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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to
Commission File Number: 001-35469

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

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

Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
(Trading Symbol)
(Name of each exchange on which registered)
Common Stock, $0.0003 par value
VCRA
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of August 4, 2020
Common Stock, $0.0003 par value per share
 
32,378,449



Table of Contents

VOCERA COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
INDEX
PART I: FINANCIAL INFORMATION
 
 
Page No.
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II: OTHER INFORMATION
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


2

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited)
Vocera Communications, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Par Amounts)
(Unaudited)
 
June 30, 2020
 
December 31, 2019
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
29,386

 
$
25,704

Short-term investments
204,476

 
204,164

Accounts receivable, net of allowance
28,255

 
42,547

Other receivables
6,645

 
6,312

Inventories
8,556

 
4,576

Prepaid expenses and other current assets
5,607

 
5,149

Total current assets
282,925

 
288,452

Property and equipment, net
7,669

 
8,661

Intangible assets, net
4,834

 
5,461

Goodwill
49,246

 
49,246

Deferred commissions
11,118

 
10,477

Other long-term assets
7,246

 
8,158

Total assets
$
363,038

 
$
370,455

Liabilities and stockholders' equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
4,765

 
$
6,036

Accrued payroll and other current liabilities
17,079

 
14,757

Deferred revenue, current
43,841

 
50,033

Total current liabilities
65,685

 
70,826

Deferred revenue, long-term
10,173

 
11,442

Convertible senior notes, net
120,682

 
117,178

Other long-term liabilities
5,843

 
7,184

Total liabilities
202,383

 
206,630

Commitments and contingencies (Note 9)

 

Stockholders' equity
 
 
 
Preferred stock, $0.0003 par value - 5,000,000 shares authorized as of June 30, 2020 and December 31, 2019; zero shares issued and outstanding

 

Common stock, $0.0003 par value - 100,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 32,347,972 and 31,660,709 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
9

 
9

Additional paid-in capital
323,881

 
313,963

Accumulated other comprehensive income
1,029

 
179

Accumulated deficit
(164,264
)
 
(150,326
)
Total stockholders’ equity
160,655

 
163,825

Total liabilities and stockholders’ equity
$
363,038

 
$
370,455

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

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Table of Contents

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

Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenue
 
 
 
 
 
 
 
Product
$
23,951

 
$
23,132

 
$
41,801

 
$
37,135

Service
23,396

 
21,627

 
46,219

 
42,933

Total revenue
47,347

 
44,759

 
88,020

 
80,068

Cost of revenue
 
 
 
 
 
 
 
Product
7,710

 
6,912

 
14,074

 
12,246

Service
9,694

 
10,831

 
20,217

 
21,121

Total cost of revenue
17,404

 
17,743

 
34,291

 
33,367

Gross profit
29,943

 
27,016

 
53,729

 
46,701

Operating expenses
 
 
 
 
 
 
 
Research and development
9,349

 
8,943

 
18,381

 
17,089

Sales and marketing
15,998

 
15,478

 
32,961

 
31,497

General and administrative
6,923

 
6,535

 
13,314

 
13,115

Total operating expenses
32,270

 
30,956

 
64,656

 
61,701

Loss from operations
(2,327
)
 
(3,940
)
 
(10,927
)
 
(15,000
)
Interest income
913

 
1,332

 
2,033

 
2,611

Interest expense
(2,308
)
 
(2,170
)
 
(4,582
)
 
(4,291
)
Other income (expense), net
210

 
(159
)
 
(381
)
 
(28
)
Loss before income taxes
(3,512
)
 
(4,937
)
 
(13,857
)
 
(16,708
)
Benefit from (provision for) income taxes
44

 
80

 
(81
)
 
116

Net loss
$
(3,468
)
 
$
(4,857
)
 
$
(13,938
)
 
$
(16,592
)
 
 
 
 
 
 
 
 
Loss per share
 
 
 
 
 
 
 
     Basic
$
(0.11
)
 
$
(0.16
)
 
$
(0.44
)
 
$
(0.53
)
     Diluted
$
(0.11
)
 
$
(0.16
)
 
$
(0.44
)
 
$
(0.53
)
Weighted average shares used to compute net loss per share
 
 
 
 
 
 
 
     Basic
32,152

 
31,242

 
31,945

 
31,022

     Diluted
32,152

 
31,242

 
31,945

 
31,022



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


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Table of Contents

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

 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Net loss
$
(3,468
)
 
