acia-10q_20160930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to              

Commission File Number: 001-37771

 

Acacia Communications, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

27-0291921

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Three Mill and Main Place, Suite 400

Maynard, Massachusetts 01754

(Address of principal executive offices)

(978) 938-4896

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No   

As of November 4, 2016, the registrant had 37,422,863 shares of common stock issued and outstanding.

 

 

 

 

 


 

ACACIA COMMUNICATIONS, INC.

Table of Contents

 

 

 

 

 

Page

 

 

PART I - FINANCIAL INFORMATION

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

2

 

 

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

 

2

 

 

Condensed Consolidated Income Statements for the Three and Nine Months Ended September 30, 2016 and 2015

 

3

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015

 

4

 

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity for the Nine Months Ended September 30, 2016 and 2015

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4.

 

Controls and Procedures

 

31

 

 

PART II - OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

54

Item 3.

 

Defaults Upon Senior Securities

 

54

Item 4.

 

Mine Safety Disclosures

 

54

Item 5.

 

Other Information

 

54

Item 6.

 

Exhibits

 

55

Signatures

 

56

 

 

 

EX-31.1

 

(CERTIFICATION OF THE CEO PURSUANT TO SECTION 302)

 

 

EX-31.2

 

(CERTIFICATION OF THE CFO PURSUANT TO SECTION 302)

 

 

EX-32.1

 

(CERTIFICATION OF THE CEO PURSUANT TO SECTION 906)

 

 

EX-32.2

 

(CERTIFICATION OF THE CFO PURSUANT TO SECTION 906)

 

 

 

 

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance.  In some cases, forward-looking statements can be identified by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions.  Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

our expectations regarding our expenses and revenue, our ability to maintain and expand gross profit, the sufficiency of our cash resources and needs for additional financing;

 

our anticipated growth strategies;

 

our expectations regarding competition;

 

the anticipated trends and challenges in our business and the market in which we operate;

 

our expectations regarding, and the stability of our, supply chain and manufacturing;

 

the scope, progress, expansion, and costs of developing and commercializing our products;

 

the size and growth of the potential markets for our products and the ability to serve those markets;

 

the timing, rate and degree of introducing any of our products into the market and the market acceptance of any of our products;

 

our ability to establish and maintain development partnerships;

 

our ability to attract or retain key personnel;

 

our expectations regarding federal, state and foreign regulatory requirements, including export controls, tax law changes and interpretations, economic sanctions and anti-corruption regulations;

 

regulatory developments in the United States and foreign countries, including under export control laws or regulations that could impede our ability to sell our products to our customer ZTE Kangxun Telecom Co. Ltd. or any of its affiliates or other customers in certain foreign jurisdictions; and

 

our ability to obtain and maintain intellectual property protection for our products.

The foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, investors in our common stock should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

 

 

1


 

PART I—FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements (Unaudited).

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

September 30, 2016

 

 

December 31, 2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

122,914

 

 

$

27,610

 

Marketable securities

 

 

52,641

 

 

 

 

Accounts receivable

 

 

101,749

 

 

 

41,260

 

Inventory

 

 

29,194

 

 

 

27,920

 

Prepaid expenses and other current assets

 

 

3,685

 

 

 

3,179

 

Deferred product costs

 

 

1,688

 

 

 

3,476

 

Total current assets

 

 

311,871

 

 

 

103,445

 

Restricted cash

 

 

2,181

 

 

 

 

Property and equipment, net

 

 

21,119

 

 

 

15,925

 

Deferred tax asset

 

 

16,342

 

 

 

11,189

 

Other assets

 

 

399

 

 

 

185

 

Total assets

 

$

351,912

 

 

$

130,744

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

   STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

48,389

 

 

$

25,015

 

Accrued liabilities

 

 

31,486

 

 

 

15,521

 

Deferred revenue

 

 

7,957

 

 

 

7,762

 

Total current liabilities

 

 

87,832

 

