Notes to Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
Note 1. Basis of Presentation
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for the fair statement of the Company’s financial position, results of operations, and cash flows for the interim periods presented. All dollar amounts, except per share amounts, in the notes are presented in thousands, unless otherwise specified.
As a result of the merger completed with Sandbridge Acquisition Corporation on July 15, 2021 (the "Merger"), prior period share and per share amounts presented in the accompanying consolidated financial statements and these related notes have been retrospectively adjusted. See Part II, Item 8 "Financial Statements and Supplementary Data - Note 3 to the Consolidated Financial Statements - Merger" in the 2021 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "Form 10-K") for more information.
The Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods, as further discussed in Note 3.
Certain prior year amounts have been reclassified to conform to the current period presentation.
Food and Drug Administration Letter
On October 1, 2021, the Company received a Warning Letter, later corrected in an amendment to the letter dated October 5, 2021 (the “Warning Letter”), from the U.S. Food and Drug Administration (the “FDA”) regarding the Owlet Smart Sock. During the fourth quarter of 2021, the Company agreed with certain customers and retailers to accept returns of the Owlet Smart Sock and Owlet Monitor Duo.
A refund liability of $18,210 and $20,145 has been accrued as of March 31, 2022 and December 31, 2021, respectively, in accrued and other expenses and represents the amount due to customers. As of March 31, 2022, the Company has recorded $6,172 within inventory for returned inventory received and a $2,047 asset within prepaid expenses and other current assets for inventory expected to be returned but not yet received.
Risks and Uncertainties
Since inception, the Company has experienced recurring losses from operations and generated negative cash flows from operations. The Company has an accumulated deficit as of March 31, 2022 of $172,180 and expects to incur additional losses from operations in the future. On July 15, 2021, the Company completed the Merger and received $133,889 in combined net proceeds from the Merger and the private investment in the Company's equity (the "PIPE"). Therefore, as of the date on which these consolidated financial statements were issued, the Company believes that its cash on hand, together with cash generated from sales to customers, will satisfy its working capital and capital requirements for at least the next twelve months. However, we are still in the growth stage of our business and expect to continue to make substantial investments in our business, including in the expansion of our product portfolio and in our research and development, sales and marketing teams, in addition to incurring additional costs as a result of being a public company. There can be no assurance that we will be able to obtain additional debt or equity financing on terms acceptable to us, if at all, or that we will generate sufficient future revenues.
The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. As of March 31, 2022, all of the Company's cash was held with Silicon Valley Bank and exceeded federally insured limits. To date, the Company has not experienced a loss or lack of access to its invested cash; however, no assurance can be provided that access to the Company’s invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
Note 2. Certain Balance Sheet Accounts
Substantially all of the Company's inventory consisted of finished goods as of March 31, 2022 and December 31, 2021.
Property and Equipment, net
Property and equipment consisted of the following as of:
|March 31, 2022||December 31, 2021|
|Tooling and manufacturing equipment||$||2,481 ||$||2,333 |
|Furniture and fixtures||579 ||579 |
|Computer equipment||654 ||625 |
|Software||213 ||213 |
|Leasehold improvements||26 ||26 |
|Total property and equipment||3,953 ||3,776 |
|Less accumulated depreciation and amortization||(2,215)||(1,906)|
|Property and equipment, net||$||1,738 ||$||1,870 |
Depreciation and amortization expense on property and equipment was $309 and $214 for the three months ended March 31, 2022 and March 31, 2021, respectively. For the three months ended March 31, 2022 and March 31, 2021, the Company allocated $190 and $150, respectively, of depreciation and amortization expense related to tooling and manufacturing equipment and software to cost of revenues.
Intangible Assets Subject to Amortization
Intangible assets were $2,098, net of accumulated amortization of $368 as of March 31, 2022 and $1,696, net of accumulated amortization of $329, as of December 31, 2021.
Capitalized software development costs were $1,541 and $1,101 as of March 31, 2022 and December 31, 2021, respectively. The Company's internally developed software capitalized within intangible assets on the balance sheet is still in development and not ready for general release. As such, the Company has not recognized any amortization for the three months ended March 31, 2022.
The Company did not recognize any impairment charges for intangible assets during the three months ended March 31, 2022 or 2021.
Accrued and Other Expenses
Accrued and other expenses, among other things, included accrued sales returns of $20,668 and $21,179 as of March 31, 2022 and December 31, 2021, respectively. As described in Note 1, $18,210 and $20,145 of the accrued sales returns as of March 31, 2022 and December 31, 2021, respectively, was attributable to returns resulting from the Warning Letter.
