Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Lean -
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.21pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
-0.21pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+7
negatively+3
shortages+3
adversely+2
shortage+2
Positive rising
gain+6
improve+2
achievement+2
improvements+2
favorable+1
MD&A (Item 7)
6,064 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes included elsewhere in “Financial Statements and Supplementary Data.” Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read “Part I, Item 1.A Risk Factors” in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a provider of medical devices that provide circulatory support and oxygenation. We develop, manufacture and market proprietary products that are designed to enable the heart to rest and recover by improving blood flow and/or performing the pumping function of the heart and provide sufficient oxygenation to those in respiratory failure. Our products are used in the cardiac catheterization lab, or cath lab, by interventional cardiologists and in the heart surgery suite by cardiac surgeons for patients who are in need of hemodynamic support prophylactically or emergently before, during or after angioplasty or heart surgery procedures. We believe that heart recovery is the optimal clinical outcome for a patient experiencing heart because it the potential for the patient to go home with their own heart, facilitating the restoration of quality of life. In addition, we believe that, for the care of such patients, heart recovery is often the most cost- solution for the healthcare system.
We are subject to additional risks and uncertainties as a result of the ongoing novel coronavirus (“COVID-19”) pandemic. Since March 2020, the ongoing COVID-19 pandemic has adversely impacted and is likely to further adversely impact our business and markets, including our workforce and the operations of our customers, suppliers, and business partners. While the COVID-19 (including new variants of COVID-19) pandemic remains fluid and continues to evolve differently across various geographies, we believe we are likely to continue to experience variable impacts on our business. To ensure the health and safety of our global employees, we continue to offer onsite COVID-19 testing and vaccinations in order to maintain a safe working environment. Our proactive testing and vaccination programs have reduced exposure with early detection and enabled our manufacturing facilities to operate at full capacity.
The depth and extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations, financial condition and individual markets is dependent upon various factors, including the spread of additional variants; the availability of vaccinations, personal protective equipment, intensive care unit (“ICU”) and operating room capacity, and medical staff; and government interventions to reduce the spread of the virus. When COVID-19 infection rates spike in a particular region, our patient utilization volumes have generally been negatively impacted as hospitals face capacity limitations, staffing shortages and some in-patient treatments have been deferred.
During the first quarter of fiscal year 2022, we experienced varying levels of recovery across our product lines and geographic locations from the challenges caused by the pandemic.
However, in the second quarter of fiscal year 2022, patient utilization of Impella heart pump devices was negatively impacted by an increase in COVID-19 hospitalizations and ongoing shortage of hospital workers that limited ICU capacity which contributed to some deferral of elective procedures.
As we started the third quarter of fiscal year 2022, patient utilization of Impella heart pump devices continued to be negatively impacted by an increase in COVID-19 hospitalizations in certain geographies due to the Delta variant and ongoing shortage of hospital workers, that limited ICU capacity and contributed to some deferral of elective procedures. However, as Delta cases moderated, patient utilization of Impella heart pump devices increased during the last two months of the third quarter, despite on-going hospital labor shortages and the emergence of the Omicron variant.
During the fourth quarter of fiscal year 2022, the Omicron variant had a pronounced impact on hospital capacity, resources, and procedure volumes in January 2022, especially in the United States. While we experienced improvements in overall patient utilization in the fourth quarter, we continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including any impact on our customers, including the ongoing hospital labor shortages, employees, suppliers, vendors, business partners and distribution channels, as well as on procedures and the demand for our products by keeping apprised of local, regional, and global COVID-19 surges (including new variants of the virus).
While we cannot reliably estimate the extent to which the COVID-19 pandemic may impact patient utilization and revenues of our products, our focus is to continue increasing patient utilization of our Impella devices in the U.S. and growing our business internationally, with a continued focus on Europe and Japan. As of the date of issuance of these financial statements, the extent to which the COVID-19 pandemic may materially adversely affect our financial condition, liquidity or results of operations is uncertain.
Macroeconomic Conditions
Our revenues and results of operations may be susceptible to fluctuations in macroeconomic conditions, including inflation and slowing economic growth and contractions, changes in customer and consumer sentiment and demand, increasing prices for raw materials, transportation and labor costs, disruptions in the manufacturing, supply and distribution operations of us and our suppliers. The nature and extent of the impact of these factors among others varies by region and remains uncertain and unpredictable.