$
(4,857
)
 
$
(13,938
)
 
$
(16,592
)
Other comprehensive loss, net:
 
 
 
 
 
 
 
Change in unrealized gain on investments, net of tax
1,806

 
294

 
850

 
719

Comprehensive loss
$
(1,662
)
 
$
(4,563
)
 
$
(13,088
)
 
$
(15,873
)

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

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Table of Contents

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

$
9

$
295,647

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

Exercise of stock options
122,376


1,564



1,564

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


(1,271
)


(1,271
)
Employee stock-based compensation expense


5,544



5,544

Net loss




(11,735
)
(11,735
)
Other comprehensive gain



425


425

Balance at March 31, 2019
30,891,117

9

301,484

(18
)
(144,081
)
157,394

Exercise of stock options
37,239


527



527

RSUs released net of shares withheld for tax settlement
434,838


(8,796
)


(8,796
)
Common stock issued under employee stock purchase plan
61,691

 
1,809

 
 
1,809

Employee stock-based compensation expense


6,109



6,109

Net loss




(4,857
)
(4,857
)
Other comprehensive gain



294


294

Balance at June 30, 2019
31,424,885

$
9

$
301,133

$
276

$
(148,938
)
$
152,480

Balance at December 31, 2019
31,660,709

$
9

$
313,963

$
179

$
(150,326
)
$
163,825

Exercise of stock options
77,909


731



731

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


(864
)


(864
)
Employee stock-based compensation expense


5,841



5,841

Net loss




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



(956
)

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

$
9

$
319,671

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

Exercise of stock options
46,508


594



594

RSUs released net of shares withheld for tax settlement
372,639


(4,716
)


(4,716
)
Common stock issued under employee stock purchase plan
126,046


1,966



1,966

Employee stock-based compensation expense


6,366



6,366

Net loss




(3,468
)
(3,468
)
Other comprehensive gain



1,806


1,806

Balance at June 30, 2020
32,347,972

$
9

$
323,881

1,029

$
(164,264
)
$
160,655


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

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Table of Contents

Vocera Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
Six months ended June 30,
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net loss
$
(13,938
)
 
$
(16,592
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
2,801

 
3,797

Change in lease-related performance obligations
(623
)
 
(572
)
Stock-based compensation expense
12,207

 
11,653

Amortization of debt discount and issuance costs
3,504

 
3,219

Other
1,325

 
151

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
14,293

 
10,425

Other receivables
(275
)
 
(1,468
)
Inventories
(3,866
)
 
(834
)
Prepaid expenses and other assets
(607
)
 
(541
)
Deferred commissions
(640
)
 
385

Accounts payable
(1,035
)
 
(841
)
Accrued payroll and other liabilities
1,176

 
(2,674
)
Deferred revenue
(7,461
)
 
(6,027
)
Net cash provided by operating activities
6,861

 
81

Cash flows from investing activities
 
 
 
Purchase of property and equipment
(1,427
)
 
(1,778
)
Purchase of short-term investments
(86,300
)
 
(43,384
)
Maturities of short-term investments
72,137

 
61,228

Sales of short-term investments
14,393

 

Net cash provided by (used in) investing activities
(1,197
)
 
16,066

Cash flows from financing activities
 
 
 
Cash from lease-related performance obligations
306

 
645

Proceeds from issuance of common stock from the employee stock purchase plan
1,966

 
1,809

Proceeds from exercise of stock options
1,325

 
2,091

Tax withholdings paid on behalf of employees for net share settlement
(5,579
)
 
(10,067
)
Net cash used in financing activities
(1,982
)
 
(5,522
)
Net increase in cash and cash equivalents
3,682

 
10,625

Cash and cash equivalents at beginning of period
25,704

 
34,276

Cash and cash equivalents at end of period
$
29,386

 
$
44,901

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Property and equipment in accounts payable and accrued liabilities
$
222

 
$
117



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

7

Table of Contents

Notes to Unaudited Condensed Consolidated Financial Statements

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

8

Table of Contents

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

2.
Revenue, deferred revenue and deferred commissions
Disaggregation of Revenue
A typical sales arrangement involves multiple arrangements, such as the sales of the Company’s proprietary communication device (“Vocera Badge”), perpetual software licenses, professional services and maintenance and support services which entitle customers to unspecified upgrades, patch releases and telephone-based support. The following table depicts the disaggregation of revenue according to revenue type and is consistent with how the Company evaluates its financial performance:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Product revenue
 
