Basis of Presentation and Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2014 |
Accounting Policies [Abstract] | ' |
Basis of Presentation and Summary of Significant Accounting Policies | ' |
Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation and Principles of Consolidation |
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The condensed consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures including notes required by GAAP for complete financial statements. |
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly its financial position as of March 31, 2014 and results of its operations, comprehensive loss and cash flows for the three months ended March 31, 2014 and 2013. The interim results are not necessarily indicative of the results for any future interim period or for the entire year. Certain prior period amounts have been reclassified to conform to current period presentation. |
The unaudited interim condensed consolidated financial statements include the amounts of Codexis, Inc. and its wholly-owned subsidiaries in the United States, Brazil, Hungary (through the sale date of March 13, 2014), India, Mauritius, The Netherlands and Singapore. All significant intercompany balances and transactions have been eliminated in consolidation. |
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, disclosures of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company's management regularly assesses these estimates which primarily affect revenue recognition, the valuation of marketable securities and accounts receivable, held for sale assets, intangible assets, goodwill arising out of business acquisitions, inventories, accrued liabilities, stock awards and the valuation allowances associated with deferred tax assets. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements. |
Foreign Currency Translation |
The assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, are translated from their respective functional currencies into United States dollars at the exchange rates in effect at the balance sheet date, with resulting foreign currency translation adjustments recorded in the consolidated statement of comprehensive loss. Revenue and expense amounts are translated at average rates during the period. |
Where the United States dollar is the functional currency, nonmonetary assets and liabilities originally acquired or assumed in other currencies are recorded in United States dollars at the exchange rates in effect at the date they were acquired or assumed. Monetary assets and liabilities denominated in other currencies are translated into United States dollars at the exchange rates in effect at the balance sheet date. Translation adjustments are recorded in interest expense and other, net in the accompanying condensed consolidated statements of operations. Gains and losses realized from transactions, including intercompany balances not considered as permanent investments, denominated in currencies other than an entity’s functional currency, are included in interest expense and other, net in the accompanying consolidated statements of operations. |
Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, accounts receivable and restricted cash. Cash and cash equivalents, marketable securities and restricted cash are invested through banks and other financial institutions in the United States, as well as in other foreign countries. Such deposits may be in excess of insured limits. |
Credit risk with respect to accounts receivable exists to the extent of amounts presented in the condensed consolidated financial statements. The Company estimates an allowance for doubtful accounts through specific identification of potentially uncollectible accounts receivable based on an analysis of its accounts receivable aging. Uncollectible accounts receivable are written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted. Recoveries are recognized when they are received. Actual collection losses may differ from its estimates and could be material to its consolidated financial position, results of operations, and cash flows. |
The Company's top five customers accounted for 90% and 94% of the Company's total revenues for the three months ended March 31, 2014 and 2013, respectively. Major customers that represented more than 10% of total Company revenue for the three months ended March 31, 2014 were Novartis at 28%, Exela at 27% and Merck at 22%. Major customers that represented more than 10% of total Company revenue for the three months ended March 31, 2013 were Merck at 41%, Arch at 19%, Novartis at 12% and Pfizer at 12%. |
Accounts receivable balances for customers that represented more than 10% of accounts receivable as of March 31, 2014 were Novartis at 40%, Exela at 15% and Merck at 14%. Novartis had a balance of 50% of the Company's accounts receivable as of December 31, 2013. |
Fair Value of Financial Instruments |
The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable, approximate fair value due to their short maturities. |
Fair value is considered to be the price at which an asset could be exchanged or a liability transferred (an exit price) in an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments and the instruments’ complexity. |
Cash, Cash Equivalents and Marketable Securities |
The Company considers all highly liquid investments with maturity dates of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. Marketable securities included in current assets are comprised of corporate bonds. The Company's investment in common shares of CO2 Solutions Inc. (“CO2 Solutions”) is included in non-current marketable securities. |
The Company performs separate evaluations of impaired debt and equity securities to determine if the unrealized losses as of the balance sheet date are other-than-temporary impairment. |
For the Company's investments in equity securities, its evaluation considers a number of factors including, but not limited to, the length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, and its management’s ability and intent to hold the securities until fair value recovers. The assessment of the ability and intent to hold these securities to recovery focuses on its current and forecasted liquidity requirements and capital requirements. As of March 31, 2014, there were no unrealized losses related to the Company's equity securities. |