Acquisition of preCARDIA
We acquired 100% interest in preCARDIA on May 28, 2021. preCARDIA is a developer of a proprietary catheter and controller that will complement Abiomed’s product portfolio to expand options for patients with acute decompensated heart failure (“ADHF”). The preCARDIA system is uniquely designed to rapidly treat ADHF-related volume overload by effectively reducing cardiac filling pressures and promoting decongestion to improve overall cardiac and renal function. We acquired preCARDIA for a purchase price of $115.2 million. The acquisition was accounted for as an asset acquisition as substantially all of the fair value of the acquisition related to the acquired in-process research and development asset. Since the acquired technology platform is pre-commercial and has not reached technical feasibility, the cost of the in-process research and development asset was expensed, resulting in a charge of $116.0 million to the consolidated statements of operations for the year ended March 31, 2022. In addition, we recognized a gain of $21.0 million related to our previously owned minority interest within the consolidated statements of operations for the year ended March 31, 2022. In connection with the acquisition, we acquired a license agreement, under which there is a potential payout of $5 million based on the achievement of a commercial milestone. During the year ended March 31, 2022, we made a holdback payment of $0.5 million to former shareholders of preCARDIA.
Acquisition of Breethe, Inc.
We acquired Breethe, a Maryland corporation, on April 24, 2020. Breethe is engaged in research and development of a novel extracorporeal membrane oxygenation (“ECMO”) system that we expect will complement and expand our product portfolio to more comprehensively serve the needs of patients whose lungs can no longer provide sufficient oxygenation, including some patients suffering from cardiogenic shock or respiratory failure. We acquired Breethe for $55.0 million in cash, with additional potential payouts up to a maximum of $55.0 million payable based on the achievement of certain technical, regulatory and commercial milestones. In October 2020, the Breethe OXY-1 System received a 510(k) clearance from the FDA for an all-in-one, compact cardiopulmonary bypass system. We have conducted a controlled launch of the Breethe OXY-1 System at a limited number of hospitals in the U.S. and have seen positive results regarding survival, blood compatibility, durability of the Pump Lung Unit (“PLU”), hemodynamic flow rates and ease of patient ambulation. Based on our early patient study, we have identified areas of improvement around the electronics of the console and implemented a voluntary recall at the seven hospitals where the Breethe OXY-1 Systems were placed. The console upgrades may require a 510(k) clearance from the FDA. Therefore, until the corrective action is completed, we are not expanding the number of patients or centers under the controlled launch. We expect to resume commercialization of the Breethe OXY-1 System under a controlled rollout in the second half of fiscal year 2023.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The accounting policies we believe are critical in the preparation of our consolidated financial statements relate to revenue recognition and income taxes. Our significant accounting policies are more fully described in “Note 2. Basis of Preparation and Summary of Significant Accounting Policies” to our consolidated financial statements in this Report.
Revenue Recognition
Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer.
Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of the contract.
Service revenue is generally recognized over time as the services are rendered to the customer based on the extent of progress towards completion of the performance obligation. We recognize service revenue over the term of the service contract. Services are expected to be transferred to the customer throughout the term of the contract and we believe recognizing revenue ratably over the term of the contract best depicts the transfer of value to the customer. Revenue generated from preventative maintenance calls is recognized at a point in time when the services are provided to the customer.
Revenue from the sale of products and services are evidenced by either a contract with the customer or a valid purchase order or an invoice which includes all relevant terms of sale. We perform a review of each specific customer's credit worthiness and ability to pay prior to acceptance as a customer. Further, we perform periodic reviews of customers' creditworthiness.
Income Taxes
Our provision for income taxes is comprised of a current and deferred provision. The current income tax provision is calculated as the estimated taxes payable or refundable on income tax returns for the current fiscal year. The deferred income tax provision is calculated for the estimated future income tax effects attributable to temporary differences and carryforwards using expected tax rates in effect in the years during which the temporary differences are expected to reverse.
Deferred income taxes are recognized for the tax consequences in future years as the differences between the tax bases of assets and liabilities and their financial reporting amounts at each fiscal year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to impact taxable income.
We regularly assess our ability to realize our deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized.
Other Investments
We periodically make investments in medical device companies that focus on heart failure and heart pumps and other medical device technologies. For equity investments that do not have readily determinable market values, we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment. We monitor any events or changes in circumstances that may have a significant effect on the fair value of investments, either due to impairment or based on observable price changes, and make any necessary adjustments.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in “Note 2. Basis of Preparation and Summary of Significant Accounting Policies” to our consolidated financial statements in this Report.
