PENUMBRA INC, 10-K filed on 2/23/2021
Annual Report
v3.20.4
Cover Page - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2020
Feb. 09, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Document Transition Report false    
Entity File Number 001-37557    
Entity Registrant Name Penumbra, Inc.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 05-0605598    
Entity Address, Address Line One One Penumbra Place    
Entity Address, City or Town Alameda    
Entity Address, State or Province CA    
Entity Address, Postal Zip Code 94502    
City Area Code 510    
Local Phone Number 748-3200    
Title of 12(b) Security Common Stock, Par value $0.001 per share    
Trading Symbol PEN    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 6.0
Entity Common Stock, Shares Outstanding   36,448,693  
Documents Incorporated by Reference Portions of the registrant’s definitive proxy statement for its 2021 annual meeting of stockholders, which is to be filed not more than 120 days after the registrant’s fiscal year ended December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.    
Entity Central Index Key 0001321732    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Amendment Flag false    
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 69,670 $ 72,779
Marketable investments 195,162 116,610
Accounts receivable, net of allowance for credit losses of $2,198 at December 31, 2020 and net of doubtful accounts of $2,946 at December 31, 2019 114,608 105,901
Inventories 219,527 152,992
Prepaid expenses and other current assets 18,735 14,852
Total current assets 617,702 463,134
Property and equipment, net 48,169 51,812
Operating lease right-of-use assets 41,192 43,717
Finance lease right-of-use assets 38,065 39,924
Intangible assets, net 10,639 25,407
Goodwill 8,372 7,656
Deferred taxes 50,139 31,305
Other non-current assets 8,705 2,946
Total assets 822,983 665,901
Current liabilities:    
Accounts payable 14,109 15,111
Accrued liabilities 85,795 67,630
Current operating lease liabilities 4,697 4,142
Current finance lease liabilities 1,331 4,165
Total current liabilities 105,932 91,048
Non-current operating lease liabilities 44,183 47,242
Non-current finance lease liabilities 27,066 26,748
Other non-current liabilities 8,014 15,250
Total liabilities 185,195 180,288
Commitments and contingencies (Note 11)
Stockholders’ equity:    
Preferred stock, $.001 par value per share - 5,000,000 shares authorized, none issued and outstanding at December 31, 2020 and December 31, 2019 0 0
Common stock, $.001 par value per share - 300,000,000 shares authorized, 36,414,732 issued and outstanding at December 31, 2020; 300,000,000 shares authorized, 35,001,581 issued and outstanding at December 31, 2019 36 35
Additional paid-in capital 598,299 430,659
Accumulated other comprehensive income (loss) 2,541 (2,324)
Retained earnings 40,622 57,522
Total Penumbra, Inc. stockholders’ equity 641,498 485,892
Non-controlling interest (3,710) (279)
Total stockholders’ equity 637,788 485,613
Total liabilities and stockholders’ equity $ 822,983 $ 665,901
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 2,198 $ 2,946
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized (in shares) 5,000,000 5,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 300,000,000 300,000,000
Common stock, shares issued (in shares) 36,414,732 35,001,581
Common stock, shares outstanding (in shares) 36,414,732 35,001,581
v3.20.4
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Revenue $ 560,412 $ 547,405 $ 444,938
Cost of revenue 222,237 175,441 152,405
Gross profit 338,175 371,964 292,533
Operating expenses:      
Research and development 90,049 51,723 36,165
Sales, general and administrative 287,068 272,733 226,385
Acquired in-process research and development 0 0 30,835
Total operating expenses 377,117 324,456 293,385
(Loss) income from operations (38,942) 47,508 (852)
Interest income, net 1,267 2,854 2,964
Other expense, net (343) (227) (504)
Total (loss) income before income taxes and equity in losses of unconsolidated investee (38,018) 50,135 1,608
(Benefit from) income taxes (18,761) 3,131 (4,403)
(Loss) income before equity in losses of unconsolidated investee (19,257) 47,004 6,011
Equity in losses of unconsolidated investee 0 0 (3,101)
Consolidated net income (loss) (19,257) 47,004 2,910
Net loss attributable to non-controlling interest (3,555) (1,454) (3,691)
Net (loss) income attributable to Penumbra, Inc. $ (15,702) $ 48,458 $ 6,601
Net income (loss) attributable to Penumbra, Inc. per share: Basic (in dollars per share) $ (0.44) $ 1.39 $ 0.19
Net income (loss) attributable to Penumbra, Inc. per share: Diluted (in dollars per share) $ (0.44) $ 1.34 $ 0.18
Weighted average shares outstanding: Basic (in shares) 35,766,892 34,750,706 34,138,176
Weighted average shares outstanding: Diluted (in shares) 35,766,892 36,265,999 36,086,821
v3.20.4
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net (loss) income $ (19,257) $ 47,004 $ 2,910
Other comprehensive income (loss), net of tax:      
Foreign currency translation adjustments, net of tax 4,456 (1,120) (3,246)
Net change in unrealized gains (losses) on available-for-sale securities, net of tax 409 738 (265)
Total other comprehensive income (loss), net of tax 4,865 (382) (3,511)
Consolidated comprehensive (loss) income (14,392) 46,622 (601)
Net loss attributable to non-controlling interest (3,555) (1,454) (3,691)
Comprehensive (loss) income attributable to Penumbra, Inc. $ (10,837) $ 48,076 $ 3,090
v3.20.4
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive (Loss) Income
Retained Earnings (Accumulated Deficit)
Retained Earnings (Accumulated Deficit)
Cumulative Effect, Period of Adoption, Adjustment
Total Penumbra, Inc. Stockholders’ Equity
Total Penumbra, Inc. Stockholders’ Equity
Cumulative Effect, Period of Adoption, Adjustment
Non-Controlling Interest
Beginning balance (in shares) at Dec. 31, 2017     33,685,146              
Beginning balance at Dec. 31, 2017 $ 400,408 $ 467 [1] $ 33 $ 396,810 $ 1,569 $ 1,996 $ 467 [1] $ 400,408 $ 467 [1] $ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of common stock (in shares)     774,475              
Issuance of common stock $ 5,064   $ 1 5,063       5,064    
Issuance of common stock under employee stock purchase plan (in shares) 74,344   74,344              
Issuance of common stock under employee stock purchase plan $ 7,231     7,231       7,231    
New issuance of common stock (in shares)     53,256              
New issuance of common stock 5,256     5,256       5,256    
Shares held for tax withholdings (in shares)     (149,882)              
Shares held for tax withholding (17,725)     (17,725)       (17,725)    
Stock-based compensation 18,449     18,449       18,449    
Asset acquisition date fair value of non-controlling interest 3,366                 3,366
Capital contribution from non-controlling interest 500                 500
Other comprehensive income (loss) (3,511)       (3,511)     (3,511)    
Net (loss) income 2,910         6,601        
Net income (loss) attributable to Penumbra, Inc. 6,601             6,601    
Net loss attributable to non-controlling interest (3,691)                 (3,691)
Ending balance (in shares) at Dec. 31, 2018     34,437,339              
Ending balance at Dec. 31, 2018 422,415   $ 34 415,084 (1,942) 9,064   422,240   175
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of common stock (in shares)     612,221              
Issuance of common stock $ 4,121   $ 1 4,120       4,121    
Issuance of common stock under employee stock purchase plan (in shares) 81,644   81,644              
Issuance of common stock under employee stock purchase plan $ 8,984     8,984       8,984    
Shares held for tax withholdings (in shares)     (129,623)              
Shares held for tax withholding (18,535)     (18,535)       (18,535)    
Stock-based compensation $ 21,006     21,006       21,006    
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201613Member                  
Capital contribution from non-controlling interest $ 1,000                 1,000
Other comprehensive income (loss) (382)       (382)     (382)    
Net (loss) income 47,004         48,458        
Net income (loss) attributable to Penumbra, Inc. 48,458             48,458    
Net loss attributable to non-controlling interest (1,454)                 (1,454)
Ending balance (in shares) at Dec. 31, 2019     35,001,581              
Ending balance at Dec. 31, 2019 485,613 $ (1,198) [2] $ 35 430,659 (2,324) 57,522 $ (1,198) [2] 485,892 $ (1,198) [2] (279)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of common stock (in shares)     520,185              
Issuance of common stock $ 5,239   5,115       5,115   124
Issuance of common stock under employee stock purchase plan (in shares) 77,528   77,528              
Issuance of common stock under employee stock purchase plan $ 11,300     11,300       11,300    
New issuance of common stock (in shares)     865,963              
New issuance of common stock 134,759   $ 1 134,758       134,759    
Shares held for tax withholdings (in shares)     (50,525)              
Shares held for tax withholding (10,066)     (10,066)       (10,066)    
Stock-based compensation 26,533     26,533       26,533    
Other comprehensive income (loss) 4,865       4,865     4,865    
Net (loss) income (19,257)         (15,702)        
Net income (loss) attributable to Penumbra, Inc. (15,702)             (15,702)    
Net loss attributable to non-controlling interest (3,555)                 (3,555)
Ending balance (in shares) at Dec. 31, 2020     36,414,732              
Ending balance at Dec. 31, 2020 $ 637,788   $ 36 $ 598,299 $ 2,541 $ 40,622   $ 641,498   $ (3,710)
[1]
(1) Cumulative effect adjustments relate to the adoption of Accounting Standard Update (“ASU”) No. 2014-09 - Revenue from Contracts with Customers (“Topic 606”), ASU No. 2016-16 - Income Taxes (“Topic 740”), and ASU No. 2018-02 - Income Statement - Reporting Comprehensive Income (“Topic 220”). Refer to the accompanying notes, including Note “2. Summary of Significant Accounting Policies,” for more information.
(2) Cumulative effect adjustments relate to the adoption of Accounting Standard Update (“ASU”) No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Refer to Note “2. Summary of Significant Accounting Policies” for more information.
[2] (2) Cumulative effect adjustments relate to the adoption of Accounting Standard Update (“ASU”) No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Refer to Note “2. Summary of Significant Accounting Policies” for more information.
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net (loss) income $ (19,257,000) $ 47,004,000 $ 2,910,000
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:      
Depreciation and amortization 12,891,000 8,104,000 6,168,000
Stock-based compensation 25,541,000 21,485,000 18,422,000
Loss on non-marketable equity investments 0 0 3,101,000
Inventory write-offs and write-downs 10,571,000 4,411,000 1,700,000
Deferred taxes (18,818,000) 1,820,000 (6,480,000)
Impairment of intangible asset 2,500,000 0 0
Acquired in-process research and development 0 0 30,835,000
Other 4,520,000 670,000 2,412,000
Changes in operating assets and liabilities:      
Accounts receivable (8,295,000) (25,029,000) (25,762,000)
Inventories (56,981,000) (41,407,000) (22,288,000)
Prepaid expenses and other current and non-current assets (8,865,000) (4,001,000) 2,231,000
Accounts payable (308,000) 6,038,000 1,329,000
Accrued expenses and other non-current liabilities 23,259,000 7,557,000 14,230,000
Net cash (used in) provided by operating activities (33,242,000) 26,652,000 28,808,000
CASH FLOWS FROM INVESTING ACTIVITIES:      
Asset acquisition, net of cash acquired 0 0 (20,414,000)
Contributions to non-marketable investments 0 0 (1,382,000)
Lease payments made prior to commencement 0 (6,636,000) 0
Purchases of marketable investments (153,061,000) (77,326,000) (108,227,000)
Proceeds from sales of marketable investments 7,897,000 4,746,000 12,129,000
Proceeds from maturities of marketable investments 68,831,000 90,614,000 127,112,000
Purchases of property and equipment (24,756,000) (22,109,000) (9,603,000)
Other (3,060,000) (2,000,000) 0
Net cash used in investing activities (104,149,000) (12,711,000) (385,000)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from issuance of common stock upon underwritten public offering, net of issuance cost 134,759,000 0 0
Proceeds from exercises of stock options 5,239,000 4,120,000 5,064,000
Proceeds from issuance of stock under employee stock purchase plan 11,300,000 8,984,000 7,231,000
Payment of obligations on debt and credit facilities 0 0 (404,000)
Payment of employee taxes related to vested common and restricted stock (10,066,000) (18,535,000) (17,725,000)
Payments of finance lease obligations (3,418,000) (2,570,000) 0
Payment of acquisition-related obligations (683,000) (1,758,000) (4,481,000)
Proceeds from capital contribution from non-controlling interest 0 800,000 500,000
Other (2,214,000) 0 0
Net cash provided by (used in) financing activities 134,917,000 (8,959,000) (9,815,000)
Effect of foreign exchange rate changes on cash and cash equivalents (635,000) (53,000) (1,395,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,109,000) 4,929,000 17,213,000
CASH AND CASH EQUIVALENTS—Beginning of period 72,779,000 67,850,000 50,637,000
CASH AND CASH EQUIVALENTS—End of period 69,670,000 72,779,000 67,850,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:      
Cash paid for income taxes 1,414,000 175,000 156,000
NONCASH INVESTING AND FINANCING ACTIVITIES:      
Common shares issued as consideration with a buyout agreement 0 0 5,256,000
Purchase of property and equipment funded through accounts payable and accrued liabilities 1,407,000 2,903,000 1,037,000
Asset acquisition an acquisition of business related contingent and working capital liabilities $ 0 $ 0 $ 4,000,000
v3.20.4
Organization and Description of Business
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Description of Business
1. Organization and Description of Business
Penumbra, Inc. (the “Company”) is a global healthcare company focused on innovative therapies. The Company designs, develops, manufactures and markets novel products and has a broad portfolio that addresses challenging medical conditions in markets with significant unmet need.
v3.20.4
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Certain changes in presentation were made in the consolidated financial statements for the year ended December 31, 2019 and 2018, to conform to the presentation for the year ended December 31, 2020.
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiary. The portion of equity not attributable to the Company is considered non-controlling interest and is classified separately in the consolidated financial statements. Any subsequent changes in the Company’s ownership interest while the Company retains its controlling interest in its majority-owned subsidiary will be accounted for as equity transactions. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity accounts; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to marketable investments, allowances for credit losses, standalone selling prices used to allocate revenue to performance obligations which are not directly observable, the amount of variable consideration included in the transaction price, warranty reserve, valuation of inventories, useful lives of property and equipment, operating and finance lease right-of-use (“ROU”) assets and liabilities, income taxes, contingent consideration and other contingencies, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other data. Actual results could differ from those estimates.