 

 

48,298

 

Preferred stock warrant liability

 

 

 

 

 

3,254

 

Other long-term liabilities

 

 

1,589

 

 

 

396

 

Total liabilities

 

 

89,421

 

 

 

51,948

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock (Note 8):

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.0001 par value; 24,508 shares authorized at December 31, 2015; 24,177 shares issued and outstanding at December 31, 2015

 

 

 

 

 

70,780

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000 shares authorized at September 30, 2016; none issued and outstanding at September 30, 2016

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000 and 36,330 shares authorized at September 30, 2016 and December 31, 2015, respectively; 35,723 and 6,669 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

 

4

 

 

 

1

 

Additional paid-in capital

 

 

188,084

 

 

 

 

Accumulated other comprehensive loss

 

 

(17

)

 

 

 

Retained earnings

 

 

74,420

 

 

 

8,015

 

Total stockholders' equity

 

 

262,491

 

 

 

8,016

 

Total liabilities, redeemable convertible preferred stock and stockholders' equity

 

$

351,912

 

 

$

130,744

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

2


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

135,304

 

 

$

65,419

 

 

$

335,985

 

 

$

170,509

 

Cost of revenue

 

 

72,004

 

 

 

40,209

 

 

 

183,327

 

 

 

108,290

 

Gross profit

 

 

63,300

 

 

 

25,210

 

 

 

152,658

 

 

 

62,219

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,915

 

 

 

9,604

 

 

 

56,168

 

 

 

26,327

 

Sales, general and administrative

 

 

7,541

 

 

 

3,005

 

 

 

20,244

 

 

 

8,060

 

Total operating expenses

 

 

26,456

 

 

 

12,609

 

 

 

76,412

 

 

 

34,387

 

Income from operations

 

 

36,844

 

 

 

12,601

 

 

 

76,246

 

 

 

27,832

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

156

 

 

 

(6

)

 

 

184

 

 

 

(138

)

Change in fair value of preferred stock warrant liability

 

 

 

 

 

(370

)

 

 

(3,361

)

 

 

(1,813

)

Other income (expense)

 

 

10

 

 

 

(32

)

 

 

(68

)

 

 

135

 

Total other income (expense), net

 

 

166

 

 

 

(408

)

 

 

(3,245

)

 

 

(1,816

)

Income before provision for income taxes

 

 

37,010

 

 

 

12,193

 

 

 

73,001

 

 

 

26,016

 

Provision for income taxes

 

 

2,122

 

 

 

3,354

 

 

 

5,918

 

 

 

8,133

 

Net income

 

 

34,888

 

 

 

8,839

 

 

 

67,083

 

 

 

17,883

 

Accretion of redeemable convertible preferred stock

 

 

 

 

 

(1,097

)

 

 

(1,722

)

 

 

(3,257

)

Undistributed earnings attributable to participating securities

 

 

 

 

 

(6,094

)

 

 

(23,959

)

 

 

(11,582

)

Net income attributable to common stockholders - basic and

   diluted

 

$

34,888

 

 

$

1,648

 

 

$

41,402

 

 

$

3,044

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.97

 

 

$

0.25

 

 

$

1.95

 

 

$

0.48

 

Diluted

 

$

0.86

 

 

$

0.20

 

 

$

1.64

 

 

$

0.37

 

Weighted-average shares used to compute net income per

   share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,922

 

 

 

6,534

 

 

 

21,195

 

 

 

6,357

 

Diluted

 

 

40,708

 

 

 

8,422

 

 

 

25,183

 

 

 

8,146

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


3


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

 

$

34,888

 

 

$

8,839

 

 

$

67,083

 

 

$

17,883

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized loss on marketable securities, net of income taxes of $6 for the three and nine months ended September 30, 2016

 

 

(17

)

 

 

 

 

 

(17

)

 

 

 

Comprehensive income

 

$

34,871

 

 

$

8,839

 

 

$

67,066

 

