SHOCKWAVE MEDICAL, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)


You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed financial statements and
related notes included in this Quarterly Report on Form 10-Q and our audited
consolidated financial statements and related notes thereto contained in our
Annual Report on Form 10-K for the year ended December 31, 2021. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Quarterly Report on Form 10-Q, including information with respect to our
plans and strategy for our business, includes forward-looking statements that
involve risks and uncertainties. As a result of many important factors,
including those set forth under "Special Note Regarding Forward-Looking
Statements," in the "Risk Factors" section of this Quarterly Report on Form 10-Q
and in the "Risk Factors" section of our Annual Report on Form 10-K for the year
ended December 31, 2021, our actual results could differ materially from the
results described in, or implied, by those forward-looking statements.

Insight

We are a medical device company focused on developing and commercializing
products intended to transform the way calcified cardiovascular disease is
treated. We aim to establish a new standard of care for medical device treatment
of atherosclerotic cardiovascular disease through our differentiated and
proprietary local delivery of sonic pressure waves for the treatment of
calcified plaque, which we refer to as intravascular lithotripsy ("IVL"). Our
IVL system (our "IVL System"), which leverages our IVL technology (our "IVL
Technology"), is a minimally invasive, easy-to-use, and safe way to
significantly improve patient outcomes. We are currently selling the following
products in a number of countries around the world where we have applicable
regulatory approvals:

Products for the treatment of peripheral arterial disease (“PAD”):

•Our Shockwave M5 IVL catheter (the "M5 catheter") and M5+ IVL catheter ("M5+
catheter") are five-emitter catheters for use in our IVL System in "medium"
vessels for the treatment of above-the-knee PAD. The M5 catheter was CE-Marked
in April 2018 and cleared by the U.S. Food and Drug Administration ("FDA") in
July 2018. The M5+ catheter, for which we are currently initiating a limited
market release in the United States and select international locations, was
CE-Marked in November 2020 and cleared by the FDA in April 2021.

•Our Shockwave S4 IVL catheter ("S4 catheter") is a four-emitter catheter for
use in our IVL System in small vessels for the treatment of below-the-knee PAD.
The second version of our S4 catheter was cleared by the FDA in August 2019 and
accepted by our EU notified body in May 2020 for use in our IVL System.

Product for the treatment of coronary artery disease (“CAD”):

•Our Shockwave C2 IVL catheter ("C2 catheter") is a two-emitter catheter for use
in our IVL System for the treatment of CAD. The C2 catheter was CE-Marked in
June 2018. In August 2019, we received the Breakthrough Device Designation from
the FDA for our C2 catheters using our IVL System for the treatment of CAD. In
August 2020, we submitted an application to the FDA for U.S. pre-market approval
of our C2 catheters, which was approved by the FDA in February 2021. In March
2021, we submitted DISRUPT CAD III and DISRUPT CAD IV data to support our Shonin
submission in Japan for our C2 Catheters and received approval in March 2022.

Our differentiated range of M5 and M5+ catheters, S4 catheters and C2 catheters
enables delivery of IVL therapy of diseased vasculature throughout the body for
calcium modification. Our IVL catheters resemble in form a standard balloon
angioplasty catheter, the device most commonly used by interventionalists. This
familiarity makes our IVL System easy to learn, adopt and use on a day-to-day
basis.

Since inception, we have focused on generating clinical data to demonstrate the
safety and effectiveness of our IVL Technology. These initial studies have
consistently shown low rates of complications regardless of which vessel was
being studied. In addition to gaining regulatory approvals or clearances, the
data from our clinical studies strengthen our ability to drive adoption of IVL
Technology across multiple therapies in existing and new market segments. Our
past studies have also guided optimal IVL procedure technique and informed the
design of our IVL System and future products in development. In addition, we
also have ongoing clinical programs across several products and indications,
which, if successful, will allow us to expand commercialization of our products
into new geographies and indications.

The first two indications we target with our IVL system are PAD, the narrowing or blockage of vessels that carry blood from the heart to the extremities, and CAD, the narrowing or blockage of arteries that supply blood.