Changes in accrued warranty were as follows:
|For the Three Months Ended March 31,|
|Accrued warranty, beginning of period||$||661 ||$||924 |
|Provision for warranties issued during the period||200 ||242 |
|Settlements of warranty claims during the period||(136)||(244)|
|Accrued warranty, end of period||$||725 ||$||922 |
The Company is authorized to issue up to 100,000,000 shares of $0.0001 par value preferred stock, of which none is currently outstanding.
Note 3. Leases
The new lease standard was adopted on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance and did not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedients to exclude right-of-use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and to combine lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees.
Leases are determined at inception by assessing whether the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Owlet's leases consist of leases for corporate offices and office equipment, and have remaining lease terms of 2 to 5 years, with options for renewal. Renewal and termination options have not been included in the lease terms, as it is not reasonably certain that such options will be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Certain leases require the Company to pay taxes, insurance, maintenance and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred.
ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Owlet uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Upon adoption, Owlet recorded lease assets and lease liabilities of approximately $3,003 and $3,764, respectively, which did not have a net impact on the condensed consolidated statement of cash flows for the three months ended March 31, 2022. The lease assets were adjusted for deferred rent, lease incentives, and prepaid rent, which were recorded as a decrease to accrued and other expenses and other long-term liabilities for the amounts of $234 and $527, respectively. There were no finance leases as of adoption or during the quarter.
Income from subleased properties is recognized on a straight-line basis and presented as a reduction of costs, allocated among operating expense line items in the Company’s Consolidated Statements of Operations and Comprehensive Loss. In addition to sublease rent, variable non-lease costs such as common area maintenance and utilities are charged to subtenants over the duration of the lease for their proportionate share of these costs. These variable non-lease income receipts are recognized in operating expenses as a reduction to costs incurred by the Company in relation to the head lease.
The impact of the new lease standard on the March 31, 2022 consolidated balance sheet was as follows:
|March 31, 2022|
|Right of use assets, net||$||2,727|
|Noncurrent lease liabilities||2,103|
|Total lease liabilities, net||$||3,439|
|Weighted average remaining lease term||2.3 years|
|Weighted average discount rate||6.5%|
Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the three months ended March 31, 2022 were $346, which included approximately $11 related to short-term and variable lease costs.
Supplemental cash flow information related to leases was as follows:
|March 31, 2022|
|Cash paid for amounts included in the measurement of lease liabilities:|
|Operating cash flows||$||385|
The following table shows the future maturities of lease liabilities for leases in effect as of March 31, 2022:
|Years Ending December 31,||Lease Liabilities|
|2022 (excluding the three months ended March 31, 2022)||$||1,156|
|Total lease payments||3,696|
|Less: imputed interest||(257)|
As of March 31, 2022, the Company had four sublease arrangements which are noncancellable and have remaining lease terms of 0.5 to 2.5 years. These subleases do not contain any options to renew or terminate the sublease agreement. The following table shows the expected future sublease receipts as of March 31, 2022:
|Years Ending December 31,||Sublease Receipts|
|2022 (excluding the three months ended March 31, 2022)||$||947|
|Total expected sublease receipts||$||2,804|
The Company received sublease income of $113 and $17 for the three months ended March 31, 2022 and March 31, 2021, respectively.
As previously disclosed in our 2021 Annual Report on Form 10-K and under the previous lease standard (Topic ASC 840), future minimum lease payments under non-cancelable operating leases at December 31, 2021 were as follows:
|Years Ending December 31,||Amount|
Rental expense under operating leases was approximately $371 for the three months ended March 31, 2021.
Note 4. Deferred Revenues
Deferred revenues relate to performance obligations for which payments are received from customers prior to the satisfaction of the Company’s obligations to its customers. Deferred revenues primarily consist of amounts allocated to the mobile application, unspecified upgrade rights, and content, and are recognized over the service period of the performance obligations, which range from 5 to 27 months.
Changes in the total deferred revenues balance were as follows:
|For the Three Months Ended March 31,|
|Beginning balance||$||1,235 ||$||1,802 |
|Deferral of revenues||744 ||818 |
|Recognition of deferred revenues||(667)||(895)|
|Ending balance||$||1,312 ||$||1,725 |
The Company recognized $550 and $732 of revenue during the three months ended March 31, 2022 and 2021, respectively, that was included in the deferred revenue balance at the beginning of the respective period.
