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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number 001-37553

 

REGENXBIO Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-1851754

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

9600 Blackwell Road, Suite 210

Rockville, MD

 

20850

(Address of principal executive offices)

 

(Zip Code)

(240) 552-8181

(Registrant’s telephone number, including area code)

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(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

RGNX

The Nasdaq Global Select Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated 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  

 


Table of Contents

 

As of May 1, 2020, there were 37,241,119 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 


Table of Contents

 

REGENXBIO INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

TABLE OF CONTENTS

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

3

 

 

Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

 

4

 

 

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019

 

5

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

 

6

 

 

Notes to Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

 

Controls and Procedures

 

29

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

Item 3.

 

Defaults Upon Senior Securities

 

31

Item 4.

 

Mine Safety Disclosures

 

31

Item 5.

 

Other Information

 

31

Item 6.

 

Exhibits

 

32

Signatures

 

33

 

 

 

 


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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements express a belief, expectation or intention and are generally accompanied by words that convey projected future events or outcomes such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “assume,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or by variations of such words or by similar expressions. We have based these forward-looking statements on our current expectations and 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 under the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, uncertainties, assumptions and other important factors, including, but not limited to:

 

the ability to obtain and maintain regulatory approval of our product candidates and the labeling for any approved products;

 

the timing of enrollment, commencement and completion and the success of our clinical trials;

 

the timing of commencement and completion and the success of preclinical studies conducted by us and our development partners;

 

the timely development and launch of new products;

 

the scope, progress, expansion and costs of developing and commercializing our product candidates;

 

our ability to obtain and maintain intellectual property protection for our product candidates and technology;

 

our expectations regarding the development and commercialization of product candidates currently being developed by third parties that utilize our technology;

 

the impact of the novel coronavirus (COVID-19) pandemic on our business, operations and preclinical and clinical development timelines and plans;

 

our anticipated growth strategies;

 

our expectations regarding competition;

 

the anticipated trends and challenges in our business and the market in which we operate;

 

our ability to attract or retain key personnel;

 

the size and growth of the potential markets for our product candidates and the ability to serve those markets;

 

the rate and degree of market acceptance of any of our products that are approved;

 

our ability to establish and maintain development partnerships;

 

our expectations regarding our expenses and revenue;

 

our expectations regarding regulatory developments in the United States and foreign countries; and

 

the use or sufficiency of our cash and cash equivalents and needs for additional financing.

You should carefully read the factors discussed in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2019 and in our other filings with the U.S. Securities and Exchange Commission (the SEC) for additional discussion of the risks, uncertainties, assumptions and other important factors that could cause our actual results or developments to differ materially and adversely from those projected in the forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on us or our businesses or operations. Such statements are not guarantees of future performance and actual results or developments may differ materially and adversely from those projected in the forward-looking statements. These forward-looking statements speak only as of the date of this report. Except as required by law, we disclaim any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise.

1


Table of Contents

 

Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Exchange Act. You may obtain any reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.

You also may view and download copies of our SEC filings free of charge at our website, www.regenxbio.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and is not considered part of, this Quarterly Report on Form 10-Q. Investors should also note that we use our website, as well as SEC filings, press releases, public conference calls and webcasts, to announce financial information and other material developments regarding our business. We use these channels, as well as any social media channels listed on our website, to communicate with investors and members of the public about our business. It is possible that the information that we post on our social media channels could be deemed material information. Therefore, we encourage investors, the media and others interested in our company to review the information that we post on our social media channels.

As used in this Quarterly Report on Form 10-Q, the terms “REGENXBIO,” “we,” “us,” “our” or the “Company” mean REGENXBIO Inc. and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

NAV, REGENXBIO and the REGENXBIO logos are our registered trademarks. Any other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

2


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

REGENXBIO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share data)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,411

 

 

$

69,514

 

Marketable securities

 

 

209,846

 

 

 

226,696

 

Accounts receivable

 

 

44,522

 

 

 

38,148

 

Prepaid expenses

 

 

7,422

 

 

 

6,475

 

Other current assets

 

 

7,032

 

 

 

4,199

 

Total current assets

 

 

338,233

 

 

 

345,032

 

Marketable securities

 

 

77,361

 

 

 

103,785

 

Accounts receivable

 

 

4,373

 

 

 

4,155

 

Property and equipment, net

 

 

30,414

 

 

 

28,973

 

Operating lease right-of-use assets

 

 

9,375

 

 

 

10,078

 

Restricted cash

 

 

1,330

 

 

 

1,330

 

Other assets

 

 

2,850

 

 

 

4,555

 