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heart. In the future, we see significant opportunity in the potential treatment
of aortic stenosis, a condition where the heart's aortic valve becomes
increasingly calcified with age, causing it to narrow and obstruct blood flow
from the heart.

We have adapted the use of lithotripsy to the cardiovascular field with the aim
of creating what we believe can become the safest, most effective means of
addressing the growing challenge of cardiovascular calcification. Lithotripsy
has been used to successfully treat kidney stones (deposits of hardened calcium)
for over 30 years. By integrating lithotripsy into a device that resembles a
standard balloon catheter, physicians can prepare, deliver, and treat calcified
lesions using a familiar form factor, without disruption to their standard
procedural workflow. Our differentiated IVL System works by delivering
shockwaves through the entire depth of the artery wall, modifying calcium in the
medial layer of the artery, not just at the superficial most intimal layer. The
shockwaves crack this calcium and enable the stenotic artery to expand at low
pressures, thereby minimizing complications inherent to traditional balloon
dilations, such as dissections or tears. Preparing the vessel with IVL
facilitates optimal outcomes with other therapies, including stents and
drug-eluting technologies. Using IVL also avoids complications associated with
atherectomy devices such as dissection, perforation, and embolism. When followed
by an anti-proliferative therapy such as a drug-coated balloons or drug-eluting
stents, the micro-fractures may enable better drug penetration into the arterial
wall and improve drug uptake, thereby improving the effectiveness of the
combination treatment.

We market our products to hospitals whose interventional cardiologists, vascular
surgeons, and interventional radiologists treat patients with PAD and CAD. We
have dedicated meaningful resources to establish a direct sales capability in
the United States, Germany, Austria, Switzerland, France, and the United
Kingdom, and we are working to build out our direct sales team in Japan in
anticipation of the launch of our C2 catheters, for which we received Japanese
regulatory approval in March 2022. We have complemented our direct sales
capability with distributors actively selling our products in over 50 countries
in North and South America, Europe, the Middle East, Asia, Africa, and
Australia/New Zealand. We are actively expanding our international field
presence through new distributors, as well as additional sales and clinical
personnel. In addition, we are continuing to add new U.S. sales territories.

For the three months ended March 31, 2022 and 2021, we generated product revenue
of $93.6 million and $31.9 million, respectively, and income from operations of
$15.4 million and a loss of operations of $17.5 million, respectively. For the
three months ended March 31, 2022 and 2021, 16% and 34%, respectively, of our
product revenue was generated from customers located outside of the United
States.

Since inception, we have incurred significant net losses. Although we had
positive net income for the quarter ended March 31, 2022, we had a net loss for
the year ended December 31, 2021. We may continue to incur losses in the future,
which may vary significantly from period to period. We expect to continue to
incur significant expenses as we (i) expand our marketing efforts to increase
adoption of our products, (ii) expand existing relationships with our customers,
(iii) obtain regulatory clearances or approvals for our planned or future
products, (iv) conduct clinical trials on our existing and planned or future
products, and (v) develop new products or add new features to our existing
products. We will need to continue to generate significant revenue in order to
sustain profitability as we continue to grow our business. Even if we achieve
profitability for any period, we cannot be sure that we will remain profitable
for any substantial period of time.

To date, our principal sources of liquidity have been the net proceeds we
received through the sale of our common stock in our public offerings, private
sales of equity securities and payments received from customers using our
products. As of March 31, 2022, we had $201.1 million in cash, cash equivalents
and short-term investments and an accumulated deficit of $238.3 million.

Impact of the COVID-19 pandemic

The global COVID-19 pandemic presents significant risks to us and has had, and
continues to have, far reaching impacts on our business, operations, and
financial results and condition, directly and indirectly, including, without
limitation, impacts on: the health of our management and employees; our
manufacturing, distribution, marketing and sales operations; our research and
development activities, including clinical activities; and customer and patient
behaviors.

