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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 filer,”“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 August 3, 2023, there were i78,964,770
shares of the registrant’s common stock, $0.001 par value per share, outstanding.
Standard BioTools Inc. (Standard BioTools or the Company), formerly known as Fluidigm Corporation, is a Delaware corporation headquartered in South San Francisco, California.
The Company has an established portfolio of essential, standardized next-generation technologies that help biomedical researchers develop medicines faster and better. As a leading solutions provider, the Company endeavors to provide reliable and repeatable insights in health and disease using its proprietary mass cytometry and microfluidics technologies that help transform scientific discoveries into better patient outcomes.
Standard BioTools works 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.
i
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). As of June 30, 2023, the
Company 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 and six months ended June 30, 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 the 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. The Company bases its 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. 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 the Company’s consolidated financial
statements or tax returns. The Company also uses 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 the Company’s condensed consolidated financial statements.
i
Recent Accounting Pronouncements
From time
to time, new accounting standards are issued by the Financial Accounting Standards Board or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.
i
Reclassification
Certain
amounts in the condensed consolidated financial statements have been reclassified from their original presentation to conform to current year presentation.
7
2. iNet Loss Per Share
The Company’s
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 the Company’s common stock are considered to be potentially dilutive common shares.
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:
(1)
The conversion rate is subject to adjustment upon the occurrence of certain specified events, including voluntary conversion of the 2019 Notes prior to the Company’s 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 based on the effective date and current price of the Company’s common stock, subject to a minimum and maximum price per share. The maximum number of additional shares of common stock that may be issued under the make-whole premium is i4,741,374
shares. Refer to Note 6 for additional information on the 2019 Notes.
/
3. iRevenue and Geographic
Area
Disaggregation of Revenue by Product Type and Geographic Area
i
The following tables present revenue based upon product type and the geographic regions of the Company’s customers’ facilities (in thousands):
Except
for China, which represented $i4.2 million and $i7.4 million of the total revenue for the three and six months ended June
30, 2023, respectively, no foreign country represented more than 10% of the Company’s total revenue during the periods presented in this report. Refer to Note 13 for additional information on revenue by reporting segment.
Unfulfilled Performance Obligations
The condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 included total deferred revenue of $i15.5 million
and $i14.6 million, respectively. During the six months ended June 30, 2023, $i6.8 million of the opening deferred revenue balance was recognized as revenue and
$i7.7 million of net additional advance payments, primarily for instrument service contracts, were received from customers.
i
The
Company expects to recognize revenue from unfulfilled performance obligations associated with service contracts that were partially completed as of June 30, 2023 in the following periods (in thousands):
Fiscal Year
Expected Revenue (1)
2023 remainder of the year
$
i9,089
2024
i8,453
2025
i4,101
Thereafter
i1,982
Total
$
i23,625
_______
(1)
Expected revenue includes both billed amounts included in deferred revenue and unbilled amounts that are not reflected in the Company’s condensed consolidated financial statements and are subject to change if the Company’s customers decide to cancel or modify their contracts. Purchase orders for instrument service contracts can generally be canceled before the service period begins.
/
The
Company also has unsatisfied performance obligations for service contracts with an expected term of one year or less not included in the amounts above.
4. iGoodwill and Intangible Assets, net
In connection with the Company’s acquisition
of DVS Sciences, Inc. in February 2014, the Company 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, the Company recorded $i2.2 million of goodwill and $i5.4 million of developed technology intangibles from the
Company’s acquisition of InstruNor AS (InstruNor).
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 the Company’s current results, assumptions regarding 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 ino
indicators of impairment of goodwill, long-lived assets or intangible assets during the six months ended June 30, 2023. In June 2022, the decision was made to discontinue further development on the product lines supported by the InstruNor developed technology and an impairment charge of $i3.5 million, representing the remaining carrying value of the intangible asset, was recorded in research and development expense.
