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Loss
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Registrant’s telephone number, including area code: (i650) i266-6000
_____________________________________________
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.001 par value per share
iLAB
iThe
Nasdaq Global Select Market
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. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated fiing ler,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated
filer
☒
Non-accelerated filer
☐
Smaller reporting company
i☒
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
As of May 8, 2023, there were i78,384,944
shares of the registrant’s common stock, $0.001 par value per share, outstanding.
The accompanying unaudited condensed consolidated financial statements of Standard Biotools Inc. (together with its wholly owned subsidiaries, Standard Biotools, the Company, we, our, or us) have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). As of March 31,
2023, we had wholly owned subsidiaries in Singapore, Canada, the Netherlands, Japan, France, Italy, the United Kingdom, China, Germany and Norway. All subsidiaries, except for Singapore, use their local currency as their functional currency. The Singapore subsidiary uses the U.S. dollar as its functional currency. All intercompany transactions and balances have been eliminated in consolidation.
These interim condensed consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the
periods presented.
The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The condensed consolidated results of operations for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the full year or for any other year or interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes for the year ended December 31, 2022 included in our Annual Report on Form 10-K, filed with the Security Exchange Commission (SEC) on March 14, 2023.
i
Use
of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience, the current economic environment and on various other assumptions believed to be reasonable, which together form the basis for making judgments about the carrying values of assets and liabilities. We assessed certain accounting matters that generally require consideration of forecasted financial information, including the impact of geopolitical factors, including the war in Ukraine; inflation; and the possibility of a global economic recession. These accounting matters included but were not limited to inventory and related reserves; the carrying value of goodwill and other long-lived assets; and the potential outcome of uncertain tax positions
that have been recognized in our consolidated financial statements or tax returns. We also use significant judgment in determining the fair value of financial instruments, including debt and equity instruments. Actual results could differ materially from these estimates and could have a material adverse effect on our condensed consolidated financial statements.
i
Recent Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements
None.
7
2.
iNet Loss Per Share
Our basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Restricted share units (RSUs), performance stock awards (PSUs), and options to purchase our common stock are considered to be potentially dilutive common shares but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive for all periods presented.
i
The
following potentially dilutive common shares (in thousands) were excluded from the computations of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
Revenue
from customers in the United States represented $i11.2 million and $i11.8
million, or ii45/% of total revenue for the three months ended March 31,
2023 and 2022, respectively. Revenue from customers in China totaled $i3.4 million and $i2.8
million, or i14% and i11% of total revenue for the three months ended March 31, 2023 and 2022, respectively. Except for China,
no foreign country represented more than 10% of our total revenue during the periods presented in this report.
No single customer represented more than 10% of our total revenue for the three months ended March 31, 2023 and 2022. Revenue from our five largest customers represented i22% and i21%
of total revenue for the three months ended March 31, 2023 and 2022, respectively.
8
Refer to Note 13 for additional information on revenue by reporting segment.
Unfulfilled Performance Obligations
The condensed consolidated balance sheets as of March 31, 2023 and December
31, 2022 included total deferred revenue of $i15.5 million and $i14.6 million, respectively. During the three months ended March 31,
2023, $i3.6 million of the opening deferred revenue balance was recognized as revenue and $i4.5
million of net additional advance payments, primarily for instrument services contracts, were received from customers.
i
We expect to recognize revenue from unfulfilled performance obligations associated with service contracts that were partially completed as of March 31,
2023 in the following periods (in thousands):
Fiscal Year
Expected Revenue (1)
2023 remainder of the year
$
i11,157
2024
i6,912
2025
i3,752
Thereafter
i1,904
Total
$
i23,725
_______
(1)
Expected revenue includes both billed amounts included in deferred revenue and unbilled amounts that are not reflected in our condensed consolidated financial statements and are subject to change if our customers decide to cancel or modify their contracts. Purchase orders for instrument service contracts can generally be canceled before the service period begins.
/
We apply the practical expedient that permits us to not disclose information about unsatisfied performance obligations for service contracts
with an expected term of one year or less.
4. iGoodwill and Intangible Assets, net
In connection with our acquisition of DVS Sciences, Inc. in February 2014, we recorded $i104.1
million of goodwill and $i112.0 million of intangible assets associated with the acquired technology. Also, in the first quarter of 2020, we recorded $i2.2 million of goodwill and $i5.4
million of developed technology intangibles from the InstruNor AS acquisition.
Goodwill and intangible assets with indefinite lives are not subject to amortization but are tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Qualitative assessment includes assessing significant events and circumstances such as our current results, assumptions regarding our future performance, strategic initiatives and overall economic factors, including the impact of rising inflation and the possibility of a global recession, to determine the existence of potential indicators of impairment. If indicators of impairment are identified, a quantitative impairment test is performed. There have been iino/
indicators of impairment of goodwill, long-lived assets or intangible assets during the three months ended March 31, 2023.
Intangible assets with finite lives include developed technology, patents and licenses. In the condensed consolidated balance sheets, developed technology is reported separately while patents and licenses are reported in other non-current assets. iIntangible assets, net, were as follows (in thousands):
Total amortization expense of our intangible assets was $i3.0 million and $i3.1
million for the three months ended March 31, 2023 and 2022, respectively.
i
Based on the carrying value of intangible assets as of March 31, 2023, we expect our estimated future amortization expense to be as follows (in thousands):
Fiscal
Year
Developed Technology Amortization Expense
Patents and Licenses Amortization Expense
Total
2023 remainder of the year
$
i8,400
$
i403
$
i8,803
2024
i1,400
i7
i1,407
Total
$
i9,800
$
i410
$
i10,210
/
5.
iBalance Sheet Details
Cash, Cash Equivalents and Restricted Cash
ii
Cash,
cash equivalents and restricted cash consisted of the following (in thousands):
Accrued compensation and related benefits, which are included in current liabilities on the condensed consolidated balance sheets consisted of the following (in thousands):
Refer
toNote 14 for additional information on restructuring.
Deferred Grant Income
In September 2020, we executed a contract with the National Institutes of Health (NIH) under their Rapid Acceleration of Diagnostics program to support the expansion of our production capacity and throughput capabilities for COVID-19 test products that use our genomics technology. Under the now-completed contract, we received $i34.0
million of funding from the NIH and used $i22.2 million for capital expenditures on expansion of production capacity. The amortization of the deferred income, which is offset against depreciation, was $i0.9 million
and $i0.8 million for the three months ended March 31, 2023 and March 31, 2022, respectively. Cumulative amounts applied against depreciation expense for these assets placed in service were $i5.1
million and $i4.2 million as of March 31, 2023 and December 31, 2022, respectively, and the carrying values of these assets were $i17.1
million and $i18.0 million, respectively, as of these same dates.
The current portion of deferred grant income on our condensed consolidated balance sheets represents amounts expected to be offset against depreciation expense over the next twelve months. The non-current portion of deferred grant income includes amounts expected to be offset against depreciation expense in later periods.
i
The
current and non-current portions of deferred grant income were as follows (in thousands):
In
February 2014, we closed an underwritten public offering of 2014 Notes. In 2019, the outstanding 2014 Notes were largely refinanced with the 2019 Notes, as discussed below. The effective interest rate on the 2014 Notes, reflecting the impact of debt discounts and issuance costs, is approximately i2.9% per annum. The 2014 Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2014 Notes. Holders may require
us to repurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024 and February 6, 2029, at a repurchase price in cash equal to i100% of the principal amount of the 2014 Notes plus accrued and unpaid interest.
