The accompanying summary consolidated financial statements include the accounts of CryoLife, Inc. and its subsidiaries (CryoLife,
the Company, we, or us). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying Summary Consolidated Balance Sheet as of December 31, 2017 has been
derived from audited financial statements. The accompanying unaudited summary consolidated financial statements as of, and for the three and nine months ended, September 30, 2018 and 2017 have been prepared in accordance with
(i) accounting principles generally accepted in the U.S. for interim financial information and (ii) the instructions to Form
10-Q
and Rule
10-01
of Regulation
S-X
of the U.S. Securities and Exchange Commission (SEC). Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the
U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three
and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These summary consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in CryoLifes Annual Report on Form
10-K
for the year ended December 31, 2017 filed with the SEC on March 9, 2018.
In
February 2016 the FASB amended its Accounting Standards Codification (ASC) and created a new Topic 842,
Leases
. The final guidance requires lessees to recognize a
right-of-use
asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income
statements similar to the current Topic 840,
Leases
. It is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. We have identified contracts with potential leasing
arrangements, entered leases into a tracking software, and are currently evaluating the impact the adoption of this standard will have on our financial position, results of operations, and cash flows.
The following is a summary of our financial instruments measured at fair value (in thousands):
We used prices quoted from our investment advisors to determine the Level 1 valuation of our investments
in money market funds.
The following is a summary of cash equivalents and restricted securities (in thousands):
As of September 30, 2018 and December 31, 2017 $753,000 and $776,000, respectively, of our money
market funds were designated as short-term restricted securities due to a contractual commitment to hold the securities as pledged collateral relating primarily to international tax obligations.
There were no gross realized gains or losses on cash equivalents in the three and nine months ended September 30, 2018 and 2017. As of
September 30, 2018 $231,000 of our restricted securities had a maturity date within three months and $522,000 of our restricted securities had a maturity date between three months and one year. As of December 31, 2017 $537,000 of our
restricted securities had a maturity date within three months and $239,000 had a maturity date between three months and one year.
On December 1,
2017 we acquired JOTEC AG, a Swiss entity that we converted to JOTEC GmbH and subsequently merged with our Swiss acquisition entity, Jolly Buyer Acquisition GmbH (JOTEC), and its subsidiaries (the JOTEC Acquisition) for a
contract value of approximately $225.0 million, subject to certain adjustments. JOTEC is being operated as a wholly-owned subsidiary of CryoLife. In connection with the closing of the JOTEC Acquisition, CryoLife entered into a senior secured
credit facility in an aggregate principal amount of $255.0 million, which includes a $225.0 million term loan and a $30.0 million revolving credit facility. See Note 8 for further discussion of the senior secured credit facility.
We have updated our preliminary analysis of the purchase price of the JOTEC Acquisition to $222.2 million, including debt and cash
acquired as determined on the date of closing, consisting of $169.1 million in cash and 2,682,754 shares of CryoLife common stock, with a value of $53.1 million on the date of the closing. This purchase price reflects an
additional payment related to a working capital
true-up
calculated and paid to the sellers as defined in the purchase agreement. Upon closing of the JOTEC Acquisition, $22.5 million was paid into an
escrow account for any amounts payable for indemnification claims or other payment obligations. Our preliminary allocation of the $222.2 million purchase consideration was allocated to JOTECs tangible and identifiable intangible assets
acquired and liabilities assumed, based on their estimated fair values as of December 1, 2017. Goodwill was preliminarily recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and is not
deductible for tax purposes. Goodwill from this transaction has been allocated to our Medical Devices segment. The estimated allocation of assets acquired and liabilities assumed is based on the information available to us. As we complete our
valuation procedures, if new information regarding these values is received that would result in a material adjustment to the values recorded, we will recognize the adjustment, which may include the recognition of additional expenses, impairments,
or other allocation adjustments, in the period this determination is made. As of September 30, 2018 goodwill increased by $3.2 million resulting from adjustments made during the measurement period, primarily related to certain intangible
assets.
The preliminary purchase price allocation as of December 1, 2017, reflecting the measurement period adjustments is as
follows (in thousands):
We incurred transaction and integration costs of $1.8 million and $6.1 million for the three and
nine months ended September 30, 2018 related to the JOTEC Acquisition, which included, among other costs, expenses related to the termination of international distribution agreements, severance costs, and legal, other professional, and
consulting costs. These costs were expensed as incurred and were primarily recorded as general, administrative, and marketing expenses on our Summary Consolidated Statements of Operations and Comprehensive Income (Loss).
JOTEC revenues were $4.1 million and the net loss was $1.5 million from the date of the JOTEC Acquisition through December 31,
2017. Our unaudited pro forma results of operations for the years ended December 31, 2017 and 2016, assuming the JOTEC Acquisition had occurred as of January 1, 2016, are presented for comparative purposes below. These amounts are based on
available information from the results of operations of JOTEC prior to the acquisition date and are not necessarily indicative of what the results of operations would have been had the JOTEC Acquisition been completed on January 1, 2016.
Differences between the
preliminary and final purchase price allocation could have an impact on the pro forma financial information presented below and that impact could be material. This unaudited pro forma information
does not project operating results post JOTEC Acquisition.
A summary of this unaudited pro forma information is as follows (in thousands,
except per share amounts):
Pro forma net loss was calculated using a normalized tax rate of approximately 38%.
