
$
|
134,410
|
|
|
$
|
157,728
|
|
Net income (loss)
|
|
$
|
(22,984
|
)
|
|
$
|
7,144
|
|
4. Fair Value Measurements
The Company held U.S. treasury bills of $2.5 million and $27.5 million at December 31, 2020 and December 31, 2019, respectively. Unrealized losses and the associated tax impact on the Company’s available-for-sale securities were insignificant as of December 31, 2020 and December 31, 2019, respectively.
The Company’s investments are all classified within Levels 1 of the fair value hierarchy and are valued based quoted prices in active markets. For cash, current receivables, accounts payable, and interest accrual, the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below. Contingent consideration related to the previously described business combinations are classified within Level 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.
The classification of the Company’s cash equivalents and investments within the fair value hierarchy is as follows:
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Amortized Cost
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
74,522
|
|
|
$
|
74,522
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
74,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills
|
|
$
|
2,501
|
|
|
$
|
2,501
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current and long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration - Short Term
|
|
$
|
13,090
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,090
|
|
|
$
|
-
|
|
Contingent Consideration - Long Term
|
|
|
22,320
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,320
|
|
|
|
-
|
|
Total other current and long-term liabilities
|
|
$
|
35,410
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35,410
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Amortized Cost
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
48,971
|
|
|
$
|
48,971
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
48,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills
|
|
$
|
27,480
|
|
|
$
|
27,480
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
27,479
|
|
There were no transfers between fair value levels in 2020 or in 2019.
Contingent Consideration
The following table provides a rollforward of the contingent consideration related to business acquisitions discussed in Note 3, Business Combinations.
|
|
Year Ended
|
|
|
|
December 31, 2020
|
|
Balance, beginning January 1, 2020
|
|
$
|
-
|
|
Additions
|
|
|
69,076
|
|
Payments
|
|
|
(5,000
|
)
|
Change in fair value
|
|
|
(28,666
|
)
|
Balance, ending December 31, 2020
|
|
$
|
35,410
|
|
Under the Parcus Medical Merger Agreement and Arthrosurface Merger Agreement, there are earn-out milestones totaling $100 million payable from 2020 to 2022. Parcus Medical has net sales earn-out milestones annually from 2020 to 2022, while Arthrosurface has both regulatory and net sales earn-out milestones in 2020 and 2021. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model or a Monte Carlo simulation approach. The unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement, the net sales estimates, the weighted average cost of capital used for the Monte Carlo simulation, discount rate and the periods in which the milestones are expected to be achieved. The discount rates used for the net sales and regulatory earn-out milestones ranged from 2.0% - 2.5%. As of December 31, 2020, the probability of successful achievement of the Arthrosurface regulatory earn-out milestones range from 60%-75%, as compared to 60%-90% at the acquisition date. The weighted average cost of capital for Arthrosurface decreased from 11.5% on the acquisition date to 11.4% as of December 31, 2020, and for Parcus Medical decreased from 14.5% at the acquisition date to 11.4% as of December 31, 2020. Increases or decreases in any of the probabilities of success in which milestones are expected to be achieved would result in a higher or lower fair value measurement, respectively. Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.
In October 2020, the Company made a regulatory-based milestone payment of $5 million pursuant to the terms of the Arthrosurface Merger Agreement as a result of regulatory clearance for the WristMotion Total Arthroplasty System. The fair value of remaining contingent consideration is assessed on a quarterly basis. The fair value of the contingent consideration decreased by $28.7 million during the year ended December 31, 2020 as a result of a decrease in near term revenues due primarily to the COVID-19 pandemic.
5. Inventories
Inventories consist of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
14,852
|
|
|
$
|
12,058
|
|
Work-in-process
|
|
|
12,811
|
|
|
|
8,330
|
|
Finished goods
|
|
|
33,347
|
|
|
|
8,777
|
|
Total
|
|
$
|
61,010
|
|
|
$
|
29,165
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
46,209
|
|
|
$
|
21,995
|
|
Other long-term assets
|
|
|
14,801
|
|
|
|
7,170
|
|
Inventory is stated net of inventory reserves of approximately $6.9 million and $3.0 million, as of December 31, 2020 and 2019, respectively.
The increase in inventories for the year ended December 31, 2020 is primarily due to the acquisitions of Parcus Medical and Arthrosurface in January and February 2020, as discussed in Note 3 – Business Combinations.
The Company recorded an inventory reserve of $2.8 million in 2020 as a result of the Company's product rationalization efforts, including a decision about not to pursue CE mark renewals for certain legacy products, primarily for certain advanced wound care products which will not be sold prior to expiration of the applicable CE mark based on current projections.
6. Property and Equipment
Property and equipment is stated at cost and consists of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Equipment and software
|
|
$
|
48,316
|
|
|
$
|
42,733
|
|
Furniture and fixtures
|
|
|
2,496
|
|
|
|
2,204
|
|
Leasehold improvements
|
|
|
34,056
|
|
|
|
33,797
|
|
Construction in progress
|
|
|
432
|
|
|
|
559
|
|
Subtotal
|
|
|
85,300
|
|
|
|
79,293
|
|
Less accumulated depreciation
|
|
|
(34,687
|
)
|
|
|
(28,510
|
)
|
Total
|
|
$
|
50,613
|
|
|
$
|
50,783
|
|
Depreciation expense was $6.1 million, $5.0 million, and $4.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.