Results of Operations for the Fiscal Years Ended March 31, 2022 and March 31, 2021 (“fiscal year 2022” and “fiscal year 2021”)
Revenue
The following table disaggregates our revenue by products and services:
Fiscal Years Ended March 31,
Change
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
Product revenue
Service and other revenue
Total revenue
The following table disaggregates our revenue by geographic location:
Fiscal Years Ended March 31,
Change
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
United States
Europe
Japan
Rest of world
Outside the U.S.
Total revenue
The following table disaggregates our product revenue by geographic location:
Fiscal Years Ended March 31,
Change
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
United States
Europe
Japan
Rest of world
Outside the U.S.
Total product revenue
Product revenue encompasses Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5, Impella RP and Impella AIC product sales and related accessories. Service and other revenue represents revenue earned on service maintenance contracts and preventative maintenance calls. The following is a discussion of our revenues for fiscal year 2022.
Total Revenue
Total revenue increased by $184.2 million, or 22%, from fiscal year 2021 to fiscal year 2022. The increase in total revenue from fiscal year 2021 to fiscal year 2022 was driven by both product revenue and service and other revenue, as further described below.
Product Revenue
Product revenue increased by $178.2 million, or 22%, from fiscal year 2021 to fiscal year 2022. U.S. product revenue increased by $141.6 million or 22% from fiscal year 2021 to fiscal year 2022. Outside the U.S., product revenue for fiscal year 2022 increased by $36.6 million or 23% from fiscal year 2021 to fiscal year 2022.
Product revenue increased from fiscal year 2021 to fiscal year 2022 primarily due to sales mix and higher patient utilization in the U.S., Germany and Japan as we experienced varying levels of recovery across our product lines and geographic locations from the challenges caused by the COVID-19 pandemic. Despite these overall improvements, the timing and impact of COVID-19 on patient utilization volume varied widely by country, region, and type during the period as discussed in the "COVID-19 Pandemic" section above.
Service and other revenue
Service and other revenue increased by $6.0 million, or 15%, from fiscal year 2021 to fiscal year 2022. The increase in service revenue was primarily due to an increase in service contracts sold. We have expanded the number of Impella AIC consoles at many of our existing higher volume customer sites and continue to sell additional consoles to new customer sites. We expect revenue growth for service revenue to be consistent with recent history as most customer sites in the U.S. have service contracts which typically have three-year terms.
Cost of Revenue
Fiscal Years Ended March 31,
Change
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
Cost of revenue
Cost of revenue for fiscal year increased by $26.3 million, or 16%, from fiscal year 2021 to fiscal year 2022. Gross margin was 82% for fiscal year 2022 and 81% for fiscal year 2021.
Cost of product revenue increased due to our investment in direct labor and overhead as we continue to expand the manufacturing capacity of our facilities in the U.S. and Germany. In addition, cost of product revenue increased due to the composition of material purchases to support newer generation devices. The increase in gross margin was primarily due to the increase in production effectiveness, increased sales volume and favorable pricing mix as we shifted to Impella CP with SmartAssist and Impella 5.5 with SmartAssist.
Operating Expenses
Fiscal Years Ended March 31,
Change
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
% of Total revenue
Amount
(in thousands)
Research and development
Selling, general and administrative
Acquired in-process research and development
Total operating expenses
Research and Development Expenses
Research and development expenses increased by $41.5 million, or 34%, from fiscal year 2021 to fiscal year 2022. The increase in research and development expenses was primarily due to our increases in regulatory and quality hiring, ongoing product development initiatives relating to our existing and pipeline products, the development of the Impella ECP, preCARDIA, Impella BTR, Breethe OXY-1 System and Impella XR Sheath devices, the expansion of our engineering organization, continued investment in our clinical trials, most notably the STEMI DTU and PROTECT IV studies, and our focus on clinical, technological and quality initiatives for our products.
We expect research and development expenses to continue to increase as we continue to increase engineering, product development and clinical spending related to our initiatives to improve our existing products, develop new technologies and conduct clinical research activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $89.3 million, or 27%, from fiscal year 2021 to fiscal year 2022. The increase in selling, general and administrative expenses was primarily due to increases in commercial hiring, marketing, travel, clinical training and education initiatives and higher stock compensation expense.
We aim to continue to invest strategically in hiring and sales and marketing activities, with a particular focus on training and education to drive utilization of our Impella devices and recovery awareness for acute heart failure patients.