Access to many hospitals and other customer sites may be or may periodically be,
depending on the current COVID-19 infection rates in the applicable location,
restricted to essential personnel, which negatively impacts our ability to
promote the use of our products with physicians. Additionally, many hospitals
and other therapeutic centers have in the past suspended, and may suspend or
continue to suspend in the future, many elective procedures, resulting in a
reduced volume of procedures using our products. Our customer behavior is
impacted by the prevalence of COVID-19 and changes in the infection rates in the
locations where our customers are located.
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Quarantines, shelter-in-place and similar government orders have also impacted
and may continue to impact, our third-party manufacturers and suppliers, and
could in turn adversely impact the availability or cost of materials, which
could disrupt our supply chain.

In addition, we have recently seen some disruptions in the operations of certain
of our third-party suppliers, resulting in increased lead-times, higher
component costs and lower allocations for our purchase of some components. In
certain cases, this has resulted in us being required to procure materials from
alternate suppliers or incur higher logistical expenses. We are continuing to
work closely with our manufacturing partners and suppliers to enable us to
source key components and maintain appropriate inventory levels to meet customer
demand. We, however, have not experienced material disruptions in our supply
chain to date.

We have taken a variety of steps to address the impact of the COVID-19 pandemic,
while attempting to minimize business disruption. Essential staff in
manufacturing and limited support functions continued to work from our Santa
Clara headquarters following appropriate hygiene and social distancing
protocols. To reduce the risk to our other employees and their families from
potential exposure to COVID-19, until recently all other staff in our Santa
Clara headquarters were required to work from home. Certain of these other
employees had begun to return to our headquarters full or part-time during the
second quarter of 2021, although we continue to review the impact of the omicron
variant of COVID-19 on employee safety. We continue to limit non-essential
travel to protect the health and safety of our employees and customers.

We are continuing to monitor the impact of the COVID-19 pandemic on our
employees and customers and on the markets in which we operate, and will take
further actions that we consider prudent to address the COVID-19 pandemic, while
ensuring that we can support our customers and continue to develop our products.

The ultimate extent of the impact of the COVID-19 pandemic on us remains highly
uncertain and will depend on future developments and factors that continue to
evolve, including the ability of various regions to effectively manage COVID-19,
the extent of the continuing resurgence of COVID-19, the efficacy and extent of
distribution of vaccines, and the impact of mutations of COVID-19, and the
ability of various economies and supply-chains to recover from the COVID-19
pandemic. Most of these developments and factors are outside of our control and
could exist for an extended period of time even after the pandemic might end.

Components of our operating results

Product revenue

Product revenue comes primarily from the sale of our IVL catheters.

We sell our products to hospitals, primarily through direct sales
representatives, as well as through distributors in selected international
markets. For products sold through direct sales representatives, control is
transferred upon delivery to customers. For products sold to distributors
internationally and products sold to customers that utilize stocking orders,
control is transferred upon shipment or delivery to the customer's named
location, based on the contractual shipping terms. Additionally, a portion of
our revenue is generated through a consignment model under which inventory is
maintained at hospitals. For consignment inventory, control is transferred at
the time the catheters are consumed in a procedure.

Product revenue cost

Cost of product revenue consists primarily of costs of components for use in our
products, the materials and labor that are used to produce our products, the
manufacturing overhead that directly supports production and the depreciation
relating to the equipment used in our IVL System to the extent that we loan
generators to our hospital customers without charge to facilitate the use of our
IVL catheters in their procedures. We depreciate equipment over a three-year
period. We expect cost of product revenue to increase in absolute terms as our
revenue grows.

Our gross margin has been and will continue to be affected by a variety of
factors, primarily production volumes, the cost of direct materials, product
mix, geographic mix, discounting practices, manufacturing costs, product yields,
headcount and cost-reduction strategies. We expect our gross margin percentage
to marginally increase over the long term to the extent we are successful in
increasing our sales volume and are therefore able to leverage our fixed costs.
We intend to use our design, engineering and manufacturing capabilities to
further advance and improve the efficiency of our manufacturing processes,
which, if successful, we believe will reduce costs and enable us to increase our
gross margin percentage. While we expect gross margin percentage to increase
over the long term, it will likely fluctuate from quarter to quarter as we
continue to introduce new products and adopt new manufacturing processes and
technologies.
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Research and development costs

Research and development (“R&D”) expenses include personnel, consulting, material and applicable clinical trial costs. R&D expenses include:

•certain personnel expenses, including salaries, benefits, bonuses, travel and stock-based compensation;

•the cost of clinical studies to support new products and product improvements, including expenses of clinical research organizations and site payments;

•materials and supplies used for internal R&D and clinical activities;

•allocated general expenses, including expenses related to facilities and information technology; and

•the cost of external consultants involved in technology development, regulatory affairs, clinical affairs and quality assurance.