 

$

17,883

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ (DEFICIT) EQUITY

(in thousands)

(Unaudited)

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Other Comprehensive

 

 

(Accumulated

Deficit) Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at December 31, 2014

 

 

24,177

 

 

$

66,427

 

 

 

 

6,138

 

 

$

1

 

 

$

 

 

$

 

 

$

(29,177

)

 

$

(29,176

)

Accretion of preferred stock issuance costs

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

 

 

 

 

 

 

 

 

(60

)

Accretion to redemption value

 

 

 

 

 

 

3,197

 

 

 

 

 

 

 

 

 

 

 

 

(632

)

 

 

 

 

 

 

(2,565

)

 

 

(3,197

)

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock options

 

 

 

 

 

 

 

 

 

 

 

343

 

 

 

 

 

 

147

 

 

 

 

 

 

 

 

 

 

 

147

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

545

 

 

 

 

 

 

 

 

 

 

 

545

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,883

 

 

 

17,883

 

Balance at September 30, 2015

 

 

24,177

 

 

$

69,684

 

 

 

 

6,593

 

 

$

1

 

 

$

 

 

$

 

 

$

(13,859

)

 

$

(13,858

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

24,177

 

 

$

70,780

 

 

 

 

6,669

 

 

$

1

 

 

$

 

 

$

 

 

$

8,015

 

 

$

8,016

 

Accretion of preferred stock issuance costs

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

 

 

 

(94

)

 

 

 

 

 

 

 

 

 

 

(94

)

Accretion to redemption value

 

 

 

 

 

 

1,628

 

 

 

 

 

 

 

 

 

 

 

 

(950

)

 

 

 

 

 

 

(678

)

 

 

(1,628

)

Conversion of redeemable convertible preferred stock into common stock upon initial public offering

 

 

(24,177

)

 

 

(72,502

)

 

 

 

24,177

 

 

 

2

 

 

 

72,500

 

 

 

 

 

 

 

 

 

 

 

72,502

 

Reclassification of preferred stock warrant liability into additional paid-in capital upon conversion to common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,615

 

 

 

 

 

 

 

 

 

 

 

6,615

 

Issuance of common stock in relation to initial public offering, net of offering costs incurred of $4,235

 

 

 

 

 

 

 

 

 

 

 

4,570

 

 

 

1

 

 

 

93,521

 

 

 

 

 

 

 

 

 

 

 

93,522

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock options

 

 

 

 

 

 

 

 

 

 

 

243

 

 

 

 

 

 

356

 

 

 

 

 

 

 

 

 

 

 

356

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,136

 

 

 

 

 

 

 

 

 

 

 

16,136

 

Unrealized losses on marketable securities, net of tax of $6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

 

(17

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67,083

 

 

 

67,083

 

Balance at September 30, 2016

 

 

 

 

$

 

 

 

 

35,723

 

 

$

4

 

 

$

188,084

 

 

$

(17

)

 

$

74,420

 

 

$

262,491

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

67,083

 

 

$

17,883

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

6,536

 

 

 

3,164

 

Stock-based compensation

 

 

16,136

 

 

 

545

 

Deferred income taxes

 

 

(5,153

)

 

 

 

Other non-cash charges

 

 

61

 

 

 

80

 

Change in fair value of preferred stock warrant liability

 

 

3,361

 

 

 

1,813

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(60,489

)

 

 

(34,447

)

Inventory

 

 

(1,274

)

 

 

(4,796

)

Prepaid expenses and other current assets

 

 

(2,625

)

 

 

711

 

Deferred product costs

 

 

1,788

 

 

 

(480

)

Restricted cash

 

 

(2,181

)

 

 

 

Other assets

 

 

(172

)

 

 

(77

)

Accounts payable

 

 

23,911

 

 

 

17,583

 

Accrued liabilities

 

 

15,999

 

 

 

6,897

 

Deferred revenue

 

 

195

 

 

 

(899

)