For the Company's investments in debt securities, management determines whether it intends to sell or if it is more-likely-than-not that the Company will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements and capital requirements. For all impaired debt securities for which there was no intent or expected requirement to sell, the evaluation considers all available evidence to assess whether it is likely the amortized cost value will be recovered. The Company conducts a regular assessment of its debt securities with unrealized losses to determine whether the securities have other-than-temporary impairment considering, among other factors, the nature of the securities, credit rating or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows of underlying collateral and market conditions. As of March 31, 2014, there were no unrealized losses related to the Company's debt securities. |
The Company's investments in debt and equity securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses are reported on the condensed consolidated statement of comprehensive loss unless considered other-than-temporary. Amortization of purchase premiums and accretion of purchase discounts, realized gains and losses of debt securities and declines in value deemed to be other than temporary, if any, are included in interest income or other expenses. The cost of securities sold is based on the specific-identification method. There were no significant realized gains or losses from sales of marketable securities during the three months ended March 31, 2014 and 2013. |
Impairment of Long-Lived Assets and Intangible Assets |
Long-lived and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. |
The Company's intangible assets with finite lives consist of customer relationships, developed core technology, trade names, and the intellectual property (“IP”) rights associated with the acquisition of Maxygen Inc.'s ("Maxygen") directed evolution technology in 2010. Intangible assets were recorded at their fair values at the date the Company acquired the assets and, for those assets having finite useful lives, are amortized using the straight-line method over their estimated useful lives. The Company's long-lived assets include property, plant and equipment, and other non-current assets. |
The Company determined that it has a single entity wide asset group (“Asset Group”). The directed evolution technology patent portfolio acquired from Maxygen (“Core IP”) is the most significant component of the Asset Group since it is the base technology for all aspects of the Company's research and development activities, and represents the basis for all of the Company's identifiable cash flow generating capacity. Consequently, the Company does not believe that identification of independent cash flows associated with its long-lived assets is currently possible at any lower level than the Asset Group. |
The Core IP is the only finite-lived intangible asset on the Company's consolidated balance sheet as of March 31, 2014 and is considered the primary asset within the Asset Group. There has been no significant change in the utilization or estimated life of the Core IP since the Company acquired the technology patent portfolio from Maxygen. |
The carrying value of the Company's long-lived assets in the Asset Group may not be recoverable based upon the existence of one or more indicators of impairment which could include: a significant decrease in the market price of the Company's common stock; current period cash flow losses or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the assets; slower growth rates in the Company's industry; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the assets; loss of significant customers or partners; or the current expectation that the assets will more likely than not be sold or disposed of significantly before the end of their estimated useful life. |
The Company evaluates recoverability of its long-lived assets and intangible assets based on the sum of the undiscounted cash flows expected to result from the use, and the eventual disposal of, the Asset Group. The Company makes estimates and judgments about the future undiscounted cash flows over the remaining useful life of the Asset Group. The Company's anticipated future cash flows include its estimates of existing or in process product revenues, production and operating costs, future capital expenditures, working capital needs, and assumptions regarding the ultimate sale of the Asset Group at the end of the life of the primary asset. The useful life of the Asset Group was based on the estimated useful life of the Core IP, the primary asset at the time of acquisition. There has been no change in the estimated useful life of the Asset Group. Although the Company's cash flow forecasts are based on assumptions that are consistent with our plans, there is significant judgment involved in determining the cash flows attributable to the Asset Group over its estimated remaining useful life. |
In the fourth quarter of 2013, the Company determined that its continued annual operating losses and a decline in market price of the Company’s common stock, reduced anticipated future cash flows related to potential CodeXyme® cellulase enzyme and CodeXol® detergent alcohols transactions and reduced future revenue growth to reflect the Company’s most recent outlook were indicators of impairment. As a result, the Company undertook an impairment analysis in the fourth quarter of 2013. |
The results of the Company's fourth quarter 2013 impairment analysis indicated that the undiscounted cash flows for the Asset Group were greater than the carrying value of the Asset Group by approximately 37%. Based on the results obtained, the Company determined there was no impairment of the Company's intangible assets as of December 31, 2013. |
During the first quarter of 2014, the Company made no changes to the underlying forecasts nor did the Company identify any additional indicators of potential impairment or other new information that would have a material impact on the forecast or the impairment analysis prepared as of December 31, 2013. |
Valuation of Goodwill |
The Company reviews goodwill impairment annually in the fourth quarter of each of its fiscal years and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. |
The Company determined that it has only one operating segment and reporting unit under the criteria in ASC 280, Segment Reporting. Accordingly, the Company's review of goodwill impairment indicators is performed at the Company level. |
The goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not required. |
