Summary of significant accounting policies |
12 Months Ended |
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Dec. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Summary of significant accounting policies | Summary of significant accounting policies Segment Information
The Company operates as a single operating segment. The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, allocating resources and evaluating the Company's financial performance.
Foreign Currency Transactions, Translations and Foreign Operations
The functional currency of the Bangladesh and India subsidiaries are the Bangladeshi Taka and Indian Rupee, respectively. All assets and liabilities denominated in each entity’s functional currency are translated into the United States Dollar using the exchange rate in effect as of the balance sheet date. Expenses are translated using the weighted average exchange rate for the reporting period. The resulting translation gains and losses are recorded within the consolidated statements of operations and comprehensive loss and as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are recorded within other income (expenses) in the accompanying consolidated statements of operations and comprehensive loss. Transaction gains were $482 thousand and $263 thousand for the years ended December 31, 2023 and 2022, respectively.
Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, changes in regulations, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.
Concentrations of Credit Risk
Financial instruments at December 31, 2023 and 2022 that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable.
The Company’s cash is deposited with major financial institutions in the U.S., Bangladesh and India. At times, deposits in financial institutions located in the U.S. may be in excess of the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation (FDIC). Cash deposits at foreign financial institutions are not insured by government agencies of Bangladesh or India. To date, the Company has not experienced any losses on its cash deposits.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on deposit and money market accounts. Cash equivalents are all highly-liquid investments with original maturities of three months or less.
Restricted Cash
Restricted cash represents amounts held on deposit at a commercial bank used to secure the Company’s credit card facility. Additionally, restricted cash as of December 31, 2022 included cash on deposit with a financial institution in Bangladesh for a post-employment savings fund (the Gratuity Fund) established for the benefit of eligible Bangladesh employees. As of December 31, 2023, this cash deposit is presented as an offset to the Gratuity Fund liability included in other liabilities. Commencing December 31, 2023, the Gratuity Fund liability is shown net of any amounts the Company contributes to the deposit account.
Accounts receivable and allowance for doubtful accounts
Accounts receivable represent amounts due from customers, which are typically due within 25 to 60 days from the invoice date and are presented net of an allowance for doubtful accounts. The Company provides credit to its customers in the normal course of business and maintains allowances for expected credit losses. To reduce customer credit risk, invoices to customers are due in advance of the month the Company provides the service. The Company also performs periodic evaluations of its customers’ financial condition.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company depreciates computer hardware, purchased and internally developed software, mobile devices and equipment using the straight-line method over their estimated useful lives, ranging from one year to three years. The Company depreciates furniture and fixtures using the straight-line method over their estimated useful lives, ranging from five years to seven years. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term.
The Company capitalizes internal and external direct costs incurred related to obtaining or developing internal-use software. Costs incurred during the application development stage are capitalized and are amortized using the straight-line method over the estimated useful lives of the software, generally three years commencing on the first day of the month following when the software is ready for its intended use. Costs related to planning and other preliminary project activities and post-implementation activities are expensed as incurred.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets, less costs to sell. The Company did not record any asset impairment expense in 2023 or 2022.
Fair Value of Financial Instruments
Fair value is an exit price, representing the price that would be received to sell the financial asset or paid to transfer the financial liability in an orderly transaction between market participants at the measurement date. The Company uses a three-level hierarchy, which prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. An asset or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company’s financial instruments consist of cash equivalents, accounts receivable, unbilled customers' receivable, accounts payable, and accrued liabilities. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Accounts receivable, unbilled customers' receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.
Revenue Recognition
ASC Topic 606, Revenue from Contracts with Customers, outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle, involving a five-step process, of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company derives its revenue through a recurring subscription model. The Company enters into contracts with its customers with an initial term of one year. Most customers are invoiced in advance and must generally pay an upfront implementation fee. The upfront implementation fee is deferred and recognized over the initial contract term and any customer prepayments are deferred and included in the accompanying consolidated balance sheet in deferred revenue. Revenues are recognized over time as we provide our services to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
Our services include fixed and variable fee subscriptions, which relate to a single performance obligation consisting of a series of distinct services. Fixed fees are recognized ratably over the contract terms as this method best depicts the pattern of the services we perform. Variable fees are recognized in the month in which they are earned because the variable payments relate specifically to the outcome from transferring the distinct time increment (month) of service and because such amounts reflect the fees to which we expect to be entitled for providing the services for that period, consistent with the allocation objective. The Company records a refund reserve for customers service credits based on an historical analysis of prior refunds. The refund reserve is recorded in accrued expenses and other current liabilities and any change in this refund reserve is recorded as an adjustment to revenue.
As permitted under the practical expedient available under ASU 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promised accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue for the amount at which the Company has the right to invoice for services performed.
The Company’s revenues are earned from customers located only in the U.S. After the initial term, contracts are cancellable by both the customer and The Company at either party's discretion with a 30 to 90-day notice.