Acquired In-Process Research and Development Expenses
We acquired 100% interest in preCARDIA on May 28, 2021, for a purchase price of $115.2 million. In connection with the acquisition, we acquired net assets of $115.2 million, which included $115.5 million related to the fair value of the in-process research and development asset and $0.3 million for net liabilities assumed. The acquisition was accounted for as an asset acquisition as substantially all of the fair value of the acquisition related to the acquired in-process research and development asset. Since the acquired technology platform is pre-commercial and has not reached technical feasibility, the cost of the in-process research and development asset was expensed. In fiscal year 2022, we made a holdback payment of $0.5 million to former shareholders of preCARDIA for a total acquisition price of $115.9 million.
Interest and other income, net
Fiscal Years Ended March 31,
Change
Amount
(in thousands)
Amount
(in thousands)
Amount
(in thousands)
Interest and other income, net
Interest and other income, net decreased by $8.8 million, or 15%, from fiscal year 2021 to fiscal year 2022. This decrease was primarily due to the recognition of a $22.9 million pre-tax gain from our investment in Shockwave Medical in fiscal year 2022 compared to a $50.8 million pre-tax gain in fiscal year 2021, partially offset by the $21.0 million gain, related to our previously owned minority interest in preCARDIA. In addition, interest and other income, net decrease from fiscal year 2021 to fiscal year 2022 due to a $2.7 million decrease in interest income related to marketable securities and a $1.5 million decrease in interest income related to the cross-currency swap partially offset by a $3.1 million gain related to foreign currency fluctuations.
Income tax provision
Fiscal Years Ended March 31,
Change
Amount
(in thousands)
Amount
(in thousands)
Amount
(in thousands)
Income tax provision
The income tax provision decreased by $8.6 million, or 14%, from fiscal year 2021 to fiscal year 2022. Our effective income tax rate was 28.4% in fiscal year 2022 and 21.8% in fiscal year 2021. The increase in the effective tax rate for fiscal year 2022 is primarily
due to a non-deductible charge for in-process research and development related to the preCARDIA acquisition offset by an increase in research and development credits.
Results of Operations for the Fiscal Years Ended March 31, 2021 and March 31, 2020
For a comparison of our results of operations for the fiscal years ended March 31, 2021 and March 31, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended March 31, 2021 filed with the SEC on May 21, 2021, which comparative information is incorporated by reference in this Report.
Liquidity and Capital Resources
As of March 31, 2022, our total cash, cash equivalents, and short and long-term marketable securities totaled $978.7 million, an increase of $130.9 million compared to $847.8 million as of March 31, 2021. The change in our cash, cash equivalents, and short and long-term marketable securities was primarily due to positive cash flows from operations, offset by cash used for investments in property, equipment and other investments, and cash used for financing activities related to equity activity.
A summary of our cash flow activities is as follows:
For the Year Ended March 31,
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
For a discussion of our liquidity and capital resources and our cash flow activities for the fiscal year ended March 31, 2021, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended March 31, 2021, filed with the SEC on May 21, 2021, which is incorporated by reference in this Report.
Cash Provided by Operating Activities
In fiscal year 2022, net cash provided by operating activities consisted of net income of $136.5 million, plus non-cash items of $179.1 million less cash used for working capital of $30.2 million. As discussed above, the change in net income was primarily due to an increase in operating expenses partially offset by an increase in revenue in fiscal year 2022 compared to fiscal year 2021. Adjustments for non-cash items consisted primarily of $116.0 million for acquired preCARDIA in-process research and development, $52.7 million of stock-based compensation expense, $28.1 million of depreciation and amortization expense, a change in fair value of our investment in Shockwave Medical and other private medical technology companies of $22.9 million, a $21.0 million gain related to our previously owned minority interest in preCARDIA recognized upon the acquisition of preCARDIA in May 2021, $18.0 million in inventory write-downs, $3.7 million in accretion on marketable securities, a $2.4 million change in our deferred tax provision, and a change in fair value of contingent consideration of $0.9 million. The decrease in cash from changes in working capital is primarily due to a $29.3 million increase in inventory to support growing sales volume and improve safety stock levels to mitigate supply chain risks, an $8.4 million increase in prepaid expenses and other assets and a $0.1 million decrease in accounts payable, accrued expenses and other liabilities, partially offset by a $5.3 million decrease in accounts receivable associated with timing and volume of sales and collections and a $2.3 million decrease in deferred revenue.