7. Acquired Intangible Assets, Net
Intangible assets consist of the following:
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
Gross Value
|
|
|
Less: Accumulated
Currency Translation
Adjustment
|
|
|
Less: Current Period
Impairment Charge
|
|
|
Less: Accumulated
Amortization
|
|
|
Net Book Value
|
|
|
Weighted
Average Useful
Life
|
|
Developed technology
|
|
$
|
93,953
|
|
|
$
|
(2,648
|
)
|
|
$
|
(1,025
|
)
|
|
$
|
(14,381
|
)
|
|
$
|
75,899
|
|
|
15
|
|
IPR&D
|
|
|
5,006
|
|
|
|
(1,005
|
)
|
|
|
(1,414
|
)
|
|
|
-
|
|
|
|
2,587
|
|
|
Indefinite
|
|
Customer relationships
|
|
|
9,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(827
|
)
|
|
|
8,173
|
|
|
10
|
|
Distributor relationships
|
|
|
4,700
|
|
|
|
(415
|
)
|
|
|
-
|
|
|
|
(4,285
|
)
|
|
|
-
|
|
|
5
|
|
Patents
|
|
|
1,000
|
|
|
|
(159
|
)
|
|
|
-
|
|
|
|
(582
|
)
|
|
|
259
|
|
|
16
|
|
Tradenames
|
|
|
5,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(961
|
)
|
|
|
4,239
|
|
|
5
|
|
Total
|
|
$
|
118,859
|
|
|
$
|
(4,227
|
)
|
|
$
|
(2,439
|
)
|
|
$
|
(21,036
|
)
|
|
$
|
91,157
|
|
|
13
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
Gross Value
|
|
|
Less: Accumulated
Currency Translation
Adjustment
|
|
|
Less: Current Period
Impairment Charge
|
|
|
Less: Accumulated
Amortization
|
|
|
Net Book Value
|
|
|
Weighted
Average Useful
Life
|
|
Developed technology
|
|
$
|
17,100
|
|
|
$
|
(2,934
|
)
|
|
$
|
(389
|
)
|
|
$
|
(9,657
|
)
|
|
$
|
4,120
|
|
|
15
|
|
IPR&D
|
|
|
4,406
|
|
|
|
(1,234
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,172
|
|
|
Indefinite
|
|
Distributor relationships
|
|
|
4,700
|
|
|
|
(415
|
)
|
|
|
-
|
|
|
|
(4,285
|
)
|
|
|
-
|
|
|
5
|
|
Patents
|
|
|
1,000
|
|
|
|
(176
|
)
|
|
|
-
|
|
|
|
(531
|
)
|
|
|
293
|
|
|
16
|
|
Tradename
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,000
|
)
|
|
|
-
|
|
|
9
|
|
Total
|
|
$
|
28,206
|
|
|
$
|
(4,759
|
)
|
|
$
|
(389
|
)
|
|
$
|
(15,473
|
)
|
|
$
|
7,585
|
|
|
11
|
|
The increase of $90.6 million of gross value in acquired intangible assets is primarily due to the acquisition of Parcus Medical and Arthrosurface in the first quarter of 2020, as discussed in Note 3 - Business Combinations.
Total amortization expense with respect to the definite-lived acquired intangible assets was $7.4 million, $1.0 million and $1.0 million for the years ended December 31, 2020, 2019, and 2018.
During the fourth quarter of 2020, the Company decided not to further invest in its HyaloBone and HyaloNect IPR&D projects as they were no longer aligned with the Company’s core strategic focus. As a result, the Company recorded an impairment charge in the period totaling $1.4 million recorded in research and development expenses in the Company’s consolidated statements of operations.
The Company performed its annual assessment of the remaining IPR&D intangible assets as of November 30, 2020. The Company estimated the fair value of the IPR&D intangible assets using the income approach which is based on the Multi-Period Excess Earnings Method (“MPEEM”). MPEEM measures economic benefit indirectly by calculating the income attributable to an asset after appropriate returns are paid to complementary assets used in conjunction with the subject asset to produce the earnings associated with the subject asset, commonly referred to as contributory asset charges. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, contributory asset charges and discount rates to estimate future cash flows. While assumptions utilized are subject to a high degree of judgment and complexity, the Company made its best estimate of future cash flows under a high degree of economic uncertainty that existed as of November 30, 2020. In developing its assumptions, the Company also considered observed trends of its industry participants. No impairment existed as the estimated fair value of the remaining IPR&D intangible assets was greater than its carrying value.
During 2020, the Company determined that it would not pursue CE Mark renewals for certain of its legacy products, which resulted in an impairment of certain developed technology related assets in the amount of $1.0 million in 2020. During 2019, the Company recorded $0.4 million of impairments, including a $0.3 million impairment charge for the HyaloSpine developed technology asset as the Company made the decision not to renew its CE Mark as the product was not aligned with the Company’s core strategic focus. The impairment charges in 2020 and 2019 were recorded in selling, general and administrative expenses on the Company’s consolidated statements of operations.
8. Goodwill
The following table provides a rollforward of goodwill for the years ended December 31, 2020 and 2019:
|
|
Year Ended
December 31, 2020
|
|
|
Year Ended
December 31, 2019
|
|
Balance, beginning
|
|
$
|
7,694
|
|
|
$
|
7,851
|
|
Effect of foreign currency adjustments
|
|
|
719
|
|
|
|
(157
|
)
|
Acquisitions
|
|
|
42,520
|
|
|
|
-
|
|
Impairment
|
|
|
(42,520
|
)
|
|
|
-
|
|
Balance, ending
|
|
$
|
8,413
|
|
|
$
|
7,694
|
|
In January and February 2020, the Company acquired Parcus Medical and Arthrosurface, respectively, as further discussed in Note 3, Business Combinations. As a result of the acquisitions, the Company has two reporting units. The newly formed reporting unit includes Parcus Medical and Arthrosurface, which share similar economic and qualitative characteristics. This reporting unit produces soft tissue repair surgical tools, instruments and joint implants. The legacy Anika business remains in one reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform.
U.S. and international government policy responses to the COVID-19 pandemic and the resulting changes in healthcare guidelines caused a temporary suspension of global elective surgical procedures. As a result, the widespread economic volatility triggered impairment testing in the first quarter of 2020, and accordingly, the Company performed interim impairment testing on the goodwill balances of its reporting units. The Company also performed its annual impairment testing in the fourth quarter of 2020.