Inventories at September 30, 2018 and December 31, 2017 were comprised of the following (in thousands):
Deferred preservation costs at September 30, 2018 and December 31, 2017 were comprised of the
following (in thousands):
To facilitate patient support and access, we maintain consignment inventory of our
On-X
Life Technologies Holdings, Inc.
(On-X)
heart valves at domestic and international hospital locations and JOTEC products at international hospital locations.
We retain title to this consignment inventory and it is included in finished goods inventory until the device is implanted, at which time we invoice the hospital. As of September 30, 2018 we had $10.6 million in consignment inventory, with
approximately 58% in domestic locations and 42% in foreign locations. As of December 31, 2017 we had $9.3 million in consignment inventory with approximately 58% in domestic locations and 42% in foreign locations.
Based on our experience with similar agreements, we believe that our acquired procurement
contracts and agreements have indefinite useful lives, as we expect to continue to renew these contracts for the foreseeable future. We believe that our trademarks have indefinite useful lives as we currently anticipate that our trademarks will
contribute to our cash flows indefinitely.
As of September 30, 2018 and December 31, 2017 our entire
goodwill balance was related to our Medical Devices segment.
Amortization Expense
The following is a summary of amortization expense as recorded in general, administrative, and marketing expenses on our Summary Consolidated
Statement of Operations and Comprehensive Income (Loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
$
|
2,707
|
|
|
$
|
1,140
|
|
|
$
|
8,195
|
|
|
$
|
3,423
|
|
As of September 30, 2018 scheduled amortization of intangible assets for the next five years is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder
of 2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Total
|
|
Amortization expense
|
|
$
|
2,597
|
|
|
$
|
10,386
|
|
|
$
|
10,222
|
|
|
$
|
10,202
|
|
|
$
|
9,673
|
|
|
$
|
9,287
|
|
|
$
|
52,367
|
|
7. Income Taxes
Income Tax Expense
Our effective
income tax rate was an expense of 26% and a benefit of 58% for the three and nine months ended September 30, 2018, respectively. Our effective income tax rate for the three months ended September 30, 2017 was not meaningful due to the
impact of the value of tax adjustments as compared to the low amount of income before taxes. Our effective income tax rate was a benefit of 14% for the nine months ended September 30, 2017 due to the impact of the value of tax adjustments. Our
income tax rate for the three and nine months ended September 30, 2018 was affected by excess tax benefit deductions related to stock compensation, which increased the
year-to-date
income tax benefits by approximately $1.4 million, and losses in high rate jurisdictions. These factors were partially offset by the effects of
non-deductible
operating expenses and executive compensation expenses.
Our income tax rate for the
three and nine months ended September 30, 2017 was favorably affected by excess tax benefits, primarily related to the exercise of
non-qualified
stock options and the vesting of stock awards, which
decreased income tax expense by approximately $1.1 million and $2.7 million, respectively.
On December 22, 2017 the U.S.
enacted tax reform legislation known as the H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (the Tax Act), resulting in significant modifications to existing law. We have elected to follow the guidance in SEC Staff
Accounting Bulletin 118 (SAB 118), which provides additional clarification regarding the application of ASC Topic 740,
Income Taxes
(ASC 740) in situations where we do not have the necessary information available,
prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act for the reporting period in which the Tax Act was enacted. SAB 118 provides for a measurement period beginning in the reporting
period that includes the Tax Acts enactment date and ending when we have obtained, prepared, and analyzed the information needed in order to complete the accounting requirements, but the measurement period cannot extend beyond one year from
the enactment date.
As of September 30, 2018 we have not fully completed our accounting for the income tax effects of all elements
of the Tax Act, but we have completed our analysis of the 2017 repatriation transition tax. Our final transition tax calculation was not materially different from the provisional nominal tax benefit recorded at December 31, 2017. For elements
of the Tax Act for which our analysis is not yet complete, we made reasonable estimates of the effects and recorded provisional adjustments. If we were not yet able to make reasonable estimates of the impact of certain elements, we have not recorded
any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 based on the tax laws in effect before the Tax Act.
For our calendar year beginning in 2018, we are subject to several provisions of the Tax Act including computations under Global Intangible
Low Taxed Income (GILTI), Foreign Derived Intangible Income (FDII), Base Erosion and Anti-Abuse Tax (BEAT), and Internal Revenue Code Section 163(j) interest limitation (Interest Limitation)
rules. Based on preliminary information and analysis, we have recorded a provisional estimate for a FDII deduction of $565,000 in our effective tax rate for the nine months ended September 30, 2018. We estimate the Interest Limitation will
apply, but not affect our 2018 tax rate. We are not subject to BEAT at this time based on revenue trends. We will continue to refine our provisional estimates for our computations of the GILTI, FDII, and Interest Limitation rules as we gather
additional information.
We currently estimate that other provisions of the Tax Act generally will not materially impact our 2018
effective rate, other than the potential impact of changes to the deductibility of meals and entertainment and executive compensation. We continue to gather new information on the interpretation of these new law changes and refine our provisional
estimates.
As we complete our analysis of the Tax Act, further collect and analyze data, interpret any additional guidance issued by the
U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies, we may adjust our provisional amounts. Those adjustments may materially impact our provision for income taxes.
Deferred Income Taxes
We
generate deferred tax assets primarily as a result of write-downs of inventory and deferred preservation costs, accruals for product and tissue processing liability claims, investment and asset impairments, and due to operating losses. We acquired
significant deferred tax assets, primarily net operating loss carryforwards, from our acquisitions of JOTEC in 2017,
On-X
in 2016, Hemosphere, Inc. in 2012, and Cardiogenesis Corporation in 2011. We believe
utilization of these net operating losses will not have a material impact on income taxes for the 2018 tax year. We recorded significant deferred tax liabilities in 2017 related to the intangible assets acquired in the JOTEC Acquisition.