R&D costs are expensed as incurred. In the future, we expect R&D expenses to
increase in absolute dollars as we continue to develop new products, enhance
existing products and technologies, and perform activities related to obtaining
additional regulatory approvals.

Sales and marketing expenses

Sales and marketing expenses consist of personnel-related expenses, including
salaries, benefits, sales commissions, travel, and stock-based compensation.
Other sales and marketing expenses consist of marketing and promotional
activities, including trade shows and market research. We expect to continue to
grow our sales force and increase marketing efforts as we continue
commercializing products based on our IVL Technology. As a result, we expect
sales and marketing expenses to increase in absolute dollars over the long term.

General and administrative expenses
General and administrative expenses consist of personnel-related expenses,
including salaries, benefits, bonus, travel, and stock-based compensation. Other
general and administrative expenses consist of professional services fees,
including legal, audit and tax fees, insurance costs, outside consultant fees
and employee recruiting and training costs. Moreover, we expect to incur
additional expenses associated with operating as a public company, including
legal, accounting, insurance, exchange listing and Securities and Exchange
Commission ("SEC") compliance and investor relations. As a result, we expect
general and administrative expenses to increase in absolute dollars in future
periods.

Share in the net loss of the investment under the equity method

The share of net investment loss under the equity method represents our share of the underlying income or loss incurred in our joint venture with Genesis MedTech International Private Limited (“Genesis”).

Interest expense

Includes interest and amortization expense related to our outstanding term loan maturing in December 2023.

Other income (expenses), net

Other income (expense), net, includes interest earned on our cash equivalents and short-term investments and the net impact of foreign exchange gains and losses.

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Operating results

Comparison of the three months ended March 31, 2022 and 2021

The following table shows our results of operations for the three months ended
March 31, 2022 and 2021:

                                               Three Months Ended March 31,              Change              Change
                                                 2022                  2021                $                   %
                                                                (in thousands, except percentages)
Revenue:
Product revenue                            $       93,631          $  31,900          $  61,731               194%
Cost of revenue:
Cost of product revenue                            12,890              7,892              4,998               63%
Gross profit                                       80,741             24,008             56,733               236%
Operating expenses:
Research and development                           17,019             10,277              6,742               66%
Sales and marketing                                35,961             23,992             11,969               50%
General and administrative                         12,389              7,226              5,163               71%
Total operating expenses                           65,369             41,495             23,874               58%
Income (loss) from operations                      15,372            (17,487)            32,859               188%
Share in net loss of equity method
investment                                            (47)            (5,523)            (5,476)             (99)%
Interest expense                                     (297)              (312)               (15)              (5)%
Other expense, net                                   (310)              (235)                75               32%
Net income (loss) before taxes                     14,718            (23,557)            38,275               162%
Income tax provision                                  197                 44                153               348%
Net income (loss)                          $       14,521          $ (23,601)         $  38,122               162%


Product revenue

Product revenue increased by $61.7 million, or 194%, from $31.9 million during
the three months ended March 31, 2021 to $93.6 million during the three months
ended March 31, 2022.