In November 2019, we issued $i55.0
million aggregate principal amount of 2019 Notes. Net proceeds from the 2019 Notes issuance of $i52.7 million, after deductions for commissions and other debt issuance costs were used to retire all but $i1.1
million of the aggregate principal value of the 2014 Notes then outstanding. In February 2021, holders of $i0.5 million of the 2014 Notes required us to repurchase their notes at i100%
of the principal amount plus accrued and unpaid interest, leaving $i0.6 million aggregate principal outstanding at March 31, 2023.
The 2019 Notes bear interest at i5.25%
per annum, payable semiannually on June 1 and December 1 of each year, beginning on June 1, 2020. The 2019 Notes will mature on December 1, 2024, unless earlier repurchased or converted pursuant to their terms. The 2019 Notes will be convertible at the option of the holder at any point prior to the close of business on the second scheduled trading day preceding the maturity date. The initial conversion rate of the 2019 Notes is 344.8276 shares of our common stock per $1,000 principal amount of 2019 Notes (which is equivalent to an initial conversion price of approximately $i2.90
per share). The conversion rate is subject to adjustment upon the occurrence of certain specified events. Those certain specified events include voluntary conversion of the 2019 Notes prior to our exercise of the Issuer’s Conversion Option or in connection with a make-whole fundamental change, entitling the holders, under certain circumstances, to a make-whole premium in the form of an increase in the conversion rate determined by reference to a make-whole table set forth in the indenture governing the 2019 Notes. The conversion rate will not be adjusted for any accrued and unpaid interest.
The 2019 Notes will also be convertible at our option upon certain conditions in accordance with the terms of the indenture governing the 2019 Notes. On or after
December 1, 2022, if the volume-weighted average price of the Company’s common stock has equaled or exceeded i130% of the Conversion Price then in effect for a specified number of days, we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the
Company’s common stock, determined in accordance with the terms of the indenture governing the 2019 Notes.
12
Offering-related costs for the 2019 Notes were capitalized as debt issuance costs and are recorded as an offset to the carrying value of the 2019 Notes. The effective rate on the 2019 Notes is i6.2%
per annum.
Revolving Credit Facility and Term Loan Facility, net
Revolving Credit Facility
On August 2, 2018, we entered into a revolving credit facility with Silicon Valley Bank (SVB) (as amended, the Revolving Credit Facility) in an aggregate principal amount of up to the lesser of (i) $i15.0 million or (ii) the sum of (a) i85%
of our eligible receivables and (b) i50% of our eligible inventory, in each case, subject to certain limitations (Borrowing Base), provided that the amount of eligible inventory that may be counted towards the Borrowing Base shall be subject to a cap as set forth in the Revolving Credit Facility.
On August 2, 2021, we amended our Revolving Credit Facility to extend the maturity date to August
2, 2023 and to provide for a new $i10.0 million Term Loan Facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facility). The Credit Facility is collateralized by substantially all our property, other than intellectual property. The Credit Facility also includes a financial covenant that requires us to maintain a minimum Adjusted Quick Ratio of at least i1.25
to 1.00 and a liquidity requirement of greater than $i20 million, which are both defined in the Credit Facility.
The interest rate on advances made under the Revolving Credit Facility is the greater of (i) prime rate plus i0.50%
or (ii) i5.25% per annum. Interest on any outstanding advances is due and payable monthly and the principal balance is due at maturity, though loans can be prepaid at any time without penalty. Fees for the Revolving Credit Facility include an annual commitment fee of $i112,500
and a quarterly unused line fee based on the Borrowing Base. As of March 31, 2023, there were ino borrowings under the Revolving Credit Facility and the total amount available was $i7.1
million.
On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation was appointed as receiver. On March 27, 2023, First Citizens Bank & Trust Company (First Citizens Bank) assumed all of SVB’s deposits and loans. SVB now operates as a division of First Citizens Bank.
Term Loan Facility, net
As of March 31, 2023, the Term Loan Facility was fully drawn and the carrying value of the loan was $i10.3
million. The interest rate on the Term Loan Facility is the greater of i4.0% per annum or a floating per annum rate equal to the prime rate plus i0.75%.
Interest on any outstanding term loan advances is due and payable monthly. In addition to the monthly interest payments, a final payment equal to i6.5% of the original principal amount of each advance is due the earlier of the maturity date or the date the advance is repaid. Principal balances are required to be repaid in i24
equal installments beginning onAugust 1, 2023. The effective interest rate on the Term Loan Facility, reflecting the impact of debt issuance costs, the end-of-term fee and expected timing of principal repayment, was i8.4% per annum as of March 31, 2023.
The stated maturity of the Term Loan Facility is July 1, 2025.However,
if the principal amount of our convertible debt exceeds $i0.6 million as of June 1, 2024 or if the maturity date of our 2019 Notes has not been extended beyond January 1, 2026 by June 1, 2024, then the maturity date of the Term Loan Facility will be June 1, 2024.
The carrying value of our term loan
was as follows (in thousands):
On January 23, 2022, we entered into separate loan agreements (the Bridge Loan Agreements) with Casdin Private Growth Equity Fund II, L.P. and Casdin Partners Master Fund, L.P. (collectively, Casdin) and Viking Global Opportunities Illiquid Investments Sub-Master LP and Viking Global Opportunities Drawdown (Aggregator) LP (collectively, Viking). Under the Bridge Loan Agreements, Casdin and Viking (collectively the Lenders) each provided to the Company a $i12.5 million
term
13
loan (collectively, the Bridge Loans). The Bridge Loans were fully drawn on January 24, 2022, and automatically converted into Series B Preferred Stock upon the subsequent closing of the Private Placement, as more fully discussed below in Note 9.
Prior to their conversion, the Bridge Loans bore interest at (i) a rate of i10%
per annum from the effective date of the Bridge Loan Agreements to February 28, 2022, and (ii) a rate of i12% per annum from March 1, 2022 to the closing of the Private Placement on April 4, 2022.
Applying the guidance in ASC 825 Financial Instruments, we elected to record the Bridge Loans at their fair value. We employed a probability‐weighted expected return method in our valuation
analysis of the Bridge Loans.The $i10.7 million change in fair value of the Bridge Loans from $i25.0
million at inception to $i35.7 million as of March 31, 2022, including the portion attributable to accrued interest, was reflected as a non-operating unrealized loss on the Bridge Loans in the accompanying condensed consolidated statements of operations. The loss was primarily due to the increase in our common stock price from $i2.84
per share at inception of the Bridge Loans to $i3.59 per share on March 31, 2022. Upon conversion as of April 4, 2022, the change in the fair value from inception was $i13.7 million
and the carrying value of the Bridge Loans of $i38.7 million was reclassified to Series B Redeemable Preferred Stock.
14
7. iLeases
We have operating leases for buildings, equipment and vehicles. Existing leases have remaining terms ranging from less than ione year to iseven years.