The Company estimated the fair value of the reporting units using a discounted cash flow method, which is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting units beyond the cash flows from the discrete projection period. The Company determined that a discounted cash flow model provided the best approximation of fair value of the reporting units for the purpose of performing the impairment test. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, the achievement of certain cost synergies, terminal growth rates and discount rates to estimate future cash flows. While assumptions utilized are subject to a high degree of judgment and complexity, the Company made its best estimate of future cash flows under a high degree of economic uncertainty that existed as of November 30, 2020. In developing its assumptions, the Company also considered observed trends of its industry participants.
For the legacy Anika reporting unit, the Company performed a qualitative assessment including consideration of (i) general macroeconomic factors, (ii) industry and market conditions, and (iii) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing. The Company determined it was not more likely than not that the fair value of the legacy Anika reporting unit is less than its carrying amount and thus goodwill was not impaired as of March 31, 2020. As part of its annual impairment testing, the Company decided to perform a quantitative assessment related to the legacy Anika reporting unit as of November 30, 2020, due to the expectation that the economic recovery will take longer than expected to materialize. The results of the impairment test indicated that the estimated fair value of the legacy Anika reporting unit was greater than its carrying value, therefore the Company did not record any impairment charges related to the legacy Anika reporting unit for the year ended December 31, 2020.
For its newly created reporting unit, which includes Parcus Medical and Arthrosurface, the Company also performed an interim quantitative assessment of goodwill impairment as of March 31, 2020. The Company estimated the fair value of the reporting unit using a discounted cash flow method. The results of the interim impairment test indicated that the estimated fair value of the reporting unit was less than its carrying value. This was primarily due to decreases in near term revenue and related cash flows as a result of the temporary suspension of domestic elective procedures which directly impact the reporting unit. Consequently, a non-cash goodwill impairment charge was recorded in the amount of $18.1 million during the first quarter of 2020. As part of its annual impairment testing, the Company also performed a quantitative assessment related to the new reporting unit as of November 30, 2020. The results of the annual impairment test indicated that the estimated fair value of the reporting unit was less than its carrying value. This was primarily due to a decline in projected net cashflows as a result of the continued impact of COVID-19 on revenue and related cash flows, the expectation that the economic recovery will take longer than expected to materialize, and additional projected investment to support future growth. Consequently, a non-cash goodwill impairment charge was recorded in the amount of $24.4 million during the fourth quarter of 2020. The total non-cash goodwill impairment charge with respect to the reporting unit amounted to $42.5 million for the year ended December 31, 2020.
9. Leases
The Company leases its buildings and manufacturing facilities under operating leases. As of December 31, 2020, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida and Padova, Italy. The current term of the Bedford lease extends to 2022 with several lease renewal options into 2038, and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option in 2026 without penalty.
As a result of the acquisition of Parcus Medical and Arthrosurface, the Company acquired operating and finance leases for corporate offices, manufacturing and warehouse facilities and machineries. The operating leases consist of two real estate leases in Franklin, Massachusetts (Franklin lease) and in Sarasota, Florida (Sarasota lease). The current term of the Franklin lease extends to 2021, and the current term of the Sarasota lease extends to 2024 which may be extended by mutual agreement of the parties. The finance leases include equipment utilized in its manufacturing facility in Sarasota, Florida.
The significant assumptions in recognizing the right-of-use asset and lease liability are as follows:
Incremental borrowing rate. The Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s lease agreements do not provide implicit rates. As the Company did not have any external borrowings at the transition date with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease. The weighted average discount rate at December 31, 2020 is 4.1% and 5% for operating leases and finance leases, respectively.
Lease term. The lease term begins at the lease commencement date and is determined on that date based on the non-cancelable term of the lease together with periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, or periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.
The components of lease expense and other information are as follows:
|
|
For the Years Ended December 31
|
|
|
|
2020
|
|
|
2019
|
|
Finance lease amortization of right-of-use assets
|
|
$
|
185
|
|
|
$
|
-
|
|
Interest on finance lease liabilities
|
|
|
25
|
|
|
|
-
|
|
Finance lease expense
|
|
|
210
|
|
|
|
-
|
|
Operating lease expense
|
|
|
2,383
|
|
|
|
2,087
|
|
Short-term lease expense
|
|
|
-
|
|
|
|
6
|
|
Variable lease expense
|
|
|
264
|
|
|
|
216
|
|
Total lease expense
|
|
$
|
2,857
|
|
|
$
|
2,309
|
|
|
|
For the Years Ended December 31
|
|
|
|
2020
|
|
|
2019
|
|
Weighted Average Remaining Lease Term (in years)
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
15.6
|
|
|
|
16.8
|
|
Financing leases
|
|
|
3.2
|
|
|
|
-
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.1
|
%
|
|
|
4.1
|
%
|
Financing leases
|
|
|
5.0
|
%
|
|
|
-
|
|
Other information
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
2,340
|
|
|
$
|
1,980
|
|
Operating cash flows from financing leases
|
|
$
|
162
|
|
|
$
|
-
|
|
Future commitments due under these lease agreements as of December 31, 2020 are as follows:
Years ended December 31,
|
|
Operating Leases
|
|
|
Financing Leases
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
2,304
|
|
|
$
|
166
|
|
|
$
|
2,470
|
|
2022
|
|
|
2,240
|
|
|
|
166
|
|
|
|
2,406
|
|
2023
|
|
|
2,123
|
|
|
|
160
|
|
|
|
2,283
|
|
2024
|
|
|
2,059
|
|
|
|
44
|
|
|
|
2,103
|
|
2025
|
|
|
1,924
|
|
|
|
-
|
|
|
|
1,924
|
|
Thereafter
|
|
|
19,450
|
|
|
|
-
|
|
|
|
19,450
|
|
Present value adjustment
|
|
|
(7,784
|
)
|
|
|
(32
|
)
|
|
|
(7,816
|
)
|
Present value of lease payments
|
|
|
22,316
|
|
|
|
504
|
|
|
|
22,820
|
|
Less current portion included in accrued expenses and other current liabilities
|
|
|
(1,437
|
)
|
|
|
(148
|
)
|
|
|
(1,585
|
)
|
Total lease liabilities
|
|
$
|
20,879
|
|
|
$
|
356
|
|
|
$
|
21,235
|
|
10. Accrued Expenses
Accrued expenses consist of the following:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
|
$
|
7,345
|
|
|
$
|
5,830
|
|
Professional fees
|
|
|
3,438
|
|
|
|
3,850
|
|
Operating lease liability - current
|
|
|
1,437
|
|
|
|
1,141
|
|
Clinical trial costs
|
|
|
1,429
|
|
|
|
788
|
|
Finance lease liability - current
|
|
|
148
|
|
|
|
-
|
|
Other
|
|
|
996
|
|
|
|
836
|
|
Total
|
|
$
|
14,793
|
|
|
$
|
12,445
|
|
11. Revolving Credit Agreement
On April 8, 2020, the Company submitted a loan notice to draw down the $50.0 million available under its existing credit facility, with an initial applicable interest of 2.08%. Interest expense for the year ended December 31, 2020 was $0.8 million associated with Credit Agreement, as defined below. During the three-months ended September 30, 2020, the Company repaid $25.0 million of the outstanding balance, and during the three-months ended December 31, 2020, the Company repaid the remaining $25.0 million of the outstanding balance.