As of September 30, 2018 we maintained a total of $2.5 million in valuation allowances
against deferred tax assets, related to state net operating loss carryforwards, and had a net deferred tax liability of $22.7 million. As of December 31, 2017 we had a total of $2.5 million in valuation allowances against deferred tax
assets, related to state net operating loss carryforwards, and a net deferred tax liability of $28.8 million.
8. Debt
Credit Agreement
On
December 1, 2017 we entered into a credit and guaranty agreement for a new $255.0 million senior secured credit facility, consisting of a $225.0 million secured term loan facility (the Term Loan Facility) and a
$30.0 million secured revolving credit facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Credit Agreement). We and each of our existing domestic subsidiaries (subject to certain
exceptions and exclusions) guarantee the obligations under the Credit Agreement (the Guarantors). The Credit Agreement is secured by a security interest in substantially all existing and after-acquired real and personal property (subject
to certain exceptions and exclusions) of us and the Guarantors.
On December 1, 2017 we borrowed the entire $225.0 million Term
Loan Facility. The proceeds of the Term Loan Facility were used along with cash on hand and shares of CryoLife common stock to (i) fund the JOTEC Acquisition, (ii) pay certain fees and expenses related to the JOTEC Acquisition and the
Credit Agreement, and (iii) pay the outstanding balance of our prior credit facility. The Revolving Credit Facility is undrawn following the JOTEC Acquisition and may be used for working capital, capital expenditures, acquisitions
permitted under the Credit Agreement, and other general corporate purposes pursuant to the terms of the Credit Agreement.
The loan under
the Term Loan Facility is repayable on a quarterly basis according to the amortization provisions set forth in the Credit Agreement. We have the right to repay the loan under the Credit Agreement in whole or in part at any time. Amounts repaid
in respect of the loan under the Term Loan Facility may not be reborrowed. Amounts repaid in respect of the loan under the Revolving Credit Facility may be reborrowed. All outstanding principal and interest in respect of (i) the Term Loan
Facility must be repaid on or before December 1, 2024 and (ii) the Revolving Credit Facility must be repaid on or before December 1, 2022.
The loan under the Term Loan Facility bears interest, at our option, at a floating annual rate equal to either the base rate, plus a margin of
3.00%, or LIBOR, plus a margin of 4.00%. The loan under the Revolving Credit Facility bears interest, at our option, at a floating annual rate equal to either the base rate plus a margin of between 3.00% and 3.25%, depending on our consolidated
leverage ratio, or LIBOR plus a margin of between 4.00% and 4.25%, depending on our consolidated leverage ratio. While a payment or bankruptcy event of default exists, we are obligated to pay a per annum default rate of interest of 2.00% in
excess of the interest rate otherwise payable with respect to the overdue principal amount of any loans outstanding and overdue interest payments and other overdue fees and amounts. As of September 30, 2018 the aggregate interest rate was 6.39%
per annum. We are obligated to pay an unused commitment fee equal to 0.50% of the
un-utilized
portion of the Revolving Credit Facility and are obligated to pay other customary fees for a credit facility of
this size and type.
In October 2018 we finalized an amendment to the Credit Agreement to reprice, resulting in a reduction in the
interest rate margin over LIBOR on the Term Loan Facility. Under the amendment to the Credit Agreement, the interest rates will be revised to a floating annual rate equal to either base rate, plus a margin of 2.25%, or LIBOR, plus a margin of 3.25%.
The Credit Agreement contains certain customary affirmative and negative covenants, including covenants that limit our ability, and the
ability of our subsidiaries to, among other things, grant liens, incur debt, dispose of assets, make loans and investments, make acquisitions, make certain restricted payments, merge or consolidate, change their business or accounting or reporting
practices, in each case subject to customary exceptions for a credit facility of this size and type. In addition, with respect to the Revolving Credit Facility, when the principal amount of loans outstanding thereunder is in excess of 25% of the
Revolving Credit Facility, the Credit Agreement requires us to comply with a specified maximum first lien net leverage ratio. The Credit Agreement prohibits the payment of certain restricted payments, including cash dividends.
The Credit Agreement includes certain customary events of default that include, among other things,
non-payment
of principal, interest, or fees; inaccuracy of representations and warranties; breach of covenants; cross-default to certain material indebtedness; bankruptcy and insolvency; and change of control.
Upon the occurrence and during the continuance of an event of default, the lenders may declare all outstanding principal and accrued but unpaid interest under the Credit Agreement immediately due and payable and may exercise the other rights and
remedies provided under the Credit Agreement and related loan documents. As of September 30, 2018 and December 31, 2017 there were no outstanding balances on our Revolving Credit Facility and the remaining availability was
$30.0 million.
Government Supported Bank Debt
In June 2015 JOTEC GmbH obtained two loans from Sparkasse Zollernalb, which we assumed in the acquisition, and are government sponsored by the
Kreditanstalt für Wiederaufbau Bank (KFW). Both KFW loans have a term of 9 years and one loan bears an interest rate of 2.45% and the second loan bears an interest rate of 1.40%.