Costs Capitalized to Obtain Revenue Contracts
Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new revenue contracts are capitalized and then amortized on a straight line basis over 12 to 24 months. The Company periodically evaluates whether there have been any changes in its business, market conditions, or other events which would indicate that its amortization period should be changed, or if there are potential indicators of impairment. The current portion of capitalized sales commissions are included in prepaid expenses and other current assets and the non-current portion is included in deposits and other assets on the consolidated balance sheets. Amortization expense is included in sales and marketing expenses on the consolidated statements of operations and comprehensive loss.
Customer Deposits
Customer deposits consist of deposits received by the Company, as required on certain contracts and agreements, which are refundable at the termination of the contract.
Cost of Revenues
The Company’s cost of revenues consists primarily of salaries and related expenses, overhead, contract labor and third-party services from third-party medical documentation specialist vendors, depreciation expense related to hardware equipment, mobile devices, and information technology costs incurred directly in the Company’s revenue-generating activities.
Share-based Compensation
The Company measures and recognizes compensation expense for share-based awards to employees and non-employees based on the fair value of the award on the grant date. Share-based payment awards include stock options, stock appreciation rights, restricted stock units (RSU) and stock awards. The Company recognizes compensation expense on a straight-line basis over the requisite service period, which is generally four years. The Company accounts for forfeitures of stock options as they occur. The Company accounts for stock appreciation rights as equity classified awards, based on our historical and planned settlement such awards in shares.
The determination of the fair value of stock options and stock appreciation rights requires the use of judgement and is estimated using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including the expected life of the option or stock appreciation right, and the expected volatility of our common stock, among the use of other required inputs. To estimated the expected life of the stock option or stock appreciation right, the Company uses the “simplified” method whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the award due to the Company’s lack of sufficient historical exercise data. The Company estimates expected volatility for options and stock appreciation rights by reference to the average historical volatility of other publicly traded comparable companies for the period preceding the grant for a term that is equal to the option’s or stock appreciation right's expected term, if available.
The fair value of RSU's is determined by the closing price of our common stock on the date of grant.
Research and Development Costs
Research and development costs are expensed as incurred and consist primarily of personnel-related expenses, licensing costs and other direct expenses. In 2023 the Company capitalized $0.7 million of internally developed software related to the specific development of Augmedix Go that did not have benefits for our other products, Augmedix Live and Augmedix Notes, that are already commercially available.
Government Grant Income
From time to time, the Company may receive grant income from the Bangladesh Government related to our operations in Bangladesh. The Company records this grant income when received and the grants are recorded in other income (expenses) on the consolidated statement of operations. The Company recorded grant income of $459 thousand and $267 thousand during the year ended December 31, 2023 and 2022, respectively.
Advertising Costs
All advertising costs are expensed as incurred and included in sales and marketing expenses. In April 2021, the Company issued 120,000 shares of common stock with a fair value of $0.6 million to a service provider as payment for advertising services to be performed over a one-year period. The Company recognized $0 and $0.2 million of these shares during the year ended December 31, 2023 and 2022, respectively. Advertising costs incurred by the Company are in the sales and marketing expense on the consolidated statements of operations and comprehensive loss and were $0.8 million and $0.8 million for the years ended December 31, 2023, and 2022, respectively.
Comprehensive Loss
The Company reports comprehensive loss, which includes the Company’s net loss as well as changes in equity from non-stockholder sources, as a separate component of stockholders’ equity. In the Company’s case, the changes in equity included in comprehensive loss are the cumulative foreign currency translation adjustments.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period corresponding to the enactment date.
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers the available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized. If the Company determines that it is able to realize its deferred tax assets in the future in excess of the net recorded amount, the Company decreases the deferred tax asset valuation allowance, which reduces the income tax expense.
Uncertain tax positions are recognized only when the Company believes it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense (benefit) in the consolidated statements of operations and comprehensive loss.
Lease Obligations
The Company measures operating lease liabilities at the inception of the lease based on the present value of the total lease payments not yet paid, discounted based on the Company’s incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease.
The Company measures right-of-use assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs the Company incurs and (iii) tenant incentives under the lease. The Company begins to recognize rent expense when the lessor makes the underlying asset available to the Company.
For short-term leases, the Company records rent expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term and records variable lease payments as incurred. The Company elected the practical expedient to recognize leases less than one year under the short term lease exemption under ASC 842 - Leases.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this standard on January 1, 2023 and it did not have a material impact on its financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The goal of the standard is to simplify the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. The new standard is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this standard will have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The amendments expand segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, the amount and description of other segment items, permits companies to disclose more than one measure of segment profit or loss, and requires all annual segment disclosures to be included in the interim periods. The amendments do not change how an entity identifies its operating segments, aggregates those operating segments, or applies quantitative thresholds to determine its reportable segments. The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on the consolidated financial statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning
after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on the consolidated financial statements and related disclosures.
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