9
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 $i3.2 million for the three months ended June 30, 2023
and 2022, respectively. Total amortization expense for the six months ended June 30, 2023 and 2022 was $i5.9 million and $i6.3
million, respectively. The $i3.5 million impairment charge resulting in the write-off of InstruNor’s developed technology intangible is reflected in the accumulated amortization balance shown in the above table.
i
Based
on the carrying value of intangible assets as of June 30, 2023, the Company expects 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
$
i5,600
$
i235
$
i5,835
2024
i1,400
i7
i1,407
Total
$
i7,000
$
i242
$
i7,242
/
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, the Company executed a contract with the National Institutes of Health (NIH) under NIH’s Rapid Acceleration of Diagnostics program to support the expansion of the Company’s production capacity for its COVID-19 test products. Under the now-completed contract,
the Company received $i34.0 million of funding from the NIH and used $i22.2
million on capital expenditures for their Singapore manufacturing facility. The amortization of the deferred income, which is offset against depreciation, was $i0.9 million and $i0.8 million
for the three months ended June 30, 2023 and June 30, 2022, respectively, and $i1.8 million and $i1.7 million
for the six months ended June 30, 2023 and June 30, 2022, respectively Cumulative amounts applied against depreciation expense for these assets placed in service were $i6.0 million and $i4.2
million as of June 30, 2023 and December 31, 2022, respectively, and the carrying values of these assets were $i16.2 million and $i18.0
million, respectively, as of these same dates.
The current portion of deferred grant income on the Company’s 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.
11
6. iDebt
i
Total
debt consists of the following (in thousands):
In February 2014, the Company closed an underwritten public offering of 2014 Senior Convertible Notes (2014 Notes), which will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2014 Notes. Holders may require the Company to repurchase all or a portion of their 2014 Notes on each of 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, the Company issued $i55.0 million aggregate principal amount of 2019 Senior Convertible Notes (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. The 2019 Notes bear interest at i5.25%
per annum, payable semiannually on June 1 and December 1 of each year. 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 the Company’s 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 the Company’s exercise of the Issuer’s Conversion Option (as defined therein) 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 are convertible at the Company’s option in whole but not in part into shares
of the Company’s common stock upon certain conditions 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.
Offering-related costs related to both notes were capitalized as debt issuance costs and are recorded
as an offset to the carrying value of the 2019 Notes.
Revolving Credit Facility
On August 2, 2018, the Company 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 eligible receivables and (b) i50% of 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. The Credit Facility was collateralized by substantially all the Company’s property, other than intellectual property and contains certain financial covenants
and expired on August 2, 2023. As of June 30, 2023, the Company was in compliance with all financial covenants. 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
On August 2, 2021, we amended our Revolving Credit Facility to, amongst other things, provide for a new $i10.0 million
term loan facility (the Term Loan Facility). As of June 30, 2023, the Term Loan Facility was fully drawn with an outstanding
12
principal balance of $i10.0 million and a carrying value of $i10.4
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 stated maturity of the Term Loan Facility is July 1, 2025.However, if the principal amount of the Company’s convertible debt exceeds $i0.6 million as of June 1, 2024 or if the maturity date of the 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.
Bridge Loans
On January 23, 2022, the Company entered into separate loan agreements (collectively, the Bridge Loan Agreements) with various investors for a $i25.0 million
term 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 defined below) on April 4, 2022 (the Closing Date).
Applying the guidance in ASC 825 Financial Instruments, the Company elected to record the Bridge Loans at their fair value using a probability‐weighted expected return method for the valuation analysis of the Bridge Loans.This resulted in a $i13.7
millionchange in fair value of the Bridge Loans from $i25.0 million at inception to $i38.7 million as of the Closing Date, including the portion attributable to accrued interest,
which is reflected as a non-operating unrealized loss on the Bridge Loans in the accompanying condensed consolidated statements of operations for the six months ended June 30, 2022. See Note 9 for further detail.
13
7. iCommitments
and Contingencies
Leases
The Company has operating leases for buildings and vehicles, which includes a facility lease for its headquarters consisting of four floors. The Company’s facility lease has an expiration date of April 30, 2030 and contains an option to extend the lease, for up to ifive years, along with termination options. The
Company is utilizing one floor (19th floor) for its corporate operations with all expense for this floor included within selling, general and administrative expense on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2023 and 2022.