Segments
The Company determined its operating segment on the same basis that it uses to evaluate its performance internally. The Company has one business activity: the design, development, manufacturing and marketing of innovative medical devices, and operates as one operating segment. The Company’s chief operating decision-maker (“CODM”), its Chief Executive Officer, reviews its consolidated operating results for the purpose of allocating resources and evaluating financial performance. The Company’s entity-wide disclosures are included in Note “17. Revenues.”
Foreign Currency Translation
The Company’s consolidated financial statements are prepared in United States Dollars (“USD”). Its foreign subsidiaries use their local currency as their functional currency and maintain their records in the local currency. Accordingly, the assets and liabilities of these subsidiaries are translated into USD using the current exchange rates in effect at the balance sheet date and equity accounts are translated into USD using historical rates. Revenues are translated using the exchange rate as of the date of transaction and expenses are translated using the average exchange rates in effect for the year involved. The resulting foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss) in the consolidated balance sheets. Transactions denominated in currencies other than the respective functional currencies are translated at exchange rates as of the date of transaction with foreign currency gains and losses recorded in other expense, net in the consolidated statements of operations. The Company realized net foreign currency transaction losses of a nominal amount, $0.8 million and $0.9 million during the years ended December 31, 2020, 2019 and 2018, respectively.
As the Company’s international operations grow, its risks associated with fluctuation in currency rates will become greater, and the Company will continue to reassess its approach to managing this risk. In addition, currency fluctuations or a weakening USD can increase the costs of the Company’s international expansion. To date, the Company has not entered into any foreign currency hedging contracts.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, marketable investments (as described in greater detail in this footnote under the header “Cash, Cash Equivalents and Marketable Investments” below) and accounts receivable. The majority of the Company’s cash is held by one financial institution in the U.S. in excess of federally insured limits. The Company maintained investments in money market funds that were not federally insured during the year ended December 31, 2020 and held cash in foreign entities of approximately $17.4 million and $17.3 million at December 31, 2020 and 2019, respectively, which was not federally insured.
The Company’s revenue has been derived from sales of its products in the United States and international markets. The Company uses both its own salesforce and independent distributors to sell its products. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of entities comprising the Company’s customer base. The Company performs ongoing credit evaluations of its customers, including its distributors, does not require collateral, and maintains allowances for potential credit losses on customer accounts when deemed necessary.
During the year ended December 31, 2020, 2019, and 2018, no customer accounted for greater than 10% of the Company’s revenue. One customer accounted for greater than 10% of the Company’s accounts receivable balance as of December 31, 2020 and 2019.
Significant Risks and Uncertainties
The Company is subject to risks common to medical device companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of products and the potential need to obtain additional financing. The Company is dependent on third party suppliers, in some cases single-source suppliers.
There can be no assurance that the Company’s products will continue to be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all.
The Company’s products require approval or clearance from the FDA prior to commencing commercial sales in the United States. There can be no assurance that the Company’s products will receive all of the required approvals or clearances. Approvals or clearances are also required in foreign jurisdictions in which the Company sells its products. If the Company is denied such approvals or clearances or such approvals or clearances are delayed, it may have a material adverse impact on the Company’s results of operations, financial position and liquidity.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.
Cash, Cash Equivalents and Marketable Investments
The Company invests its cash primarily in highly liquid corporate debt securities, debt instruments of U.S. federal, state and municipal governments, and their agencies, in money market funds and in commercial paper. All highly liquid investments with stated maturities of three months or less from the date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than three months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks.
The Company determines the appropriate classification of its investments in marketable investments at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable investments have been classified and accounted for as available-for-sale. Investments with remaining maturities of more than one year are viewed by the Company as available to support current operations and are classified as current assets under the caption marketable investments in the accompanying consolidated balance sheets. Investments in marketable investments are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive loss. Any realized gains or losses on the sale of marketable investments are determined on a specific identification method, and such gains and losses are reflected as a component of other income (expense), net.
Impairment of Marketable Investments
As a result of the of the adoption of the ASU 2016-13 during the year ended December 31, 2020, the Company is exposed to credit losses through its investments in available-for-sale securities. An investment is impaired if the fair value of the investment is less than its amortized cost basis. The Company reviews each impaired available-for-sale security held in its portfolio to determine whether the decline in fair value below its amortized cost basis is the result of credit losses or other factors. An allowance for credit losses is to be recorded as a charge to net income in an amount equal to the difference between the impaired security’s amortized cost basis and the amount expected to be collected over the lifetime of security, limited by the amount that the fair value is less than its amortized cost basis. Any remaining difference between its amortized cost basis and fair value is deemed not to be due to expected credit losses and is recorded as a component of accumulated other comprehensive loss. The Company’s impairment review considers several factors to determine if an expected credit loss is present including the discounted present value of expected cash flows of the security, the capacity to hold a security or sell a security before recovery of the decline in amortized cost, the credit rating of the security and forecasted and historical factors that affect the value of the security.
In fiscal years prior to the adoption of ASU 2016-13, unrealized gains or losses on these securities were recorded to accumulated other comprehensive loss until either the security was sold or the Company determined that the decline in value was other-than-temporary. The primary differentiating factors the Company considered when classifying impairments as either temporary or other-than-temporary impairments was the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value, the length of the time and the extent to which the market value of the investment had been less than cost, the financial condition, and near-term prospects of the issuer.
During the year ended December 31, 2020, the Company reviewed its impaired available-for-sale securities and concluded that the decline in fair value was not related to credit losses and is recoverable. Accordingly, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive loss. There were no other-than-temporary impairments for the years ended December 31, 2019 and 2018.
Non-Marketable Equity Investments
Entities in which the Company has at least a 20%, but not more than a 50%, interest are accounted for under the equity method unless it is determined that the Company has a controlling financial interest in the entity, in which case the entity would be consolidated. Non-marketable equity investments are classified as long-term investments on the consolidated balance sheet. The Company’s proportionate share of the operating results of its non-marketable equity method investments are recorded as profit or loss and presented in equity in losses of unconsolidated investee, in the consolidated statements of operations. See Note “6. Asset Acquisition” for further details.
Accounts Receivable
As a result of the adoption of ASU 2016-13 on January 1, 2020, accounts receivable are measured at amortized cost less the allowance for credit losses. The Company measures expected credit losses for its accounts receivables utilizing a loss-rate approach. The allowance for expected credit losses assessment requires a degree of estimation and judgement. The expected loss-rate is calculated by utilizing historical credit losses incurred as a percentage of the Company’s historical accounts receivable balances, pooled by customers with similar geographic credit risk characteristics. The loss-rate is adjusted for management’s expectations regarding current conditions and forecasts about future conditions which impact expected credit losses. The Company considers factors such as customers credit risk, geographic related risks and economic conditions that may affect a customer’s credit quality classification.
Prior to the adoption of ASU 2016-13, the Company recognized losses when a loss was incurred or deemed probable by recording a specific allowance against amounts due, and thereby reducing the net recognized receivable to the amount reasonably believed to be collectible. In fiscal years prior to the adoption of ASU 2016-13, accounts receivable were stated at invoice value less estimated allowances for doubtful accounts. The Company recognized losses when a loss was incurred or deemed probable by recording a specific allowance against amounts due, and thereby reducing the net recognized receivable to the amount reasonably believed to be collectible. The Company monitored customer payments and maintained a reserve for estimated losses resulting from its customers’ inability to make required payments considering factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay.
Inventories
Inventories are stated at the lower of cost (determined under the first-in first-out method) or net realizable value. Write-downs are provided for raw materials, components or finished goods that are determined to be excessive or obsolete. The Company regularly reviews inventory quantities in consideration of actual loss experience, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate. As a result of these evaluations, the Company recognized total write-offs and write-downs of $10.6 million, $4.4 million, and $1.7 million for the years ended December 31, 2020, 2019 and 2018.
Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life. Machinery and equipment and furniture and fixtures are depreciated over a five to ten year period and computers and software are depreciated over two to five years. Upon retirement or sale, the cost and the related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to consolidated statements of operations as incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. There was no impairment of long-lived assets during the years ended December 31, 2020, 2019 or 2018.
Contingent Consideration
Certain agreements the Company enters into involve the potential payment of future consideration that is contingent upon certain performance and revenue milestones being achieved. Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date and remeasured at their fair values each subsequent reporting period until the related contingencies are resolved. The resulting changes in fair values are recognized generally within sales, general and administrative expense, depending on the nature of the contingent consideration liability, in the consolidated statements of operations. Asset acquisitions are accounted for using a cost accumulation and allocation model and the cost of the acquisition is allocated to the assets acquired and liabilities assumed. Contingent consideration obligations incurred in connection with an asset acquisition are recorded when it is probable that they will occur and they can be reasonably estimated.
Intangible Assets
Intangible assets primarily consist of purchased rights to licensed technology, customer relationships, and trade secrets and processes.
Indefinite-lived intangible assets consisted of an exclusive right to licensed technology. The acquired licensed technology was accounted for as an indefinite-lived intangible asset. Indefinite-lived intangible assets are tested for impairment at least annually, in the fourth quarter, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired. If the fair value of the asset is less than the carrying amount, an impairment loss would be recognized in an amount equal to the difference between the carrying amount and the fair value. Refer to Note “7. Intangible Assets” for more information on the Company’s intangible assets.
Finite-lived intangible assets are amortized over the estimated economic useful lives of the assets, which is the period during which expected cash flows support the fair value of such intangible assets. The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. Refer to Note “7. Intangible Assets” for more information on the Company’s intangible assets.
Goodwill
Goodwill represents the excess of the purchase price of an acquired business or assets over the fair value of the identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment annually in the fourth quarter, or
more frequently if events or circumstances indicate the carrying value may no longer be recoverable and that an impairment loss may have occurred. The Company operates as one segment, which is considered to be the sole reporting unit, and therefore goodwill is tested for impairment at the consolidated level. Refer to Note “5. Business Combinations” and Note “8. Goodwill” for more information.
Revenue Recognition
Revenue is primarily comprised of product revenue net of returns, discounts, administration fees and sales rebates. The Company adopted the guidance under ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Under ASC 606, the Company recognizes revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer, but is deferred for certain transactions when control has not yet transferred. With respect to products that the Company consigns to hospitals, which primarily consist of coils, the Company recognizes revenue at the time hospitals utilize products in a procedure.