The Company uses its market capitalization as an indicator of fair value. The Company believes that since its reporting unit is publicly traded, the ability of a controlling stockholder to benefit from synergies and other intangible assets that arise from control might cause the fair value of the Company's reporting unit as a whole to exceed its market capitalization. However, the Company believes that the fair value measurement need not be based solely on the quoted market price of an individual share of the Company's common stock, but also can consider the impact of a control premium in measuring the fair value of its reporting unit. |
If the Company were to use an income approach it would establish a fair value by estimating the present value of its projected future cash flows expected to be generated from its business. The discount rate applied to the projected future cash flows to arrive at the present value would be intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The Company's discounted cash flow methodology would consider projections of financial performance for a period of several years combined with an estimated residual value. The most significant assumptions it would use in a discounted cash flow methodology are the discount rate, the residual value and expected future revenues, gross margins and operating costs, along with considering any implied control premium. |
Should the Company's market capitalization be less than the total stockholder's equity as of the Company's annual test date or as of any interim impairment testing date, the Company would also consider market comparables, recent trends in the Company's stock price over a reasonable period and, if appropriate, use an income approach to determine whether the fair value of its reporting unit is greater than the carrying amount. |
The second step, if required, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities. The Company bases its fair value estimates on assumptions it believes to be reasonable. Actual future results may differ from those estimates. |
Goodwill was tested for impairment in the fourth quarter of 2013. The Company concluded that the fair value of the reporting unit exceeded the carrying value and no impairment existed. No impairment charges were recorded during the year ended December 31, 2013. During the first quarter of 2014, the Company did not identify any indicators of impairment that would indicate that the carrying value of goodwill may not be recoverable. |
Restricted Cash |
Restricted cash consisted of amounts invested in money market accounts primarily for purposes of securing a standby letter of credit as collateral for the Company's Redwood City, California facility lease agreement. |
Revenue Recognition |
Revenues are recognized when the four basic revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) products have been delivered, transfer of technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. |
The Company's primary sources of revenues consist of biocatalyst product revenues, biocatalyst research and development agreements and revenue sharing arrangements. Biocatalyst research and development agreements typically provide the Company with multiple revenue streams, including up-front fees for licensing, exclusivity and technology access, fees for full time employee ("FTE") services and the potential to earn milestone payments upon achievement of contractual criteria and royalty fees based on future product sales or cost savings achieved by the Company's customers. |
For each source of biocatalyst research and development revenues, biocatalyst product revenues and revenue sharing revenues, the Company applies the following revenue recognition criteria: |
Biocatalyst product revenues are recognized once passage of title and risk of loss has occurred and contractually specified acceptance criteria, if any, have been met, provided all other revenue recognition criteria have also been met. Product revenues consist of sales of biocatalyst intermediates, active pharmaceutical ingredients and Codex Biocatalyst Panels and Kits. Cost of product revenues includes both internal and third party fixed and variable costs including amortization of purchased technology, materials and supplies, labor, facilities and other overhead costs associated with the Company's biocatalyst product revenues. |
Revenue sharing arrangement revenues are recognized based upon sales of licensed products by the Company's revenue share partner Exela (see Note 9 "Related Party Transactions"). Revenue share amounts received are net of product and selling costs. The Company bases its estimates of earned revenue on notification from its revenue share partner of the Company’s share of net profit based on the contractual percentage from the sale of licensed product. The Company bases its estimates on notification of the sale of revenue sharing products and related costs by its revenue share partner. |
Up-front fees received in connection with biocatalyst research and development agreements, including license fees, technology access fees, and exclusivity fees, are deferred upon receipt, are not considered a separate unit of accounting and are recognized as revenues over the relevant performance periods related to the combined units of accounting appropriate for each customer arrangement. |
Revenues related to FTE services recognized as research services are performed over the related performance periods for each contract. The Company performs biocatalyst research and development activities as specified in each respective customer agreement. The payments received are not refundable and are based on a contractual reimbursement rate per FTE working on the project. When up-front payments are combined with FTE services in a single unit of accounting, the Company recognizes the up-front payments using the proportionate performance method of revenue recognition based upon the actual amount of research and development labor hours incurred relative to the amount of the total expected labor hours to be incurred by the Company, up to the amount of cash received. In cases where the planned levels of research services fluctuate substantially over the research term, the Company is required to make estimates of the total hours required to perform the Company's obligations. Research and development expenses related to FTE services under the collaborative research and development agreements approximate the research funding over the term of the respective agreements. |
A payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can only be achieved based in whole or in part on either the Company's performance or on the occurrence of a specific outcome resulting from its performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) results in additional payments being due to the Company. Milestones are considered substantive when the consideration earned from the achievement of the milestone (i) is commensurate with either the Company's performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from its performance, (ii) relates solely to past performance, and (iii) is reasonable relative to all deliverable and payment terms in the arrangement. |
Other payments received for which such payments are contingent solely upon the passage of time or the result of a collaborative partner’s performance are recognized as revenue when earned in accordance with the contract terms and when such payments can be reasonably estimated and collectability is reasonably assured. |
The Company recognizes revenues from royalties based on licensees’ sales of products using the Company's technologies. Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured. The Company bases its estimates on notification the sale of licensed products from licensees. |
Through 2012, the Company received payments from government entities for work performed in the form of government awards. Government awards are agreements that generally provide the Company with cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. Revenues from government awards are recognized in the period during which the related costs are incurred, provided that the conditions under which the government awards were provided have been met and the Company has only perfunctory obligations outstanding. |
Shipping and handling costs charged to customers are recorded as revenues. Shipping costs are included in the Company's cost of biocatalyst products revenues. Such charges were not significant in any of the periods presented. |
Income Taxes |
The Company uses the liability method of accounting for income taxes, whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount that will more likely than not be realized. |
The Company makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to the Company's tax provision in a subsequent period. |
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized on a jurisdiction by jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income in the future. The Company has recorded a deferred tax asset in jurisdictions where ultimate realization of deferred tax assets is more likely than not to occur. |
The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with its plans and estimates. Should the actual amounts differ from its estimates, the amount of its valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement for the periods in which the adjustment is determined to be required. With the sale of the Hungarian subsidiary during the quarter ended March 31, 2014, the related net operating losses and other tax attributes are no longer available to the Company. The related deferred tax assets had a full valuation allowance and, as a result, their removal did not have a material impact to the financial statements. |
The Company accounts for uncertainty in income taxes as required by the provisions of ASC Topic 740, Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes. |
The Tax Reform Act of 1986 and similar state provisions limit the use of net operating loss carryforwards in certain situations where equity transactions result in a change of ownership as defined by Internal Revenue Code Section 382. In the event the Company should experience an ownership change, as defined, utilization of the Company's federal and state net operating loss carryforwards could be limited. |
Stock-Based Compensation |
The fair value of stock options is estimated at grant date using the Black-Scholes option pricing model. The Company’s determination of fair value of stock options on the date of grant, using an option pricing model, is affected by the Company’s stock price, as well as the assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and projected employee stock option exercise behaviors. The fair value of each restricted stock unit grant, each restricted stock award unit and each performance stock unit grant is based on the underlying value of the Company’s common stock on the date of grant. In addition, the Company estimates the expected forfeiture rate and only recognizes expense for those awards expected to vest. The Company estimates the forfeiture rate based on historical experience and to the extent the actual forfeiture rate is different from the estimate, share-based compensation expense is adjusted accordingly. The Company generally uses the straight-line method to allocate stock-based compensation expense to the appropriate reporting periods. Some awards are accounted for using the accelerated method as appropriate for the terms of the awards. |
The Company accounts for stock awards issued to non-employees based on their estimated fair value determined using the Black-Scholes option-pricing model. Compensation expense for the stock awards granted to non-employees is recognized based on the fair value of awards as they vest, during the period the related services are rendered. |
Net Loss per Share |
Basic net loss per share of common stock is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less the weighted-average unvested common stock subject to repurchase. Diluted net loss per share of common stock is computed by giving effect to all potential common shares, consisting of stock options, restricted stock units, performance stock units and warrants, to the extent dilutive. Basic and diluted net loss per share of common stock was the same for each period presented as the inclusion of all potential common shares outstanding was anti-dilutive. |
The following options to purchase common stock, restricted stock units, performance stock units and warrants to purchase common stock were excluded from the computation of diluted net loss per share of common stock for the three months ended March 31, 2014 and 2013 (in thousands): |
|
| | | |
| Three Months Ended March 31, |
| 2014 | | 2013 |
Options to purchase common stock | 4,333 | | 5,117 |
Restricted stock units/awards | 1,975 | | 1,626 |
Performance stock units | 775 | | 523 |
Warrants to purchase common stock | 75 | | 260 |
Total shares excluded as anti-dilutive | 7,158 | | 7,526 |
Recently Issued and Adopted Accounting Guidance |
There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the financial statements. |