As part of the Company’s restructuring plan discussed further in Note 14, in August 2022, the Company
entered into an agreement to sublease approximately i25% of its corporate headquarters space (18th floor) in South San Francisco, California for a period of i39 months. As of June
30, 2023, i30 months were remaining on the sublease. The Company expects to recognize $i4.7 million of sublease income over the lease term that commenced in October 2022. In addition,
on February 28, 2023, the Company signed a second agreement to sublease an additional i25% of its corporate headquarters (21st floor) for a period of i77
months. The Company expects to recognize additional sublease income of $i9.1 million over the lease term, commencing on December 1, 2023.
Rent expense, net of sublease income, is reported within restructuring and related charges for the three and six months ended June 30, 2023 in the condensed consolidated
statements of operations. The Company is currently in the process of fully vacating and potentially subleasing an additional floor (20th floor).
Indemnification
From time to time, the Company has entered into indemnification provisions under certain of its agreements in the ordinary course of business, typically with business partners, customers, and suppliers. Pursuant to these agreements, the Company 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 the Company’s 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 the Company could be required to make under these indemnification provisions is typically not limited to a specific amount. In addition, the Company has entered into indemnification agreements with its 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.
Litigation
From time to time, the Company 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, the Company reviews 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,
the Company accrues a liability for the estimated loss. The Company has 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, the Company continues to reassess the potential liability related to pending claims and litigation and may revise estimates.
14
8.
iFair Value of Financial Instruments
Fair Value of Financial Instruments
i
The following tables summarize the Company’s financial instruments
by significant investment category measured at fair value on a recurring basis within the fair value hierarchy (in thousands):
Fair Value Measurements At Reporting Date Using
Total
Quoted
Prices in Active Markets For Identical Assets (Level 1)
As
of June 30, 2023, the Company had ino allowance for credit losses as it did not hold any financial instruments other than money market funds.
Debt
The 2014 Notes and 2019 Notes (collectively, the Convertible 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.
The carrying amounts of our lines of Term Loan Facility approximates fair value as interest rates applied to the underlying debt are adjusted quarterly to market interest rates. The carrying value of the Convertible Notes approximates fair value as the interest rate and terms are reflective of the rate the
Company could obtain on debt with similar terms and conditions.
9. iMezzanine Equity
Series B Redeemable Preferred Stock
On January 23, 2022, the Company entered into separate Series B Convertible Preferred Stock Purchase
Agreements (collectively, the Purchase Agreements) withCasdin 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 LP (collectively, Viking, and collectively with Casdin, the Lenders), whereby the Company 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). On the Closing Date, 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 Company recorded the Series B
16
Preferred Stock as mezzanine equity at its fair value upon issuance, net of any issuance costs, on the condensed consolidated balance sheets as it has features, such
as change of control and liquidation preference, which are outside of the Company’s control.
The Purchase Agreements were accounted for as forward sales contracts at fair value in accordance with the authoritative accounting guidance as 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.
i
The components of the carrying value of the Series B Preferred Stock as of June 30, 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
(i12,547)
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.
10. Shareholders’ Deficit
Stock Repurchase Program
On November 23, 2022, the Company’s 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. The Company repurchased a total of i1,208,200
shares of common stock under the program at a cost of $i2.4 million, excluding commission fees, for an average of $i1.97 per share for the three months ended June 30,
2023. Cumulative repurchases under the program amount to i2,880,993 shares at a total cost of $i5.4 million. The Company had a remaining authorization to repurchase up to approximately $i14.6
million in shares under this program as of June 30, 2023. Repurchases may be suspended or discontinued at any time at the Company’s discretion.
Common Shares Reserved
iAs of June 30, 2023, the
Company 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
Number
Of Remaining Securities Available For Future Issuance
As
of June 30, 2023, the unrecognized compensation costs related to outstanding unvested RSUs under the Company’s equity incentive plans were $i11.3 million. The Company expects to recognize those costs over a weighted-average period of i2.5
years.
i
Stock Options
Number
of Options (in thousands)
Weighted-Average Exercise Price per Option
Weighted- Average Remaining Contractual Life (in years)
(1)Aggregate
intrinsic value as of June 30, 2023 was calculated as the difference between the closing price per share of the Company’s common stock on the last trading day of June, which was $i1.93, and the exercise price of the options, multiplied by the number of in-the-money options.