Loan Balances
The short-term and
long-term balances of our term loan and other borrowings were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
Term loan balance
|
|
$
|
223,313
|
|
|
$
|
225,000
|
|
2.45% Sparkasse Zollernalb (KFW Loan 1)
|
|
|
1,401
|
|
|
|
1,657
|
|
1.40% Sparkasse Zollernalb (KFW Loan 2)
|
|
|
1,989
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
Total loan balance
|
|
|
226,703
|
|
|
|
228,969
|
|
Less unamortized loan origination costs
|
|
|
(8,858
|
)
|
|
|
(10,015
|
)
|
|
|
|
|
|
|
|
|
|
Net borrowings
|
|
|
217,845
|
|
|
|
218,954
|
|
Less short-term loan balance
|
|
|
(1,266)
|
|
|
|
(718)
|
|
|
|
|
|
|
|
|
|
|
Long-term loan balance
|
|
$
|
216,579
|
|
|
$
|
218,236
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
Interest expense was $4.1 million and $11.9 million for the three and nine months ended September 30, 2018, respectively, as
compared to $851,000 and $2.5 million for the three and nine months ended September 30, 2017, respectively. Interest expense for the three and nine months ended September 30, 2018 and 2017 included interest on debt and uncertain tax
positions. The increase in interest expense in 2018 was due to the interest on borrowings under the $225.0 million secured term loan facility that we entered into in December 2017 to finance, in part, the JOTEC Acquisition.
9. Commitments and Contingencies
Liability
Claims
Our estimated unreported loss liability was $1.9 million and $1.8 million as of September 30, 2018 and
December 31, 2017, respectively. As of September 30, 2018 and December 31, 2017, the related recoverable insurance amounts were $773,000 and $692,000, respectively. We accrue our estimate of unreported product and tissue processing
liability claims as a component of other
long-term
liabilities and record the related recoverable insurance amount as a component of other
long-term
assets, as
appropriate. Further analysis indicated that the estimated liability as of September 30, 2018 could have been as high as $3.1 million, after including a reasonable margin for statistical fluctuations calculated based on actuarial
simulation techniques.
Employment Agreements
The employment agreement of our Chairman, President, and Chief Executive Officer (CEO), Mr. J. Patrick Mackin, provides for a
severance payment, which would become payable upon the occurrence of certain employment termination events, including termination by us without cause.
PerClot Technology
On
September 28, 2010 we entered into a worldwide distribution agreement (the Distribution Agreement) and a license and manufacturing agreement (the License Agreement) with Starch Medical, Inc. (SMI), for
PerClot
®
, a polysaccharide hemostatic agent used in surgery. The Distribution Agreement has a term of 15 years but can be terminated for any reason before the expiration date by us by
providing 180 days notice. The Distribution Agreement also contains minimum purchase requirements that expire upon the termination of the Distribution Agreement or following U.S. regulatory approval for PerClot. Separate and apart from the
terms of the Distribution Agreement, pursuant to the License Agreement, as amended by a September 2, 2011 technology transfer agreement, we can manufacture and sell PerClot, assuming appropriate regulatory approvals, in the U.S. and certain
other jurisdictions and may be required to pay royalties to SMI at certain rates on net revenues of products.
We may make contingent payments to SMI of up to $1.0 million if certain U.S. regulatory and
certain commercial milestones are achieved.
We are conducting our pivotal clinical trial to gain approval to commercialize PerClot for
surgical indications in the U.S. Assuming enrollment proceeds as anticipated, we could receive Premarket Approval (PMA) from the U.S. Food and Drug Administration (FDA) in
mid-year
of
2020.
As of September 30, 2018 we had $1.5 million in prepaid royalties, $2.4 million in intangible assets, net, and
$1.4 million in property and equipment, net on our Summary Consolidated Balance Sheets related to the PerClot product line. If we do not ultimately pursue or receive FDA approval to commercialize PerClot in the U.S., these assets could be
materially impaired in future periods.
10. Shareholders Equity
Common Shares Issued
In December
2017 we issued 2,682,754 shares of CryoLife common stock, as part of the consideration for the acquisition of JOTEC. The stock had a value of $53.1 million as determined on the date of the closing. See Note 4 for further discussion of the
JOTEC Acquisition.
11. Revenue Recognition
Contracts with Customers
We have
adopted ASC 606,
Revenue from Contracts with Customers
effective January 1, 2018 using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018
.
These standards
provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenues for 2018 are reported under ASC 606, while prior period amounts are not adjusted and continue to be
reported under ASC 605,
Revenue Recognition
.
We routinely enter into contracts with customers that include general commercial
terms and conditions, notification requirements for price increases, shipping terms and in most cases prices for the products and services that we offer. These agreements, however, do not obligate us to provide goods or services to the customer, and
there is no consideration promised to us at the onset of these arrangements. For customers without separate agreements, we have a standard list price established by geography and by currency for all products and services, and our invoices contain
standard terms and conditions that are applicable to those customers where a separate agreement is not controlling. Our performance obligations are established when a customer submits a purchase order notification (in writing, electronically or
verbally) for goods and services, and we accept the order. We identify performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customers contract and/or
purchase order. We generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time we have an unconditional right to receive payment. Our prices are fixed
and are not affected by contingent events that could impact the transaction price. We do not offer price concessions and do not accept payment that is less than the price stated when we accept the purchase order, except in rare credit related
circumstances. We do not have any material performance obligations where we are acting as an agent for another entity.