Other long-term liabilities

 

 

1,193

 

 

 

 

Net cash provided by operating activities

 

 

64,369

 

 

 

7,977

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(12,267

)

 

 

(8,446

)

Purchases of marketable securities

 

 

(52,719

)

 

 

 

Deposits

 

 

(42

)

 

 

(6

)

Net cash used in investing activities

 

 

(65,028

)

 

 

(8,452

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of long-term debt

 

 

 

 

 

(2,155

)

Payment of capital lease obligation

 

 

(34

)

 

 

(39

)

Deferred financing costs

 

 

 

 

 

(4

)

Proceeds from initial public offering, net of underwriting discounts and commissions

 

 

97,757

 

 

 

 

Payment of public offering costs

 

 

(2,116

)

 

 

(563

)

Proceeds from the exercise of common stock options

 

 

356

 

 

 

147

 

Net cash provided by (used in) financing activities

 

 

95,963

 

 

 

(2,614

)

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

 

 

 

(2

)

Net increase (decrease) in cash and cash equivalents

 

 

95,304

 

 

 

(3,091

)

Cash and cash equivalents—Beginning of period

 

 

27,610

 

 

 

21,128

 

Cash and cash equivalents—End of period

 

$

122,914

 

 

$

18,037

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash paid for income taxes, net of refunds

 

$

2,801

 

 

$

2,419

 

Cash paid for interest

 

$

 

 

$

53

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Capital expenditures incurred but not yet paid

 

$

307

 

 

$

519

 

Public offering costs incurred but not yet paid

 

$

946

 

 

$

838

 

Property and equipment acquired under capital lease

 

$

 

 

$

96

 

Accretion of redemption value on redeemable convertible preferred stock

 

$

1,628

 

 

$

3,197

 

Accretion of redeemable convertible preferred stock issuance costs

 

$

94

 

 

$

60

 

Conversion of redeemable convertible preferred stock into common stock

 

$

72,502

 

 

$

 

Reclassification to additional paid-in capital of fair value of preferred stock warrant liability upon

   conversion to common stock warrants

 

$

6,615

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


 

Acacia Communications, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. NATURE OF THE BUSINESS AND OPERATIONS

 

Acacia Communications, Inc. was incorporated on June 2, 2009, as a Delaware corporation. Acacia Communications, Inc. and its wholly-owned subsidiaries (the “Subsidiaries”) are collectively referred to as the “Company”. The Company is a leading provider of high-speed coherent interconnect products that are designed to improve the capacity, performance, intelligence and cost of communications networks relied upon by cloud infrastructure operators and content and communications service providers. The Company’s products include a series of low-power coherent digital signal processors and silicon photonic integrated circuits integrated into families of optical interconnect modules with transmission speeds ranging from 100 to 400 gigabits per second for use in long-haul, metro and inter-data center markets.

The Company is headquartered in Maynard, Massachusetts, and has wholly-owned subsidiaries in Denmark, which commenced operations in 2009, Bermuda and Ireland, which commenced operations in the fourth quarter of 2015, Germany, China and the United Kingdom, which commenced operations in the second quarter of 2016, and India, which commenced operations in the third quarter of 2016.

On May 18, 2016, the Company closed its initial public offering (“IPO”), in which the Company issued and sold 4,570,184 shares of common stock and certain selling stockholders sold an additional 604,816 shares, inclusive of the underwriters’ option to purchase additional shares that was exercised in full.  The price per share to the public was $23.00.  The Company received aggregate proceeds of approximately $97.8 million from the IPO, net of underwriters’ discounts and commissions, before deduction of offering expenses of approximately $4.2 million. The Company received no proceeds from the sale of shares by the selling stockholders.  Upon the closing of the IPO, all shares of the Company’s outstanding redeemable convertible preferred stock (the “preferred stock”) automatically converted into 24,177,495 shares of common stock.  In addition, the outstanding redeemable convertible preferred stock warrants (the “preferred stock warrants”) automatically converted into common stock warrants.  As a result, the Company performed a final remeasurement of the preferred stock warrant liability at the closing date of the IPO and recorded an expense of $3.6 million arising from the revaluation during the three months ended June 30, 2016. Following the remeasurement, the preferred stock warrant liability of $6.6 million was reclassified to additional paid-in capital.