Some leases contain options to extend the lease, usually for up to ifive years, along with termination options.
In August 2022, we entered into an agreement to sublease approximately i25%
of our corporate headquarters space in South San Francisco, California for a period of i39 months. We expect to recognize $i4.7 million of sublease income over the lease term that commenced in October
2022.
On February 28, 2023, we signed a second agreement to sublease an additional i25% of our corporate headquarters for a period of i77
months. We expect to recognize additional sublease income of $i9.1 million over the lease term, commencing on December 1, 2023.
Sublease income is reported in the condensed consolidated statements of operations as a reduction in selling, general and administrative expenses.
i
Supplemental
balance sheet information related to our leases was as follows (dollars in thousands):
Cash, Cash Equivalents, and Short-Term Investments
i
The following tables summarize our cash,
cash equivalents, restricted cash, and available-for-sale securities by significant investment category within the fair value hierarchy (in thousands):
There
were no transfers between Level I and II measurements and no changes in the valuation techniques used during the three months ended March 31, 2023. The money market and U.S. treasury investments mature on or before July 6, 2023.
Debt
The 2014 Notes and 2019 Notes are not regularly traded. The estimated fair values for these securities represent Level III valuations since a fair value for these securities cannot be determined by using readily observable inputs or measures, such as market prices. Fair values were estimated using pricing models and risk-adjusted value ranges.
The estimated fair value of the Term Loan Facility also represents a Level III valuation since the value cannot be determined by using readily
observable inputs or measures, such as market prices. The fair value of our Term Loan Facility was estimated using a discounted cash flow model and current market interest rate data for similar loans.
Advances under the Revolving Credit Facility typically have short repayment periods and their carrying values approximate their fair values due to their short-term duration. The Company had iino/
advances under the Revolving Credit Facility as of March 31, 2023 or December 31, 2022.
16
The following table summarizes the par value, carrying value and estimated fair value of our debt (in thousands):
On January 23, 2022, we entered into the Bridge Loan Agreements, as more fully discussed in Note 6. Also, on that date, we entered into separate Series B Convertible Preferred Stock Purchase Agreements (the Purchase Agreements)
with the Lenders. Under the terms and conditions of the Purchase Agreements, we issued and sold an aggregate of $i225 million of convertible preferred stock, consisting of: (i) i112,500
shares of the Company’s Series B-1 Convertible Preferred Stock, par value $i0.001 per share (the Series B-1 Preferred Stock), at a purchase price of $i1,000
per share; and (ii) i112,500 shares of the Company’s Series B-2 Convertible Preferred Stock, par value $i0.001
per share (the Series B-2 Preferred Stock, and together with the Series B-1 Preferred Stock, the Series B Preferred Stock or the Series B Redeemable Preferred Stock) at a purchase price of $i1,000 per share (together with the issuance of shares of Series B Preferred Stock in connection with the conversion of the Bridge Loans, the Private Placement). The Private Placement closed on April 4, 2022 (the Closing Date). Upon closing, i225,000
shares of Series B Preferred Stock were issued in accordance with the Purchase Agreements and the Bridge Loans converted into i30,559 shares of Series B Preferred Stock, for a total of i255,559
shares of Series B Preferred Stock.
The Purchase Agreements were accounted for as forward sales contracts at fair value in accordance with ASC 480 Distinguishing Liabilities from Equities because the Series B Preferred Stock included certain contingent redemption features that created an obligation for the Company to repurchase its shares. The fair value of the payable portion of the forward sales contracts was determined using a Monte Carlo Simulation, which relies on significant assumptions regarding the estimated yield and term of the Series B Preferred Stock.
The fair value of the i225,000
shares of Series B Preferred Stock was determined to be $i262.8 million as of March 31, 2022 and $i285.1 million on
the Closing Date. The $i37.8 million and $i60.1 million increase in the fair value of the Series B Preferred Stock from the date of the Purchase Agreements to March
31, 2022 and the Closing Date, respectively, was primarily due to the increase in our common stock price during the same period and the various conversion rights and key provisions discussed below. The increase in fair value was included as a non-operating loss on the forward sale of Series B Preferred Stock on the condensed consolidated statements of operations.
Preferred stock is classified as debt, equity or mezzanine equity based on its redemption features. Preferred stock with redemption features outside of the control of the issuer, such as contingent redemption features, is classified as mezzanine equity. We recorded the Series B Preferred Stock as mezzanine equity at its fair value upon issuance, net of any issuance costs, on the condensed consolidated balance sheets because it had features, such as change of control and liquidation preference, which are outside of the
Company’s control. Subsequent adjustment of the amount presented within mezzanine equity to its redemption amount is unnecessary as it is not probable that the instrument will become redeemable.
Upon closing, the value of the Bridge Loans and the Purchase Agreements, discussed in detail above, were reclassified and included in the carrying value of the Series B Redeemable Preferred Stock. The carrying value of the Series B Redeemable Preferred Stock as of April 4, 2022 was $i311.3
million.
17
i
The components of the carrying value of the Series B Preferred Stock as of March 31, 2023 and December 31, 2022 were as follows (in thousands):
Proceeds
from Purchase Agreements
$
ii225,000/
Proceeds
from Bridge Loans
ii25,000/
Change
in fair value of Forward Purchase Agreements
ii60,081/
Change
in the fair value of Bridge Loans
ii13,719/
Less
equity issuance costs
(ii12,547/)
Total
Series B Redeemable Preferred Stock
$
ii311,253/
/
The
Series B Preferred Stock ranks senior to our common stock with respect to dividend rights, redemption rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The holders of Series B Preferred Stock are entitled to participate in all dividends declared on our common stock on an as-converted basis. The Series B Preferred Stock contains several conversion rights, redemption features and other key provisions described below.
Holder Voluntary Conversion Rights
The Series B Preferred Stock is convertible at the option of the holders at any time into a number of shares of common stock equal to the Conversion Rate, which is initially i294.1176
shares of common stock per share of Series B Preferred Stock, in each case subject to certain adjustments and certain limitations on conversion.
Issuer Call Provision
At any time after the fifth anniversary of the Closing Date of the Private Placement, if the last reported sale price of the Company’s common stock is greater than i250% of the Conversion
Price as of such time for at least i20 consecutive trading days, we may elect to convert all the outstanding shares of Series B Preferred Stock into shares of common stock.
Issuer Redemption Provision
After the seventh anniversary of the Closing Date of the Private Placement, subject to certain conditions, we may, at our option, redeem the outstanding shares of Series B Preferred Stock at a redemption price per share of Series B Preferred Stock, payable
in cash, equal to the amount that must be paid by the Company in a corporate liquidation (the Liquidation Preference).
Change of Control Provisions
If we undergo certain change of control transactions, each holder of outstanding shares of Series B Preferred Stock will have the option, subject to the holder’s right to convert all or a portion of the shares of Series B Preferred Stock held by such holder into common stock, to require us to purchase all or a portion of such holder’s outstanding shares of Series B Preferred Stock that have not been converted into common stock at a purchase price per share of Series B Preferred Stock, payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that
such holder would have been entitled to receive if such holder had converted such share of Series B Preferred Stock into common stock immediately prior to the change of control transaction (Change of Control Put).