Revenues for
products, including: BioGlue
®
Surgical Adhesive,
On-X
products, JOTEC products, PerClot, PhotoFix
TM
and other medical devices, are typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations. Revenues from consignment are recognized when the
medical device is implanted. We recognize revenues for preservation services when services are completed and tissue is shipped to the customer.
Our E-xtra DESIGN ENGINEERING products are specifically designed to meet specifications of a particular patient, and therefore, do not create
an asset with an alternative use. We evaluate open orders for these products each reporting period, and when material we recognize the revenue and related contract asset based on the amount of payment we believe we are entitled to at that time.
In certain limited circumstances, CardioGenesis cardiac laser consoles are provided to a customer
for their use without transfer of title for evaluation purposes. We have determined that a portion of the revenue for the handpieces purchased during these evaluations constitutes revenue associated with the use of the laser console, but these are
immaterial to reported revenues.
Sources of Revenue
We have identified the following revenues disaggregated by revenue source:
|
1.
|
Domestic Hospitals direct sales of products and preservation services.
|
|
2.
|
International Hospitals direct sales of products and preservation services.
|
|
3.
|
International Distributors generally these contracts specify a geographic area that the distributor will
service, terms and conditions of the relationship, and purchase targets for the next calendar year.
|
|
4.
|
CardioGenesis Cardiac Laser Console Trials and Sales CardioGenesis cardiac trialed laser consoles are
delivered under separate agreements.
|
For the three and nine months ended September 30, 2018 and 2017 the sources
of revenue were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Domestic hospitals
|
|
$
|
34,924
|
|
|
$
|
30,720
|
|
|
$
|
103,606
|
|
|
$
|
95,327
|
|
International hospitals
|
|
|
19,001
|
|
|
|
5,158
|
|
|
|
56,440
|
|
|
|
12,291
|
|
International distributors
|
|
|
9,083
|
|
|
|
6,632
|
|
|
|
30,482
|
|
|
|
24,128
|
|
CardioGenesis cardiac laser therapy
|
|
|
1,590
|
|
|
|
1,489
|
|
|
|
4,514
|
|
|
|
5,130
|
|
|
|
|
|
|
|
|
|
|
Total sources of revenue
|
|
$
|
64,598
|
|
|
$
|
43,999
|
|
|
$
|
195,042
|
|
|
$
|
136,876
|
|
|
|
|
|
|
|
|
|
|
Also see segment and geographic disaggregation information in Note 14 below.
Contract Balances
We may
generate contract assets during the
pre-delivery
design and manufacturing stage of E-xtra DESIGN ENGINEERING product order fulfillment. We assess the balance related to any arrangements in process and
determine if the enforceable right to payment creates a material contract asset requiring disclosure.
We also incur contract obligations
on general customer purchase orders that have been accepted but unfulfilled. Due to the short duration of time between order acceptance and delivery of the related product or service, we have determined that the balance related to these contract
obligations is generally immaterial at any point in time. We monitor the value of orders accepted but unfulfilled at the close of each reporting period to determine if disclosure is appropriate. The value of orders accepted but unfulfilled as
of September 30, 2018 are not material.
Warranty
Our general product warranties do not extend beyond an assurance that the product or services delivered will be consistent with stated
specifications and do not include separate performance obligations. Warranties included with our CardioGenesis cardiac laser products provide for annual maintenance services, which are priced separately and are recognized as revenues at the
stand-alone price over the service period, whether invoiced separately or recognized based on our allocation of the transaction price.
Significant
Judgments in the Application of the Guidance in ASC 606
There are no significant judgments associated with the satisfaction of
our performance obligations. We generally satisfy performance obligations upon delivery of the product or service to the customer. This is consistent with the time in which the customer obtains control of the products or service. Performance
obligations are also generally settled quickly after the purchase order acceptance, other than as identified for the E-xtra DESIGN ENGINEERING product, therefore, the value of unsatisfied performance obligations at the end of any reporting period is
generally immaterial.
For performance obligations provided through our E-xtra DESIGN ENGINEERING product line, we determine the value of
our enforceable right to payment based on the timing required and costs incurred for design services and manufacture of the
in-process
device in relation to the total inputs required to complete the device.
We consider variable consideration in establishing the transaction price. Forms of variable
consideration potentially applicable to our arrangements include sales returns, rebates, volume-based bonuses, and prompt pay discounts. We use historical information along with an analysis of the expected value to properly calculate and to consider
the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products and services in the periods in which the related revenue is recognized and adjusted in future periods as
necessary.
Commissions and Contract Costs
Sales commissions are earned upon completion of each performance obligation, and therefore, are expensed when incurred. These costs are
included in general, administrative, and marketing expenses in the Summary Consolidated Statements of Operations and Comprehensive Income (Loss). We generally do not incur incremental charges associated with securing agreements with customers which
would require capitalization and recovery over the life of the agreement.
Practical Expedients
Our payment terms for sales direct to customers are substantially less than the
one-year
collection
period that falls within the practical expedient in the determination of whether a significant financing component exists.
Shipping and Handling
Charges
Fees charged to customers for shipping and handling of products and tissues are included in product revenues and
preservation services revenues. The costs for shipping and handling of products and tissues are included as a component of cost of products and cost of preservation services.
Taxes Collected from Customers
Taxes collected on the value of transaction revenue are excluded from product and services revenues and cost of sales and are accrued in
current liabilities until remitted to governmental authorities.