For fiscal year 2021, cash provided by operating activities consisted of net income of $225.5 million, plus non-cash items of $66.4 million less cash used for working capital of $17.4 million. Adjustments for non-cash items consisted primarily of $47.0 million of stock-based compensation expense, a change in fair value of our investments in Shockwave Medical and other private medical technology companies of $51.0 million, a $29.4 million change in our deferred tax provision, $24.1 million of depreciation and amortization expense, $8.5 million in inventory write-downs and a change in fair value of contingent consideration of $2.4 million. The decrease in cash from changes in working capital included a $2.5 million decrease in inventory due to the mix of customer demand and production volumes related to our Impella devices and a $12.0 million decrease in accounts payable, accrued expenses and other liabilities offset by a $12.1 million increase in accounts receivable associated with timing and volume of sales and collections and a $5.2 million increase in deferred revenue.
Cash Used for Investing Activities
In fiscal year 2022, net cash used for investing activities included $243.6 million in purchases (net of maturities) of marketable securities, $82.8 million for our acquisition of preCARDIA, $35.8 million for the purchase of property and equipment primarily related to continued expansion of manufacturing capacity, office space and research development facilities in Danvers and Aachen, Germany and $18.8 million for our investment in private medical technology companies.
For fiscal year 2021, net cash used for investing activities included $159.6 million in purchases (net of maturities) of marketable securities, $52.2 million for our acquisition of Breethe and $53.4 million for the purchase of property and equipment mostly related to the $17.5 million purchase of the building adjacent to our corporate headquarters in Danvers, Massachusetts and continued expansion of manufacturing capacity, office space and research development facilities in Danvers, Massachusetts and Aachen, Germany. We also made $26.1 million of investments in medical technology companies and intangible assets during fiscal year 2021. These amounts were partially offset by $67.9 million in proceeds from the sale of Shockwave Medical securities.
Capital expenditures for fiscal year 2023 are estimated to range from $40 million to $50 million, including, as part of long-term development of our business, additional capital expenditures for manufacturing capacity and building expansions in our Danvers and Aachen facilities and information systems development projects.
Cash Used for Financing Activities
For fiscal year 2022, net cash used for financing activities included $16.5 million in payments in lieu of issuance of common stock for payroll withholding taxes upon vesting of certain equity awards and $2.3 million related to payment of contingent consideration due to achievement of related milestone. These amounts were offset by $9.4 million in proceeds from the exercise of stock options and $7.2 million in proceeds from the issuance of stock under the employee stock purchase plan.
For fiscal year 2021, net cash used for financing activities included $11.3 million for the repurchase of our common stock and $11.3 million in payments in lieu of issuance of common stock for payroll withholding taxes upon vesting of certain equity awards. These amounts were offset by $9.1 million in proceeds from the exercise of stock options and $5.5 million in proceeds from the issuance of stock under the employee stock purchase plan.
Operating Capital and Liquidity Requirements
Our sources of cash liquidity are primarily from existing cash and cash equivalents, marketable securities and cash flows from operations. As of March 31, 2022, our cash, cash equivalents, and short and long-term marketable securities totaled $978.7 million, an increase of $130.9 million compared to $847.8 million as of March 31, 2021. Marketable securities as of March 31, 2022 consisted of $845.9 million held in funds that invest in U.S. Treasury securities, government-backed securities, corporate debt securities and commercial paper. We generated operating cash flows of $285.4 million and $274.6 million in fiscal years 2022 and 2021, respectively. As of March 31, 2022, we had no debt outstanding. We believe that our sources of liquidity are sufficient to fund the current requirements of working capital, capital expenditures, and other financial commitments for at least the next twelve months.
We primarily fund our operations from product sales. Our primary liquidity requirements are to fund the following: expansion of our commercial and operational infrastructures; expansion of our manufacturing capacity and office space; the procurement and production of inventory to meet customer demand for our Impella devices; funding of new product and business development initiatives, such as the recent acquisitions of preCARDIA and Breethe; ongoing commercial launch in Japan and expansion into potential new markets; increased clinical spending; legal expenses related to ongoing patent litigation and other legal matters and payments in lieu of issuance of common stock for payroll withholding taxes upon vesting of certain equity awards and provide for general working capital needs.
We believe that our sources of liquidity are sufficient to fund the current requirements of working capital, capital expenditures, and other financial commitments for at least the next twelve months. Our liquidity is influenced by our ability to sell our products in a competitive industry and our customers’ ability to pay for our products. Factors that may affect liquidity primarily include our ability to penetrate the market for our products, our ability to maintain or reduce the length of the selling cycle for our products, our capital expenditures, and our ability to collect cash from customers after our products are sold. We continue to review our short-term and long-term cash needs on a regular basis.
ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK
Our business and financial results are affected by fluctuations in world financial markets, including changes in currency exchange rates and interest rates. We manage these risks through a combination of normal operating and financing activities.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our marketable securities portfolio. Our investment strategy is focused on preserving capital and supporting our liquidity requirements, while earning a reasonable market return. We invest in a variety of U.S. government and agency securities, corporate debt securities and commercial paper. The market value of our marketable securities may decline if current market interest rates rise. The fair value of our marketable securities as of March 31, 2022 was $845.9 million. If market interest rates were to increase immediately and uniformly by 10% from levels as of March 31, 2022, we believe the decline in fair market value of our investment portfolio would be immaterial. Our marketable securities are recorded at fair value, and gains or losses from these securities are recognized within other comprehensive income as they occur.
Foreign Currency Exchange Rate Risk
Foreign currency risk arises from our investments in subsidiaries owned and operated in non-U.S. countries. Such risk is also a result of transactions with customers in countries outside the United States. Approximately 18% of our revenue was denominated in
foreign currencies for the fiscal year ended March 31, 2022. As our business in regions outside of the United States continues to increase, we will be increasingly exposed to foreign currency exchange risk related to our foreign operations.
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Euro and Japanese yen, could adversely affect our financial results, including our revenues and revenue growth rates, gross margins, income and losses as well as assets and liabilities.
Our investment in our subsidiaries is sensitive to fluctuations in currency exchange rates. The effect of a change in currency exchange rates on our net investment in international subsidiaries is reflected in the accumulated other comprehensive income component of stockholders’ equity. Although we will continue to monitor our exposure to currency fluctuations, the impact of an aggregate change of 10% in foreign currency exchange rates relative to the U.S. dollar on our results of operations and financial position could be material.
As discussed in “Note 5. Financial Instruments” to our consolidated financial statements, we have an intercompany loan agreement with our German subsidiary, Abiomed Europe GMBH. In conjunction with this intercompany loan agreement, we entered into a cross-currency swap agreement to convert the Euro denominated intercompany loan into U.S. dollars. The objective of this cross-currency swap is to hedge the variability of cash flows related to the forecasted interest and principal payments on the Euro denominated fixed rate loan against changes in the exchange rate between the U.S. dollar and the Euro. We use such a foreign-exchange-related derivative instrument to manage our exposure related to changes in the exchange rate on our intercompany loan. We do not enter into derivative instruments for any purpose other than for the cash flow hedge described above.
Credit Risk
In the normal course of business, we provide credit to our customers in the health care industry, perform credit evaluations of these customers, and maintain allowances for potential credit losses, which have historically been adequate compared to actual losses. In fiscal year 2022, we had no customers that represented 10% or more of our total revenue or accounts receivable. Credit is extended based on an evaluation of a customer’s historical financial condition and generally collateral is not required. Our history of credit losses has not been significant and we maintain an allowance for doubtful accounts based on our assessment of the collectability of accounts receivable. Accounts receivables are geographically dispersed, primarily throughout the U.S., as well as in Europe and other foreign countries where formal distributor agreements exist. Our exposure to credit losses may increase if our customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, macroeconomic pressures or uncertainty, disruption associated with the current COVID-19 pandemic, or other customer-specific factors.
Investment Risk
We are exposed to investment risks related to changes in the underlying financial condition and credit capacity of certain of our other investments. We periodically make investments in medical device companies that focus on heart failure and heart pump technologies. We monitor any events or changes in circumstances that may have a significant effect on the fair value of our other investments, either due to impairment or based on observable price changes, and make any necessary adjustments. Should these companies experience a decline in financial condition or credit capacity, or fail to meet certain development milestones, a decline in the investments’ values may occur, resulting in unrealized or realized losses.
The aggregate carrying amount of our investments in medical device companies was $70.3 million and $63.0 million as of March 31, 2022 and 2021, respectively, and is classified within other assets on our consolidated balance sheets.
In fiscal year 2019, we invested $25.0 million in medical device company, Shockwave Medical. In fiscal year 2021, we sold approximately 1.4 million shares in Shockwave Medical for cash proceeds of $67.9 million and recognized a gain of $47.3 million. The fair value of this investment as of March 31, 2022 was $61.5 million and we recognized a pre-tax gain of $22.9 million in interest and other income, net due to the change in fair value from fiscal year 2021.
ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from the discussion under the heading “Part IV, Item 15. Exhibits, Financial Statement Schedules” of this Report.