Certain restricted stock units (“RSUs”) granted to employees prior to the IPO vest upon the satisfaction of both a service condition and a performance condition. These RSUs with both a service condition and performance condition are collectively referred to as “Performance Awards” in the following discussion. The service condition for a majority of the Performance Awards will be satisfied over a period of four years.  The performance condition was satisfied on the closing of the Company’s IPO. No stock-based compensation expense had been recognized for the Performance Awards prior to the IPO because an IPO is not considered probable until it occurs. In May 2016, the Company began recording stock-based compensation expense based on the grant-date fair value of the Performance Awards using the accelerated attribution method.  See Note 9 for further details.

On October 13, 2016, the Company closed a follow-on public offering in which the Company issued and sold 1,210,302 shares of common stock and certain selling stockholders sold an additional 3,289,698 shares.  The underwriters were granted a 30-day option to purchase up to an additional 675,000 shares from certain of the selling stockholders.  The price per share to the public was $100.00.  The Company received aggregate proceeds of $116.8 million from the follow-on offering, net of underwriters’ discounts and commissions, before deduction of offering expenses of approximately $1.1 million.  The Company received no proceeds from the sale of shares by the selling stockholders.

 

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements include the accounts of Acacia Communications, Inc., and Subsidiaries and have been prepared in accordance with accounting policies generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements.  For further information, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the final prospectus related to the Company’s follow-on public offering, which was filed with the SEC pursuant to Rule 424(b) of the Securities Act of 1933 on October 7, 2016 (the “Prospectus”).  There have been no significant changes in the Company’s accounting policies from those disclosed in the Prospectus that have had a material impact on the Company’s condensed consolidated financial statements.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2015, and in management’s opinion, include all adjustments,

7


 

consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2016, its results of operations for the three and nine months ended September 30, 2016 and 2015, its statements of comprehensive income for the three and nine months ended September 30, 2016 and 2015, its statements of redeemable convertible preferred stock and stockholders’ (deficit) equity for the nine months ended September 30, 2016 and 2015, and its cash flows for the nine months ended September 30, 2016 and 2015. All intercompany balances and transactions have been eliminated in consolidation.  The financial data and the other financial information disclosed in the notes to these condensed consolidated financial statements related to these three- and nine-month periods are also unaudited. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments

Cash equivalents include all highly liquid investments with an original maturity of three months or less.  Cash equivalents consist of bank deposit accounts, money market funds, repurchase agreements and commercial paper.

The Company’s marketable debt securities have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. The Company’s marketable debt securities are carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive income in stockholders’ equity, with the exception of unrealized losses believed to be other-than-temporary which are reported in earnings in the current period.

Restricted Cash

 

The Company has a restricted cash balance at September 30, 2016 of $2.2 million.  The restricted cash balance constitutes funds held in escrow to fund future tenant improvements related to the Company’s Maynard, Massachusetts facility.  Under the terms of the lease agreement, the Company will not have title to the tenant improvements.  As the escrow funds are spent, the Company will record a prepaid asset which will be amortized over the lease term. Accordingly, the Company classifies changes in restricted cash as operating activities within our condensed consolidated statements of cash flows.