As of June 30, 2023, the unrecognized compensation costs related to outstanding unvested options under the
Company’s equity incentive plans were $i13.9 million. The Company expects to recognize those costs over a weighted-average period of i2.7
years.
Performance-based Awards
The Company has 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 the Company’s 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.
The Company’s quarterly provision for income taxes is based on an estimated annual effective income tax rate. The 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.
The
Company recorded an income tax expense of $i0.3 million and an income tax benefit of $i1.6 million in the three months ended June 30, 2023 and June 30,
2022, respectively. The Company recorded an income tax expense of $i0.6 million and an income tax benefit of $i2.2 million in the
six months ended June 30, 2023 and June 30, 2022, respectively. The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the first half of 2023 and pre-tax loss in the first half of 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. The Company maintains a valuation allowance against its U.S. deferred tax assets as the
Company believes it is more likely than not the deferred tax assets will not be realized.
13. iSegment Reporting
In the third quarter of 2022, the Company’s Chief Executive Officer (CEO), who is the Chief Operating Decision Maker (CODM), instituted the practice of evaluating operating performance and making resource allocation
decisions using itwo reportable segments: proteomics and genomics. Each segment is identified by its unique portfolio of products. Proteomics includes the Company’s instruments, consumables, software, and services based upon technologies used in the identification of proteins. Genomics includes the Company’s instruments, consumables, software, and services based upon technologies used in the identification of genes
(DNA, RNA) and its functions.
The Company determines 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,
19
and finance, along with interest and taxes, are excluded from each segment’s results, which is consistent with how the
Company’s CODM evaluates segment performance.
The Company does not prepare or report segmented balance sheet information as its 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
The
Company’s business segment information was as follows (in thousands):
Beginning with the appointment of the Company’s new management team in April 2022 and as further announced in August 2022, the Company has implemented a restructuring plan, including a reduction in force, to improve operational efficiency, achieve cost savings and align the
Company’s workforce to the future needs of the business. In addition to the reduction in force, the Company is reducing leased office space, optimizing its manufacturing footprint, and streamlining support functions. The Company is developing a more disciplined cost management culture throughout its organization by investing in training and advanced information systems.
The Company records restructuring and related charges as incurred. These items are classified within restructuring and related charges in the condensed consolidated statements of operations for the three and six months ended June
30, 2023, and primarily include severance costs as well as facility costs (net of sublease income) for leased space in South San Francisco that the Company has vacated as part of the restructuring plan. The Company recognized restructuring and related charges of $i2.3 million and $i0.3 million
for the three months ended June 30, 2023 and 2022, respectively, and $i3.4 million and $i1.7 million for the six months ended June 30, 2023 and
2022, respectively.
The Company expects to fully relieve the liability for restructuring charges primarily related to employee severance by the end of 2023. Ongoing restructuring charges will continue to be incurred for facility related costs through the termination of the facility leases. These estimates are subject to a number of assumptions, and actual results may differ.
20
i
The
following table summarizes the change in the Company’s restructuring and other related liabilities for the six months ended June 30, 2023 (in thousands):
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 quarterly report on Form 10-Q. This quarterly report on 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 MD&A. 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 SEC on March 14, 2023. 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 quarterly report on 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 quarterly report on 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+™, HyperionXTi™, 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 quarterly report on Form 10-Q are the property of their respective owners.
___________________________
Unless the context requires otherwise, references in this quarterly report on Form 10-Q to “Standard BioTools” the “Company,”“we,”“us,” and “our” refer to Standard BioTools Inc. and its subsidiaries.
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 assist 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 are useful 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.
22
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 filed with the SEC on March 14, 2023.
We
took additional actions in the six months ended June 30, 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. As a result, 50% of the space at our headquarters was subleased as ofMarch 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.
Financial
Operations Overview
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.
Cost of Revenue
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.
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.
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 teams, as well as professional services, including legal and accounting services.
Restructuring and Related Charges
Restructuring and related charges primarily consist of severance costs and facilities costs for floors we have subleased or have the intent to sublease (net of sublease income) under our facility lease in South San Francisco. These costs, including a reduction in force, are incurred to improve operational efficiency, achieve cost savings, and align our 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.