Certain arrangements with customers contain multiple performance obligations. For these contracts, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling prices considering entity-specific factors including, but not limited to, the expected cost and margin of the products and services, geographies, and other market conditions. The use of alternative estimates could result in a different amount of revenue deferral.
Deferred revenue represents amounts that the Company has already invoiced and are ultimately expected to be recognized as revenue, but for which not all revenue recognition criteria have been met. As of December 31, 2020 and December 31, 2019, respectively, the Company's deferred revenue balance was not material.
Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns utilizing historical return rates, rebates, discounts, and other adjustments to net revenue. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The Company’s terms and conditions permit product returns and exchanges. The Company bases its estimates for sales returns on actual historical returns over the prior three years and they are recorded as reductions in revenue at the time of sale. Upon recognition, the Company reduces revenue and cost of revenue for the estimated return. Return rates can fluctuate over time, but are sufficiently predictable to allow the Company to estimate expected future product returns.
For more information and disclosures on the Company’s revenue, refer to Note “17. Revenues.”
Shipping Costs
Shipping and handling costs charged to customers are recorded as revenue. Shipping and handling costs are included in cost of revenue.
Research and Development (“R&D”) Costs
R&D costs primarily consist of product development, clinical and regulatory expenses, materials, depreciation and other costs associated with the development of the Company’s products. R&D costs also include related personnel and consultants’ salaries, benefits and related costs, including stock-based compensation. The Company expenses R&D costs as they are incurred.
The Company’s clinical trial accruals are based on estimates of patient enrollment and related costs at clinical investigator sites. The Company estimates preclinical and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.
Internal Use Software
The Company capitalizes certain costs incurred for the development of computer software for internal use. These costs generally relate to third-party software as well as the internal development of software associated with our REAL Immersive System offerings. The Company capitalizes these costs when it is determined that it is probable that the project will be completed and the software will be used to perform the function intended, and the preliminary project stage is completed. Capitalized internal use software development costs are included in Property and equipment, net within the consolidated balance sheets.
Capitalized internal use software is amortized on a straight-line basis over its estimated useful life. For software that supports our REAL Immersive System, the amortization expense is recorded in cost of revenue within the consolidated statements of operations. Costs related to the preliminary project stage, post-implementation, training and maintenance are expensed as incurred.
Advertising Costs
Advertising costs are included in sales, general and administrative expenses and are expensed as incurred. Advertising costs were $0.6 million, $0.5 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Stock-Based Compensation
The Company recognizes the cost of stock-based compensation in the financial statements based upon fair value. The fair value of restricted stock and restricted stock unit (“RSU”) awards is determined based on the number of units granted and the closing price of the Company’s common stock as of the grant date. The fair value of each purchase under the employee stock purchase plan (“ESPP”) is estimated at the beginning of the offering period using the Black-Scholes option pricing model. The fair value of stock options is determined as of the grant date using the Black-Scholes option pricing model. The Company’s determination of the fair value of equity-settled awards is impacted by the price of the Company’s common stock as well as changes in assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected term that awards will remain outstanding, expected common stock price volatility over the term of the awards, risk-free interest rates and expected dividends.
The fair value of an award is recognized over the requisite service period (usually the vesting period) on a straight-line basis. Stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures. The Company estimates future forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. To the extent actual forfeiture results differ from the estimates, the difference is recorded as a cumulative adjustment in the period forfeiture estimates are revised. No compensation cost is recorded for awards that do not vest.
Prior to the adoption of Accounting Standard Update (“ASU”) No. 2018-07, “Compensation – Stock Compensation,” the Company recorded its equity instruments issued to non-employees at their fair value on the measurement date and were subject to periodic adjustments as the Company remeasured the fair value of the non-employee awards at each reporting period prior to vesting and at the vesting dates of each non-employee award. In the third quarter of 2018, the Company adopted ASU 2018-07 and recognizes the fair value of non-employee awards over the requisite service period (usually the vesting period) on a straight-line basis. Therefore, equity instruments issued to non-employees are recorded at their fair value on the grant date in the same manner as employee awards. The fair value of these equity instruments is expensed over the service period.
Estimates of the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, are affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value of the award and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. For all stock options granted prior to the Company’s IPO, the Company estimated the volatility data based on a study of publicly traded industry peer companies. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. For all stock options granted prior to the IPO, the Company used the Staff Accounting Bulletin, No. 110 (“SAB 110”) simplified method to calculate the expected term, which is the average of the contractual term and vesting period. For stock options granted post-IPO, the Company used its historical data to calculate the expected term and volatility used in the valuation of options.
Income Taxes
The Company accounts for income taxes using the asset and liability method, whereby deferred tax asset (“DTA”) and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance to reduce the net DTAs to their estimated realizable value.
The calculation of the Company’s current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account current tax laws, interpretation of current tax laws and possible outcomes of future tax audits. The Company has established reserves to address potential exposures related to tax positions that could be challenged by tax authorities. Although the Company believes its estimates, assumptions and judgments to be reasonable, any changes in tax law or its interpretation of tax laws and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in the Company’s consolidated financial statements.
The calculation of the Company’s DTA balance involves the use of estimates, assumptions and judgments while taking into account estimates of the amounts and type of future taxable income. Actual future operating results and the underlying amount and type of income could differ materially from the Company’s estimates, assumptions and judgments thereby impacting the Company’s financial position and results of operations.
The Company follows the guidance relating to accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.
The Company includes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations.
Comprehensive Income
Comprehensive income consists of net income, unrealized gains or losses on available-for-sale investments and the effects of foreign currency translation adjustments. The Company presents comprehensive income and its components in the consolidated statements of comprehensive (loss) income.
Net (Loss) Income Per Share of Common Stock
The Company’s basic net (loss) income attributable to Penumbra, Inc. per share is calculated by dividing the net (loss) income attributable to Penumbra, Inc. per share by the weighted average number of shares of common stock outstanding for the period. The diluted net (loss) income per share attributable to Penumbra, Inc. is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock and restricted stock units are considered common stock equivalents.
Leases
The Company adopted the guidance under ASC Topic 842, “Leases” ("ASC 842") on January 1, 2019 using the modified retrospective transition approach. There was no cumulative-effect adjustment recorded to retained earnings upon adoption.
Under ASC 842, the Company determines if an arrangement is a lease at inception. In addition, the Company determines whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering: (1) whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, (2) whether the lease contains a bargain purchase option, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of December 31, 2020, the Company's lease population consisted of operating and finance real estate, equipment and vehicle leases.
Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and non-current operating lease liabilities in our consolidated balance sheet. Finance leases are included in finance lease right-of-use assets, current finance lease liabilities, and non-current finance lease liabilities in our consolidated balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the
Company uses its incremental borrowing rate which requires management’s judgement as the rate implicit in the lease is generally not readily determinable. The determination of the Company’s incremental borrowing rate requires management judgment including, the development of a synthetic credit rating and cost of debt as the Company currently does not carry any debt. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Finance lease cost is recognized as depreciation expense on a straight-line basis over the expected lease term and interest expense using the accelerated interest method of recognition. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a non-cancelable term of less than 12 months are not recorded on the Company’s consolidated balance sheet. For more information about the impact of adoption and disclosures on the Company’s leases, refer to Note “10. Leases."
Recent Accounting Guidance
Recently Adopted Accounting Standards
On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”) using the modified retrospective transition approach, with the impact upon adoption reflected in opening retained earnings. The comparative prior year information has not been adjusted and continues to be reported under legacy GAAP. The standard significantly changed the impairment model for most financial assets and certain other instruments, including accounts receivable and available-for-sale securities.
For financial assets measured at amortized cost, including our accounts receivable, the standard requires an entity to (1) estimate its lifetime expected credit losses upon recognition of the financial assets and establish an allowance to present the net amount expected to be collected, (2) recognize this allowance and changes in the allowance during subsequent periods through net income and (3) consider relevant information about past events, current conditions and reasonable and supportable forecasts in assessing the lifetime expected credit losses.
For available-for-sale debt securities, this standard made several targeted amendments to the existing other-than-temporary impairment model, including (1) requiring disclosure of the allowance for credit losses, (2) allowing reversals of the previously recognized credit losses until the entity has the intent to sell, is more-likely-than-not required to sell the securities or the maturity of the securities, (3) limiting impairment to the difference between the amortized cost basis and fair value and (4) not allowing entities to consider the length of time that fair value has been less than amortized cost as a factor in evaluating whether a credit loss exists.
As a result of adoption, the cumulative impact related to accounts receivable expected credit losses to our opening retained earnings at January 1, 2020 was $1.2 million. As of the adoption date, the difference between the amortized cost basis and fair value of the Company’s impaired available-for-sale securities held was not material. Accordingly, upon adoption there was no impact to our opening retained earnings for credit losses related to available-for-sale securities. For additional information on the impact of the adoption and disclosures required by ASU 2016-13, refer to Note “3. Investments and Fair Value of Financial Instruments” and Note “4. Balance Sheet Components.”
On January 1, 2020, the Company adopted ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The primary focus of the standard is to improve the effectiveness of the disclosure requirements for fair value measurements. The Company had no significant changes to the fair value measurement related disclosures due to the adoption of the standard.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes— Simplifying the Accounting for Income Taxes. The standard intends to simplify and reduce the cost of accounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for foreign investments, the incremental approach to performing intraperiod allocation, and calculating income taxes in interim periods for year to date losses that exceed anticipated full year losses. The standard also adds guidance to reduce complexity in certain areas, including accounting for franchise taxes that are partially based on income, transactions with a government that result with a step up in the tax basis of goodwill, enacted changes in tax law during interim periods, and allocating taxes to members of a consolidated group which are not subject to tax. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all periods in which financial statements have not yet been issued, including interim periods. The Company does not expect the adoption of this standard will have a material impact on its consolidated financial statements and does not elect to early adopt as of December 31, 2020.
v3.20.4
Investments and Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Investments and Fair Value of Financial Instruments
3. Investments and Fair Value of Financial Instruments
Marketable Investments
The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s marketable investments as of December 31, 2020 and 2019 were as follows (in thousands):
December 31, 2020
Securities with net gains or losses in accumulated other comprehensive income (loss)
 Cost
Gross Unrealized Gains
Gross Unrealized LossesAllowance for Credit LossFair Value
Commercial paper$4,242 $$— $— $4,246 
U.S. agency and government sponsored securities7,846 11 — — 7,857 
U.S. states and municipalities47,934 162 (1)— 48,095 
Corporate bonds134,298 669 (3)— 134,964 
Total$194,320 $846 $(4)$— $195,162 

