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Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2023
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and judgments relied upon by management in preparing these condensed consolidated financial statements include revenue recognition, reserves for excess and obsolete inventory, valuation of inventory and deferred inventory costs, the expensing and capitalization of software-related research and development costs, amortization and depreciation periods, the recoverability of net deferred tax assets, valuations of uncertain tax positions, warranty allowances, the valuation of equity instruments, warrants and embedded derivatives, and stock-based compensation expense.

Although the Company regularly reassesses the assumptions underlying these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances existing at the time such estimates are made.

The COVID-19 pandemic disrupted the Company's global supply chain. Throughout 2022 and 2021, the Company experienced shipping bottlenecks and shortages of supply that resulted in its inability to fulfill certain customer orders within normal lead times. This adversely impacted the Company's revenue and operating results for the years ended December 31, 2022 and 2021. The Company also experienced, in some cases, significant increases in shipping costs. While the impact to the Company has partially subsided during 2023, the Company continues to work with its supply chain, contract manufacturers, logistics partners and customers to minimize the extent of such impacts and will continue to actively monitor supply chain developments. The Company cannot predict if or when such effects will recur or worsen, and in such a case, could prevent the Company from being able to fulfill its customers' orders in a timely manner or at all, which could lead to one or more of its customers canceling their orders. The Company would be neither able to estimate the extent of these impacts nor predict whether its efforts to minimize or contain them will be successful.

In addition, the regions in which the Company operates have experienced a significant increase in inflation, which has adversely impacted the cost to manufacture the Company's products with limited ability to pass such increases on to its customers under previously established fixed price agreements. Inflation has further resulted in increased operating costs and interest rate increases, which will result in increased debt service costs. If interest rates continue to rise, the Company anticipates further adverse effects from inflation and increased interest rates.

At this time, the Company is neither able to estimate the extent of these impacts nor predict whether its efforts to minimize or contain them will be successful. The Company will continue to monitor its business very closely for any effects of COVID-19, inflation and interest rate increases for as long as necessary.

Subsequent Event Considerations

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no additional material recognized or unrecognized subsequent events requiring disclosure in these condensed consolidated financial statements.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include all highly liquid investments maturing within three months from the date of purchase. As of September 30, 2023 and December 31, 2022, the Company’s cash and cash equivalents consisted of savings accounts and investments in money market mutual funds.

Restricted cash as of September 30, 2023 consisted of cash of $1,000 pledged as collateral for a stand-by letter of credit required to support a contractual obligation and cash of $725 pledged as collateral in connection with two letters of credit to support contractual obligations, as further discussed in Note 17, Leases. As of December 31, 2022, restricted cash consisted of a certificate of deposit of $1,013, pledged as collateral for a stand-by letter of credit required to support a contractual obligation, as well as cash of $2,100, pledged as collateral in connection with two letters of credit to support contractual obligations, as further discussed in Note 17, Leases.

The following table is a reconciliation of cash, cash equivalents and restricted cash included in the accompanying condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash included in the accompanying condensed consolidated statements of cash flows:

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Cash and cash equivalents

 

$

47,925

 

 

$

193,494

 

Restricted cash included in other assets

 

 

1,725

 

 

 

3,108

 

 

$

49,650

 

 

$

196,602

 

 

Accounts Receivable

Accounts receivable are presented net of a provision for doubtful accounts, which is an estimate of amounts that may not be collectible. Accounts receivable for customer contracts with customary payment terms, which are one year or less, are recorded at invoiced amounts and do not bear interest. The Company may, in limited circumstances, grant payment terms longer than one year. Payments due beyond 12 months from the balance sheet date are recorded as non-current assets. The Company generally does not require collateral, but the Company may, in certain instances based on its credit assessment, require full or partial prepayment prior to shipment.

Accounts receivable as of September 30, 2023 and December 31, 2022 consisted of the following:

 

 

 

September 30,
2023

 

 

December 31,
2022

 

Current portion of accounts receivable, net:

 

 

 

 

 

 

Accounts receivable, net

 

$

37,360

 

 

$

74,407

 

Accounts receivable, extended payment terms

 

 

 

 

 

77

 

 

 

$

37,360

 

 

$

74,484

 

 

The Company performs ongoing credit evaluations of its customers and, if necessary, provides a provision for doubtful accounts and expected losses. When assessing and recording its provision for doubtful accounts, the Company evaluates the age of its accounts receivable, current economic trends, creditworthiness of the customer, customer payment history, and other specific customer and transaction information. The Company also provides an overall expected credit loss amount, based on historical loss rates, in accordance with ASC 326, Credit Losses. The Company writes off accounts receivable against the provision when it determines a balance is uncollectible and no longer actively pursues collection of the receivable. Adjustments to the provision for doubtful accounts are recorded as selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.