Effective Date and Transition Disclosures
Adoption of the new standards related to revenue recognition did not have a material impact on our consolidated financial statements and is
not expected to have a material impact in future periods. During our evaluation of the impact of adopting the new revenue standard, which included a detailed review of performance obligations for all material revenue streams, we identified two
noteworthy items:
|
●
|
|
Certain distributor agreements have historically included inventory buyback provisions under defined change of
business conditions. Transactions under these terms would not qualify as a completed revenue transaction until sale through to the end customer, resulting in a revenue deferral until the proper criteria were satisfied. These agreements were modified
or replaced to remove the buyback provisions effective on or before January 1, 2018 which eliminated any retrospective adjustment requirements.
|
|
●
|
|
Certain JOTEC products discussed above are manufactured to order, have no alternative use, and contain an
enforceable right to receive payment for the performance completed. These factors qualify the transactions for revenue recognition over time. Upon adoption of the new standard, we evaluated all appropriate contracts in progress to determine the
value of unbilled revenues representing outstanding contract assets. We recorded an immaterial cumulative effect adjustment to recognize the impact of contract assets.
|
12. Stock Compensation
Overview
We have stock option and stock incentive plans for employees and
non-employee
Directors that provide
for grants of restricted stock awards (RSAs), performance stock awards (PSAs), restricted stock units (RSUs), performance stock units (PSUs), and options to purchase shares of our common stock at
exercise prices generally equal to the fair value of such stock at the dates of grant. We also maintain a shareholder-approved Employee Stock Purchase Plan (the ESPP) for the benefit of our employees. The ESPP allows eligible employees
to purchase common stock on a regular basis at the lower of 85% of the market price at the beginning or end of each offering period.
Equity Grants
During the nine months ended September 30, 2018 the Compensation Committee of our Board of Directors (the Committee)
authorized awards from approved stock incentive plans of RSUs to certain employees and RSAs and PSUs to certain Company officers, which, assuming that performance under the PSUs were to be achieved at target levels, together totaled 317,000 shares
and had an aggregate grant date market value of $7.1 million. The PSUs granted in 2018 represent the right to receive from 60% to 150% of the target number of shares of common stock. The performance component of PSU awards granted in 2018 is
based on attaining specified levels of adjusted earnings before interest, taxes, depreciation, and amortization, (EBITDA), as defined in the PSU grant documents, for the 2018 calendar year. We currently believe that achievement of the
performance component is probable, and we reevaluate this likelihood on a quarterly basis.
During the nine months ended
September 30, 2017 the Committee authorized awards from approved stock incentive plans of RSUs to certain employees and RSAs and PSUs to certain Company officers, which, including PSUs at target levels, together totaled 384,000 shares of common
stock and had an aggregate grant date market value of $6.3 million. The PSUs granted in 2017 represented the right to receive from 60% to 150% of the target number of shares of common stock. The performance component of PSU awards granted in
2017 was based on attaining specified levels of adjusted EBITDA, adjusted inventory levels, and trade accounts receivable days sales outstanding, each as defined in the PSU grant documents, for the 2017 calendar year. The PSUs granted in 2017
earned 100% of the target number of shares.
The Committee authorized, from approved stock incentive plans, grants of stock options to
purchase a total of 219,000 and 260,000 shares to certain Company officers during the nine months ended September 30, 2018 and 2017, respectively. The exercise prices of the options were equal to the closing stock prices on their respective
grant dates.
Employees purchased common stock totaling 46,000 and 82,000 shares in the three and nine months ended September 30,
2018, respectively, and 47,000 and 93,000 shares in the three and nine months ended September 30, 2017, respectively, through the ESPP.
Stock
Compensation Expense
The following
weighted-average
assumptions were used to determine the
fair value of options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
ESPP Options
|
|
|
Stock Options
|
|
|
ESPP Options
|
|
|
|
|
|
|
|
|
|
|
Expected life of options
|
|
|
N/A
|
|
|
|
0.5 Years
|
|
|
|
5.0 Years
|
|
|
|
0.5 Years
|
|
Expected stock price volatility
|
|
|
N/A
|
|
|
|
0.32
|
|
|
|
0.40
|
|
|
|
0.35
|
|
Risk-free interest rate
|
|
|
N/A
|
|
|
|
2.11%
|
|
|
|
2.64%
|
|
|
|
1.53%
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
|
Nine Months Ended
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
ESPP Options
|
|
|
Stock Options
|
|
|
ESPP Options
|
|
|
|
|
|
|
|
|
|
|
Expected life of options
|
|
|
N/A
|
|
|
|
0.5 Years
|
|
|
|
4.8 Years
|
|
|
|
0.5 Years
|
|
Expected stock price volatility
|
|
|
N/A
|
|
|
|
0.43
|
|
|
|
0.40
|
|
|
|
0.35
|
|
Risk-free interest rate
|
|
|
N/A
|
|
|
|
1.14%
|
|
|
|
1.87%
|
|
|
|
0.62%
|
|
The following table summarizes total stock compensation expenses prior to the capitalization of amounts into
deferred preservation and inventory costs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
RSA, PSA, RSU, and PSU expense
|
|
$
|
1,281
|
|
|
$
|
1,448
|
|
|
$
|
3,750
|
|
|
$
|
4,326
|
|
Stock option and ESPP option expense
|
|
|
412
|
|
|
|
519
|
|
|
|
1,301
|
|
|
|
1,614
|
|
|
|
|
|
|
|
|
|
|
Total stock compensation expense
|
|
$
|
1,693
|
|
|
$
|
1,967
|
|
|
$
|
5,051
|
|
|
$
|
5,940
|
|
|
|
|
|
|
|
|
|
|
Included in the total stock compensation expense, as applicable in each period, were expenses related to RSAs,
RSUs, PSUs, and stock options issued in each respective year, as well as those issued in prior periods that continue to vest during the period, and compensation related to the ESPP. The total stock compensation expense also included expenses related
to PSAs during the three
and nine months ended September 30, 2017. We have not granted any other PSAs and there is no unrecognized compensation expense for PSAs. These amounts were recorded as stock compensation
expense and were subject to our normal allocation of expenses to inventory costs and deferred preservation costs. We capitalized $125,000 and $363,000 in the three and nine months ended September 30, 2018, respectively, and $111,000 and
$288,000 in the three and nine months ended September 30, 2017, respectively, of the stock compensation expense into our inventory costs and deferred preservation costs.