Note 5. Long-Term Debt and Other Financing Arrangements
The following is a summary of the Company’s long-term indebtedness as of:
|March 31, 2022||December 31, 2021|
|Term note payable to SVB, maturing on April 1, 2024||$||12,500 ||$||14,000 |
|Financed insurance premium||1,120||2,534|
|Total debt||13,620 ||16,534 |
|Less: current portion||(7,120)||(8,534)|
|Less: debt discount and debt issuance costs||(7)||(7)|
|Total long-term debt, net||$||6,493 ||$||7,993 |
The Company has an amended and restated loan and security agreement (the "A&R LSA") with Silicon Valley Bank (‘‘SVB’’) which was entered into on April 22, 2020, and which replaced the loan and security agreement previously in place (the ‘‘Original LSA’’). These agreements provided the Company with both a line of credit (the ‘‘SVB Revolver’’) and a term loan (the ‘‘Term Note’’).
On January 31, 2022, the Company further amended the A&R LSA, which modified the SVB Revolver annual interest rate, decreased the advance rate for borrowing base assets, and increased the cash and cash availability streamline threshold. The amendment also modified the Term Note annual interest rates, replaced the existing EBITDA covenant for 2022 and beyond with a net revenue covenant, and increased the minimum cash and cash availability threshold from $5,000 to $30,000.
As of March 31, 2022, the Term Note had an aggregate principal balance of $12,500 as of March 31, 2022, bore interest at a rate equal to the greater of the bank's prime rate plus 2.50%, or 5.75%, and required 30 consecutive equal monthly payments of principal and matures on April 1, 2024.
Prior to January 31, 2022, the Term Note bore interest at a rate equal to the greater of the bank's prime rate plus 3.50%, or 6.50%.
The Company's borrowings under the A&R LSA are secured by substantially all of its current and future assets.
Future Aggregate Maturities
As of March 31, 2022, future aggregate maturities of the Term Note and Financed Insurance Premium payables were as follows:
|Years Ending December 31,||Amount|
|2022 (excluding the three months ended March 31, 2022)||$||5,620 |
Financed Insurance Premium
During the year ended December 31, 2021, the Company renewed its corporate liability policies and entered into several new short-term commercial premium finance agreements with AFCO Credit Corporation totaling $4,699 to be paid in ten equal monthly payments, all of which accrue interest at a rate of 3.59%. As of March 31, 2022, the remaining principal balance on the financed insurance premium was $1,120.
Line of Credit
As of March 31, 2022, our borrowing capacity under the SVB Revolver was $17,500 and bore interest at an annual rate equal to (i) the greater of the bank’s prime rate plus 0.75%, or 5.00% when a streamline period is in effect and (ii) the greater of the bank’s prime rate plus 1.25%, or 5.00% at all other times. The SVB Revolver is an asset based lending facility subject to borrowing base availability which is limited by specified percentages of eligible accounts receivable and eligible inventory. Borrowing base availability can be impacted based upon the period's eligible accounts receivable and eligible inventory, and may be significantly lower than borrowing base capacity.
Prior to January 31, 2022, the SVB Revolver bore interest at an annual rate equal to (i) the greater of the bank’s prime rate plus 0.75%, or 5.50% when a streamline period is in effect and (ii) the greater of the bank’s prime rate plus 1.25%, or 6.00% at all other times.
Each streamline period commences the first day of the month following a written report of our liquidity and ends the first day after we fail to maintain a required cash and cash availability streamline threshold, provided no event of default has occurred and is continuing. If an event of default has occurred and is continuing, SVB may maintain our streamline status at its discretion. The required cash and cash availability streamline threshold was $50,000 as of March 31, 2022, and we were within a streamline period. The actual interest rate on the SVB Revolver was 5.50% as of March 31, 2022. The SVB Revolver is subject to renewal and is scheduled to mature on April 22, 2024. As of March 31, 2022, there was $4,644 of outstanding borrowings under the SVB Revolver.
As of March 31, 2022, the Company was in compliance with all applicable covenants.
Note 6. Commitments and Contingencies
The Company is involved in legal proceedings from time to time arising in the normal course of business. Management, after consultation with legal counsel, believes that the outcome of these proceedings will not have a material impact on the Company’s financial position, results of operations, or liquidity.
In November 2021, two putative class action complaints were filed against us in the U.S. District Court for the Central District of California, the first captioned Butala v. Owlet, Inc., et al., Case No. 2:21-cv-09016, and the second captioned Cherian v. Owlet, Inc., et al., Case No. 2:21-cv-09293. Both complaints allege violations of the Securities Exchange Act of 1934 against the Company and certain of its officers and directors on behalf of a putative class of investors who: (a) purchased the Company’s common stock between March 31, 2021 and October 4, 2021; or (b) held common stock in SBG as of June 1, 2021, and were eligible to vote in the Special Meeting held on July 14, 2021. Both complaints allege, among other things, that the Company and certain of its officers and directors made false and/or misleading statements and failed to disclose certain information regarding the FDA’s likely classification of the Owlet Smart Sock as a medical device requiring marketing authorization. The Court has pending before it motions to consolidate the Butala and Cherian cases and appoint a lead plaintiff. The Company intends to vigorously defend itself against these claims, including by filing a motion to dismiss on behalf of itself
and the named officers and directors. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time.