As of September 30, 2023 and December 31, 2022, the Company concluded that all amounts due under extended payment terms were collectible and recorded no reserve for credit losses. During the nine months ended September 30, 2023 and 2022, the Company did not provide a reserve for credit losses and did not write off any uncollectible receivables due under extended payment terms.

The Company has entered into customer-sponsored programs administered by unrelated financial institutions that allow for the sales (factor) of certain accounts receivable at discounted rates to the financial institutions, without recourse. Transactions under this agreement were accounted for as a sale of accounts receivable and the related accounts receivable were removed from the Company's condensed consolidated balance sheet at the time of the sales transaction. Under this agreement, the Company sold $10,427 and $31,200 of accounts receivables during the three and nine months ended September 30, 2023, respectively. Selling, general and administrative expenses include factoring costs associated with this program of $170 and $368 during the three and nine months ended September 30, 2023, respectively.

Concentration of Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents consist of demand deposits, savings accounts and money market mutual funds, and certificates of deposit with financial institutions, which may exceed Federal Deposit Insurance Corporation limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company grants credit to customers in the ordinary course of business. Credit evaluations are performed on an ongoing basis to reduce credit risk, and no collateral is required from the Company’s customers. An allowance for uncollectible accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and credit evaluation. Due to these factors, no additional losses beyond the amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.

Significant customers are those that represent 10% or more of revenue or accounts receivable and are set forth in the following tables:

 

 

 

Revenue

 

 

Revenue

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Customer A

 

 

26

%

 

*

 

 

 

14

%

 

*

 

Customer B

 

 

16

%

 

 

17

%

 

 

10

%

 

 

13

%

 

 

 

 

Accounts Receivable, Net

 

 

 

As of

 

 

As of

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Customer B

 

 

10

%

 

*

 

Customer C

 

 

15

%

 

*

 

Customer D

 

*

 

 

 

12

%

Customer E

 

*

 

 

 

11

%

 

* Less than 10% of total

Certain of the components and subassemblies included in the Company’s products are obtained and manufactured from a single source or a limited group of suppliers. Although the Company seeks to reduce dependence on those single or limited source suppliers, the partial or complete loss of certain of these sources could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships.

Warrant Liability

On June 15, 2023, in connection with the Superpriority Term Loans, as discussed in Note 10, Debt, the Company issued certain penny warrants (the “Warrants”), approximately half of which were immediately vested. The Company’s liability for the Warrants is based on a valuation model utilizing observable inputs from active markets, as further described in Note 7, Fair Value Measurements. The fair value of the warrant liability is classified within Level 3 of the fair value hierarchy as it is based on significant inputs not observable in the market. The Company establishes the fair value for the Warrants using a Monte Carlo simulation model. Due to the variable number of shares for which the Warrants were exercisable, they failed to qualify for equity classification under the indexation guidance in Accounting Standards Codification 815 ("ASC 815"). Therefore, the Warrants are classified as liabilities at fair value on the condensed consolidated balance sheet. Each reporting period, the Warrants are recorded at fair value, with changes in fair value recognized in the Company’s consolidated statement of operations within revaluation of warrant liability.

Embedded Derivatives

In connection with the Superpriority Credit Agreement, as discussed in Note 10, Debt, the Company identified certain embedded features requiring bifurcation as derivatives under ASC 815. These embedded derivatives are required to be bifurcated from the debt host contract at fair value with subsequent changes in fair value recognized in earnings at each balance sheet date (see Note 8, Derivative Financial Instruments).

The Superpriority Term Loans, as defined and discussed in Note 10, Debt, include three embedded features: contingent interest upon an uncured event of default; mandatory prepayment upon certain excess cash flow; and mandatory prepayment upon an uncured event of default. Pursuant to ASC 815, these features have been identified as embedded derivative financial instruments. These embedded derivatives are required to be accounted for as derivatives and bifurcated from the host debt contract, resulting in remeasurement at each balance sheet date, with the change in fair value recognized in the Company’s condensed consolidated statement of operations. The fair value of the embedded derivatives is classified within Level 3 of the fair value hierarchy as it is based on significant inputs not observable in the market.

The fair value of the embedded derivatives is based on a valuation model utilizing a with and without analysis of the embedded features within the debt facility. The Company runs a Monte Carlo simulation model with the embedded derivatives, and then runs a separate Monte Carlo simulation model for the overall debt facility, without the embedded derivative features. The difference between these two Monte Carlo simulation models is used to obtain the value of the embedded features.

Impact of Recently Adopted or Issued Accounting Standards

There have been no recently adopted or issued accounting standards that are applicable to the Company since December 31, 2022.

Other

Other than the disclosures above, there have been no changes to the significant accounting policies disclosed in Note 2, Summary of Significant Accounting Policies, to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022.