In the event of a change of control in which we are not expected to be the surviving corporation or our common stock will no longer be listed on a U.S. national securities exchange, we will have a right to redeem, subject to the holder’s right to convert into common stock prior to such redemption, all of such holder’s shares of Series B Preferred Stock, or if a holder exercises the Change of Control Put in part, the remainder of such holder’s shares of Series B Preferred Stock, at a redemption price per share payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that the holder would have received if such holder
had converted such share of Series B Preferred Stock into common stock immediately prior to the change of control transaction.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the Series B Preferred Stock has a liquidation preference equal to the greater of (i) the Liquidation Preference (currently $i3.40)
and (ii) the amount per share of Series B Preferred Stock that such holder would have received had all holders of Series B Preferred Stock, immediately prior to such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, converted all shares of Series B Preferred Stock into common stock (without regard to any limitations on conversion contained therein).
18
10. Shareholders’ Deficit
Stock Repurchase Program
On November
23, 2022, our board of directors authorized the repurchase of up to $i20.0 million in shares of the Company’s common stock in the open market or in negotiated transactions through December 31, 2023. We repurchased a total of i1,250,484
shares of common stock under the program at a cost of $i2.5 million, excluding commission fees, for an average of $i1.97 per share for the three
months ended March 31, 2023. Cumulative repurchases under the program amount to i1,672,793 shares at a total cost of $i3.0
million. The Company had a remaining authorization to repurchase up to approximately $i17.0 million in shares under this program as of March 31, 2023. Repurchases may be suspended or discontinued at any time at the Company’s discretion.
Private Placement
In
connection with the closing of the Private Placement, our stockholders approved on April 1, 2022, an increase in the number of shares of common stock, par value $i0.001 per share, that we are authorized to issue from i200.0 million
shares to i400.0 million shares. Also, we adopted the 2022 Inducement Equity Incentive Plan (the 2022 Inducement Plan) with an initial reserve for issuance of approximately i9.5 million
shares.
The Series B Preferred Stock issued in connection with the Private Placement contains several rights and other key provisions that may result in the conversion of the Series B Preferred Stock to our common stock, as more fully discussed in Note 9.
Common Shares Reserved
iAs
of March 31, 2023, we had reserved shares of common stock for future issuance under equity compensation plans as follows (in thousands):
Securities To Be Issued Upon Exercise Of Options
Securities To Be Issued Upon Release Of Restricted
Stock and Performance Share Units at Maximum
Number Of Remaining Securities Available For Future Issuance
2022 Inducement Equity Incentive Plan
i6,795
i1,496
i1,146
2011
Equity Incentive Plan
i1,152
i5,170
i3,549
2017
Inducement Award Plan
i59
i3
i—
DVS
Sciences Inc. 2010 Equity Incentive Plan
i1
i—
i—
2017
Employee Stock Purchase Plan
i—
i—
i2,050
i8,007
i6,669
i6,745
/
Included
in the securities to be issued upon release of RSUs and PSUs are the maximum number of shares that could be issued for PSU awards, which can vest at i0%-i200%
of the number of awards granted.
11. iBenefit Plans
Plans
Our board of directors sets the terms, conditions, and restrictions related to our 2017 Employee Stock Purchase Plan (ESPP) and the grant of stock options, RSUs and PSUs under our stock-based incentive
plans. Our board of directors determines the number of awards to grant and sets the vesting criteria.
In general, RSUs vest on a quarterly basis over a period of ifour years from the date of grant at a rate of i25%
on the first anniversary of the grant date and ratably each quarter over the remaining 12 quarters, or ratably over 16 quarters, subject to the employees’ continued employment. We may grant RSUs with different vesting terms from time to time.
Stock options granted under our 2022 Inducement Plan and 2011 Equity Incentive Plan (the 2011 Plan) have a term of no more than iten years from the date of grant and an exercise price of at least i100%
of the fair market value of the underlying common stock on the date of grant. Generally, options vest at a rate of either i25% on the first anniversary of the option grant date and ratably each month over the remaining period of i36
months, or ratably each month over i48 months. We may grant options with different vesting terms from time to time.
19
For PSUs, our board of directors sets the performance objectives and other vesting provisions in determining the number of shares or value of performance units and performance shares that will be paid out. Such payouts will be a function
of the extent to which performance objectives or other vesting provisions have been achieved.
2011 Equity Incentive Plan
In January 2011, our board of directors adopted the 2011 Plan under which incentive stock options, non-statutory stock options, RSUs, stock appreciation rights, PSUs and performance shares may be granted to our employees, directors, and consultants. In April 2019, our board of directors authorized, and in June 2019, our stockholders approved an amendment and restatement of the 2011 Plan to make various changes, including increasing the number of shares reserved for issuance by approximately i5.0
million shares and extending the term of the 2011 Plan until April 2029. In May 2020, our board of directors authorized, and in June 2020, our stockholders approved, an increase of i1.4 million shares reserved for issuance under the 2011 Plan. In April 2021, our board of directors authorized, and in May 2021, our stockholders approved, an additional increase of i4.1 million
shares reserved for issuance under the 2011 Plan.
2017 ESPP
Our ESPP offers U.S. and some non-U.S. employees the right to purchase shares of our common stock. Our ESPP program has a isix-month offering period, with a new period commencing on the first trading day on or after May 31 and November 30 of each year. Employees are eligible to participate through payroll deductions of up to i10%
of their compensation. Employee stock purchases under this plan are limited to $i25,000 for any calendar year. Shares are sold to employees under the ESPP for i85%
of the lower of the fair market value of a share of our common stock on the first day of the offering period or the last day of the offering period.
2022 Inducement Equity Incentive Plan
As discussed in Note 10, we adopted the 2022 Inducement Plan in April 2022 and reserved i9.5 million
shares of common stock for the issuance of equity-based awards, including non-statutory stock options, RSUs, restricted stock, stock appreciation rights, performance shares and PSUs. In accordance with Nasdaq listing rules, equity awards issued under the 2022 Inducement Plan are restricted to individuals who are not already employees or directors of the Company. The terms and conditions of the 2022 Inducement Plan are substantially similar to those of the 2011 Plan.
As
of March 31, 2023, the unrecognized compensation costs related to outstanding unvested RSUs under our equity incentive plans were $i13.5 million. We expect to recognize those costs over a weighted average period of i2.7
years.
20
i
Stock Options
Number
of Options (in 000s)
Weighted-Average Exercise Price per Option
Weighted- Average Remaining Contractual Life (in Years)
(1)Aggregate
intrinsic value as of March 31, 2023 was calculated as the difference between the closing price per share of our common stock on the last trading day of March, which was $i1.95, and the exercise price of the options, multiplied by the number of in-the-money options.
As of March 31, 2023, the unrecognized compensation costs related to outstanding unvested options under our equity incentive plans were $i14.2
million. We expect to recognize those costs over a weighted average period of i3.3 years.
Performance-based Awards
We have granted PSUs to certain executive officers and senior level employees. The number of PSUs ultimately earned under these awards is calculated by comparing the Total Shareholder
Return (TSR) of our common stock over the applicable ithree-year period against the TSR of a defined group of peer companies. The Company’s relative performance against its peer group determines the payout, which can range from i0%
to i200% of the base awards
As
of March 31, 2023, the unrecognized compensation costs related to these awards were $i0.2 million. We expect to recognize those costs over a weighted average period of i0.8
years.