 
 
 
 
 
 
Device
$
17,100

 
$
14,504

 
$
31,003

 
$
24,564

Software
6,851

 
8,628

 
10,798

 
12,571

Total product
23,951

 
23,132

 
41,801

 
37,135

 

 
 
 
 
 
 
Service revenue
 
 
 
 
 
 
 
Maintenance and support
18,994

 
16,928

 
37,063

 
33,321

Professional services and training
4,402

 
4,699

 
9,156

 
9,612

Total service
23,396

 
21,627

 
46,219

 
42,933

Total revenue
$
47,347

 
$
44,759

 
$
88,020

 
$
80,068


Contract balances
The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount and in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. Payment terms on invoiced amounts are typically 30 days. The balance of accounts receivable, net of allowance for doubtful accounts, as of June 30, 2020 and December 31, 2019 is presented in the accompanying condensed consolidated balance sheets. In situations where revenue recognition occurs before invoicing, an unbilled receivable is created, which represents a contract asset. As of June 30, 2020 and December 31, 2019, contract assets totaling $4.7 million and $4.3 million, respectively, were included in other receivables in the condensed consolidated balance sheets.

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

9

Table of Contents

the term of the initial contract. Accordingly, amortization of deferred costs is recognized on a systematic basis that is consistent with the pattern of revenue recognition allocated to each performance obligation and is included in sales and marketing expense in the condensed consolidated statements of operations. The Company determines its estimated period of benefit by evaluating the expected renewals of its customer contracts, the duration of its relationships with its customers and other factors. Deferred costs are periodically reviewed for impairment. Changes in the balance of total deferred commissions (contract asset) during the three and six months ended June 30, 2020 are as follows:
(in thousands)
March 31, 2020
 
Additions
 
Commissions Recognized
 
June 30, 2020
Deferred commissions
$
10,307

 
$
3,163

 
$
(2,352
)
 
$
11,118


(in thousands)
December 31, 2019
 
Additions
 
Commissions Recognized
 
June 30, 2020
Deferred commissions
$
10,477

 
$
5,116

 
$
(4,475
)
 
$
11,118

Of the $11.1 million total deferred commissions balance as of June 30, 2020, the Company expects to recognize approximately 49% as commission expense over the next 12 months and the remainder thereafter.
Deferred revenue
The Company records deferred revenue when cash payments are received in advance of the performance under the contract. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the condensed consolidated balance sheet date. Changes in the balance of total deferred revenue (contract liability) during the three and six months ended June 30, 2020 are as follows:
(in thousands)
March 31, 2020
 
Additions
 
Revenue Recognized
 
June 30, 2020
Deferred revenue
$
56,676

 
$
17,385

 
$
(20,047
)
 
$
54,014


(in thousands)
December 31, 2019
 
Additions
 
Revenue Recognized
 
June 30, 2020

Deferred revenue
$
61,475

 
$
32,330

 
$
(39,791
)
 
$
54,014

Revenue recognized during the three and six months ended June 30, 2020 from deferred revenue balances at the beginning of the period was $19.5 million and $34.2 million, respectively. Revenue recognized during the three and six months ended June 30, 2019 from deferred revenue balances at the beginning of the period was $17.0 million and $29.4 million.
The “contracted but not recognized” performance obligations represent the Company’s deferred revenue and non-cancelable backlog amounts. This balance as of June 30, 2020 was $115.9 million, of which the Company expects to recognize approximately 66% as revenue over the next 12 months and the remainder thereafter.

3.
Fair Value of Financial Instruments
The Company’s cash, cash equivalents and short-term investments are carried at their fair values with any differences from their amortized cost recorded in equity as unrealized gains (losses) on marketable securities. As a basis for determining the fair value of its assets and liabilities, the Company follows a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data which requires the Company to develop its own assumptions. This hierarchy requires the Company to use

10

Table of Contents

observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. During the six months ended June 30, 2020, there have been no transfers between Level 1 and Level 2 fair value instruments and no transfers in or out of Level 3.
The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The fair value of the Company’s Level 2 fixed income securities is obtained from independent pricing services, which may use quoted market prices for identical or comparable instruments or model-driven valuations using observable market data or other inputs, corroborated by observable market data. The Company does not have any financial instruments which are valued using Level 3 inputs.
In addition to its cash, cash equivalents and short-term investments, the Company measures the fair value of its Convertible Senior Notes on a quarterly basis for disclosure purposes. The Company considers the fair value of the Convertible Senior Notes at June 30, 2020 to be a Level 2 measurement due to limited trading activity of the Convertible Senior Notes. Refer to Note 8 to the condensed consolidated financial statements for further information.
The Company’s assets that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of June 30, 2020 and December 31, 2019, are summarized as follows (in thousands):
 
June 30, 2020
 
December 31, 2019
 
Level 1
Level 2
Total
 
Level 1
Level 2
Total
Assets
 
 
 
 
 
 
 
Money market funds
$
6,682

$

$
6,682

 
$
4,086

$

$
4,086

Commercial paper

15,987

15,987

 

12,854

12,854

U.S. government agency securities



 

3,000

3,000

Corporate debt securities

188,489

188,489

 

188,310

188,310

Total assets measured at fair value
$
6,682

$
204,476

$
211,158

 
$
4,086

$
204,164

$
208,250



4.
Cash, Cash Equivalents and Short-Term Investments
The following tables present cash, cash equivalents and short-term investments (in thousands) as of June 30, 2020 and December 31, 2019:
 
As of June 30, 2020
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair value
Cash and cash equivalents:
 
 
 
 
 
 
 
Demand deposits and other cash
$
22,704

 
$

 
$

 
$
22,704

Money market funds
6,682

 

 

 
6,682

Total cash and cash equivalents
29,386

 

 

 
29,386

 
 
 
 
 
 
 
 
Short-Term Investments:
 
 
 
 
 
 
 
Commercial paper
15,954

 
35

 
(2
)
 
15,987

Corporate debt securities
187,234

 
1,288

 
(33
)
 
188,489

Total short-term investments
203,188

 
1,323

 
(35
)
 
204,476

Total cash, cash equivalents and short-term investments
$
232,574

 
$
1,323

 
$
(35
)
 
$
233,862



11

Table of Contents

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

 
$

 
$

 
$
21,618

Money market funds
4,086

 

 

 
4,086

Total cash and cash equivalents
25,704

 

 

 
25,704

Short-Term Investments:
 
 
 
 
 
 
 
Commercial paper
12,861

 

 
(7
)
 
12,854

U.S. government agency securities
3,000

 

 

 
3,000

Corporate debt securities
187,866

 
499

 
(55
)
 
188,310

Total short-term investments
203,727

 
499

 
(62
)
 
204,164

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

 
$
499

 
$
(62
)
 
$
229,868


The Company has determined that the unrealized losses on its short-term investments as of June 30, 2020 and December 31, 2019 do not constitute an “other than temporary impairment”. The unrealized losses for the short-term investments have all been in a continuous unrealized loss position for less than twelve months. The Company’s conclusion of no “other than temporary impairment” is based on the high credit quality of the securities, their short remaining maturity and the Company’s intent and ability to hold such loss securities until maturity.
Classification of the cash, cash equivalents and short-term investments by contractual maturity was as follows:
(in thousands)
One year or shorter

 
Between 1 and 2 years

 
Total

Balances as of June 30, 2020
 
 
 
 
 
Cash and cash equivalents (1)
$
29,386

 
$

 
$
29,386

Short-term investments
121,605

 
82,871

 
204,476

Cash, cash equivalents and short-term investments
$
150,991

 
$
82,871

 
$
233,862

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

 
$

 
$
25,704

Short-term investments
113,010

 
91,154

 
204,164

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

 
$
91,154

 
$
229,868

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



12

Table of Contents

5.
Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):
 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net loss
$
(3,468
)
 
$
(4,857
)
 
$
(13,938
)
 
$
(16,592
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares used to compute net loss per common share - basic
32,152

 
31,242

 
31,945

 
31,022

Weighted-average shares used to compute net loss per common share - diluted
32,152

 
31,242

 
31,945

 
31,022

 
 
 
 
 
 
 
 
Net loss per share
 
 
 
 
 
 
 
   Basic
$
(0.11
)
 
$
(0.16
)
 
$
(0.44
)
 
$
(0.53
)
   Diluted
$
(0.11
)
 
$
(0.16
)
 
$
(0.44
)
 
$
(0.53
)

The following securities were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Options to purchase common stock, including ESPP
517

 
656

 
568

 
690

Restricted stock units and Performance stock units
2,125

 
1,671

 
1,880

 
1,760



6.
Goodwill and Intangible Assets
Goodwill
As of June 30, 2020 and December 31, 2019, the Company had $49.2 million and $49.2 million of goodwill, respectively, with $41.2 million and $8.0 million allocated to the Company’s Product and Services operating segments, respectively. As of June 30, 2020, there were no changes in circumstances indicating that the carrying values of goodwill or acquired intangibles may not be recoverable.
Intangible Assets
Acquisition-related intangible assets are amortized either straight-line, or over the life of the assets on a basis that resembles the economic benefit of the assets. This yields amortization in the latter case that is higher in earlier periods of the useful life.

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Table of Contents

The estimated useful lives and carrying value of acquired intangible assets are as follows:
 
 
 
June 30, 2020
 
December 31, 2019
(in thousands)
Range of
Useful Life
(years)
 
Gross
 Carrying
 Amount
 
Accumulated
Amortization
 
Net
 Carrying
 Amount
 
Gross
 Carrying
 Amount
 
Accumulated
Amortization
 
Net
 Carrying
 Amount
Developed technology
3 to 7
 
$
10,050

 
$
9,893

 
$
157

 
$
10,050

 
$
9,803

 
$
247

Customer relationships
7 to 9
 
10,920

 
6,356

 
4,564

 
10,920

 
5,819

 
5,101

Backlog
3
 
1,400

 
1,287

 
113

 
1,400

 
1,287

 
113

Non-compete agreements
2 to 4
 
460

 
460

 

 
460

 
460

 

Trademarks
3 to 7
 
1,110

 
1,110

 

 
1,110

 
1,110

 

Intangible assets, net book value
 
 
$
23,940

 
$
19,106

 
$
4,834

 
$
23,940

 
$
18,479

 
$
5,461


Amortization expense was $0.3 million and $1.0 million for the three months ended June 30, 2020 and 2019, respectively. Amortization expense was $0.6 million and $2.0 million for the six months ended June 30, 2020 and 2019, respectively
Amortization of acquired intangible assets is reflected in the cost of revenue for developed technology and backlog and in operating expenses for the other intangible assets. The estimated future amortization of existing acquired intangible assets as of June 30, 2020 was as follows:
(in thousands)
 
Future amortization
2020 (remaining six months)
 
$
729

2021
 
1,130

2022
 
1,050

2023
 
1,050

2024
 
875

     Future amortization expense
 
$
4,834




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Table of Contents

7.
Balance Sheet Components
Inventories
(in thousands)
June 30,
2020
 
December 31,
2019
Raw materials
$
637

 
$
831

Finished goods
7,919

 
3,745

        Total inventories
$
8,556

 
$
4,576


Property and equipment, net
(in thousands)
June 30,
2020
 
December 31,
2019
Computer equipment and software
$
14,224

 
$
13,596

Furniture, fixtures and equipment
2,583

 
2,430

Leasehold improvements
5,286

 
5,283

Manufacturing tools and equipment
2,409

 
2,435

Construction in process
320

 
582

        Property and equipment, at cost
24,822

 
24,326

Less: Accumulated depreciation
(17,153
)
 
(15,665
)
        Property and equipment, net
$
7,669

 
$
8,661

Depreciation and amortization expense for property and equipment was $1.2 million and $0.9 million for the three months ended June 30, 2020 and 2019, respectively. Depreciation and amortization expense for property and equipment was $2.2 million and $1.8 million for the six months ended June 30, 2020 and 2019, respectively.

Net investment in sales-type leases
The Company has sales-type leases with terms of 3 to 4 years. Sales-type lease receivables are collateralized by the underlying equipment. The components of the Company’s net investment in sales-type leases are as follows:
(in thousands)
June 30,
2020
 
December 31,
2019
Minimum payments to be received on sales-type leases
$
1,687

 
$
2,078

Less: Unearned interest income and executory revenue portion
(860
)
 
(1,190
)
Net investment in sales-type leases
827

 
888

Less: Current portion
(435
)
 
(452
)
Non-current net investment in sales-type leases
$
392

 
$
436

Sales-type lease activity recognized in the condensed consolidated statement of operations are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Lease revenue
$
1,118

 
$
2,703

 
$
1,553

 
$
3,364

Less: Cost of lease shipments
(165
)
 
(805
)
 
(175
)
 
(857
)
Gross profit
$
953

 
$
1,898

 
$
1,378

 
$
2,507

 
 
 
 
 
 
 
 
Interest income (expense), net on lease receivable
$
(6
)
 
$
3

 
$
(12
)
 
$

Initial direct cost incurred
$
60