December 31, 2019
CostGross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
Commercial paper$7,456 $$— $7,457 
U.S. treasury4,972 — 4,979 
U.S. agency securities and government sponsored securities2,499 19 — 2,518 
U.S. states and municipalities4,889 — 4,893 
Corporate bonds96,484 282 (3)96,763 
Total$116,300 $313 $(3)$116,610 
As of December 31, 2020, the total amortized cost basis of the Company’s impaired available-for-sale securities exceeded its fair value by a nominal amount. The Company reviewed its impaired available-for-sale securities and concluded that the decline in fair value was not related to credit losses and is recoverable. During the year ended December 31, 2020, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive loss. Prior to the adoption of ASU 2016-13, the Company recognized losses, if any, in consolidated net income when the security was sold.
The following tables present the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than and more than twelve months as of December 31, 2020 and 2019 (in thousands):
December 31, 2020
Less than 12 monthsMore than 12 monthsTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
U.S. states and municipalities1,408 (1)— — 1,408 (1)
Corporate bonds$12,552 $(3)$— $— $12,552 $(3)
Total$13,960 $(4)$— $— $13,960 $(4)
December 31, 2019
Less than 12 monthsMore than 12 monthsTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Corporate bonds7,875 (3)— — 7,875 (3)
Total$7,875 $(3)$— $— $7,875 $(3)
The contractual maturities of the Company’s marketable investments as of December 31, 2020 and 2019 were as follows (in thousands):
December 31,
20202019
Marketable InvestmentsFair ValueFair Value
Due in one year$120,487 $51,990 
Due in one to five years74,675 64,620 
Total$195,162 $116,610 
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The Company classifies its cash equivalents and marketable investments within Level 1 and Level 2, as it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.
Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.
The Company did not hold any Level 3 marketable investments as of December 31, 2020 or December 31, 2019. Additionally, the Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2020 and 2019.
The following tables set forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy (in thousands):
 As of December 31, 2020
 Level 1Level 2Level 3Fair Value
Financial Assets
Cash equivalents:
Money market funds33,054 — — 33,054 
Marketable investments:
Commercial paper— 4,246 — 4,246 
U.S. agency and government sponsored securities— 7,857 — 7,857 
U.S. states and municipalities— 48,095 — 48,095 
Corporate bonds— 134,964 — 134,964 
Total$33,054 $195,162 $— $228,216 