As of September 30, 2018 we had total unrecognized compensation costs of $7.9 million related to RSUs, RSAs, and PSUs and
$2.2 million related to unvested stock options. As of September 30, 2018 this expense is expected to be recognized over a weighted-average period of 1.9 years for RSUs, 1.7 years for stock options, 1.2 years for RSAs, and 1.0 years for
PSUs.
13. Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted income (loss) per common share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,565
|
|
|
$
|
1,325
|
|
|
$
|
(2,064)
|
|
|
$
|
6,711
|
|
Net (income) loss allocated to participating securities
|
|
|
(15)
|
|
|
|
(22)
|
|
|
|
20
|
|
|
|
(126)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common shareholders
|
|
$
|
1,550
|
|
|
$
|
1,303
|
|
|
$
|
(2,044)
|
|
|
$
|
6,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
|
36,526
|
|
|
|
32,887
|
|
|
|
36,331
|
|
|
|
32,665
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
(0.06)
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,565
|
|
|
$
|
1,325
|
|
|
$
|
(2,064)
|
|
|
$
|
6,711
|
|
Net (income) loss allocated to participating securities
|
|
|
(14)
|
|
|
|
(22)
|
|
|
|
20
|
|
|
|
(122)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common shareholders
|
|
$
|
1,551
|
|
|
$
|
1,303
|
|
|
$
|
(2,044)
|
|
|
$
|
6,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
|
36,526
|
|
|
|
32,887
|
|
|
|
36,331
|
|
|
|
32,665
|
|
Effect of dilutive stock options and awards
|
|
|
1,084
|
|
|
|
1,170
|
|
|
|
--
|
|
|
|
1,186
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares outstanding
|
|
|
37,610
|
|
|
|
34,057
|
|
|
|
36,331
|
|
|
|
33,851
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
(0.06)
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
We excluded stock options from the calculation of diluted weighted-average common shares outstanding if the
per share value, including the sum of (i) the exercise price of the options and (ii) the amount of the compensation cost attributed to future services and not yet recognized, was greater than the average market price of the shares because
the inclusion of these stock options would be antidilutive to income (loss) per common share. For the three months ended September 30, 2018 none of the stock options to purchase shares were antidilutive; therefore, no shares were excluded from
the calculation of diluted weighted-average common shares outstanding. For the nine months ended September 30, 2018 all stock options and awards were excluded from the calculation of diluted weighted-average common shares outstanding as these
would be antidilutive due to the net loss. For the three and nine months ended September 30, 2017 stock options to purchase a weighted-average 264,000 shares and 215,000 shares, respectively, were antidilutive and excluded from the calculation
of diluted weighted-average common shares outstanding.
14. Segment Information
We have two reportable segments organized according to our products and services: Medical Devices and Preservation Services. The Medical
Devices segment includes external revenues from product sales of BioGlue; BioFoam
®
Surgical Matrix; JOTEC products, since the JOTEC Acquisition;
On-X
products; CardioGenesis cardiac laser therapy; PerClot; and PhotoFix. The Preservation Services segment includes external services revenues from the preservation of cardiac and vascular tissues. There are no intersegment revenues.
The primary measure of segment performance, as viewed by our management, is segment gross margin,
or net external revenues less cost of products and preservation services. We do not segregate assets by segment; therefore, asset information is excluded from the segment disclosures below.