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless, and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is immaterial.
Note 7. Share-based Compensation
The company has various stock compensation plans, which are more fully described in Part II, Item 8 "Financial Statements and Supplementary Data - Note 9 to the Consolidated Financial Statements - Share-based Compensation" in the 2021 Annual Report on Form 10-K. Under the 2021 Incentive Award Plan, the Company has the ability to grant options, stock appreciation rights, restricted stock, restricted stock units, performance stock units, dividend equivalents, or other stock or cash-based awards to employees, directors, or consultants.
During the three months ended March 31, 2022, the Company granted 1,842,105 performance restricted stock units ("PRSU"), which represents the number of shares that may be issued should all performance measures be met. The PRSU awards function in the same manner as restricted stock units except that vesting terms are based on achievement of performance measures, such as the achievement of net revenue targets and obtaining certain FDA regulatory approval. PRSUs are recognized as expense following a graded vesting schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant.
On January 1, 2022, the Company began offering an Employee Stock Purchase Plan ("ESPP"). The ESPP allows eligible employees to contribute a portion of their eligible earnings toward the semi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can purchase stock at a 15% discount applied to the lower closing stock price on the first or last day of the -month purchase period.
Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant. Options, RSU, and PRSU awards generally vest over a period of four years.
Stock-based Compensation Expense
Total stock-based compensation was recognized as follows (in thousands):
|Three Months Ended March 31,|
|General and administrative||$||1,544 ||$||398 |
|Sales and marketing||740 ||194|
|Research and development||1,034 ||236|
|Total stock-based compensation||$||3,318 ||$||828 |
During the three months ended March 31, 2022, the Company capitalized $18 of share-based compensation attributable to internally developed software.
As of March 31, 2022, the Company had $6,457 of unrecognized stock-based compensation costs related to non-vested options that will be recognized over a weighted-average period of 2.62 years, $18,976 of unrecognized stock-based compensation costs related to unvested RSUs that will be recognized over a weighted-average period of 3.44 years, and $4,262 of unrecognized stock-based compensation costs related to unvested PRSUs that will be recognized over a weighted-average period of 2.28 years.
Note 8. Fair Value Measurements
The following table presents information about the Company's assets and liabilities measured and reported in the financial statements at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
|March 31, 2022|
|Level 1||Level 2||Level 3||Balance|
|Money market funds||$||68,726||$||—||$||—||$||68,726|
|Common Stock warrant liability - Public Warrants||$||8,855 ||$||— ||$||— ||$||8,855 |
|Common Stock warrant liability - Private Placement Warrants||— ||5,082 ||— ||5,082 |
|December 31, 2021|
|Level 1||Level 2||Level 3||Balance|
|Money market funds||$||94,973 ||$||— ||$||— ||$||94,973 |
|Common Stock warrant liability - Public Warrants||$||4,486 ||$||— ||$||4,486 |
|Common Stock warrant liability - Private Placement Warrants||$||2,575||$||2,575|
Money market funds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The common stock warrant liability for the Public Warrants as of March 31, 2022 is also included within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Private Placement Warrants are included within Level 2 of the fair value hierarchy as the Company determined that the Private Placement Warrants are economically equivalent to the Public Warrants and estimated the fair value of the Private Placement Warrants based on the quoted market price of the Public Warrants.
The Company has previously presented the fair value measurement of the preferred stock warrant liability as a Level 3 measurement, relying on unobservable inputs reflecting the Company’s own assumptions. Level 3 measurements, which are not based on quoted prices in active markets, introduce a higher degree of subjectivity and may be more sensitive to fluctuations in stock price, volatility rates, and U.S. Treasury Bond rates.
The preferred stock warrants were settled immediately prior to the Merger. The Company re-measured the preferred stock warrant liability to its estimated fair value as of March 31, 2021, using the Black-Scholes option pricing model with the following assumptions:
|March 31, 2021|
|Series A preferred stock value per share||$||18.23 |
|Exercise price of warrants||$||0.76 |
|Term in years||5.5|
|Risk-free interest rate||1.04 ||%|
|Dividend yield||0.00 ||%|
The following table presents a reconciliation of the Company’s preferred stock warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2021:
|Preferred Stock Warrant Liability|
|Balance as of December 31, 2020||$||2,993 |
|Change in fair value included in other income||4,608 |
|Balance as of March 31, 2021||$||7,601 |
There were no transfers between Level 1 and Level 2 in the periods reported. There were no transfers into or out of Level 3 in the period reported.