Stock-based Compensation Expense
Total stock-based compensation expense recognized was as follows (in thousands):
Our quarterly provision for income taxes is based on an estimated annual effective income tax rate. Our quarterly provision for income taxes also includes discrete items, such as changes in valuation allowances or adjustments upon finalization of tax returns as well as infrequently occurring items, if any, such as the effects of changes in tax laws or rates, in the interim period in which they occur.
21
We
recorded an income tax expense of $i0.3 million in the three months ended March 31, 2023 and an income tax benefit of $i0.6 million
for the three months ended March 31, 2022. The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the first quarter of 2023 and pre-tax loss in the first quarter of 2022. The effective tax rate (benefit) was i1.6% in the three months ended March 31, 2023 compared to (i0.7%)
in the three months ended March 31, 2022. The Company’s effective tax rates for both periods differ from the 21% U.S. Federal statutory tax rate primarily due to valuation allowances recorded against deferred tax assets on domestic losses and the tax rate differences between the U.S. and foreign countries.
Our tax positions are subject to audits by multiple tax jurisdictions. We believe that we have provided adequate reserves for uncertain tax positions for all tax years still open for assessment. For the three months ended March 31, 2023 and 2022, we did not recognize any material interest or penalties related to uncertain tax positions.
13.
iSegment Reporting
In the third quarter of 2022, our Chief Executive Officer (CEO), who is our Chief Operating Decision Maker (CODM), instituted the practice of evaluating operating performance and making resource allocation decisions using itwo
reportable segments: proteomics and genomics (also known as mass cytometry and microfluidics, respectively). Each segment is identified by its unique portfolio of products. Proteomics includes our instruments, consumables, software, and services based upon technologies used in the identification of proteins. Genomics includes our instruments, consumables, software, and services based upon technologies used in the identification of genes (DNA, RNA) and their functions.
We determine each segment’s loss from operations by subtracting direct expenses, including cost of product and service revenues, research and development expense, and sales and marketing expense, from revenues. Amortization, depreciation, and restructuring expenses are included in each segment’s operating expenses. Corporate costs, including general and administrative expenses for functions shared by both operating segments such as executive
management, human resources, and finance, along with interest and taxes, are excluded from each segment’s results, which is consistent with how our CODM evaluates segment performance.
We do not prepare or report segmented balance sheet information as our CODM does not use the information to assess segment operating performance. The segments adhere to the same accounting policies that the Company adheres to as a whole. Segment reporting for historical periods has been included in this report to ensure comparability with the current year.
i
Our
business segment information was as follows (in thousands):
In August 2022, we announced a restructuring plan, including a reduction in force, to improve operational efficiency, achieve cost savings and align our Company’s workforce to the future needs of the business. In addition to the reduction in force, we are reducing leased office space, optimizing our manufacturing footprint, and streamlining support
functions. We are employing a more disciplined cost management culture throughout our organization, investing in training, and plan to take advantage of more advanced technologies including upgrading our enterprise resource planning (ERP) system.
22
We record restructuring and other related costs as incurred. These items are classified within cost of product and service revenue, R&D expenses, and selling, general and administrative expenses in our condensed consolidated statements of operations. We recognized $i0.3 million
of restructuring expense and $i0.1 million of other related costs for the three months ended March 31, 2023.
We expect to complete all restructuring actions by the end of 2023 and to incur additional charges up to $i2.0
million related primarily to employee severance and facility exit costs for the remainder of 2023. These estimates are subject to a number of assumptions, and actual results may differ.
i
A summary of the changes in our restructuring and other related liabilities for the three months ended March 31, 2023 was as follows (in thousands):
(1)
Restructuring liabilities are recorded in accrued compensation and related benefits on the condensed consolidated balance sheets. Liabilities related to other related costs are recorded in other accrued liabilities on the condensed consolidated balance sheets.
/
23
Restructuring and other related costs were classified in the condensed consolidated statements of operations as follows (in thousands):
From time to time, we have entered into indemnification provisions under certain of our agreements in the ordinary course of business, typically with business partners, customers, and suppliers. Pursuant to these agreements, we may indemnify, hold harmless, and agree to reimburse the indemnified parties on a case-by-case basis for losses suffered or incurred by the indemnified parties in connection with any patent or
other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification provisions is generally perpetual from the time of the execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is typically not limited to a specific amount. In addition, we have entered into indemnification agreements with our officers, directors, and certain other employees. With certain exceptions, these agreements provide for indemnification for related expenses including, among others, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding.
Contingencies
In September 2020, a putative class action complaint alleging violations of the federal securities laws was filed against the
Company (also naming our Chief Financial Officer and our former Chief Executive Officer as defendants) in the U.S. District Court for the Northern District of California (Reena Saintjermain, et al. v. Fluidigm Corporation, et al). On February 14, 2022, the Court granted defendants’ motion to dismiss the second amended complaint with prejudice. On March 15, 2022, the lead plaintiff filed a notice of appeal of the District Court’s decision.Following a hearing before the Ninth Circuit Court of Appeals, the dismissal was affirmed on February 21, 2023.
24
From
time to time, we may be subject to various legal proceedings and claims arising in the ordinary course of business. These include disputes and lawsuits related to intellectual property, mergers and acquisitions, licensing, contract law, tax, regulatory, distribution arrangements, employee relations and other matters. Periodically, we review the status of each matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible loss can be estimated, we accrue a liability for the estimated loss. We have not recorded any such liabilities in any of the periods presented. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes
available, we continue to reassess the potential liability related to pending claims and litigation and may revise estimates.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of Standard BioTools Inc. MD&A is provided as a supplement to,
and should be read together with, our condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section titled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, cost of product revenue and product margin, operating and other income and
expenses, unit sales and the selling prices of our products, business strategies and strategic priorities, changes in commercial and strategic focus, restructuring plan, reduction-in-force and real estate footprint reduction plans, microfluidics research and development and marketing investment reduction plans, other cost reduction initiatives, portfolio rationalization initiatives, operating discipline improvement plans, implementation of Standard BioTools Business Systems, expected costs and cost savings associated with such plans and initiatives, future product offerings, financing plans, capital allocation plans, expansion of our business, merger and acquisition opportunities, competitive position, industry environment, potential growth opportunities and drivers, market growth expectations, and the effects of competition and public health crises on our business, the global supply chain, and our customers, suppliers, and other business partners. Forward-looking statements
include statements that are not historical facts and can be identified by terms such as “anticipates,”“believes,”“could,”“seeks,”“estimates,”“expects,”“intends,”“may,”“plans,”“potential,”“predicts,”“projects,”“should,”“will,”“would,” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC). Given these uncertainties, you should not place undue reliance
on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Form 10-Q.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.