23
Results
of Operations
The following table presents our condensed consolidated statements of operations and as a percentage of total revenue for the three and six months ended June 30, 2023 and 2022 ($ in thousands):
Revenue
by product type and as a percentage of total revenue were as follows ($ in thousands):
Three
Months Ended June 30,
Year-over-Year Change
Six Months Ended June 30,
Year-over-Year Change
2023
2022
2023
2022
Product
revenue:
Instruments
$
11,587
42
%
$
2,661
14
%
335%
$
17,510
33
%
$
10,184
22
%
72
%
Consumables
10,078
36
%
9,558
52
%
5%
21,593
41
%
22,039
50
%
(2)
%
Total
product revenue
21,665
78
%
12,219
66
%
77%
39,103
74
%
32,223
72
%
21
%
Service
revenue
5,821
21
%
5,806
31
%
—%
12,702
24
%
11,950
26
%
6
%
Other
revenue
180
1
%
752
3
%
(76)%
980
2
%
1,108
2
%
(12)
%
Total
revenue
$
27,666
100
%
$
18,777
100
%
47%
$
52,785
100
%
$
45,281
100
%
17
%
Total
revenue grew 47% to $27.7 million for the three months ended June 30, 2023, compared to the three months June 30, 2022, and 17% to $52.8 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The growth was primarily attributable to increased instrument placements, primarily in our proteomics end user markets. Revenue reported for the three and six months ended June 30, 2022 includes a $1.6 million instrument revenue reduction for a one-time reserve recorded for our discontinued LCM product line in the Genomics segment.
24
Instrument
revenue grew 335% to $11.6 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and 72% to $17.5 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. Combined consumables and services revenue has experienced flat to moderate growth in 2023; however, the increase in instrument revenue is expected to drive increased consumables and services pull-through based on an expanded installed base, particularly in our proteomics end user markets. Recurring consumables and service revenue comprised about 65% of our total revenue for the six months ended June 30, 2023.
Revenue by segment and as a percentage
of total revenue were as follows ($ in thousands):
Three
Months Ended June 30,
Year-over-Year Change
Six Months Ended June 30,
Year-over-Year Change
2023
2022
2023
2022
Proteomics
revenue
$
18,088
65%
$
10,418
55%
74%
$
33,288
63%
$
24,198
53%
38%
Genomics
revenue
9,578
35%
8,359
45%
15%
19,497
37%
21,083
47%
(8)%
Total
revenue
$
27,666
100%
$
18,777
100%
47%
$
52,785
100%
$
45,281
100%
17%
Total
Proteomics revenue grew 74% for the three months ended June 30, 2023, compared to the three months ended June 30, 2022 and 38% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. Our growth in proteomics was driven by expanded adoption of our flow symmetry solution, the CYTOF XT, and early traction from the April 2023 release of Hyperion XTi, our next-generation imaging solution.
Total Genomics revenue grew 15% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and was down 8% for the six months ended June 30,
2023 compared to the six months ended June 30, 2022 with instrument growth offsetting declines in consumables, service, and development revenues in the second quarter. The anticipated decline in the genomics segment was a primary driver of our decision to reorganize, simplify and reposition this business over the past year. We have implemented our strategy to focus on growing the OEM business and manage this segment to sustainable positive contribution margin in the near-term.
Cost of Revenue
Product and service cost, product and service gross profit, and product and service margin were as follows ($ in thousands):
Three
Months Ended June 30,
Year-over-Year Change
Six Months Ended June 30,
Year-over-Year Change
2023
2022
2023
2022
Cost
of product revenue
$
11,883
$
12,738
(7)
%
$
21,873
$
25,077
(13)
%
Cost
of service revenue
2,181
1,612
35
%
4,973
3,540
40
%
Cost of product and service revenue
$
14,064
$
14,350
(2)
%
$
26,846
$
28,617
(6)
%
Product
and service gross profit
$
13,422
$
3,675
265
%
$
24,959
$
15,556
60
%
Product
and service margin
48.8
%
20.4
%
28.4
%
48.2
%
35.2
%
13.0
%
Product
and service gross profit increased by $9.7 million, or 265%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. Product and service gross profit increased by $9.4 million, or 60%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increases in gross profit were primarily attributable to certain one-time reductions to gross profit recognized during the second quarter of 2022, including a $1.6 million revenue reserve related to the discontinuation of our laser capture microdissection products, a $3.1 million provision for excess and obsolete inventory, and cost reductions driven by the relocation of operations to lower cost regions completed at the end of 2022.