Note 9. Income Taxes
In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. To the extent that application of the estimated annual effective tax rate is not representative of the quarterly portion of actual tax expense expected to be recorded for the year, the Company determines the quarterly provision for income taxes based on actual year-to-date income. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
The provision for income taxes was $7 and $5, for the three months ended March 31, 2022 and March 31, 2021, respectively.
Significant judgment is required in determining the Company’s provision for income taxes, recording valuation allowances against deferred tax assets, and evaluating the Company’s uncertain tax positions. In evaluating the ability to realize its deferred tax assets, in full or in part, the Company considers all available positive and negative evidence, including past operating results, forecasted future earnings, and prudent and feasible tax planning strategies. Due to historical net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periods presented, the Company maintains a valuation allowance against the net U.S. deferred tax assets.
The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. The Company’s federal and state tax returns are not currently under examination.
Note 10. Net Loss Per Share Attributable to Common Stockholders
The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):
|Three Months Ended March 31,|
Net loss attributable to common stockholders (1)
|Weighted-average common shares used in computed net loss per share attributable to common stockholders basic and diluted||110,384,313||22,233,820|
|Net loss per share attributable to common stockholders basic and diluted||$||(0.26)||$||(0.35)|
(1) For the three months ended March 31, 2021, the Company did not allocate its net loss to participating redeemable convertible preferred stock as those shares are not obligated to share in the losses of the Company. As of March 31, 2022, the Company no longer has participating redeemable convertible preferred stock.
The following potentially dilutive outstanding securities were excluded from the computation of diluted net loss per share due to their anti-dilutive effect:
|As of March 31,|
|Stock options||9,866,965 |
|ESPP shares committed||234,133 |
|Common stock warrants||18,100,000 |
The Company’s 2,807,500 unvested earnout shares were excluded from the calculation of basic and diluted per share calculations as the vesting conditions have not yet been met as of March 31, 2022.
|As of March 31,|
|Stock options||11,186,265 |
|Common stock warrants||942,623 |
|Convertible notes||4,573,466 |
|Preferred stock||61,809,312 |
|Preferred stock warrants||889,765 |
(1) Securities shown as of March 31, 2021 have been retrospectively adjusted reflecting the exchange ratio of approximately 2.053 established in the Merger. See Part II, Item 8 "Financial Statements and Supplementary Data - Note 3 to the Consolidated Financial Statements - Merger" in the 2021 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "Form 10-K") for more information.
Note 11. Segments
The Company operates as a single operating segment. The Company’s chief operating decision maker manages the Company's operations on a consolidated basis for purposes of allocating resources, making operating decisions, and
evaluating financial performance. Since the Company operates in one operating segment, all required financial segment information can be found in these consolidated financial statements.
Revenue by geographic area is based on the delivery address of the customer and is summarized as follows (in thousands):
|Three Months Ended March 31,|
|United States||$||18,712 ||$||20,534 |
|Total revenues||$||21,538 ||$||21,911 |
Other than the United States, no individual country exceeded 10% of total revenues for either of the three months ended March 31, 2022 and March 31, 2021.
The Company’s property and equipment, net, by geographic area are summarized as follows as of (in thousands):
|March 31, 2022||December 31, 2021|
|United States||$||610 ||$||705 |
|International||1,128 ||1,165 |
|Total property and equipment, net||$||1,738 ||$||1,870 |
Note 12. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets obtained in exchange for lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted the new guidance as of January 1, 2022. See Note 3 for the impact of adoption on these condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as the elimination of exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, the recognition of deferred tax liabilities for outside basis differences, ownership changes in investments, and tax basis step-up in goodwill obtained in a transaction that is not a business combination. The guidance will be effective for annual reporting periods beginning after December 15, 2021. The Company adopted ASU 2019-12 in the first quarter of 2022. The adoption of this standard does not currently have a material impact on the Company's consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments by removing major separation models required under current guidance. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021, including interim periods. The Company adopted ASU 2020-06 on January 1, 2022. The adoption of this standard does not currently have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has since released various amendments including ASU No. 2019-04. The guidance modifies the measurement of expected credit losses on certain financial instruments. This guidance will be effective for annual reporting periods beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the impact of the guidance on its consolidated financial statements and disclosures.