The existing credit facility was entered into on October 24, 2017. The Company, as borrower, entered into the five-year agreement with Bank of America, N.A., as administrative agent, swingline lender and issuer of letters of credit, for a $50.0 million senior revolving line of credit (the “Credit Agreement”). Subject to certain conditions, the Company may request up to an additional $50.0 million in commitments for a maximum aggregate commitment of $100.0 million, which requests must be approved by the Revolving Lenders (as defined in the Credit Agreement). Loans under the Credit Agreement generally bear interest equal to, at the Company’s option, either: (i) LIBOR plus the Applicable Margin, as defined below, or the (ii) Base Rate, defined as the highest of: (a) the Federal Funds Rate plus 0.50%, (b) Bank of America, N.A.’s prime rate and (c) the one month LIBOR adjusted daily plus 1.0%, plus the Applicable Margin. The Applicable Margin ranges from 0.25% to 1.75% based on the Company’s consolidated leverage ratios at the time of the borrowings under the Credit Agreement. The Company has agreed to pay a commitment fee in an amount that is equal to 0.25% per annum on the actual daily unused amount of the credit facility and that is due and payable quarterly in arrears. Loan origination costs are included in Other long-term assets and are being amortized over the five-year term of the Credit Agreement. As of December 31, 2020 and 2019, there are no outstanding borrowings under the Credit Agreement.
The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including financial covenants, events of default, and indemnification provisions in favor of the Lenders. These include restrictive covenants that require the Company not to exceed certain maximum leverage and interest coverage ratios, limit its incurrence of liens and indebtedness, and its entry into certain merger and acquisition transactions or dispositions and place additional restrictions on other matters, all subject to certain exceptions. The Lender has been granted a first priority lien and security interest in substantially all of the Company’s assets, except for certain intangible assets.
12. Commitments and Contingencies
Warranty and Guarantor Arrangements
In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate or breach any U.S. or international patent or intellectual property rights, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company has no accrued warranties at December 31, 2020 or 2019, respectively, and has no history of claims paid.
Legal Proceedings
The Company is also involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.
13. Revenue by Product Group, by Significant Customer and by Geographic Location; Geographic Information
The Company categorizes its product portfolio into three product families: Joint Pain Management, Joint Preservation and Restoration, and Other. Anika’s consolidated financial statements include results of operations for Parcus Medical from the January 24, 2020 acquisition date and Arthrosurface from the February 3, 2020 acquisition date.
Product revenue by product group is as follows:
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
Revenue
|
|
|
Percentage of
Product
Revenue
|
|
|
Revenue
|
|
|
Percentage of
Product
Revenue
|
|
|
Revenue
|
|
|
Percentage of
Product
Revenue
|
|
Joint Pain Management
|
|
$
|
83,029
|
|
|
|
64
|
%
|
|
$
|
103,466
|
|
|
|
90
|
%
|
|
$
|
96,719
|
|
|
|
92
|
%
|
Joint Preservation and Restoration
|
|
|
39,368
|
|
|
|
30
|
%
|
|
|
2,070
|
|
|
|
2
|
%
|
|
|
1,127
|
|
|
|
1
|
%
|
Other
|
|
|
8,060
|
|
|
|
6
|
%
|
|
|
8,976
|
|
|
|
8
|
%
|
|
|
7,685
|
|
|
|
7
|
%
|
|
|
$
|
130,457
|
|
|
|
100
|
%
|
|
$
|
114,512
|
|
|
|
100
|
%
|
|
$
|
105,531
|
|
|
|
100
|
%
|
Product revenue from the Company’s sole significant customer, Mitek, as a percentage of the Company’s total product revenue was 49%, 71%, and 73% for the years ended December 31, 2020, 2019, and 2018, respectively.
Total revenue by geographic location based on the location of the customer in total and as a percentage of total revenue are as follows:
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
Total
|
|
|
Percentage of
|
|
|
Total
|
|
|
Percentage of
|
|
|
Total
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
Geographic Location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
103,182
|
|
|
|
79
|
%
|
|
$
|
90,302
|
|
|
|
79
|
%
|
|
$
|
85,351
|
|
|
|
81
|
%
|
Europe
|
|
|
14,179
|
|
|
|
11
|
%
|
|
|
14,744
|
|
|
|
13
|
%
|
|
|
11,730
|
|
|
|
11
|
%
|
Other
|
|
|
13,096
|
|
|
|
10
|
%
|
|
|
9,564
|
|
|
|
8
|
%
|
|
|
8,474
|
|
|
|
8
|
%
|
Total
|
|
$
|
130,457
|
|
|
|
100
|
%
|
|
$
|
114,610
|
|
|
|
100
|
%
|
|
$
|
105,555
|
|
|
|
100
|
%
|
On May 2, 2018, the Company publicly disclosed a voluntary recall of certain production lots of its HYAFF-based products, Hyalofast, Hyalograft C, and Hyalomatrix. The Company initiated the voluntary recall after internal quality testing, which indicated that the products were at risk of not maintaining certain measures throughout their entire shelf life. While there was no indication of any safety or efficacy issue related to the products at the time, the Company removed the products from the field as a precautionary measure. In 2018, the Company recorded a revenue reserve for this voluntary recall of $1.1 million of which $0.9 million was related to revenue recorded in prior periods. The revenue reserves impacted Joint Preservation and Restoration and Other product groups and all geographic locations. There was no remaining revenue reserve as of December 31, 2020 and 2019.