Standard BioTools, the Standard BioTools logo, Fluidigm®, the Fluidigm logo, 48.Atlas™, Access Array™, Advanta™, Advanta EASE™, Atlas™, Biomark™, “Bringing new insights to life”™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, the CyTOF XT logo, D3™, Delta Gene™, Direct™, Digital Array™, Dynamic Array™,
EP1™, EQ™, FC1™, Flex Six™, Flow Conductor™, FluiDesign™, Helios™, High-Precision 96.96 Genotyping™, HTI™, Hyperion™, Hyperion+™, IMC™, Imaging Mass Cytometry™, Immune Profiling Assay™, Juno™, Maxpar®, Maxpar® OnDemand™, MCD™, MSL®, Nanoflex™, Open App™, Pathsetter™, Polaris™, qdPCR 37K™, Script Builder™, Script Hub™, Singular™, SNP Trace™, SNP Type™, “Unleashing tools to accelerate breakthroughs in human health”™, X9™ High-Thoughput Genomics System, X9™ Real Time PCR System, and Xgrade™ are trademarks or registered trademarks of Standard BioTools Inc. or its affiliates in the United States and/or other countries. Other service marks, trademarks and trade names referred to in this Form 10-Q are the property of their respective owners.
___________________________
Unless the context requires otherwise, references in this Form 10-Q to “Standard BioTools” the “Company,”“we,”“us,” and “our” refer to Standard BioTools Inc. and its subsidiaries.
Our MD&A is organized in the following sections:
•Overview
•Recent Developments
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies and Estimates
•Recent Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements
26
Overview
Standard
BioTools Inc. is driven by a bold purpose – unleashing tools to accelerate breakthroughs in human health. We have an established portfolio of essential, standardized next-generation high resolution technologies that help biomedical researchers develop medicines faster and better. Our tools are designed to provide reliable and repeatable insights in health and disease using our proprietary mass cytometry and microfluidics technologies, which serve applications in proteomics and genomics that help transform scientific discoveries into better patient outcomes. We work with leading academic, government, pharmaceutical, biotechnology, plant and animal research, and clinical laboratories worldwide, focusing on the most pressing needs in translational and clinical research, including oncology, immunology, and immunotherapy.
We distribute our systems through our direct sales force and support organizations located
in North America, Europe, and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern, and Asia-Pacific countries. Our manufacturing operations are located in Singapore and Canada.
Recent Developments
Following the Private Placement, our new leadership team identified three strategic priorities: revenue growth, improving operating discipline and strategic capital allocation, as more fully discussed in Part I Item 1 “Business” in our Annual Report on Form 10-K.
We took additional actions in the first quarter of 2023 under our strategic initiative to improve operating discipline, including reductions to our headcount
in Europe and additional reductions to our real estate footprint in the U.S. On February 28, 2023, we signed an agreement to sublease an additional 25% of our corporate headquarters for a period of 77 months. The agreement resulted in 50% of the space at our headquarters being subleased as of March 31, 2023. We expect to recognize $9.1 million of sublease income over the term of this new agreement, with payments expected to commence on December 1, 2023.
Results of Operations
The following table presents our condensed consolidated statements of operations and as a percentage of total revenue for the three months ended
March 31, 2023 and 2022 ($ in thousands):
Strategic
Financing and Business Improvement Actions
Our operating results include costs related to the strategic financing transaction and the subsequent business improvement actions taken by the new leadership team, including the ongoing rationalization of our product portfolio and the phased restructuring plan announced in August 2022. These items increased our operating loss by $0.6 million and $4.8 million for the three months ended March 31, 2023 and 2022, respectively, as shown below ($ in thousands):
Restructuring and other related costs(see Note 14)
220
—
NA
Strategic
financing support1
—
3,400
(100)
%
Severance costs2
—
1,390
(100)
%
Enterprise
resource planning (ERP) upgrade
262
—
NA
Total selling, general and administrative items
482
4,790
(90)
%
Total
$
619
$
4,790
(87)
%
(1)
Costs to prepare the Private Placement, including legal and consulting expenses
(2) Termination benefits for members of the former management team, including the former CEO
Revenue
We generate revenue primarily from sales of our products and services. Other revenue consists of revenue from product development and license agreements.
Our product revenue consists of sales of instruments and consumables. Consumables revenue is largely driven by the size of our active installed base of instruments and the level of usage per instrument. Service revenue is linked to the sales and active installed base of our instruments as our service revenue primarily consists of post-warranty service
contracts, preventive maintenance plans, instrument parts, installation and training for our instruments. We expect the average selling prices of our products and services to fluctuate over time based on market conditions, product mix, and currency fluctuations.
No single customer represented more than 10% of our total revenue for the three months ended March 31, 2023, and 2022, respectively. Revenue from our five largest customers represented 22% and 21% of total revenue for the three months ended March 31, 2023, and 2022, respectively.
Revenues by product type and as a percentage of total revenue
were as follows ($ in thousands):
Three
Months Ended March 31,
Year-over-Year Change
2023
2022
Revenue:
Instruments
$
5,923
24
%
$
7,523
28
%
(21)%
Consumables
11,515
46
12,481
47
(8)%
Product
revenue
17,438
70
20,004
75
(13)%
Service revenue
6,881
27
6,144
23
12%
Product
and service revenue
24,319
97
26,148
98
(7)%
Other revenue
800
3
356
2
125%
Total
revenue
$
25,119
100
%
$
26,504
100
%
(5)%
Total
revenue decreased by $1.4 million, or 5%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, driven by a $1.6 million, or 21%, decline in instruments revenue and a $1.0 million, or 8%, decline in consumables revenue, offset in part by a $0.7 million, or 12%, increase in service revenue and a $0.4 million increase in other revenue. Year-over-year changes in foreign exchange rates negatively impacted the Company’s total revenue by approximately 1.9%, or $0.5 million. Changes in revenue are more fully discussed in the following sections.
28
Revenue
by Geographic Area
Revenue by geographic region of our customers’ facilities and as a percentage of total revenue were as follows ($ in thousands):
Three
Months Ended March 31,
Year-over-Year Change
2023
2022
Americas
$
11,662
46
%
$
12,930
49
%
(10)%
Europe,
Middle East and Africa (EMEA)
7,837
32
8,609
32
(9)%
Asia-Pacific
5,620
22
4,965
19
13%
Total
revenue
$
25,119
100
%
$
26,504
100
%
(5)%
Americas
revenue decreased by $1.3 million, or 10%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year decline was primarily attributable to a $1.2 million, or 45%, decrease in instruments revenue and a $0.7 million, or 11%, decline in consumables revenue, partially offset by a $0.4 million increase in other revenue. Lower consumables revenue reflects a $2.3 million decrease in sales of COVID 19 test products revenue, partially offset by higher sales of other consumables.
EMEA region revenue decreased by $0.8 million, or 9%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year decline was due to a $0.6 million, or
20%, reduction in instruments revenue and a $0.4 million, or 9%, decrease in consumables revenue, partially offset by a $0.2 million, or 9%, increase in service revenue.A stronger dollar negatively impacted EMEA revenues by approximately $0.3 million or 3.3%.
In Asia-Pacific, revenue increased by $0.7 million, or 13%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, driven primarily by a $0.3 million, or 8%, increase in product revenue, and a $0.3 million, or 33%, increase in service revenue. A stronger dollar negatively impacted Asia-Pacific revenues by approximately $0.2 million or 4.5% percent.