 As of December 31, 2019
 Level 1Level 2Level 3Fair Value
Financial Assets
Cash equivalents:
Commercial paper$— $9,474 $— $9,474 
Money market funds24,054 — — 24,054 
Marketable investments:
Commercial paper— 7,457 — 7,457 
U.S. treasury4,979 — — 4,979 
U.S. agency and government sponsored securities— 2,518 — 2,518 
U.S. states and municipalities— 4,893 — 4,893 
Corporate bonds— 96,763 — 96,763 
Total$29,033 $121,105 $— $150,138 
Contingent Consideration Obligations
As of December 31, 2020 and December 31, 2019, there were no contingent consideration liabilities classified as Level 3. As of December 31, 2019, the Company’s contingent consideration liability balance of $1.2 million related to milestone payments due in connection with the 2017 acquisition of Crossmed S.p.a. (“Crossmed”) which was based on actual revenue performance for the year ended December 31, 2019 and not based on unobservable inputs. The Company made this payment during the year ended December 31, 2020. For more information related to the payment of the contingent consideration liabilities refer to Note “5. Business Combinations.”
The following table summarizes the changes in fair value of the contingent consideration obligation for the year ended December 31, 2020 (in thousands):
Fair Value of Contingent Consideration
Balance at December 31, 2019$1,206 
Payments of contingent consideration liabilities(1,186)
Changes in fair value— 
Foreign currency remeasurement(20)
Balance at December 31, 2020$— 
Fair Value of Contingent Consideration
Balance at December 31, 2018$2,571 
Payments of contingent consideration liabilities(1,296)
Changes in fair value(35)
Foreign currency remeasurement(34)
Balance at December 31, 2019$1,206 
v3.20.4
Balance Sheet Components
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Balance Sheet Components
4. Balance Sheet Components
Accounts Receivable, Net
The Company’s allowance for doubtful accounts comprised of the following (in thousands):
Balance At
Beginning Of Year
Charged To Costs And Expenses
Deductions(1)
Balance At
End Of Year
For the year ended:
December 31, 2018$1,290 $1,563 $(71)$2,782 
December 31, 20192,782 656 $(492)2,946 