Total assets

 

$

463,936

 

 

$

497,908

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,008

 

 

$

6,409

 

Accrued expenses and other current liabilities

 

 

20,327

 

 

 

24,846

 

Operating lease liabilities

 

 

2,454

 

 

 

2,421

 

Total current liabilities

 

 

31,789

 

 

 

33,676

 

Deferred revenue

 

 

3,333

 

 

 

3,333

 

Operating lease liabilities

 

 

7,990

 

 

 

8,874

 

Other liabilities

 

 

672

 

 

 

1,828

 

Total liabilities

 

 

43,784

 

 

 

47,711

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock; $0.0001 par value; 10,000 shares authorized, and no shares issued

   and outstanding at March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock; $0.0001 par value; 100,000 shares authorized at March 31, 2020

   and December 31, 2019; 37,190 and 36,992 shares issued and outstanding at

   March 31, 2020 and December 31, 2019, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

638,588

 

 

 

627,810

 

Accumulated other comprehensive income (loss)

 

 

(580

)

 

 

205

 

Accumulated deficit

 

 

(217,860

)

 

 

(177,822

)

Total stockholders’ equity

 

 

420,152

 

 

 

450,197

 

Total liabilities and stockholders’ equity

 

$

463,936

 

 

$

497,908

 

 

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

 

 

3


Table of Contents

 

REGENXBIO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

License and royalty revenue

 

$

17,644

 

 

$

884

 

Total revenues

 

 

17,644

 

 

 

884

 

Operating Expenses

 

 

 

 

 

 

 

 

Cost of revenues

 

 

3,409

 

 

 

29

 

Research and development

 

 

37,035

 

 

 

25,203

 

General and administrative

 

 

14,833

 

 

 

11,558

 

Other operating expenses

 

 

67

 

 

 

 

Total operating expenses

 

 

55,344

 

 

 

36,790

 

Loss from operations

 

 

(37,700

)

 

 

(35,906

)

Other Income (Loss)

 

 

 

 

 

 

 

 

Interest income from licensing

 

 

848

 

 

 

613

 

Investment income (loss)

 

 

(3,186

)

 

 

2,995

 

Total other income (loss)

 

 

(2,338

)

 

 

3,608

 

Loss before income taxes

 

 

(40,038

)

 

 

(32,298

)

Income Tax Benefit

 

 

 

 

 

70

 

Net loss

 

$

(40,038

)

 

$

(32,228

)

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net

 

 

(785

)

 

 

621

 

Total other comprehensive income (loss)

 

 

(785

)

 

 

621

 

Comprehensive loss

 

$

(40,823

)

 

$

(31,607

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(1.08

)

 

$

(0.89

)

Weighted-average basic and diluted common shares outstanding

 

 

37,104

 

 

 

36,366

 

 

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

 

 

4


Table of Contents

 

REGENXBIO INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2019

 

 

36,992

 

 

$

4

 

 

$

627,810

 

 

$

205

 

 

$

(177,822

)

 

$

450,197

 

Exercise of stock options

 

 

181

 

 

 

 

 

 

2,154

 

 

 

 

 

 

 

 

 

2,154

 

Issuance of common stock under employee

   stock purchase plan

 

 

17

 

 

 

 

 

 

607

 

 

 

 

 

 

 

 

 

607

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

8,017

 

 

 

 

 

 

 

 

 

8,017

 

Unrealized loss on available-for-sale securities, net

 

 

 

 

 

 

 

 

 

 

 

(785

)

 

 

 

 

 

(785

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,038

)

 

 

(40,038

)

Balances at March 31, 2020

 

 

37,190

 

 

$

4

 

 

$

638,588

 

 

$

(580

)

 

$

(217,860

)

 

$

420,152

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2018

 

 

36,120

 

 

$

4

 

 

$

592,580

 

 

$

(720

)

 

$

(83,016

)

 

$

508,848

 

Adoption of ASU 2016-02 (Topic 842)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

(33

)

Adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

 

40

 

 

 

(40

)

 

 

 

Exercise of stock options

 

 

481

 

 

 

 

 

 

3,762

 

 

 

 

 

 

 

 

 

3,762

 

Issuance of common stock under employee

   stock purchase plan

 

 

10

 

 

 

 

 

 

365

 

 

 

 

 

 

 

 

 

365

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,718

 

 

 

 

 

 

 

 

 

5,718

 

Unrealized gain on available-for-sale securities, net

 

 

 

 

 

 

 

 

 

 

 

621

 

 

 

 

 

 

621

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,228

)

 

 

(32,228

)

Balances at March 31, 2019

 

 

36,611

 

 

$

4

 

 

$

602,425

 

 

$

(59

)

 

$

(115,317

)

 

$

487,053

 

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

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REGENXBIO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(40,038

)

 

$

(32,228

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

8,017

 

 

 

5,718

 

Net amortization of premiums and accretion of discounts on marketable

   debt securities

 

 

39

 

 

 

(368

)

Depreciation and amortization

 

 

1,994

 

 

 

1,614

 

Net realized gains on sales and maturities of marketable securities

 

 

(7,085

)

 

 

 

Imputed interest income from licensing

 

 

(848

)

 

 

(613

)

Unrealized losses on marketable equity securities

 

 

12,196

 

 

 

 

Other non-cash adjustments

 

 

25

 

 

 

327

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,744

)

 

 

591

 

Prepaid expenses

 

 

(947

)

 

 

(790

)

Other current assets

 

 

(2,833

)

 

 

(295

)

Operating lease right-of-use assets

 

 

703

 

 

 

573

 

Other assets

 

 

1,705

 

 

 

26

 

Accounts payable

 

 

3,063

 

 

 

316

 

Accrued expenses and other current liabilities

 

 

(3,813

)

 

 

(2,932

)

Operating lease liabilities

 

 

(851

)

 

 

(592

)

Other liabilities

 

 

(1,156

)

 

 

(644

)

Net cash used in operating activities

 

 

(35,573

)

 

 

(29,297

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable debt securities

 

 

(30,692

)

 

 

(79,249

)

Maturities of marketable debt securities

 

 

60,907

 

 

 

87,165

 

Sales of marketable equity securities

 

 

7,124

 

 

 

 

Purchases of property and equipment

 

 

(4,630

)

 

 

(2,455

)

Net cash provided by investing activities

 

 

32,709

 

 

 

5,461

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

2,154

 

 

 

3,762

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

607

 

 

 

365

 

Net cash provided by financing activities

 

 

2,761

 

 

 

4,127

 

Net decrease in cash and cash equivalents and restricted cash

 

 

(103

)

 

 

(19,709

)

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

70,844

 

 

 

76,614

 

End of period

 

$

70,741

 

 

$

56,905

 

 

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

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REGENXBIO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. Nature of Business

REGENXBIO Inc. (the Company) is a clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. The Company’s proprietary adeno-associated virus (AAV) gene delivery platform (NAV Technology Platform) consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. The NAV® Technology Platform is being applied by the Company, as well as by third-party licensees (NAV Technology Licensees), in the development of a broad pipeline of product candidates in multiple therapeutic areas. Additionally, the NAV Technology Platform is currently being applied in one commercially available product, Zolgensma®, which is marketed by a NAV Technology Licensee. The Company was formed in 2008 in the State of Delaware and is headquartered in Rockville, Maryland.

Liquidity and Risks

As of March 31, 2020, the Company had generated an accumulated deficit of $217.9 million since inception. As the Company has incurred cumulative losses since inception, transition to recurring profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure, which depends heavily on the successful development, approval and commercialization of its product candidates. The Company may never achieve recurring profitability, and unless and until it does, the Company will continue to need to raise additional capital, to the extent possible. As of March 31, 2020, the Company had cash, cash equivalents and marketable securities of $356.6 million, which management believes is sufficient to fund operations for at least the next 12 months from the date these consolidated financial statements were issued.

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, development by the Company or its competitors of technological innovations, risks of failure of clinical trials, dependence on key personnel, protection of proprietary technology, compliance with government regulations and ability to transition from clinical manufacturing to the commercial production of products.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 26, 2020. Certain information and footnote disclosures required by GAAP which are normally included in the Company’s annual consolidated financial statements have been omitted pursuant to SEC rules and regulations for interim reporting. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year, any other interim periods, or any future year or period. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the consolidated financial statements. Significant estimates are used in the following areas, among others: license and royalty revenue, stock-based compensation expense, accrued research and development expenses and other accrued liabilities, income taxes and the fair value of financial instruments.

The Company is actively monitoring the impact of the novel coronavirus (COVID-19) pandemic on its business, results of operations and financial condition. The full extent to which COVID-19 will directly or indirectly impact the Company’s business, results of operations and financial condition in the future is unknown at this time and will depend on future developments that are highly unpredictable. The most significant estimates affecting the Company’s consolidated financial statements that may be impacted by the COVID-19 pandemic are related to the Company’s assessment of credit losses on accounts receivable, contract assets and available-for-sale debt securities.

Reclassifications

Certain amounts reported in prior periods have been reclassified to conform to current period financial statement presentation. These reclassifications are not material and have no effect on previously reported financial position, results of operations and cash flows.

Restricted Cash

Restricted cash includes money market mutual funds used to collateralize irrevocable letters of credit as required by the Company’s lease agreements. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported on the consolidated balance sheets to the total of these amounts as reported at the end of the period in the consolidated statements of cash flows (in thousands):

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Cash and cash equivalents

 

$

69,411

 

 

$

55,852

 

Restricted cash

 

 

1,330

 

 

 

1,053

 

Total cash and cash equivalents and restricted cash

 

$

70,741

 

 

$

56,905

 

 

Accounts Receivable

Accounts receivable primarily consist of consideration due to the Company resulting from its license agreements with NAV Technology Licensees. Accounts receivable include amounts invoiced to licensees as well as rights to consideration which have not yet been invoiced, including unbilled royalties, and for which payment is conditional solely upon the passage of time. If a licensee elects to terminate a license prior to the end of the license term, the licensed intellectual property is returned to the Company and any accounts receivable from the licensee which are not contractually payable to the Company are charged off as a reduction of license revenue in the period of the termination. Accounts receivable which are not expected to be received by the Company within 12 months from the reporting date are stated net of a discount to present value and recorded as non-current assets on the consolidated balance sheets. The present value discount is recognized as a reduction of revenue in the period in which the accounts receivable are initially recorded and is accreted as interest income from licensing over the term of the receivables.

Accounts receivable are stated net of an allowance for doubtful accounts, if deemed necessary based on the Company’s evaluation of collectability and potential credit losses. Management assesses the collectability of its accounts receivable using the specific identification of account balances, and considers the credit quality and financial condition of its significant customers, historical information regarding credit losses and the Company’s evaluation of current and expected future economic conditions. If necessary, an allowance for doubtful accounts is recorded against accounts receivable such that the carrying value of accounts

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receivable reflects the net amount expected to be collected. The Company did not record an allowance for doubtful accounts as of March 31, 2020 and December 31, 2019.

Marketable Securities

Marketable securities consist of available-for-sale debt securities and equity securities and are carried at fair value. Marketable debt securities with remaining maturity dates exceeding 12 months which are not intended to be sold prior to maturity for use in current operations are classified as non-current assets. Marketable equity securities are classified as current assets.

Unrealized gains and losses on available-for-sale debt securities, net of any related tax effects, are excluded from results of operations and are included in other comprehensive income (loss) and reported as a separate component of stockholders’ equity until realized. The Company uses the aggregate portfolio approach to release the tax effects of unrealized gains and losses on available-for-sale debt securities in accumulated other comprehensive income (loss). Purchase premiums and discounts on marketable debt securities are amortized or accreted into the cost basis over the life of the related security as adjustments to the yield using the effective-interest method. Interest income is recognized when earned. Unrealized gains and losses on marketable equity securities are included in results of operations as investment income (loss). Realized gains and losses from the sale or maturity of marketable securities are based on the specific identification method and are included in results of operations as investment income (loss).

At each reporting date, the Company evaluates available-for-sale debt securities which have an amortized cost basis in excess of the fair value of the security to determine if the unrealized loss or any potential credit losses should be recognized in results of operations. If the Company does not have the intent and ability to hold the security until recovery of the unrealized loss, the difference between the fair value and amortized cost basis of the security is charged to results of operations resulting in a new amortized cost basis of the security. If the Company has the intent and ability to hold the security until recovery of the unrealized loss, the security is evaluated for potential credit losses. If a credit loss is deemed to exist, the credit loss is recognized in results of operations and an allowance for credit losses is recorded against the amortized cost basis of the security. In determining whether a credit loss exists related to impaired available-for-sale debt securities, the Company considers, among other factors, the extent of the unrealized loss relative to the amortized cost basis, the credit rating of the issuer and any recent changes thereto, current and expected future economic conditions, and any adverse events or other changes in circumstances that have occurred which may indicate a potential credit loss. The Company did not record an allowance for credit losses on its available-for-sale debt securities as of March 31, 2020.

Fair Value of Financial Instruments

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

 

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair values of the Company’s Level 2 instruments are based on quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Please refer to Note 4 for further information on the fair value measurement of the Company’s financial instruments.

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Net Loss Per Share

Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Contingently convertible shares in which conversion is based on non-market-priced contingencies are excluded from the calculations of both basic and diluted net income loss per share until the contingency has been fully met. For purposes of the diluted net loss per share calculation, common stock equivalents are excluded from the calculation of diluted net loss per share if their effect would be anti-dilutive.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets that are not accounted for at fair value through net income be presented at the net amount expected to be collected by recording an allowance for credit losses. The allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard also amends the impairment model for available-for-sale debt securities, requiring credit losses on impaired debt securities to be included in results of operations. The Company adopted this standard effective January 1, 2020 using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to opening accumulated deficit on the adoption date. The adoption of this standard primarily impacts the Company’s methodology used to assess credit losses on its accounts receivable, contract assets and available-for-sale debt securities. Based on the composition of the Company’s accounts receivable, contract assets and available-for-sale debt securities, the adoption of this standard required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations. Please refer to the significant accounting policies above for a description of the Company’s accounting policies for accounts receivable and marketable securities upon the adoption of this standard.

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 modifies certain disclosure requirements regarding fair value measurements. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on the Company’s financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard 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). The Company adopted this standard effective January 1, 2020 on a prospective basis. The Company has various cloud-based software applications accounted for as service contracts, the most significant of which is the Company’s enterprise resource planning (ERP) system for which implementation was in progress on the adoption date of this standard. The adoption of this standard resulted in the capitalization of certain costs during the three months ended March 31, 2020 related to the implementation of the ERP system which would have been expensed as incurred prior to the adoption of this standard. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which simplifies the current accounting for income taxes. Among other changes, the standard removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. The Company early adopted this standard effective January 1, 2020, with certain aspects of the standard applied using the modified retrospective transition method and other aspects of the standard applied on a prospective basis. The adoption of this standard required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations.

 

 

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3. Marketable Securities

The following tables present a summary of the Company’s marketable securities, which consist of available-for-sale debt securities and equity securities (in thousands):

 

 

 

Amortized

Cost / Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal agency securities

 

$

49,791

 

 

$

378

 

 

$

 

 

$

50,169

 

Certificates of deposit

 

 

8,261

 

 

 

81

 

 

 

 

 

 

8,342

 

Corporate bonds

 

 

209,005

 

 

 

551

 

 

 

(730

)

 

 

208,826

 

Equity securities

 

 

282

 

 

 

19,588

 

 

 

 

 

 

19,870

 

 

 

$

267,339

 

 

$

20,598

 

 

$

(730

)

 

$

287,207

 

 

 

 

Amortized

Cost / Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal agency securities

 

$

62,637

 

 

$

215

 

 

$

(5

)

 

$

62,847

 

Certificates of deposit

 

 

8,506

 

 

 

77

 

 

 

 

 

 

8,583

 

Corporate bonds

 

 

226,137

 

 

 

808

 

 

 

(29

)

 

 

226,916

 

Equity securities

 

 

351

 

 

 

31,784

 

 

 

 

 

 

32,135

 

 

 

$

297,631

 

 

$

32,884

 

 

$

(34

)

 

$

330,481

 

As of March 31, 2020 and December 31, 2019, no available-for-sale debt securities had remaining maturities greater than three years. The amortized cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or to the earliest call date for callable debt securities purchased at a premium.

As of March 31, 2020 and December 31, 2019, the balance in the Company’s accumulated other comprehensive income (loss) consisted solely of net unrealized gains and losses on available-for-sale debt securities, net of income tax effects and reclassification adjustments for realized gains and losses. During the three months ended March 31, 2020, the Company recognized net unrealized losses on available-for-sale debt securities of $0.8 million and income tax expense of zero in other comprehensive loss for the period. The Company recognized net realized gains of less than $0.1 million on the sale or maturity of available-for-sale debt securities during the three months ended March 31, 2020, which were reclassified out of accumulated other comprehensive income (loss) during the period and were included in investment income (loss) in the consolidated statements of operations and comprehensive loss. During the three months ended March 31, 2019, the Company recognized net unrealized gains on available-for-sale debt securities of $1.0 million and income tax expense of $0.4 million in other comprehensive income for the period. The Company recognized net realized gains of less than $0.1 million on the sale or maturity of available-for-sale debt securities during the three months ended March 31, 2019, which were reclassified out of accumulated other comprehensive income (loss) during the period and were included in investment income (loss) in the consolidated statements of operations and comprehensive loss.

 

The following tables present the fair values and unrealized losses of available-for-sale debt securities held by the Company in an unrealized loss position for less than 12 months and 12 months or greater (in thousands):

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

90,352

 

 

$

(730

)

 

$

 

 

$

 

 

$

90,352

 

 

$

(730

)

 

 

$

90,352

 

 

$

(730

)

 

$

 

 

$

 

 

$

90,352

 

 

$

(730

)

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

December 31, 2019