Segment Revenue - Product and Service
Segment
product and service revenue and as a percentage of the respective segment’s total revenue was as follows ($ in thousands):
Three
Months Ended March 31,
Year-over-Year Change
2023
2022
Proteomics:
Instruments
$
4,499
30%
$
4,370
32%
3%
Consumables
5,548
37
4,766
35
16%
Product
revenue
10,047
67
9,136
67
10%
Service revenue
5,153
33
4,394
33
17%
Product
and service revenue
$
15,200
100%
$
13,530
100%
12%
Genomics:
Instruments
$
1,424
16%
$
3,153
25%
(55)%
Consumables
5,967
65
7,715
61
(23)%
Total
product revenue
7,391
81
10,868
86
(32)%
Service revenue
1,728
19
1,750
14
(1)%
Product
and service revenue
$
9,119
100%
$
12,618
100%
(28)%
Proteomics product and service revenue increased by $1.7
million, or 12%, during the three months endedMarch 31, 2023, compared to the three months ended March 31, 2022. The year-over-year increase was primarily attributable to a $0.8 million, or 16%, increase in consumables revenue and a $0.8 million, or 17%, increase in service revenue.
29
Genomics product and service revenue declined by $3.5 million, or 28%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year decline was due in part to a $1.7 million, or 55%,
reduction in instruments revenue, driven by lower unit sales, and a $1.7 million, or 23%, decline in consumables revenue. Lower revenue from consumable products reflects a $2.3 million decrease in sales of COVID-19 test products, partially offset by growth in other consumables revenue.
Segment Revenue - Other
Segment other revenue and as a percentage of total other revenue was as follows ($ in thousands):
Three
Months Ended March 31,
Year-over-Year Change
2023
2022
Proteomics
$
—
—%
$
250
70%
(100)%
Genomics
800
100
106
30
NA
Total
other revenue
$
800
100%
$
356
100%
125%
Other revenue is principally comprised of sales from product development
and license agreements. Other revenue increased by $0.4 million due to a $0.7 million increase in genomics product development revenue, partially offset by a decline in proteomics licensing revenue.
Product and Service Cost, Product and Service Gross Profit, and Product and Service Margin
Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty costs, provisions for slow-moving excess and obsolete inventory, and stock-based compensation expense. Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities
in response to market conditions and the demand for our products.
Cost of service revenue includes direct labor hours, overhead and instrument parts. Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing.
Product and service cost, product and service gross profit, and product and service margin were as follows ($ in thousands):
Three
Months Ended March 31,
Year-over-Year Change
2023
2022
Cost of product revenue
$
10,203
$
12,339
(17)%
Cost
of service revenue
2,792
1,928
45%
Cost of product and service revenue
$
12,995
$
14,267
(9)%
Product
and service gross profit
$
11,324
$
11,881
(5)%
Product and service margin
46.6
%
45.4
%
1.2
ppt
Product
and service gross profit declined by $0.6 million, or 5%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year reduction in gross profit was primarily attributable to lower revenue. The year-over-year increase in product and service margin reflects an improved mix of higher-margin revenue and better pricing, partially offset by lower manufacturing capacity utilization, and increases in warranty expense and service cost.
30
Operating Expenses
Operating expenses were as follows ($ in thousands):
Three
Months Ended March 31,
Year-over-Year Change
2023
2022
Research and development
$
6,409
$
8,865
(28)%
Selling,
general and administrative
22,308
30,875
(28)%
Total operating expenses
$
28,717
$
39,740
(28)%
Research
and Development (R&D)
R&D expense consists primarily of compensation-related costs, product development and material expenses, and other allocated facilities and information technology expenses. Our R&D efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services. R&D expense also includes costs incurred in conjunction with research grants and product development arrangements.
R&D expense decreased by $2.5 million, or 28%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to lower compensation and consulting costs and reduced spending on laboratory supplies. These reductions were related to our strategic initiatives to
reduce headcount and improve operating efficiencies by engaging in lower-cost and more focused R&D projects and activities.
Selling, General and Administrative (SG&A)
SG&A expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources, information technology and general management, as well as professional services, including legal and accounting.
SG&A expense decreased by $8.6 million, or 28%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The year-over-year decline was primarily attributable to expenses incurred in the first quarter of last year, including $3.4 million in legal and other professional fees related
to the Private Placement and $1.2 million in severance costs for our former CEO. Salaries and benefits expense and stock-based compensation expense were also lower by $2.2 million and $0.8 million, respectively, as a result of the restructuring plan initiated in August 2022 that downsized our global workforce.
Segment Loss from Operations
Segment losses from operations were as follows ($ in thousands):
Three
Months Ended March 31,
Year-over-Year Change
2023
2022
Loss
from operations:
Proteomics
$
(5,673)
$
(5,350)
6%
Genomics
(230)
(5,482)
(96)%
Corporate
expenses
(10,690)
(16,671)
(36)%
Total loss from operations
$
(16,593)
$
(27,503)
(40)%
Proteomics
loss from operations for the three months ended March 31, 2023 increased by $0.3 million, or 6%, over the three months ended March 31, 2022, due primarily to lower product and service margin, driven by lower manufacturing capacity utilization, and increases in warranty expense and service cost.
Genomics loss from operations for the three months ended March 31, 2023 decreased by $5.3 million, or 96%, from the three months ended March 31, 2022, due primarily to a $4.9 million reduction in operating expenses, including a $2.5 million decline in salaries and benefits expense and a $0.6 million decrease in share-based compensation expense. The year-over-year reduction in operating loss also reflects improvement in product and service
margin, partially offset by a $2.8 million decline in revenue.
31
Corporate expenses include general and administrative expenses for functions shared by both operating segments, such as executive management, human resources and finance. Corporate expenses in the three months ended March 31, 2023, declined by $6.0 million, or 36%, from the same period in 2022, due primarily to the prior-year SG&A expenses related to the Private Placement and severance costs, as more fully discussed above.
Interest Expense and Other Non-Operating Income (Expense)
Interest expense and other non-operating income (expense)
were as follows ($ in thousands):
Three Months Ended March 31,
Year-over-Year Change
2023
2022
Interest
expense
$
(1,117)
$
(1,030)
8%
Loss on forward sale of Series B Preferred Stock
—
(37,792)
NA
Loss
on Bridge Loans
—
(10,655)
NA
Other income, net
1,130
118
NA
Total
$
13
$
(49,359)
(100)%
The
improvement in non-operating income (expense) in the first quarter of 2023 compared to the first quarter of 2022 primarily reflects 2022 losses related to the Private Placement. The Purchase Agreements for the Series B Preferred Stock were accounted for as forward sales contracts and recorded at fair value. The Bridge Loans were also recorded at fair value. In the three months ended March 31, 2022, the $37.8 million loss on the forward sales of Series B Preferred Stock and the loss on the Bridge Loans of $10.7 million reflected the increase in the price of our common stock from January 23, 2022 (the date of the Purchase Agreements and the Bridge Loan agreements) to March
31, 2022.
The increase in other income, net of $1.0 million for the three months ending March 31, 2023 compared to March 31, 2022 was primarily due to the interest earned on money market funds and short-term investments. We had no such investments until after the closing date of the Private Placement on April 4, 2022.