(1) Represents the effect of currency translation adjustments and write-offs of uncollectible accounts, net of recoveries.
The Company’s allowance for credit losses related to accounts receivable balances was comprised of the following (in thousands):
Balance At
Beginning Of Year
Write-offs
Provision for Credit loss (1)
Balance At
End Of Year
For the year ended:
December 31, 2020$2,946 $(2,361)$1,613 $2,198 

(1) On January 1, 2020, the Company recorded a $1.3 million adjustment to opening retained earnings upon the adoption of ASU 2016-13.
 Inventories
The components of inventories consisted of the following (in thousands):
December 31,
20202019
Raw materials$45,341 $21,646 
Work in process22,099 21,651 
Finished goods152,087 109,695 
Inventories$219,527 $152,992 

In the fourth quarter of 2020, the Company reclassified $17.7 million of Real System products and components from Property and equipment, net to Inventories as a result of changes in its go to market strategy. The Company classified cash flows associated with its Real System prior to its change in its go to market strategy during the fourth quarter of 2020 as investing activities, which is consistent with the Company's intent when the cash flows occurred. As of December 31, 2020, the Company’s Inventories balance includes $31.1 million of inventory related to the Real System, whereas $6.2 million of Real System products and components are presented in Property and equipment, net as of December 31, 2019.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
December 31,
20202019
Machinery and equipment$26,300 $20,959 
Furniture and fixtures10,000 9,307 
Leasehold improvements20,945 20,283 
Software8,623 5,830 
Computers7,298 5,702 
Construction in progress4,946 11,146 
Total property and equipment78,112 73,227 
Less: Accumulated depreciation and amortization(29,943)(21,415)
Property and equipment, net$48,169 $51,812 
Depreciation and amortization expense, excluding intangible assets and software, was $8.0 million, $5.9 million and $4.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Software amortization expense was $1.0 million, $0.9 million and $0.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company had accumulated software amortization of $3.7 million and $2.3 million for the years ended December 31, 2020 and 2019, respectively.
Accrued Liabilities
The following table shows the components of accrued liabilities as of December 31, 2020 and 2019 (in thousands):
 December 31, 2020December 31, 2019
Payroll and employee-related expenses$50,083 $37,727 
Accrued expenses9,246 7,811 
Sales return reserve9,812 1,821 
Product warranty2,896 2,318 
Other acquisition-related costs(1)
3,000 4,291 
Other accrued liabilities10,758 13,662 
Total accrued liabilities$85,795 $67,630 

(1) Amount consists primarily of a contingent liability related to an anti-dilution provision from the asset acquisition of MVI Health Inc. (“MVI”) in 2018.
The following table shows the changes in the Company’s estimated product warranty accrual, included in accrued liabilities, as of December 31, 2020, 2019 and 2018 (in thousands):
December 31,
202020192018
Balance at the beginning of the year$2,318 $1,875 $1,088 
Accruals of warranties issued1,589 1,065 1,336 
Settlements of warranty claims(1,011)(622)(549)
Balance at the end of the year$2,896 $2,318 $1,875 
Other Non-Current Liabilities
The following table shows the components of other non-current liabilities as of December 31, 2020 and 2019 (in thousands):
December 31,
 20202019
Deferred tax liabilities$4,781 $4,005 
Licensing-related cost(1)
— 10,878 
Other non-current liabilities3,233 367 
Total other non-current liabilities$8,014 $15,250 

(1) Amount relates to the non-current liability recorded for future milestone payments which were deemed probable to be made as of December 31, 2019, under the indefinite-lived intangible assets related to licensed technology described in Note “7. Intangible Assets.” Refer therein for more information.
v3.20.4
Business Combinations
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Business Combinations
5. Business Combinations
On July 3, 2017 (the “Closing Date”), the Company completed the acquisition of Crossmed, a joint stock company organized under the laws of Italy. Crossmed is engaged in the business of distributing medical supplies and equipment in Italy, San Marino, Vatican City and Switzerland. Crossmed was the Company’s exclusive distributor in Italy, San Marino, and Vatican City and the acquisition provides the Company with a direct relationship with its customers in these regions.
Payments Related to the 2017 Crossmed Acquisition
The Company was obligated to pay additional consideration in the form of milestone payments based on Crossmed’s net revenue and incremental net revenue for each of the years ended December 31, 2017, 2018, and 2019. There was no limit on the milestone payments that could be paid out. As of December 31, 2019, the Company’s consolidated balance sheet included $1.2 million in current liabilities primarily related to the final milestone payment due which was paid during the first quarter of 2020. For more information with respect to the nature and fair value of the Company’s contingent consideration obligations, refer to Note “3. Investments and Fair Value of Financial Instruments.”
During the year ended December 31, 2020, the Company made $1.2 million in milestone payments of which $0.5 million is presented in operating activities and $0.7 million is presented in financing activities in the consolidated statements of cash flows. During the year ended December 31, 2019, the Company made $1.3 million in milestone payments of which $0.6 million is presented in operating activities and $0.7 million is presented in financing activities in the consolidated statements of cash flows. During the year ended December 31, 2018, the Company made $4.5 million in cash payments to the Sellers, of which $3.0 million related to the achievement of the 2017 milestones and the remainder related to working capital and financial debt adjustments. These payments have been presented as a component of financing activities in the consolidated statements of cash flows due to the nature and timing of the payments.
v3.20.4
Asset Acquisition
12 Months Ended
Dec. 31, 2020
Asset Acquisition [Abstract]  
Asset Acquisition
6. Asset Acquisition
In the second quarter of 2017, the Company and Sixense Enterprises, Inc. (“Sixense”) formed MVI as a privately-held joint venture for the purpose of exploring healthcare applications of virtual reality technology, with each party holding 50% of the issued and outstanding equity of MVI. On August 31, 2018 (“Transfer Agreement Closing Date”), the Company entered into a Stock Transfer Agreement (the “Transfer Agreement”) between the Company, MVI and Sixense, to purchase an additional 40% of the equity interest in MVI from Sixense for an initial cash purchase price of $20.0 million, excluding the additional $4.5 million of probable future payments relating to an anti-dilution provision in the Transfer Agreement. Following the Transfer Agreement Closing Date, the Company owns a 90% controlling interest in MVI and Sixense retains the remaining 10% minority interest.
Prior to the Transfer Agreement Closing Date, the Company accounted for its investment in MVI under the equity method and was not required to consolidate MVI and determined that MVI was not a variable interest entity (“VIE”). Furthermore, pursuant to agreements between the parties at the time of MVI’s formation, the Company was obligated to perform certain services or make additional cash contributions to MVI for no additional equity interest. These services included, but were not limited to, information technology, accounting, other administrative services and research and development. The Company’s
contributions made prior to the Transfer Agreement Closing Date are presented as a component of the “Contributions to non-marketable investments” in the consolidated statements of cash flows.
For the eight months ended August 31, 2018, prior to the Transfer Agreement Closing Date, MVI had no revenue and recorded a net loss of $6.2 million. The Company reflected its 50% share of MVI’s losses as equity in losses of unconsolidated investee in the consolidated statements of operations through the Transfer Agreement Closing Date.
Prior to the Transfer Agreement Closing Date, the unconsolidated balance sheet of MVI had total assets of $5.2 million, total liabilities of $1.0 million and total equity of $4.2 million.
Impact of Transfer Agreement on Non-Marketable Equity Investments
The Company accounted for the Transfer Agreement as an asset acquisition, as it was determined that the transaction did not meet the definition of a business under the framework of the authoritative accounting guidance for business combinations. The total consideration transferred has been allocated to the non-monetary assets acquired and liabilities assumed based on their relative fair value.
The following table presents the components of the consideration transferred at fair value as of the Transfer Agreement Closing Date (amounts presented in thousands):
Amount
Cash transferred$20,000 
Anti-dilution protection at Transfer Agreement Closing Date4,500 
Carrying amount of Penumbra’s equity method investment in MVI2,202 
Fair value of the remaining non-controlling interest3,365 
Total consideration transferred
$30,067 
In addition to the cash transferred, the consideration included a probable contingent liability related to an anti-dilution provision whereby the Company may be obligated to contribute funds for the issuance of additional shares of MVI to Sixense with an aggregate value of up to $4.5 million. The consideration transferred also included the $2.2 million carrying amount of the Company’s equity method investment in MVI as of the Transfer Agreement Closing Date, which was written-off as part of the accounting for the Transfer Agreement. The Company also recorded $3.4 million in non-controlling interest on the consolidated financial statements related to the fair value of the remaining minority interest held by Sixense as of the Transfer Agreement Closing Date.
The primary asset acquired in the Transfer Agreement constitutes an in-process research and development asset (“IPR&D”). Due to the nature of the other assets acquired and liabilities assumed, the difference between the fair value of the consideration transferred and the fair value of the tangible net liabilities acquired was allocated solely to the IPR&D. The Company recorded a charge of $30.8 million to acquired in-process research and development expense in the consolidated statements of operations at the Transfer Agreement Closing Date because the Company determined that (1) the IPR&D asset had not yet reached technological feasibility and MVI had not yet obtained the appropriate regulatory approval for any products and (2) the asset had no alternative future use as of the Transfer Agreement Closing Date. Following the Transfer Agreement Closing Date, the financial results of MVI have been consolidated into the accompanying consolidated financial statements, with the amounts attributable to the non-controlling interest classified separately.
Payments Related to the 2018 MVI Asset Acquisition
During the year ended December 31, 2018, the Company contributed $0.5 million to MVI related to the anti-dilution provision. During the year ended December 31, 2019, the Company contributed $1.0 million to MVI related to the anti-dilution provision, $0.8 million relates to cash payments which is presented in financing activities in the consolidated statements of cash flows and $0.2 million relates to non-cash contributions primarily related to in-kind services and goods provided to MVI. As of December 31, 2019, the Company’s consolidated balance sheet included $3.0 million in liabilities related to the anti-dilution provision in the Transfer Agreement. During the year ended December 31, 2020, no contributions were made related to the anti-dilution provision and the Company’s consolidated balance sheet included $3.0 million in current liabilities related to the anti-dilution provision in the Transfer Agreement
v3.20.4
Intangible Assets
12 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets
7. Intangible Assets
The following table presents details of the Company’s acquired intangible assets as of December 31, 2020 and 2019 (in thousands, except weighted-average amortization period):
As of December 31, 2020Weighted-Average Amortization PeriodGross Carrying AmountAccumulated AmortizationNet
Customer relationships15.0 years$7,311 $(1,706)$5,605 
Trade secrets and processes20.0 years5,256 (788)4,468 
Other5.0 years1,885 (1,319)566 
Total intangible assets subject to amortization16.6 years$14,452 $(3,813)$10,639 