The following table represents our product revenues by product line:

                                 Three Months Ended March 31,              Change       Change
                                      2022                    2021           $            %
                                           (in thousands, except percentages)
       Coronary           $        70,337                  $ 15,308      $ 55,029        359%
       Peripheral                  22,852                    16,141         6,711        42%
       Other                          442                       451            (9)       (2)%
       Product revenue    $        93,631                  $ 31,900      $ 61,731        194%


Coronary product revenue increased by $55.0 million, or 359%, from $15.3 million
for the three months ended March 31, 2021 to $70.3 million for the three months
ended March 31, 2022. In February 2021, we received U.S. FDA approval for our C2
catheters. The increase in coronary product revenue was primarily due to the
commencement of sales of our C2 catheters in the United States, increased
adoption of our products internationally, and continued recovery from the impact
of the COVID-19 pandemic in the prior year.


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Peripheral product revenue increased by $6.7 million, or 42%, from $16.1 million
for the three months ended March 31, 2021 to $22.9 million for the three months
ended March 31, 2022. The change was due to an increase in purchase volume of
our M5, M5+ and S4 IVL catheters within the United States and internationally
driven by increased adoption of our products and recovery from the impact of the
COVID-19 pandemic in the prior year.

We sold to a greater number of customers in the United States and to a greater
number of distributors internationally for the three months ended March 31, 2022
as compared to the three months ended March 31, 2021. Product revenue,
classified by the major geographic areas in which our products are shipped, was
$78.5 million within the United States and $15.1 million for all other countries
in the three months ended March 31, 2022 compared to $21.0 million within the
United States and $10.9 million for all other countries in the three months
ended March 31, 2021.

Cost of Product Revenue, Gross Margin and Gross Margin Percentage

Cost of product revenue increased by $5.0 million, or 63%, from $7.9 million
during the three months ended March 31, 2021 to $12.9 million during the three
months ended March 31, 2022. Gross margin percentage improved to 86% for the
three months ended March 31, 2022, compared to 75% for the three months ended
March 31, 2021. This change in gross margin percentage was primarily due to a
higher average selling price and lower fixed costs per unit from increased sales
volume of our IVL catheters and efficiencies from improvements to operations and
production.

Research and development costs

The following table summarizes our R&D expenses incurred during the periods
presented:

                                                  Three Months Ended March 31,               Change              Change
                                                     2022                  2021                $                   %
                                                         (in thousands)
Compensation and personnel-related costs      $        10,534          $   6,098          $   4,436               73%
Clinical-related costs                                  1,906              2,519               (613)             (24)%
Materials and supplies                                  1,055                 27              1,028              3,807%
Facilities and other allocated costs                    2,023              1,032                991               96%
Outside consultants                                     1,028                467                561               120%
Other research and development costs                      473                134                339               253%

Total research and development expenditure $17,019 $10,277 $6,742

               66%


R&D expenses increased by $6.7 million, or 66%, from $10.3 million during the
three months ended March 31, 2021 to $17.0 million during the three months ended
March 31, 2022. The change was primarily due to a $4.4 million increase in
compensation and personnel-related costs due to an increase in headcount, a $1.0
million increase in materials and supplies, a $1.0 million increase in
facilities and other allocated costs due to increased information technology,
rent and building expenditures, a $0.6 million increase in outside consultants,
and a $0.3 million increase in other research and development costs. This was
partially offset by a decrease in clinical-related costs of $0.6 million due to
completion of patient enrollment for the majority of clinical trials.

Sales and marketing expenses

Sales and marketing expenses increased by $12.0 million, or 50%, from $24.0
million during the three months ended March 31, 2021 to $36.0 million during the
three months ended March 31, 2022. The change was primarily due to a $6.8
million increase in compensation and personnel-related costs, resulting from
increased headcount and commissions driven by increased sales of our products.
There was also a $2.9 million increase in travel related costs, a $0.9 million
increase in marketing and promotional costs, a $1.1 million increase in
facilities and other allocated costs, a $0.3 million increase in professional
services and consulting costs, and a $0.2 million increase in general corporate
costs. This was partially offset by a $0.2 million decrease in materials and
supplies.
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General and administrative expenses

General and administrative expenses increased by $5.2 million, or 71%, from $7.2
million during the three months ended March 31, 2021 to $12.4 million during the
three months ended March 31, 2022. The change was primarily due to a $2.3
million increase in compensation and personnel-related costs, a $0.7 million
increase in general corporate costs, a $1.4 million increase in professional
services and consulting costs, a $0.4 million increase in facilities and other
allocated costs, and a $0.4 million increase in travel related costs.