25
Operating
Expenses
Operating expenses were as follows ($ in thousands):
Three
Months Ended June 30,
Year-over-Year Change
Six Months Ended June 30,
Year-over-Year Change
2023
2022
2023
2022
Research and development
$
6,184
$
12,606
(51)%
$
12,669
$
21,471
(41)%
Selling,
general and administrative
22,600
30,084
(25)%
43,895
59,569
(26)%
Restructuring and related charges
2,267
300
N/A
3,417
1,690
N/A
Total
operating expenses
$
31,051
$
42,990
(28)%
$
59,981
$
82,730
(27)%
Research and Development
R&D expense decreased by $6.4 million, or 51%, for the three months
ended June 30, 2023, compared to the three months ended June 30, 2022. R&D expense decreased by $8.8 million, or 41%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The decreases were primarily due to a $3.5 million impairment charge related to InstruNor recognized during the three months ended June 30, 2022, as well as 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
expense decreased by $7.5 million, or 25%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. SG&A expense decreased by $15.7 million, or 26%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease was primarily attributable to decreased salaries and benefits expense and stock based compensation expense as a result of the restructuring plan that downsized our global workforce, as well as non-recurring legal expenses and professional fees incurred in the three and six months ended June 30, 2022 related to the Private Placement.
Restructuring and Related
Charges
Restructuring and related charges consisted of the following (in thousands):
Three
Months Ended June 30,
Year-over-Year Change
Six Months Ended June 30,
Year-over-Year Change
2023
2022
2023
2022
Severance payments
$
1,054
$
300
251%
$
1,346
$
1,690
(20)%
Facilities
and other
1,213
—
N/A
2,071
—
N/A
Total restructuring and related charges
$
2,267
$
300
656%
$
3,417
$
1,690
102%
Restructuring
and related charges increased by $2.0 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, due to increased severance costs and increased facilities expenses related to the reduction in leased office space, which commenced in the third quarter of 2022.
Restructuring and related charges increased by $1.7 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, due to increased facilities expenses offset by deceased severance costs, primarily resulting from higher severance costs for our former CEO during the first quarter of 2022.
Interest Expense and Other Non-Operating
Income (Expense)
The improvement in non-operating income (expense) in the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily reflects 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 June 30, 2022, the $22.3 million loss on the forward sales of Series B Preferred Stock and the loss on the Bridge Loans of $3.1 million reflected the increase in the price of our common stock from April
1, 2022 to the Closing Date.
26
The increase in other income (expense), net of $2.0 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, was primarily due to the interest earned on money market funds and short-term investments. We previously had no such investments until after the Closing Date.
The improvement in non-operating income (expense) in the six months ended June 30, 2023, compared to the six months ended June 30 2022,
primarily reflects 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 six months ended June 30, 2022, the $60.1 million loss on the forward sales of Series B Preferred Stock and the loss on the Bridge Loans of $13.7 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 the Closing Date.
The increase in other income, net of $2.0 million for the six months ended June 30,
2023 compared to June 30, 2022, was primarily due to the interest earned on money market funds and short-term investments because we had no such investments until after the Closing Date.
Income Tax Benefit (Expense)
We recorded an income tax expense of $0.3 million in the three months ended June 30, 2023 and an income tax benefit of $1.6 million for the three months ended June 30, 2022. The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the three months ended June
30, 2023 and pre-tax loss in the three months ended June 30, 2022.
We recorded an income tax expense of $0.6 million in the six months ended June 30, 2023 and an income tax benefit of $2.2 million for the six months ended June 30, 2022. The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the six months ended June 30, 2023 and pre-tax loss in the six months ended June 30, 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
We have experienced operating losses since inception and have an accumulated deficit of $960.0 million as of June 30, 2023. To date, we have funded our operating losses primarily through equity offerings, term loans, convertible notes, and redeemable preferred stock.Our ability to fund future operations and meet debt covenant requirements will depend upon our level of future revenue and operating cash flow and our ability to access additional
funding through either equity offerings, issuances of debt instruments or both.