As of December 31, 2019Weighted-Average
Amortization Period
Gross Carrying AmountAccumulated AmortizationNet
Customer relationships15.0 years$6,686 $(1,114)$5,572 
Trade secrets and processes20.0 years5,256 (526)4,730 
Other5.0 years1,724 (862)862 
Total intangible assets subject to amortization16.4 years$13,666 $(2,502)$11,164 
Indefinite-lived intangible assets:
Intangible assets related to licensed technology14,243 — 14,243 
Total intangible assets$27,909 $(2,502)$25,407 
The gross carrying amount and accumulated amortization of the customer relationships and other intangible assets are subject to foreign currency translation effects. The Company’s $5.3 million trade secrets and processes intangible asset was recognized in connection with a royalty buyout agreement during the first quarter of 2018, which is discussed further in Note “11. Commitments and Contingencies” and Note “12. Stockholders’ Equity.”
The following table presents the amortization recorded related to the Company’s finite-lived intangible assets for the years ended December 31, 2020, 2019 and 2018 (in thousands):
 Year Ended December 31,
 202020192018
Cost of revenue$263 $263 $263 
Sales, general and administrative804 789 832 
Total$1,067 $1,052 $1,095 
As of December 31, 2020, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in thousands):
Amortization Expense
2021$1,127 
2022939 
2023750 
2024750 
2025750 
Thereafter6,323 
Total amortization$10,639 
Licensed technology
During 2017, the Company entered into an exclusive technology license agreement (the “License Agreement”) that required the Company to pay an upfront payment to the licensor of $2.5 million and future revenue milestone-based payments on sales of products covered by the licensed intellectual property. The Company accounted for the transaction as an asset
acquisition and recorded an indefinite-lived intangible asset as it was determined to have alternative future use. The Company recorded an indefinite-lived intangible asset equal to the total payments made and expected to be made under the License Agreement and a corresponding contingent liability for the probable future milestone payments not yet paid.
At the end of each reporting period the Company adjusted the contingent liability to reflect the amount of future milestone payments that were probable to be paid. Prior to the commercialization of products utilizing the underlying technology, any changes in the contingent liability were recorded as an adjustment between the liability balances and the gross carrying amount of the indefinite-lived intangible asset. As of December 31, 2020, there was no contingent liability balance related to probable future milestone payments under the License Agreement. As of December 31, 2019, the balance of the contingent liability related to probable future milestone payments under the License Agreement was $11.7 million, of which $0.8 million and $10.9 million were included in accrued liabilities and other non-current liabilities on the consolidated balance sheet, respectively.
Indefinite-lived intangible assets are tested for impairment annually during the fourth quarter or more frequently if events or changes in circumstances between annual tests indicate that it is more likely than not that the asset is impaired. During the fourth quarter of 2019, the Company completed an annual impairment analysis of the indefinite-lived intangible asset and determined that there was no impairment. The Company determined that an impairment existed in the second quarter of 2020 as a result of a triggering event in July that provided additional information about a condition that existed as of the June 30, 2020 balance sheet date. As a result, in Q2 2020, the Company wrote-off the full carrying value of the indefinite-lived intangible asset and its related contingent liability, and recognized an impairment loss of $2.5 million in research and development expense in the consolidated statement of operations.
v3.20.4
Goodwill
12 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill
8. Goodwill
The following table presents the changes in goodwill during the year ended December 31, 2020 (in thousands):
Total Company
Balance as of December 31, 2019$7,656 
Foreign currency translation adjustments716 
Balance as of December 31, 2020$8,372 
Goodwill Impairment Review
The Company reviews goodwill for impairment annually during the fourth quarter, or more frequently if events or circumstances indicate that an impairment loss may have occurred. During the fourth quarter of 2020 and 2019, the Company reviewed goodwill for impairment and no impairment was identified.
v3.20.4
Indebtedness
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Indebtedness
9. Indebtedness
Credit Agreement
On April 24, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The Credit Agreement is secured and provides for up to $100 million in available revolving borrowing capacity with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity to up to $150 million, and matures on April 23, 2021.
The revolving loans under the Credit Agreement will be available for general corporate purposes, including working capital and capital expenditures. In addition to allowing borrowings in US dollars, the Credit Agreement provides for borrowings in euros, Pounds Sterling and any other currency that is subsequently approved by JPMorgan and each lender. The initial commitment of the lenders under the Credit Agreement is $100 million. Subject to customary conditions and the approval of any lender whose commitment would be increased, the Company has the option to increase the maximum principal amount available under the Credit Agreement by up to an additional $50 million, resulting in a maximum available principal amount under the Credit Agreement of $150 million. The Credit Agreement provides a sublimit of up to $10 million for letters of credit, a sublimit of up to $10 million for swing-line loans, and a sublimit of up to $15 million for borrowings in available foreign currencies.
The Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio and to not exceed a maximum leverage ratio. As of December 31, 2020, the Company was not in compliance with the minimum fixed charge coverage ratio requirement. The Company subsequently entered into an amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The
amended Credit Agreement extended the maturity date from April 23, 2021 to February 21, 2022 and has substantially the same terms and conditions as the prior credit agreement with certain changes including the exclusion of certain one-time charges and expenses incurred during the fiscal quarters ended September 30, 2020 and December 31, 2020 from the calculation of the financial covenants, reductions in interest rate floors applicable to revolving loans and other changes to borrowing mechanics under the Credit Agreement. The Company is now in compliance with the requirements in the amended Credit Agreement. As of December 31, 2020, there were no borrowings outstanding under the Credit Agreement. Refer to Part II, Item 9B “Other Information” in this Annual Report on Form 10-K for more information.
v3.20.4
Leases
12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Leases
10. Leases