Share in the net loss of the investment under the equity method

The decrease in share in net loss of equity method investment of $5.5 million
for the three months ended March 31, 2022 was due to in-process research and
development costs expensed in the three months ended March 31, 2021.

Interest expense

Interest expense of $0.3 million for the three months ended March 31, 2022 was
related to our outstanding term loan which matures in December 2023. The term
loan requires monthly repayments of principal starting in July 2022.

Other expenses, net

Other expense, net increased by $0.1 million, or 32%, from $0.2 million during
the three months ended March 31, 2021 to $0.3 million during the three months
ended March 31, 2022. The increase in other expense was primarily due to
increased foreign exchange losses, partially offset by an increase in interest
income due to the increased interest rate environment.

Cash and capital resources

To date, our principal sources of liquidity have been the net proceeds of $280.0
million that we received through the sales of our common stock in our public
offerings, $10.0 million of private sales of our equity securities, payments
received from customers using our products and to a lesser extent proceeds from
our debt financings.

We have a number of ongoing clinical trials and expect to continue to make
substantial investments in these trials and in additional clinical trials that
are designed to provide clinical evidence of the safety and efficacy of our
products. We intend to continue to make significant investments in our sales and
marketing organization by increasing the number of U.S. sales representatives
and expanding our international marketing programs to help facilitate further
adoption among existing hospital accounts and physicians as well as broaden
awareness of our products to new hospitals. We also expect to continue to make
investments in R&D, regulatory affairs, and clinical studies to develop future
generations of products based on our IVL Technology, support regulatory
submissions, and demonstrate the clinical efficacy of our products. Moreover, we
expect to continue to incur expenses associated with operating as a public
company, including legal, accounting, insurance, exchange listing and SEC
compliance, investor relations and other expenses. Because of these and other
factors, although we had positive net income for the quarter ended March 31,
2022, we had a net loss for the year ended December 31, 2021 and we may incur
net losses and have negative cash flows from operations in the future.

From March 31, 2022we have had $201.1 million in cash, cash equivalents and short-term investments and an accumulated deficit of $238.3 million. In the short term, we believe that our cash, cash equivalents and short-term investments will be sufficient for at least the next 12 months to meet our cash needs and plans, including to support cash requirements. turnover and capital expenditures. Over the long term, our ability to meet our working capital and capital expenditure requirements will depend on many factors, including:

•the cost, timing and results of our clinical trials and regulatory reviews;

•the cost of our research and development activities for new and modified products;

•the cost and timing of establishing sales, marketing and distribution capabilities;

• the terms and timing of any other collaboration, licensing and other agreements we may establish, including any contract manufacturing agreements;

•the timing, receipt and amount of sales of our current and potential products;

•the degree of success we have had in marketing our products;

•the emergence of competing or complementary technologies;

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•the cost of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights; and

•the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements regarding any of these types of transactions.

To the extent that current and anticipated future sources of liquidity are
insufficient to fund our future business activities and cash and other
requirements, we may be required to seek additional equity or debt financing.
The sale of additional equity would result in additional dilution to our
stockholders. The incurrence of additional debt financing would result in debt
service obligations and the instruments governing such debt could provide for
operating and financing covenants that would restrict our operations. In the
event that additional financing is required from outside sources, there is a
possibility we may not be able to raise it on terms acceptable to us or at all.
If we are unable to raise additional capital when desired, our business,
operating results, and financial condition could be adversely affected.

Manufacturing purchase obligations

We have engaged a contract manufacturer to produce and supply us with certain
products. We have fixed commitments of approximately $11.1 million within the
next twelve months.

Operating Leases

Our operating lease commitments mostly consist of our lease obligations for our
Santa Clara headquarter office spaces. Our total operating lease commitments as
of March 31, 2022 are approximately $55.6 million, of which $4.3 million is
expected to be paid within the next twelve months.

There have been no other significant changes during the three months ended March 31, 2022 to our contractual obligations in relation to those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021.