Net long-lived assets, consisting of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid. Net tangible long-lived assets by principal geographic areas are as follows:
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
48,611
|
|
|
$
|
48,635
|
|
Italy
|
|
|
2,002
|
|
|
|
2,148
|
|
Total
|
|
$
|
50,613
|
|
|
$
|
50,783
|
|
14. Equity Incentive Plan
Equity Incentive Plan
The
Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, each share award other than stock options or SAR’s will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 1.2 million shares of common stock may be issued under the 2017 Plan. On June 18, 2019, the Company’s stockholders approved an amendment to the 2017 Plan. The amendment increased the number of shares of common stock reserved under the 2017 Plan by 1.5 million shares from 1.2 million shares to 2.7 million shares. Additionally, the amendment provided greater clarity with respect to the sections governing minimum vesting and tax withholding to facilitate plan administration. No other provisions of the 2017 Plan were amended. On June 16, 2020, the Company’s stockholders approved another amendment to the 2017 Plan. The amendment increased the number of shares of common stock reserved under the 2017 Plan by 0.8 million shares from 2.7 million shares to 3.5 million shares. No other provisions of the 2017 Plan were amended. There are 1.6 million shares available for future grant at December 31, 2020.
The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly-issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over one to four years with a maximum contractual term of ten years.
The following table sets forth share information for stock-based compensation awards granted and exercised during the periods ended December 31, 2020 and 2019:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Grants:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
546,496
|
|
|
|
254,517
|
|
RSUs
|
|
|
218,804
|
|
|
|
189,507
|
|
PSUs
|
|
|
162,297
|
|
|
|
123,500
|
|
Exercises:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
123,063
|
|
|
|
518,991
|
|
SARs
|
|
|
-
|
|
|
|
35,250
|
|
Stock Options
The combined stock options activity for the year ended December 31, 2020 is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
Number of
|
|
|
Price Per
|
|
|
|
Shares
|
|
|
Share
|
|
Options outstanding at beginning of year
|
|
|
690,968
|
|
|
$
|
41.65
|
|
Granted
|
|
|
546,496
|
|
|
$
|
37.78
|
|
Cancelled
|
|
|
(112,660
|
)
|
|
$
|
50.15
|
|
Expired
|
|
|
(104,922
|
)
|
|
$
|
46.33
|
|
Exercised
|
|
|
(123,063
|
)
|
|
$
|
12.43
|
|
Options outstanding at end of year
|
|
|
896,819
|
|
|
$
|
41.50
|
|
During the second quarter of 2020, the initial equity grants to the Company’s current President and Chief Executive Officer contained a TSR option award at 104,638 targeted options, with market and service conditions. The actual number of options that may be earned ranges from 0% to 150% of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years. The grant-date fair value of the TSRs is recorded as stock-based compensation expense on a straight-line basis over the period from the date of grant to the settlement date. The Company recorded $0.6 million of stock-based compensation expense associated with TSRs for the year ended December 31, 2020.
All stock options outstanding at December 31, 2020 are vested or are expected to vest, with a weighted-average exercise price of $41.50 and as an aggregate intrinsic value of $5.5 million. The weighted average remaining contractual term of the vested and expected to vest stock options is 5.4 years as of December 31, 2020.
As of December 31, 2020, total unrecognized compensation costs related to non-vested stock options was approximately $8.4 million and is expected to be recognized over a weighted average period of 2.1 years.
The options exercisable at December 31, 2020 are as follows:
|
|
Number
Outstanding
|
|
|
Weighted Avg
Exercise Price
|
|
|
Weighted Average
Remaining Term
(in years)
|
|
Incentive stock options
|
|
|
109,581
|
|
|
$
|
45.43
|
|
|
|
6.5
|
|
Non-qualified stock options
|
|
|
341,927
|
|
|
$
|
41.63
|
|
|
|
4.5
|
|
Performance awards
|
|
|
11,210
|
|
|
$
|
53.87
|
|
|
|
2.9
|
|
The total intrinsic value of stock options and SARs exercised was $2.8 million, $8.5 million and $8.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. The 35,250 SARs exercised in 2019 resulted in the issuance of 31,541 shares of common stock. There are no remaining SARs outstanding as of December 31, 2019.
The total grant-date fair value of stock options and SARs vested during the years ended December 31, 2020, 2019 and 2018 was approximately $2.5 million, $2.7 million and $6.7 million, respectively.
Restricted Stock
The RSA, RSU and PSU activity for the year ended December 31, 2020 is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested at beginning of year
|
|
|
289,098
|
|
|
$
|
34.53
|
|
Granted
|
|
|
381,101
|
|
|
$
|
37.66
|
|
Cancelled
|
|
|
(200,418
|
)
|
|
$
|
35.38
|
|
Vested/Released
|
|
|
(58,245
|
)
|
|
$
|
35.91
|
|
Unvested at end of year
|
|
|
411,536
|
|
|
$
|
36.82
|
|
The total fair value of restricted stock-based awards (including RSAs, RSUs, and PSUs) vested during the years ended December 31, 2020, 2019 and 2018 was $2.3 million, $1.4 million and $6.8 million, respectively. The weighted-average grant date fair value of restricted stock-based awards granted during the years ended December 31, 2020, 2019 and 2018 was $37.66, $33.64 and $58.84, respectively.