The following table summarizes revenues, cost of products and preservation services, and gross margins for our operating segments (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical devices
|
|
$
|
45,152
|
|
|
$
|
27,029
|
|
|
$
|
138,063
|
|
|
$
|
84,519
|
|
Preservation services
|
|
|
19,446
|
|
|
|
16,970
|
|
|
|
56,979
|
|
|
|
52,357
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
64,598
|
|
|
|
43,999
|
|
|
|
195,042
|
|
|
|
136,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products and preservation services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical devices
|
|
|
12,459
|
|
|
|
6,220
|
|
|
|
40,166
|
|
|
|
21,196
|
|
Preservation services
|
|
|
9,425
|
|
|
|
7,917
|
|
|
|
27,083
|
|
|
|
23,401
|
|
|
|
|
|
|
|
|
|
|
Total cost of products and preservation services
|
|
|
21,884
|
|
|
|
14,137
|
|
|
|
67,249
|
|
|
|
44,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical devices
|
|
|
32,693
|
|
|
|
20,809
|
|
|
|
97,897
|
|
|
|
63,323
|
|
Preservation services
|
|
|
10,021
|
|
|
|
9,053
|
|
|
|
29,896
|
|
|
|
28,956
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
$
|
42,714
|
|
|
$
|
29,862
|
|
|
$
|
127,793
|
|
|
$
|
92,279
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes net revenues by product and service (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioGlue and BioFoam
|
|
$
|
15,646
|
|
|
$
|
15,730
|
|
|
$
|
48,685
|
|
|
$
|
48,094
|
|
JOTEC
|
|
|
15,004
|
|
|
|
--
|
|
|
|
46,669
|
|
|
|
--
|
|
On-X
|
|
|
11,298
|
|
|
|
8,326
|
|
|
|
33,495
|
|
|
|
27,048
|
|
CardioGenesis cardiac laser therapy
|
|
|
1,590
|
|
|
|
1,489
|
|
|
|
4,514
|
|
|
|
5,130
|
|
PerClot
|
|
|
882
|
|
|
|
886
|
|
|
|
2,822
|
|
|
|
2,641
|
|
PhotoFix
|
|
|
732
|
|
|
|
598
|
|
|
|
1,878
|
|
|
|
1,606
|
|
|
|
|
|
|
|
|
|
|
Total products
|
|
|
45,152
|
|
|
|
27,029
|
|
|
|
138,063
|
|
|
|
84,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preservation services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiac tissue
|
|
|
9,502
|
|
|
|
7,932
|
|
|
|
26,660
|
|
|
|
23,911
|
|
Vascular tissue
|
|
|
9,944
|
|
|
|
9,038
|
|
|
|
30,319
|
|
|
|
28,446
|
|
|
|
|
|
|
|
|
|
|
Total preservation services
|
|
|
19,446
|
|
|
|
16,970
|
|
|
|
56,979
|
|
|
|
52,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
64,598
|
|
|
$
|
43,999
|
|
|
$
|
195,042
|
|
|
$
|
136,876
|
|
|
|
|
|
|
|
|
|
|
Forward-Looking Statements
This Form
10-Q
includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). Forward-looking statements give our expectations or forecasts of future events as of the date of this Form
10-Q.
The words could, may, might, will, would, shall, should, pro forma, potential, pending,
intend, believe, expect, anticipate, estimate, plan, future, assume, and other similar expressions generally identify forward-looking statements. These
forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date
of this Form
10-Q.
All statements included herein, other than statements of historical facts,
that address activities, events, or developments that we expect or anticipate will or may occur in the future, or that reflect our beliefs about the future and/or expectations, are forward-looking statements, including statements about the
following:
|
●
|
|
Our plans, costs, and expected timeline regarding regulatory approval for PerClot in the U.S. and additional
international markets and the distribution of PerClot in those markets after the requisite regulatory approvals are obtained;
|
|
●
|
|
Our belief that our distributors may delay or reduce purchases of products in U.S. Dollars depending on the
relative price of goods in their local currencies;
|
|
●
|
|
Our belief regarding the international growth opportunity that would be provided by obtaining regulatory approval
for BioGlue in China;
|
|
●
|
|
Our belief that the JOTEC products will achieve double-digit growth over the next five years;
|
|
●
|
|
Our expectation that our expanded sales force will take market share and drive market expansion, including
opening additional hospitals to using JOTEC products, based on the technologically and clinically advanced benefits of JOTEC products;
|
|
●
|
|
Our belief that revenues for preservation services, particularly revenues for certain high-demand cardiac
tissues, can vary from quarter to quarter and year to year due to a variety of factors including: quantity and type of incoming tissues, yields of tissue through the preservation process, timing of receipt of donor information, timing of the release
of tissues to an implantable status, demand for certain tissue types due to the number and type of procedures being performed, and pressures from competing products or services;
|
|
●
|
|
Our beliefs regarding the seasonal nature of the demand for some of our products and services and the reasons for
such seasonality, if any;
|
|
●
|
|
Our belief that our cash from operations and existing cash and cash equivalents will enable us to meet our
current operational liquidity needs for at least the next twelve months, our expectations regarding future cash requirements, and the impact that our cash requirements might have on our cash flows for the next twelve months;
|
|
●
|
|
Our expectation regarding the impact on cash flows of undertaking significant business development activities and
the potential need to obtain additional borrowing capacity or financing;
|
|
●
|
|
Our belief that the utilization of net operating loss carryforwards from our acquisitions of JOTEC,
On-X,
Hemosphere, Inc., and Cardiogenesis Corporation will not have a material impact on income taxes for the 2018 tax year;
|
|
●
|
|
Our estimate that the Interest Limitation will apply, but not affect our 2018 tax rate; and
|
|
●
|
|
Other statements regarding future plans and strategies, anticipated events, or trends.
|
These and other forward-looking statements reflect the views of management at the time such statements are made based on certain assumptions
and analyses made by us in light of our experience and our perception of historical trends, current conditions, and expected future developments as well as other factors we believe are appropriate in the circumstances and are subject to a number of
risks, uncertainties, estimates, and assumptions. Whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from
our expectations, including, without limitation, in addition to those specified in the text surrounding such statements, the risks described under Part II, Item 1A, Risks Factors in this Form
10-Q
and elsewhere throughout this report, the risks described under in Part I, Item 1A, Risks Factors in our Annual Report on Form
10-K
for the year ended
December 31, 2017 and elsewhere throughout that report and other risks, many of which are beyond our control. Consequently, all of the forward-looking statements made in this Form
10-Q
are qualified by
these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized, or even if substantially realized, that they will have the expected consequences to, or effects on, us or our
business or operations. We assume no obligation, and expressly disclaim any duty to update publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise.