Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies (Policies)

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Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements include the results of the Company and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”).

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive income, equity statement and cash flows for the interim periods, but are not necessarily indicative of the results of operations or cash flows to be anticipated for the full year 2020 or any future period. The Company has evaluated subsequent events occurring after the date of the condensed consolidated financial statements for events requiring recording or disclosure in the condensed consolidated financial statements.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its significant estimates, including the valuation of accounts receivable, the lives and realization of tangible and intangible assets, stock-based compensation expense, customer life, accounting for revenue recognition, and income taxes including deferred taxes and valuation allowance. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions it believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the Company’s financial position and results of operations.

 

 

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred assets in the future in excess of their net recorded amount, the Company makes an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Concentrations of Risk

Concentrations of Risk

Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash and cash equivalents and accounts receivable from trade customers. The Company maintains its cash deposits at three domestic and two international financial institutions. The Company is exposed to credit risk in the event of default by a financial institution to the extent that cash and cash equivalents are in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company generally places its cash and cash equivalents with high-credit quality financial institutions. To date, the Company has not experienced any losses on its cash and cash equivalents.

Concentration of Accounts Receivable –At September 30, 2020, two customers accounted for 21% and 11% of the Company’s total accounts receivable. At December 31, 2019, one customer accounted for 55% of the Company’s total accounts receivable.

Concentration of Revenues – For the three months ended September 30, 2020, two customers accounted for 18% and 13% of the Company’s total revenues. For the three months ended September 30, 2019, two customers accounted for 20% and 14% of the Company’s total revenues.

For the nine months ended September 30, 2020, two customers accounted for 18% and 13% of the Company’s total revenues. For the nine months ended September 30, 2019, two customers accounted for 20% and 14% of the Company’s total revenues.

Concentration of Suppliers The Company relies on a limited number of suppliers and contract manufacturers. In particular, a single supplier is currently the sole manufacturer of the Company’s proprietary sensors.

Recent Accounting Pronouncements Not Yet Effective

Recent Accounting Pronouncements Not Yet Effective

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740), simplifying the accounting for income taxes by removing certain exceptions to the general principles. The guidance will be effective at the beginning of the Company’s first quarter of fiscal 2021. Early adoption of the amendments is permitted. The Company does not expect the adoption of this ASU to have any material impact on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects current expected credit loss (“CECL”) and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective at the beginning of the Company’s first quarter of fiscal 2023. Early adoption of the amendments is permitted. The Company does not expect the adoption of this ASU to have any material impact on its condensed consolidated financial statements.

Revenue Recognition

As of December 31, 2019, the Company had total short-term and long-term deferred revenue of $27.0 million. During the three months ended September 30, 2020, the Company recognized $9.5 million in revenue from the beginning deferred revenue balance and $1.8 million from new billings and added $9.7 million to total short-term and long-term deferred revenue from new billings. During the nine months ended September 30, 2020, the Company recognized $22.8 million in revenue from the beginning deferred revenue balance and $10.2 million from new billings and added $26.6 million to total short-term and long-term deferred revenue from new billings.

As of December 31, 2018, the Company had total short-term and long-term deferred revenue of $24.2 million. During the three months ended September 30, 2019, the Company recognized $8.8 million in revenue from the beginning deferred revenue balance and $1.1 million from new billings and added $8.1 million to total short-term and long-term deferred revenue from new billings. During the nine months ended September 30, 2019, the Company recognized $20.0 million in revenue from the beginning deferred revenue balance and $9.7 million from new billings and added $26.8 million to total short-term and long-term deferred revenue from new billings.

As of September 30, 2020, the Company has estimated remaining performance obligations for contractually committed revenues of $10.7 million, $28.8 million, $8.3 million, and $3.1 million that will be recognized during the remainder of the year ending December 31, 2020, the years ending December 31, 2021, 2022, and the three-year period from 2023 through 2025, respectively. The timing of revenue recognition includes estimates of go-live dates for contracts not yet live. There is considerable uncertainty in the Company’s estimates of go-live dates as a result of the novel strain of coronavirus (COVID-19) pandemic and resulting disruption in the Company’s ability to deploy new go-live miles. See Note 12. Commitments and Contingencies. Contractually committed revenue includes deferred revenue as of September 30, 2020 and amounts under contract that will be invoiced after September 30, 2020. 

During the three months ended September 30, 2020, the Company recognized revenues of $11.2 million from customers in the United States, and $0.2 million from customers in the Bahamas and South Africa. During the nine months ended September 30, 2020, the Company recognized revenues of $32.6 million from customers in the United States, and $0.5 million from customers in the Bahamas and South Africa.

During the three months ended September 30, 2019, the Company recognized revenues of $9.8 million from customers in the United States and $0.2 million from customers in South Africa and the Bahamas. During the nine months ended September 30, 2019, the Company recognized revenues of $28.9 million from customers in the United States and $0.9 million from customers in South Africa and the Bahamas.

Accounts Receivable, net and Contract Asset

Accounts Receivable, net and Contract Asset

Accounts receivable, net consist of trade accounts receivable from the Company’s customers, net of allowance for doubtful accounts if deemed necessary. Accounts receivable are recorded as the invoiced amount. The Company does not require collateral or other security for accounts receivable. Contract asset consists of revenues recognized in advance of invoicing the customer.

The Company periodically evaluates the collectability of its accounts receivable and provides an allowance for potential credit losses based on the Company’s historical experience. At September 30, 2020, the Company had a provision against accounts receivable of $41,000. At December 31, 2019, the Company did not have a provision for potential credit losses as there were no estimated credit losses.

Employee Stock Purchase Plan

The Company accounts for employee stock purchases made under its 2017 ESPP using the estimated grant date fair value of accounting in accordance with ASC 718, Stock Compensation. The Company values ESPP shares using the Black-Scholes model.