As of December 31, 2020, total unrecognized compensation costs related to non-vested restricted stock-based awards (including RSAs, RSUs, and PSUs) was approximately $6.6 million and is expected to be recognized over a weighted average period of 2.0 years.
Stock Compensation Expense
The Company estimates the fair value of stock options and SARs using the Black-Scholes valuation model. The Company estimates the fair value of TSRs using Monte-Carlo simulation model. Fair value of restricted stock is measured by the grant-date price of the Company’s shares.
The PSUs granted to employees in 2019 contained performance conditions with business and financial targets. The business target, amounting to 30% of the total performance condition awards, was measured and achieved in the 2019 fiscal year, while the financial targets, amounting to 70% of the total performance condition awards, will ultimately vest depending on the financial operating results in with respect to the Company’s operating results in the 2021 fiscal year. The PSUs granted to employees in 2020 contained performance conditions with business and financial targets. The business target, amounting to 40% of the total performance condition awards, was not achieved in the 2020 fiscal year, while the financial targets, amounting to 60% of the total performance condition awards, will ultimately vest depending on the financial operating results in with respect to the Company’s operating results in the 2021 and 2022 fiscal years.
The Company recorded $0.1 million, $1.2 million, and $0.7 million related to performance-based units and options in the years ending 2020, 2019, and 2018, respectively.
Key input assumptions used to estimate the fair value of stock options and SARs include the exercise price of the award, the expected award term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the award’s expected term, and the Company’s expected annual dividend yield.
The expected volatility assumption is evaluated against the historical volatility of the Company’s common stock over a 4-year average, except for TSRs which is evaluated over 6.3 years, and it is adjusted if there are material changes in historical volatility. The risk free interest rate assumption is based on U.S. Treasury interest rates at the time of grant.
The weighted-average grant-date fair value per share of stock options granted in 2020, 2019 and 2018 was $16.31, $14.73 and $20.01, respectively. The fair value of each stock option during 2020, 2019, and 2018 was estimated on the grant-date using the Black-Scholes option-pricing model with the following assumptions:
|
|
2020
|
|
2019
|
|
2018
|
Risk free interest rate
|
|
0.21%
|
-
|
1.59%
|
|
1.41%
|
-
|
2.54%
|
|
2.15%
|
-
|
2.82%
|
Expected volatility
|
|
46.48%
|
-
|
54.06%
|
|
44.27%
|
-
|
48.52%
|
|
37.12%
|
-
|
45.61%
|
Expected term (years)
|
|
|
4.0
|
|
|
|
3.5
|
|
|
4.0
|
-
|
4.5
|
Expected dividend yield
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
0.00%
|
|
The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Cost of revenue
|
|
$
|
719
|
|
|
$
|
412
|
|
|
$
|
(160
|
)
|
Research and development
|
|
|
713
|
|
|
|
424
|
|
|
|
851
|
|
Selling, general and administrative
|
|
|
3,954
|
|
|
|
5,251
|
|
|
|
10,355
|
|
Total stock-based compensation expense
|
|
$
|
5,386
|
|
|
$
|
6,087
|
|
|
$
|
11,046
|
|
For the years ended December 31, 2020, 2019 and 2018, tax benefits of $0.2 million, $0.1 million and $1.5 million, respectively, are associated with the stock-based compensation expense above.
The Company’s former President and Chief Executive Officer, Joseph Darling, passed away unexpectedly in January 2020. According to the terms of Mr. Darling’s equity award grants and the 2017 Plan, the unvested portion of his stock-based compensation was forfeited upon his death, resulting in a one-time benefit of $1.8 million that was fully recognized during the three-month period ended March 31, 2020 within selling, general and administrative expenses.
The decrease in stock-based compensation expense within the cost of revenue line item for the year ended December 31, 2019 is due to forfeitures associated with unvested stock option awards from the resignation of a former executive. Upon the retirement of the Company’s former Chief Executive Officer, Charles H. Sherwood, Ph.D., on March 9, 2018, all of his outstanding stock-based compensation awards vested in full and became exercisable in accordance with their terms, resulting in a one-time expense of $6.2 million that was fully recognized during the three-month period ended March 31, 2018.
15. Employee Benefit Plan
The Company’s U.S. employees are eligible to participate in the Company’s 401(k) savings plan. Employees may elect to contribute a percentage of their compensation to the plan, and the Company will make 140% matching contributions up to a limit of 5% of an employee’s eligible compensation. In addition, the Company may make annual discretionary contributions. The Company made matching contributions of $1.7 million, $0.8 million, and $0.8 million for the years ended December 31, 2020, 2019, and 2018, respectively.
16. Accelerated Share Repurchases
On May 2, 2019, the Company announced that its Board of Directors had authorized the repurchase of up to $50.0 million shares of the Company’s common stock with $30.0 million to be repurchased through an accelerated share repurchase program and up to $20.0 million to be potentially repurchased on the open market from time-to-time. Through December 31, 2019, no open market repurchases had been executed. On May 7, 2019, the Company entered into an accelerated share repurchase agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction (“ASR Agreement") to purchase $30.0 million of shares of its common stock. Pursuant to the terms of the ASR Agreement, the Company delivered $30.0 million cash to Morgan Stanley and received an initial delivery of 0.5 million shares of the Company’s common stock on May 8, 2019 based on a closing market price of $39.85 and the applicable contractual discount. This was approximately 60% of the then estimated total number of shares expected to be repurchased under the ASR Agreement.
On January 14, 2020, the Company settled the approximately $12.0 million remaining under the ASR Agreement, which was recorded as an equity forward sale contract and was included in additional paid-in-capital in stockholders' equity in the consolidated balance sheet as it met the criteria for equity accounting. Pursuant to the terms of the ASR Agreement, the final number of shares and the average purchase price was determined at the end of the applicable purchase period, which was January 14, 2020. Based on the volume-weighted average price since the effective date of the ASR Agreement less the applicable contractual discount, Morgan Stanley delivered 0.1 million additional shares to the Company on January 17, 2020. In total, 0.6 million shares were repurchased under the ASR Agreement at an average repurchase price of $50.78 per share. These shares are held by the Company as authorized but unissued shares. All shares were repurchased in accordance with the publicly announced program, and the Company will not make any further purchases under the program. The initial delivery of shares resulted in an immediate reduction of the number of outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the ASR Agreement.
On May 24, 2018, the Company entered into an accelerated stock repurchase agreement with Morgan Stanley pursuant to an ASR Agreement to purchase $30.0 million of shares of its common stock. Pursuant to the terms of the ASR Agreement, the Company delivered $30.0 million cash to Morgan Stanley and received an initial delivery of 0.4 million shares of the Company’s common stock on May 24, 2018 based on a closing market price of $41.41 and the applicable contractual discount.
On July 16, 2018, the Company settled the approximately $12.0 million remaining under the ASR Agreement, which was recorded as an equity forward sale contract and was included in additional paid-in-capital in stockholders' equity in the consolidated balance sheet as it met the criteria for equity accounting. Pursuant to the terms of the ASR Agreement, the final number of shares and the average purchase price was determined at the end of the applicable purchase period, which was July 16, 2018. Based on the volume-weighted average price since the effective date of the ASR Agreement less the applicable contractual discount, Morgan Stanley delivered 0.4 million additional shares to the Company on July 19, 2018. In total, 0.8 million shares were repurchased under the ASR Agreement at an average repurchase price of $37.18 per share. These shares are held by the Company as authorized but unissued shares. All shares were repurchased in accordance with the publicly announced program, and the Company will not make any further purchases under the program. The initial and final delivery of shares resulted in an immediate reduction of the number of outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the ASR Agreement.
17. Income Taxes
Income Tax Expense
The components of the Company’s income (loss) before income taxes and its provision for (benefit from) income taxes consist of the following:
|
|
Years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(25,722
|
)
|
|
$
|
38,299
|
|
|
$
|
26,227
|
|
Foreign
|
|
|
(2,902
|
)
|
|
|
(2,178
|
)
|
|
|
(3,020
|
)
|
|
|
$
|
(28,624
|
)
|
|
$
|
36,121
|
|
|
$
|
23,207
|
|
|
|
Years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Provision for (benefit from) income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
357
|
|
|
$
|
6,245
|
|
|
$
|
4,783
|
|
State
|
|
|
(1,970
|
)
|
|
|
1,884
|
|
|
|
1,644
|
|
Foreign
|
|
|
49
|
|
|
|
202
|
|
|
|
405
|
|
Total current
|
|
|
(1,564
|
)
|
|
|
8,331
|
|
|
|
6,832
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,980
|
)
|
|
|
1,086
|
|
|
|
(992
|
)
|
State
|
|
|
(1,070
|
)
|
|
|
324
|
|
|
|
(152
|
)
|
Foreign
|
|
|
(28
|
)
|
|
|
(813
|
)
|
|
|
(1,203
|
)
|
Total deferred
|
|
|
(3,078
|
)
|
|
|
597
|
|
|
|
(2,347
|
)
|
Total provision
|
|
$
|
(4,642
|
)
|
|
$
|
8,928
|
|
|
$
|
4,485
|
|
Deferred Tax Assets and Liabilities
Significant components of the Company’s deferred tax assets and liabilities consist of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Lease liability
|
|
$
|
5,147
|
|
|
$
|
5,206
|
|
Inventory reserve
|
|
|
2,004
|
|
|
|
1,187
|
|
Net operating loss carry forwards
|
|
|
4,775
|
|
|
|
1,812
|
|
Stock-based compensation expense
|
|
|
1,742
|
|
|
|
1,901
|
|
Tax credits
|
|
|
2,485
|
|
|
|
-
|
|
Foreign currency exchange
|
|
|
229
|
|
|
|
346
|
|
Accrued expenses and other
|
|
|
156
|
|
|
|
1,076
|
|
Gross deferred tax assets
|
|
|
16,538
|
|
|
|
11,528
|
|
Less: valuation allowance
|
|
|
(857
|
)
|
|
|
-
|
|
Deferred tax assets
|
|
$
|
15,681
|
|
|
$
|
11,528
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquisition-related intangibles
|
|
$
|
(13,972
|
)
|
|
$
|
(2,023
|
)
|
Depreciation
|
|
|
(8,493
|
)
|
|
|
(8,665
|
)
|
Right of use asset
|
|
|
(5,111
|
)
|
|
|
(5,171
|
)
|
Deferred tax liabilities
|
|
$
|
(27,576
|
)
|
|
$
|
(15,859
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(11,895
|
)
|
|
$
|
(4,331
|
)
|
The Company recognized a total net deferred tax liability of $11.9 million, of which $11.2 million is due to the intangible assets and inventory step up offset by net operating loss (“NOL”) carryforwards and research and development tax credits associated with the Arthrosurface acquisition discussed in Note 3.
As of December 31, 2020, the Company had a federal NOL carryforward of $8.6 million and state NOL carryforwards of $3.0 million. The federal NOL carryforward will begin to expire in 2025 and the state NOL carryforwards will begin to expire in 2028 through 2040 if unutilized. Federal NOLs generated in tax years after 2017 do not expire but are limited to 80% of taxable income. The Company also had NOL carryforwards in Italy of $8.5 million that do not expire. As of December 31, 2020, the Company had federal and state research and development tax credit carryforwards of $1.9 million and $0.07 million, respectively, that will begin expiring in 2023.
The Company evaluated the likelihood that it would realize the deferred income taxes to offset future taxable income and concluded that it is more likely than not that the majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 2020, the Company recorded a valuation allowance in the amount of $0.9 million related to the Italy NOL carryforwards due to the uncertainty regarding their realization.
Tax Rate
The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:
|
|
Years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Statutory federal income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State tax expense, net of federal benefit
|
|
|
1.5
|
%
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
Stock compensation and Section 162(m) limitation
|
|
|
(2.2
|
%)
|
|
|
0.9
|
%
|
|
|
(0.5
|
%)
|
Goodwill impairment
|
|
|
(16.8
|
%)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Change in fair value of contingent consideration
|
|
|
6.7
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Change in state apportionment
|
|
|
4.9
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Federal, state and foreign tax credits
|
|
|
2.2
|
%
|
|
|
(1.5
|
%)
|
|
|
(3.6
|
%)
|
Valuation allowance
|
|
|
(3.0
|
%)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Other permanent items
|
|
|
1.9
|
%
|
|
|
(1.2
|
%)
|
|
|
(3.1
|
%)
|
Effective income tax rate
|
|
|
16.2
|
%
|
|
|
24.7
|
%
|
|
|
19.3
|
%
|
Accounting for Uncertainty in Income Taxes
The Company had no unrecognized tax benefits for the years ended December 31, 2020 and 2019, respectively. The Company does not anticipate experiencing any significant increases or decreases in its unrecognized tax benefits within the twelve months following December 31, 2020.
In the normal course of business, Anika and its subsidiaries may be periodically examined by various taxing authorities. The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in certain foreign jurisdictions. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. With few exceptions, the Company is no longer subject to income tax examinations for years prior to 2017.
Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is compared with cumulative financial reporting compensation cost, and any excess tax deduction related to these awards is considered a windfall tax benefit. With the adoption of ASU 2016-09 in 2017, the Company records windfall tax benefits to income tax expense. The Company follows the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of the recognition of any related benefits. The Company recorded a windfall tax benefit in income tax expense of $0.2 million in 2020 compared to an immaterial amount in 2019 and $1.5 million in 2018.
18. Earnings per Share (“EPS”)
Basic EPS is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Unvested RSAs, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, SARs, TSRs, RSAs, PSUs and RSUs using the treasury stock method.
The following table provides share information used in the calculation of the Company's basic and diluted earnings per share:
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Shares used in the calculation of basic earnings per share
|
|
|
14,222,163
|
|
|
|
14,120,584
|
|
|
|
14,441,536
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, SARs, RSAs and RSUs
|
|
|
-
|
|
|
|
253,199
|
|
|
|
247,505
|
|
Diluted shares used in the calculation of earnings per share
|
|
|
14,222,163
|
|
|
|
14,373,783
|
|
|
|
14,689,041
|
|
In 2020, the Company is in a loss position therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS. Stock options to purchase 0.5 million shares, and 0.7 million shares for the years ended December 31, 2019 and 2018, respectively, were excluded from the computation of diluted EPS as their effect would have been anti-dilutive. The anti-dilutive restricted shares for the years 2019 and 2018 were insignificant.
At December 31, 2020 there were no outstanding unvested RSAs. At December 31, 2019, and 2018 a total of 13,000 and 42,000 shares of unvested RSAs were excluded from the basic earnings per share.
19. Quarterly Financial Data (Unaudited)
(U.S. Dollars, in thousands, except per share data)
|
|
Quarter ended
|
Year 2020
|
|
December 31(4)
|
|
|
September 30(3)
|
|
|
June 30(2)
|
|
|
March 31(1)
|
|
Total revenue
|
|
$
|
32,688
|
|
|
$
|
31,694
|
|
|
$
|
30,678
|
|
|
$
|
35,397
|
|
Gross profit
|
|
|
16,745
|
|
|
|
17,343
|
|
|
|
13,742
|
|
|
|
21,196
|
|
Net income (loss)
|
|
$
|
(15,657
|
)
|
|
$
|
(6,411
|
)
|
|
$
|
(7,708
|
)
|
|
$
|
5,794
|
|
Basic net income (loss) per share
|
|
$
|
(1.10
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.54
|
)
|
|
$
|
0.41
|
|
Diluted net income (loss) per share
|
|
$
|
(1.10
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.54
|
)
|
|
$
|
0.40
|
|
Basic common shares outstanding
|
|
|
14,275
|
|
|
|
14,205
|
|
|
|
14,199
|
|
|
|
14,202
|
|
Diluted common shares outstanding
|
|
|
14,275
|
|
|
|
14,205
|
|
|
|
14,199
|
|
|
|
14,353
|
|
(1) In the quarter ended March 31, 2020, we recorded a pre-tax goodwill impairment charge of $18.1 million and we recognized a pre-tax benefit of $24.5 million related to a change in the fair value of our contingent consideration liability.
(2) In the quarter ended June 30, 2020, we recorded a pre-tax expense in the amount of $4.2 million related to a change in the fair value of our contingent consideration liability.
(3) In the quarter ended September 30, 2020, we recorded a pre-tax expense in the amount of $4.1 million related to a change in the fair value of our contingent consideration liability.
(4) In the quarter ended December 31, 2020, we recorded a pre-tax goodwill impairment charge of $24.4 million and we recognized a pre-tax benefit of $12.5 million related to a change in the fair value of our contingent consideration liability.
(U.S. Dollars, in thousands, except per share data)
|
|
Quarter ended
|
Year 2019
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
Total revenue
|
|
$
|
29,772
|
|
|
$
|
29,697
|
|
|
$
|
30,418
|
|
|
$
|
24,723
|
|
Gross profit
|
|
|
21,123
|
|
|
|
23,746
|
|
|
|
23,582
|
|
|
|
17,412
|
|
Net income
|
|
$
|
4,051
|
|
|
$
|
9,200
|
|
|
$
|
9,435
|
|
|
$
|
4,507
|
|
Basic net income per share
|
|
$
|
0.28
|
|
|
$
|
0.65
|
|
|
$
|
0.68
|
|
|
$
|
0.32
|
|
Diluted net income per share
|
|
$
|
0.28
|
|
|
$
|
0.66
|
|
|
$
|
0.67
|
|
|
$
|
0.31
|
|
Basic common shares outstanding
|
|
|
14,280
|
|
|
|
14,070
|
|
|
|
13,916
|
|
|
|
14,185
|
|
Diluted common shares outstanding
|
|
|
14,621
|
|
|
|
14,387
|
|
|
|
14,088
|
|
|
|
14,314
|
|