Recently Adopted Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”).  ASU 2016-15 intends to reduce diversity in practice of cash flow presentation and classification in the statement of cash flows for eight specific cash flow issues.  The amendments in ASU 2016-15, required to be updated for all annual periods and interim reporting periods beginning after December 15, 2017, were adopted early by the Company in the third quarter of 2016 and were applied to its related unaudited condensed consolidated financial statements on a retrospective basis.  The adoption of these amendments had an immaterial impact on the statement of cash flows through September 30, 2016 as the cash flow issues covered by ASU 2016-15 either did not apply to the Company, or the Company’s presentation and classification of the cash flow issue was already prepared in accordance with the guidance prescribed by ASU 2016-15.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 intends to simplify various aspects of how share-based payments are accounted for and presented in the financial statements. The main provisions include: all tax effects related to stock awards will now be recorded through the income statement instead of through equity, all tax-related cash flows resulting from stock awards will be reported as operating activities on the cash flow statement, and entities can make an accounting policy election to either estimate forfeitures or account for forfeitures as they occur. The amendments in ASU 2016-09, required to be updated for all annual periods and interim reporting periods beginning after December 15, 2016, were adopted early by the Company in the second quarter of 2016 and were applied to its related unaudited condensed consolidated financial statements on a prospective basis. The adoption of these amendments had an immaterial impact on the income statement and statement of cash flows through June 30, 2016 as the Company has not yet had any significant excess tax benefits from stock-based compensation; however, such activity is expected in the fourth

8


 

quarter of 2016 and will be accounted for in accordance with ASU 2016-09.  The Company also elected to account for forfeitures as they occur with no adjustment for estimated forfeitures, which did not materially impact the Company’s condensed consolidated financial statements as forfeitures have historically been trued-up as they occur.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 applies to all inventory, except for inventory measured using the last-in, first-out method or the retail inventory method. The guidance allows an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and may be applied prospectively with earlier adoption permitted. The amendments in ASU 2015-11 were adopted by the Company in the second quarter of 2016. The adoption of this standard did not have an impact on the Company’s financial position or results of operations.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). ASU 2014-12 provides amendments to ASC No. 718, Compensation—Stock Compensation, which clarifies the guidance for whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in ASU 2014-12 were adopted by the Company in the first quarter of 2016 on a prospective basis to all awards granted or modified after January 1, 2016. The adoption of this standard did not have an impact on the Company’s financial position or results of operations as no awards granted since January 1, 2016 contain such conditions.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The main provisions include presenting financial assets measured at amortized cost at the amount expected to be collected, which is net of an allowance for credit losses, and recording credit losses related to available-for-sale securities through an allowance for credit losses.  The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, and must be applied using a modified retrospective approach with earlier adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize a right-of-use asset and lease liability on the balance sheet for virtually all leases. For the income statement, ASU 2016-02 retains a dual model requiring leases to be classified as either operating or financing leases. Operating leases will result in straight-line expense, and financing leases will have a front-loaded expense pattern with an interest expense component. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, and must be applied using a modified retrospective approach with earlier adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the currently effective guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. The new guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application.  ASU 2014-09 was initially to be effective for annual periods beginning after December 15, 2016, including interim periods within that period. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which delays the effective date of ASU 2014-09 by one year and allows for early adoption as of the original effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies certain principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain guidance related to identifying performance obligations and licensing.  In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses improvements to the guidance

9


 

on collectability, noncash consideration and completed contracts at transition.  The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

 

3. FINANCIAL INSTRUMENTS

 

The following table sets forth the Company’s cash, cash equivalents and marketable securities as of September 30, 2016 (in thousands):

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Estimated

 

 

Cash and

 

 

Marketable

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

Cash equivalents

 

 

Securities

 

Cash

 

$

45,160

 

 

$

 

 

$

 

 

$

45,160

 

 

$

45,160

 

 

$

 

Money market funds

 

 

45,754

 

 

 

 

 

 

 

 

 

45,754

 

 

 

45,754

 

 

 

 

Repurchase agreements

 

 

29,000

 

 

 

 

 

 

 

 

 

29,000

 

 

 

29,000

 

 

 

 

U.S. treasury bonds

 

 

5,011

 

 

 

 

 

 

(1

)

 

 

5,010

 

 

 

 

 

 

5,010

 

C