Adoption of ASC Topic 842, “Leases”

The Company adopted the guidance under ASC 842 on January 1, 2019 using the modified retrospective transition approach. Therefore the comparative prior year information has not been adjusted and continues to be reported under ASC 840. The impact of the adoption of ASC 842 on the Company’s consolidated balance sheet as of January 1, 2019 was as follows (in thousands):
December 31, 2018Adjustments due to the adoption of Topic 842January 1, 2019
Assets
Prepaid expenses and other current assets(1)
$12,200 $(424)$11,776 
Total current assets410,726 (424)410,302 
Operating lease right-of-use assets(1)
— 43,277 43,277 
Total assets$515,006 $42,853 $557,859 
Liabilities and Stockholders’ Equity
Accrued liabilities(2)
$57,886 $(132)$57,754 
Current operating lease liabilities(2)
— 3,608 3,608 
Total current liabilities66,062 3,476 69,538 
Deferred rent(2)
7,586 (7,586)— 
Non-current operating lease liabilities(2)
— 46,963 46,963 
Total liabilities92,591 42,853 135,444 
Total liabilities and stockholders’ equity$515,006 $42,853 $557,859 

(1) Upon the adoption of ASC 842, prepaid rent is included in the operating lease right-of-use assets.
(2) Upon the adoption of ASC 842, current and non-current deferred rent is included in the current and non-current operating lease liabilities.
Lease Overview
As of December 31, 2019 and December 31, 2020, the Company’s contracts that contained a lease consisted of real estate, equipment and vehicle leases.
The Company leases real estate for office and warehouse space under non-cancelable operating and finance leases that expire at various dates through 2035
, subject to the Company’s option to renew certain leases for an additional five to fifteen years. The Company also leases other equipment and vehicles primarily under non-cancelable operating leases that expire at various dates through 2025.
The following table presents the components of the Company’s lease cost, lease term and discount rate during the year ended December 31, 2020 (in thousands, except years and percentages):
Year Ended December 31, 2020Year Ended December 31, 2019
Lease Cost
Operating lease cost$7,602 7,293 
Finance lease cost:
Amortization of right-of-use assets
2,787 284 
Interest on lease liabilities1,517 186 
Variable lease cost(1)
5,139 3,570 
Total lease costs$17,045 $11,333 
Weighted Average Remaining Lease Term
Operating leases9.1 years10.0 years
Finance leases13.5 years15.0 years
Weighted Average Discount Rate
Operating leases6.16 %6.20 %
Finance leases5.36 %5.42 %

(1) Variable lease costs represent payments that are dependent on usage, a rate or index. Variable lease cost primarily relates to common area maintenance charges for its real estate leases as the Company elected not to separate non-lease components from lease components upon adoption of ASC 842.
Prior to January 1, 2019, the Company recorded operating lease rent expense under ASC 840 on a straight-line basis over the non-cancelable lease term. Rent expense for the year ended December 31, 2018 was $5.8 million.
During the third quarter of 2019, the Company signed a fifteen year lease for additional space at the Company’s headquarters located at 1310 Harbor Bay Business Park, Alameda, California (the “1310 Harbor Bay Lease”) which has not yet commenced as of December 31, 2020. The 1310 Harbor Bay Lease is expected to commence upon substantial completion of lessor owned improvements in connection with the development of the building, which the Company anticipates will occur by the end of 2021.
In the fourth quarter of 2019, the fifteen year term Roseville lease commenced once the building was made ready and available for its intended use. The Company determined that the Roseville lease is a non-cancelable finance lease which will expire in 2035.
The following table is a schedule, by years, of maturities of the Company's operating and finance lease liabilities as of December 31, 2020 (in thousands):
Operating Lease Payments(1)
Finance Lease Payments
Year Ending December 31:
2021$7,538 $2,805 
20227,157 2,853 
20236,739 2,902 
20246,459 2,952 
20256,271 2,877 
Thereafter30,277 26,219 
Total undiscounted lease payments64,441 40,608 
Less imputed interest(15,561)(12,211)
Present value of lease liabilities$48,880 $28,397 

(1) The table above excludes the estimated future minimum lease payment for the 1310 Harbor Bay Lease due to uncertainty around the timing of when the 1310 Harbor Bay Lease will commence and payments will be due. The total estimated lease payments over the fifteen year lease term will be calculated based on the total development costs incurred in connection with the development of the building which will be determined upon substantial completion of the building.
Supplemental cash flow information related to leases during the years ended December 31, 2020 and 2019 are as follows (in thousands):
Year Ended December 31, 2020Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$7,561 $6,829 
Financing cash flows from finance leases$3,418 $2,570 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$1,515 $4,261 
Finance leases$1,632 $33,283 
Leases
10. Leases

Adoption of ASC Topic 842, “Leases”

The Company adopted the guidance under ASC 842 on January 1, 2019 using the modified retrospective transition approach. Therefore the comparative prior year information has not been adjusted and continues to be reported under ASC 840. The impact of the adoption of ASC 842 on the Company’s consolidated balance sheet as of January 1, 2019 was as follows (in thousands):
December 31, 2018Adjustments due to the adoption of Topic 842January 1, 2019
Assets
Prepaid expenses and other current assets(1)
$12,200 $(424)$11,776 
Total current assets410,726 (424)410,302 
Operating lease right-of-use assets(1)
— 43,277 43,277 
Total assets$515,006 $42,853 $557,859 
Liabilities and Stockholders’ Equity
Accrued liabilities(2)
$57,886 $(132)$57,754 
Current operating lease liabilities(2)
— 3,608 3,608 
Total current liabilities66,062 3,476 69,538 
Deferred rent(2)
7,586 (7,586)— 
Non-current operating lease liabilities(2)
— 46,963 46,963 
Total liabilities92,591 42,853 135,444 
Total liabilities and stockholders’ equity$515,006 $42,853 $557,859 

(1) Upon the adoption of ASC 842, prepaid rent is included in the operating lease right-of-use assets.
(2) Upon the adoption of ASC 842, current and non-current deferred rent is included in the current and non-current operating lease liabilities.
Lease Overview
As of December 31, 2019 and December 31, 2020, the Company’s contracts that contained a lease consisted of real estate, equipment and vehicle leases.
The Company leases real estate for office and warehouse space under non-cancelable operating and finance leases that expire at various dates through 2035
, subject to the Company’s option to renew certain leases for an additional five to fifteen years. The Company also leases other equipment and vehicles primarily under non-cancelable operating leases that expire at various dates through 2025.
The following table presents the components of the Company’s lease cost, lease term and discount rate during the year ended December 31, 2020 (in thousands, except years and percentages):
Year Ended December 31, 2020Year Ended December 31, 2019
Lease Cost
Operating lease cost$7,602 7,293 
Finance lease cost:
Amortization of right-of-use assets
2,787 284 
Interest on lease liabilities1,517 186 
Variable lease cost(1)
5,139 3,570 
Total lease costs