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 for at least the next 12 months from the filing date of this quarterly report on Form 10-Q.
Sources of Liquidity
Our
principal sources of liquidity are cash, cash equivalents and short-term investments. Our collective balances of cash, cash equivalents and short-term investments were $142.3 million at June 30, 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 June 30, 2023, we had no borrowings outstanding under the Revolving Credit Facility and the total availability was $7.1 million. The facility expired on August 2, 2023.
27
Capital
Resources and Commitments
We enter into arrangements that serve as sources of capital and the associated contractual agreements may result in firm or contingent obligations of the Company. In addition to our common stockholders’ equity, our sources of capital primarily include debt, mezzanine equity, and operating leases. Our Series B Preferred Stock, which is classified as mezzanine equity, contains rights that may result in their conversion to our common stock or their redemption in cash. Our term loan and operating lease arrangements require cash repayment and our convertible debt that matures on December 1, 2024 contains rights that may result in their conversion to our common stock prior to maturity.
We also enter into contractual and legally
binding commitments to purchase goods. Most of these contracts are cancellable with little or no notice or penalty. However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation.
In the six months ended June 30, 2023, there have been no material changes to the cash commitments and contingent obligations associated with the arrangements described above, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The terms and provisions of our debt, leases and mezzanine
equity are more fully discussed in Notes 6, 7 and 9, respectively, in the unaudited condensed consolidated financial statements.
Cash Flow Activity
Our cash flow summary was as follows ($ in thousands):
Net cash provided by (used in) investing activities
83,280
(139,108)
Net
cash provided by (used in) financing activities
(4,642)
231,033
Effect of foreign exchange rate fluctuations on cash and cash equivalents
(49)
(437)
Net increase in cash, cash equivalents and restricted cash
$
60,775
$
45,910
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 six months ended June 30, 2023, we used $85.1 million of net proceeds from the sales and maturities of short-term investments to help fund $17.8 million of net cash used in operating activities, $4.8 million of common stock repurchases, and a $60.8 million increase in cash and cash equivalents.
In
the six months ended June 30, 2022, we used $230.6 million of net debt and Series B Preferred Stock proceeds in part to fund $45.6 million used in operating activities, the purchase of short-term investments of $137.3 million and a $45.9 million increase in cash and cash equivalents.
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2023 declined by $27.8 million compared to the same period in 2022. The improvement reflects a lower net loss and adjustments for non-cash items, which collectively used $19.5 million in the first half of 2023 compared to $40.8 million used in the same period of 2022. This improvement was partially offset by unfavorable changes in net operating assets and liabilities,
which provided $1.7 million and $4.8 million in the six months ended June 30, 2023 and 2022, respectively.
Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2023 was $83.3 million compared to $139.1 million used in the six months ended June 30, 2022. The first half of 2023 primarily reflects $85.1 million of proceeds from sales and maturities of short-term investments, net of purchases. Net proceeds from the Private Placement issuance and the Bridge Loans were used to purchase short-term investments of $137.3 million during the six months ended June 30,
2022.
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Financing Activities
Financing activities used cash of $4.6 million for the six months ended 2023 and provided cash of $231.0 million in the same period of 2022. These changes in cash from financing activities primarily reflect $4.8 million of common stock share repurchases in 2023, and $18.2 million of net debt 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 as well as $225.0 million proceeds received from the issuance of Series B Preferred Sock less payments of $12.5 million in equity issuance costs in 2022.
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 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 our Annual Report on Form 10-K for the year ended December 31, 2022.
Recent Accounting Pronouncements
From time to time, new accounting standards are issued by the Financial Accounting Standards Board or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon
adoption.
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 CEO and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 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 June 30, 2023, our CEO 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 six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
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PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to certain legal proceedings is included in Note 7 to the Condensed Consolidated Financial Statements (Unaudited) in Part I, Item 1 of this quarterly report on Form 10-Q.
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 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 June 30, 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
April 1-30, 2023
433,852
$1.82
433,852
$16.2 million
May 1-31, 2023
477,853
$1.95
477,853
$15.3
million
June 1-30, 2023
296,495
$2.20
296,495
$14.6 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.
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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.
# Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
(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 quarterly report on 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.
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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.