We did not have during the periods presented, and we do not currently have, any
commitments or obligations, including contingent obligations, arising from
arrangements with unconsolidated entities or persons that have or are reasonably
likely to have a material current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, cash requirements or capital resources.

Cash flow

The following table summarizes our cash flows for the periods indicated:

                                                                      Three 

Months ended March, 31st,

                                                                        2022                  2021
Net cash provided by (used in):                                              (in thousands)
Operating activities                                             $         1,937          $  (17,303)
Investing activities                                                     (27,414)             27,086
Financing activities                                                       2,520              (3,200)
Net increase (decrease) in cash, cash equivalents and restricted
cash                                                             $       (22,957)         $    6,583


Operating activities

During the three months ended March 31, 2022, cash provided by operating
activities was $1.9 million, attributable to a net income of $14.5 million,
non-cash charges of $11.6 million, partially offset by a net change in our net
operating assets and liabilities of $24.2 million. Non-cash charges of $11.6
million primarily consisted of $9.5 million in stock-based compensation, $1.0
million in depreciation and amortization, and $0.8 million in amortization of
right-of-use assets. The change in our net operating assets and liabilities of
$24.2 million was primarily due to a $10.4 million increase in accounts
receivable due to an increase in sales, a $10.1 million increase in inventory
driven by an increase in raw materials and finished goods inventory, and a $9.1
million decrease in accrued and other current liabilities resulting from payment
of accrued bonuses and other compensation in the current quarter. These changes
were partially offset by a $4.9 million increase in accounts payable due to the
timing of vendor billings.
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During the three months ended March 31, 2021, cash used in operating activities
was $17.3 million, attributable to a net loss of $23.6 million and a net change
in our net operating assets and liabilities of $6.0 million and non-cash charges
of $12.3 million. Non-cash charges primarily consisted of $5.5 million in share
of net loss of equity method investment, $5.1 million in stock-based
compensation, $0.7 million in depreciation and amortization, $0.4 million in
amortization of right-of-use assets, $0.4 million in accretion of discount on
available-for-sale securities and $0.2 million in amortization of debt issuance
costs. The change in our net operating assets and liabilities was primarily due
to a $7.9 million increase in accounts receivable due to an increase in sales,
$3.3 million increase in inventory, and a $0.1 million increase in other assets,
prepaid and other current assets and a $0.3 million decrease in lease
liabilities. These changes were partially offset by a $5.6 million increase in
accrued and other current liabilities and accounts payable resulting primarily
from increases in our operating activities and accrued employee compensation due
to an increase in headcount.

Investing activities

During the three months ended March 31, 2022, cash used in investing activities
was $27.4 million, attributable to purchases of available-for-sale investments
of $42.1 million and purchases of property and equipment of $3.3 million,
partially offset by proceeds from maturities of available-for-sale investments
of $18.0 million.

During the three months ended March 31, 2021, cash provided by investing
activities was $27.1 million, attributable to proceeds from maturities of
available-for-sale investments of $46.4 million, partially offset by purchase of
available-for-sale investments of $15.3 million and purchase of property and
equipment of $4.1 million.

Financing activities

During the three months ended March 31, 2022, cash provided by financing
activities was $2.5 million, attributable to proceeds of $2.1 million from the
issuance of shares under our employee stock purchase plan and proceeds of $0.4
million from stock option exercises.

In the three months ended March 31, 2021the cash used by financing activities has been $3.2 millionattributable to the payment of taxes withheld at source on the net vesting of the restricted share units of $5.1 millionpartially offset by $1.1 million proceeds from the issuance of common shares under the employee stock purchase plan and $0.8 million proceeds from the exercise of stock options.

Significant Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of
operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP"). The preparation of these consolidated financial statements
requires us to make estimates and assumptions for the reported amounts of
assets, liabilities, revenue, expenses and related disclosures. Our estimates
are based on our historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions and any such
differences may be material.

There have been no significant changes in our critical accounting policies and
assumptions associated with the greatest potential impact on our consolidated
financial statements as disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2021 in the section titled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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