Income Tax Benefit (Expense)
We recorded an income tax expense of $0.3 million in the three months ended March 31, 2023 and an income tax benefit of $0.6 million for the three months ended March 31, 2022. The increase in our tax provision reflects
the effect of our foreign operations, which reported pre-tax income in the first quarter of 2023 and pre-tax loss in the first quarter of 2022. The effective tax rate (benefit) was 1.6% in the three months ended March 31, 2023 compared to (0.7%) in the three months ended March 31, 2022. The Company’s effective tax rates for both periods differ from the 21% U.S. Federal statutory tax rate primarily due to valuation allowances recorded against deferred tax assets on domestic losses and the tax rate differences between the U.S. and foreign countries.
Liquidity and Capital Resources
Our
liquidity and capital requirements depend upon many factors, including market acceptance of our products and services; effectiveness of our business improvement initiatives and restructuring programs; costs of supporting sales growth, product quality, R&D, and capital expenditures, including our ERP upgrade; and costs and timing of acquiring other businesses, assets or technologies.
We continually evaluate our liquidity requirements considering our operating needs, growth initiatives, and capital resources. We expect that our existing liquidity and sources of capital will be sufficient to support our operations over the next 12 months from the filing date of this Form 10-Q.
Sources of Liquidity
Our principal sources of liquidity are cash and cash equivalents, short-term investments, and to a lesser extent,
borrowings available under our Revolving Credit Facility that matures August 2, 2023. Our collective balances of cash, cash equivalents and short-term investments were $154.5 million at March 31, 2023 and $165.8 million at December 31, 2022.
Under our Revolving Credit Facility, borrowings of up to $15.0 million are limited to the amount of our eligible accounts receivable and inventory collateral. As of March 31, 2023, we had no borrowings outstanding under the Revolving Credit Facility and the total availability was $7.1 million.
32
Capital
Resources and Commitments
We enter into arrangements that serve as sources of capital and the associated contractual agreements may result in firm or contingent obligations of the Company. In addition to our common stockholders’ equity, our sources of capital primarily include debt, mezzanine equity, and operating leases. Our Series B Preferred Stock, which is classified as mezzanine equity, contains rights that may result in their conversion to our common stock or their redemption in cash. Our term loan and operating lease arrangements require cash repayment and our convertible debt that matures on December 1, 2024 contains rights that may result in their conversion to our common stock prior to maturity.
We also enter into contractual and legally
binding commitments to purchase goods. Most of these contracts are cancellable with little or no notice or penalty. However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation.
In the first three months of 2023, there have been no material changes to the cash commitments and contingent obligations associated with the arrangements described above, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The terms and provisions of our debt, leases and mezzanine equity are more fully discussed in Notes
6, 7 and 9, respectively, in the unaudited condensed consolidated financial statements.
Cash Flow Activity
Our cash flow summary was as follows ($ in thousands):
Net cash provided
by (used in) investing activities
43,154
(868)
Net cash provided by (used in) financing activities
(2,558)
18,075
Effect of foreign exchange rate fluctuations on cash and cash equivalents
23
(85)
Net
increase in cash, cash equivalents and restricted cash
$
32,134
$
1,532
We derive cash flows from operations primarily by collecting amounts due from sales of our products and services, and fees earned under our product development and license agreements. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses and working capital to support the business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure, domestically and internationally.
In the
three months ended March 31, 2023, we used $44.2 million of net proceeds from the sales and maturities of short-term investments to help fund $8.5 million of net cash used in operating activities, $2.5 million of common stock repurchases, and a $32.1 million increase in cash and cash equivalents. In the three months ended March 31, 2022, we used $18.2 million of net debt proceeds in part to fund $15.6 million used in operating activities.
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2023 declined by $7.1 million compared to the same period in 2022. The improvement reflects a lower net loss
and adjustments for non-cash items, which collectively used $9.8 million in the first three months of 2023 compared to $18.7 million used in the same period of 2022. This improvement was partially offset by unfavorable changes in net operating assets and liabilities, which provided $1.3 million and $3.1 million in the three months ended March 31, 2023 and 2022.
Investing Activities
Net cash provided by investing activities for the three months ended March 31, 2023 was $43.2 million compared to $0.9 million used in the three months ended March 31, 2022. The first quarter of 2023 primarily reflects $44.2 million of proceeds from sales and maturities of short-term investments, net of purchases.
33
Financing
Activities
Financing activities used cash of $2.6 million in the first three months of 2023 and provided cash of $18.1 million in the same period of 2022. These first-quarter changes in cash from financing activities primarily reflect $2.5 million of common stock share repurchases in 2023 and $18.2 million of net debt proceeds in 2022, reflecting $25.0 million of borrowings under the Bridge Loans and the repayment of $6.8 million borrowed under our Revolving Credit Facility.
Repurchases of common stock are expected to be funded by cash on hand. The timing and amount of any future common stock repurchases will depend on several factors, including stock price, market and business conditions, the daily trading volume of our stock and applicable SEC regulations. Repurchases may be suspended or discontinued at any time.
Critical
Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements and related notes, which have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The preparation of these financial statements requires the use of estimates and assumptions to determine the value of the assets, liabilities, revenues and expenses reported on the condensed consolidated balance sheets and statements of operations. We develop these estimates after considering historical transactions, the current economic environment and various other assumptions considered reasonable under the circumstances. Actual results may differ materially from these estimates and judgments. Accounts that rely heavily on estimated information to
determine their values include revenue, trade receivables, inventories, right-of-use assets, goodwill, long-lived intangible assets, lease liabilities, income tax liabilities (assets), and preferred equity. Refer to Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding our critical accounting policies and estimates.
There have been no significant changes to the Company's significant accounting policies described in Note 2 in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022.
Recent
Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements
None.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,
2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
34
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to
error or fraud may occur and not be detected.
35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to certain legal proceedings is included in Note 15 to
the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this quarterly report.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves numerous uncertainties and risks. You should carefully consider the risk factors discussed in Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could materially affect our business, financial condition, or results of operations. The risks in our Annual Report on Form 10-K are not the only ones we face. Our business is also subject to the risks that affect many other companies, such as employee relations, general economic conditions, global geopolitical
events and international operations. Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price. If any of these risks occur, our business, results of operations, or financial condition could suffer, the trading price of our securities could decline, and you may lose all or part of your investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On November 23, 2022, our Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to
which the Company may repurchase up to $20.0 million of the Company’s common stock through open market or privately negotiated transactions until December 31, 2023. The repurchases are contingent upon favorable market and business conditions and are funded by cash on hand. The program does not obligate the Company to acquire any specific number of shares.
The following table provides monthly information with respect to the shares of common stock repurchased by us during the three months ended March 31, 2023:
Period
Total
Number of Shares Purchased
Average Price Paid Per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
January 1-31, 2023
347,826
$1.72
347,826
$18.8 million
February 1-28, 2023
398,473
$2.06
398,473
$18.0
million
March 1-31, 2023
504,185
$2.08
504,185
$17.0 million
--------------
1 Average price paid per share includes commission fees.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item
5. Other Information
None.
36
Item 6. Exhibits
The documents listed in the Exhibit List, which follows below, are incorporated by reference or are filed with this quarterly report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
Inline
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
(1) In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.
37
0.SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
