| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows have been made. The results of operations for the year ended December 31, 2019 are not necessarily indicative of the operating results for any future periods. Reverse Stock Split In connection with our initial public offering of common stock ("IPO"), our board of directors and stockholders approved a 1-for-6.650 reverse stock split of our common stock. The reverse stock split became effective on April 20, 2018. The par value of the common stock was not adjusted as a result of the reverse stock split. Adjustments corresponding to the reverse stock split were made to the ratio at which the convertible preferred stock converted into common stock immediately prior to the closing of the IPO. Accordingly, all share and per-share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and adjustment of the conversion ratio of the convertible preferred stock. Initial Public Offering On May 7, 2018, we completed our IPO by issuing 7,762,500 shares of common stock, at an offering price of $16.00 per share, for net proceeds of approximately $112.0 million after deducting underwriting discounts and commissions and offering expenses payable by us. In connection with the IPO, our outstanding shares of convertible preferred stock were automatically converted into an aggregate of 12,111,710 shares of common stock, and our outstanding warrants to purchase shares of convertible preferred stock were automatically converted into warrants to purchase up to an aggregate of 100,558 shares of common stock, resulting in the reclassification of the related redeemable convertible preferred stock warrant liability of $0.9 million to additional paid-in capital ("APIC"). Follow-On Public Offering On December 11, 2018, we completed a follow-on offering that included our offer and sale of 1,875,000 shares of common stock and the selling stockholders’ offer and sale of 1,000,000 shares of common stock, at a public offering price of $40.00 per share. We received net proceeds of approximately $69.8 million after deducting underwriting discounts and commissions and offering expenses. We received no proceeds from the sale of our common stock by the selling stockholders. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. We use significant judgment when making estimates related to the allowance for doubtful accounts, inventory reserves, warranty reserves, and the valuations of our common stock prior to our IPO, stock-based awards, and certain of our previously outstanding preferred stock warrants. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. JOBS Act Accounting Election Prior to December 31, 2019, we were an emerging growth company under the JOBS Act, and as a result we were eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We elected to take advantage of the extended transition period for adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. However, as we satisfy the definition of a “large accelerated filer” under the definition of the Securities Exchange Act of 1934, as amended, we no longer qualify as an emerging growth company as of December 31, 2019. Therefore we no longer are able to take advantage of the extended transition period for adopting new or revised accounting standards. Cash and Cash Equivalents We consider all highly liquid securities, readily convertible to cash, that mature within 90 days or less from the date of purchase to be cash equivalents. The carrying amount reported in the balance sheets for cash is cost, which approximates fair value. Foreign Currency Sales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Foreign currency transaction gains and losses are included in other (income) expense, net in the statements of operations and comprehensive loss. Assets and liabilities of foreign operations are remeasured at period-end exchange rates with the impacts of foreign currency remeasurement recognized in other (income) expense, net in the statements of operations and comprehensive loss. Investments At December 31, 2019 and 2018, our short-term investments consisted of commercial paper, corporate bonds, asset-backed securities, and U.S. government securities which are classified as available-for-sale and had maturities less than one year. Our long-term investments consisted of corporate bonds. Investments are reported at their estimated fair market value which approximates cost. Any unrealized gains and losses are reported as a separate component of accumulated other comprehensive income (loss). We had $0.1 million of unrecognized income and $0.1 million of unrecognized loss in accumulated other comprehensive income (loss) balance at December 31, 2019 and 2018, respectively. Any realized gains and losses are calculated on the specific identification method and reported net in other (income) expense. For both the years ended December 31, 2019 and 2018, we recognized less than $0.1 million of gains, net. We review our investment portfolio periodically to assess for other-than-temporary impairment. Should we determine that any unrealized losses on the investments are other-than-temporary, the amount of that impairment to be recognized in earnings will depend on whether we intend to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss. Fair Value of Financial Instruments We measure certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, investments, and our previously outstanding preferred stock warrants. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value: Level 1—Observable inputs, such as quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—Other inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves, foreign exchange rates, and credit ratings. Level 3—Unobservable inputs that are supported by little or no market activities, which would require us to develop our own assumptions. We use the methods and assumptions described below in determining the fair value of our financial instruments. Money market funds: Fair values of money market funds are based on quoted market prices in active markets. These are included as Level 1 measurements in the tables below. Commercial paper: Short-term, highly liquid investments are included as a Level 2 measurement in the tables below. Corporate bonds: Consists of short- and long-term notes and bonds with various yields. These are included as a Level 2 measurement in the tables below. Asset-backed securities: Consists of short-term, securitized investments backed by pools of credit card receivables. These are included as a Level 2 measurement in the tables below. U.S. government securities: Consists of U.S. government Treasury bills with original maturities of less than one year. These are included as a Level 1 measurement in the table below. The following tables sets forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of December 31, 2019 and 2018. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Fair Value Measurements as of December 31, 2019 Estimated Fair Value Level 1 Level 2 Level 3 Cash equivalents: Money market funds $ 18,429 $ 18,429 $ — $ — Total cash equivalents 18,429 18,429 — — Investments: Commercial paper $ 14,214 $ — $ 14,214 $ — Corporate bonds 32,485 — 32,485 — Asset-backed securities 8,100 — 8,100 — U.S. government securities 78,082 78,082 — — Total investments 132,881 78,082 54,799 — Total cash equivalents and investments $ 151,310 $ 96,511 $ 54,799 $ — Fair Value Measurements as of December 31, 2018 Estimated Fair Value Level 1 Level 2 Level 3 Cash equivalents: Money market funds $ 94,700 $ 94,700 $ — $ — Total cash equivalents 94,700 94,700 — — Investments: Commercial paper 27,898 — 27,898 — Corporate bonds 28,012 — 28,012 — Asset-backed securities 17,055 — 17,055 — U.S. government securities 17,957 17,957 — — Total investments 90,922 17,957 72,965 — Total cash equivalents and investments $ 185,622 $ 112,657 $ 72,965 $ — There were no transfers between Level 1, Level 2, or Level 3 during the years ended December 31, 2019 and 2018. The recurring Level 3 fair value measurements of our preferred stock warrant liabilities used the Black-Scholes option pricing model and value of the respective class of our convertible preferred stock (see Note 7), which was unobservable. All other assumptions included in the model are observable Level 1 inputs. The following table provides a reconciliation of the beginning and ending balances of our preferred stock warrant liabilities: Year Ended December 31, 2019 2018 2017 Balance at beginning of period $ — $ 157 $ 53 Initial fair value of preferred stock warrants issued — 103 4 Reclassified to equity — (855) — Change in fair value of preferred stock warrants — 595 100 Balance at end of period $ — $ — $ 157 Changes in the fair value of the preferred stock warrant liability were recorded in other expenses on the statements of operations and comprehensive loss. In connection with the closing of the IPO in May 2018, warrants to purchase shares of preferred stock automatically converted into warrants to purchase shares of common stock, resulting in the reclassification of the related convertible preferred stock warrant liability to APIC. Concentration of Credit Risk Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash equivalents, investments, and accounts receivable. Our investment policy limits investments to certain types of debt securities issued by the U.S. government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies. We place restrictions on maturities and concentration by type and issuer. We are exposed to credit risk in the event of a default by the issuers of these securities to the extent recorded on the balance sheets. However, as of December 31, 2019 and 2018, we limited our credit risk associated with cash equivalents by placing investments with banks we believe are highly creditworthy. We believe that the credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms, and dispersion of our customer base. We generally do not require collateral, and losses on accounts receivable have historically been within management's expectations. Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the general standard being net 30 days. Collateral or any other security to support payment of these receivables generally is not required. We record an allowance for doubtful accounts for accounts receivable deemed uncollectible. We evaluate the collectability of our accounts receivable based on known collection risks and historical experience. In circumstances where we are aware of a specific customer's inability to meet its financial obligations to us (e.g., bankruptcy filings or substantial downgrading of credit ratings), we record a specific allowance for bad debts against amounts due to reduce the carrying amount of accounts receivable to the amount we reasonably believe will be collected. Specific accounts receivable are written-off once a determination is made that the account is uncollectible. The allowance for doubtful accounts was less than $0.1 million as of each of December 31, 2019 and 2018. Inventories Inventories are valued at the lower of cost or net realizable value, computed on a first-in, first-out basis, and consisted of the following: December 31, 2019 2018 Raw materials $ 781 $ 802 Finished goods 5,053 1,865 Total inventories, net of reserves $ 5,834 $ 2,667 We regularly review inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, incur charges to write down inventories to their net realizable value. The determination of a reserve for excess and obsolete inventory involves management exercising judgment to determine the required reserve, considering future demand, product life cycles, introduction of new products and current market conditions The reserve for excess and obsolete inventory was less than $0.1 million and $0.8 million as of December 31, 2019 and 2018, respectively. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization and consisted of the following: December 31, 2019 2018 Computer equipment and software $ 790 $ 333 Manufacturing equipment 1,050 925 Other equipment 68 34 Leasehold improvements 192 185 Construction in process 1,950 124 Property and equipment, cost 4,050 1,601 Less: accumulated depreciation and amortization (1,005) (799) Property and equipment, net $ 3,045 $ 802 Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three Impairment of Long-lived Assets Long-lived assets consist primarily of property and equipment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that an asset be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by the asset to the carrying amount of the asset. If the carrying amount of the asset is not recoverable on an undiscounted cash flow basis, we determine the fair value of the asset and recognize an impairment loss to the extent the carrying amount of the asset exceeds its fair value. We determine fair value using the income approach based on the present value of expected future cash flows or other appropriate measures of estimated fair value. Our cash flow assumptions consider historical and forecasted revenue and operating costs and other relevant factors. We did not record any material impairment charges on long-lived assets during the years ended December 31, 2019 and 2018. Accrued Expenses Accrued expenses consisted of the following: December 31, 2019 2018 Payroll related $ 10,304 $ 6,490 Interest 160 195 Current operating lease liability 828 — Other accrued expenses 1,105 1,041 Total accrued expenses $ 12,397 $ 7,726 Revenue Recognition We recognize revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"), which we adopted effective January 1, 2019 using the modified retrospective approach. The adoption of ASC 606 did not have a material impact on the amount and timing of revenue recognized in our financial statements. Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, either upon shipment of the product or receipt of the product, depending on shipment terms. Our standard shipping terms are free on board shipping point, unless the customer requests that control and title to the inventory transfer upon delivery. In those cases where shipping and handling costs are billed to customers, we classify the amounts billed as a component of cost of goods sold. Revenue is measured as the amount of consideration we expect to receive, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. The majority of our contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold. Variable consideration related to certain customer sales incentives is estimated based on the amounts expected to be paid based on the agreement with the customer using probability assessments. We offer customers a limited right of return for our product in case of non-conformity or performance issues. We estimate the amount of our product sales that may be returned by our customers based on historical sales and returns. As our historical product returns to date have been immaterial, we have not recorded a reduction in revenue related to variable consideration for product returns. See Note 10 for disaggregated revenue by geographic area. Cost of Goods Sold Cost of goods sold consists primarily of acquisition costs for the components of the Inspire system, overhead costs, scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs, net of costs charged to customers. The overhead costs include the cost of material procurement, depreciation expense for production equipment, warranty replacement costs, and operations supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel. Research and Development Research and development expenses consist primarily of product development, clinical and regulatory affairs, consulting services, and other costs associated with products and technologies in development. These expenses include employee compensation, stock-based compensation, supplies, travel, and facility costs. Clinical expenses include clinical trial design, clinical site reimbursement, data management, travel expenses, and the cost of manufacturing products for clinical trials. Stock-Based Compensation We maintain an equity incentive plan to provide long-term incentives for eligible employees, consultants, and members of the board of directors. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and directors. We also offer an employee stock purchase plan which allows participating employees to purchase shares of our common stock at a discount through payroll deductions. We recognize equity-based compensation expense for awards of equity instruments to employees and directors based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation ("ASC 718"). ASC 718 requires all equity-based compensation awards to employees and directors, including grants of restricted shares and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the fair value of stock options using the Black-Scholes option pricing model. The fair value of each purchase under the employee stock purchase plan is estimated at the beginning of the offering period using the Black-Scholes option pricing model. We have not granted any restricted shares. We have not granted any stock-based awards to our consultants. The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the expected share price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) the expected dividend yield. Due to the lack of a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies have characteristics similar to us, including stage of product development and focus on the life science industry. We use the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees and directors as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a U.S. government Treasury instrument whose term is consistent with the expected term of the stock options. We use an assumed dividend yield of zero as we have never paid dividends and have no current plans to pay any dividends on our common stock. We expense the fair value of our equity-based compensation awards granted to employees and directors on a straight-line basis over the associated service period, which is generally the period in which the related services are received. We account for award forfeitures as they occur. Advertising Expenses We expense the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $18.0 million, $9.3 million and $6.3 million during the years ended December 31, 2019, 2018 and 2017, respectively. Leases Operating leases are included in operating lease right-of-use ("ROU") assets and current operating lease liabilities in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of our incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on our balance sheets. Income Taxes We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances against deferred tax assets are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. As we have historically incurred operating losses, we have recorded a full valuation allowance against our net deferred tax assets, and there is no provision for income taxes other than the accrual for uncertain tax benefits. Our policy is to record interest and penalties expense related to uncertain tax positions as other expense in the statements of operations and comprehensive loss. Comprehensive Loss Comprehensive loss consists of net loss and changes in unrealized gains and losses on investments classified as available-for-sale. Accumulated other comprehensive income (loss) is presented in the accompanying balance sheets as a component of stockholders' equity. Loss Per Share Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share for those periods as all potentially dilutive shares consisting of convertible preferred stock, stock options and warrants were antidilutive in those periods. Purchase Commitments As of December 31, 2019, we had purchase commitments to suppliers for purchases totaling $23.7 million. Recent Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASU 2016-02"), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases with lease terms greater than 12 months. Lessor accounting remains largely unchanged. The original guidance required application on a modified retrospective basis with the earliest period presented in the financial statements. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842 , which includes an option to not restate comparative periods in transition and instead to elect to use the effective date of ASC 842, Leases , as the date of initial application of transition. We used the effective date of this standard as the date of initial application, which is January 1, 2019, with no retrospective adjustments to prior comparative periods. For leases that commenced before the effective date of ASC 842, we elected the transition package of three practical expedients permitted within ASC 842, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. Until December 31, 2019, we were an emerging growth company as defined by the JOBS Act and previously disclosed that these amendments would become effective for us for interim and annual periods beginning after December 15, 2019. However, this ASU instead became effective for us in this Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as we no longer qualify as an emerging growth company as of December 31, 2019. The adoption of this standard resulted in an increase of $0.9 million in the assets and $0.8 million in the liabilities recorded on our December 31, 2019 Balance Sheet. The adoption of this standard did not have a material impact on the Statements of Operations and Comprehensive Loss nor the Statements of Cash Flows. See Note 4 for further discussion of the adoption of ASC 842 and related disclosures. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), to require the measurement of expected credit losses for financial instruments held at the reporting date to be based on historical experience, current conditions, and reasonable forecasts. The ASU will become effective for us for interim and annual periods beginning January 1, 2020, and we will expand our financial statement disclosures in order to comply with the guidance. We have determined that the adoption of ASU 2016-13 will not have a material impact on our results of operations, cash flows, or financial position. We have reviewed and considered all other recent accounting pronouncements that have not yet been adopted and believe there are none that could potentially have a material impact on our business practices, financial condition, results of operations, or disclosures. |
