Standard BioTools(LAB) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial performance and condition Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Fluidigm Corporation, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, revenue recognition, intangible assets, debt, leases, and fair value measurements Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | ASSETS (September 30, 2019) | Amount ($) | ASSETS (December 31, 2018) | Amount ($) | | :-------------------------- | :--------- | :-------------------------- | :--------- | | Cash and cash equivalents | 25,886 | Cash and cash equivalents | 95,401 | | Short-term investments | 36,875 | Short-term investments | — | | Accounts receivable (net) | 14,014 | Accounts receivable (net) | 16,651 | | Inventories | 14,998 | Inventories | 13,003 | | Total current assets | 96,554 | Total current assets | 127,106 | | Property and equipment, net | 8,396 | Property and equipment, net | 8,825 | | Goodwill | 104,108 | Goodwill | 104,108 | | Total assets | 269,394 | Total assets | 303,647 | | LIABILITIES & EQUITY | | LIABILITIES & EQUITY | | | Accounts payable | 5,339 | Accounts payable | 4,027 | | Accrued compensation | 8,621 | Accrued compensation | 14,470 | | Total current liabilities | 33,366 | Total current liabilities | 37,582 | | Convertible notes, net | 49,853 | Convertible notes, net | 172,058 | | Total liabilities | 106,789 | Total liabilities | 231,531 | | Total stockholders' equity | 162,605 | Total stockholders' equity | 72,116 | | Total liabilities and stockholders' equity | 269,394 | Total liabilities and stockholders' equity | 303,647 | - Total assets decreased from $303.6 million at December 31, 2018, to $269.4 million at September 30, 2019, primarily due to a significant reduction in cash and cash equivalents and the conversion of convertible notes[11] - Total liabilities significantly decreased from $231.5 million to $106.8 million, largely driven by the conversion of $150.0 million of 2018 Convertible Notes into common stock[11] - Total stockholders' equity more than doubled from $72.1 million to $162.6 million, primarily due to the issuance of common stock from the conversion of the 2018 Notes[11] Condensed Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | YoY Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | YoY Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Total revenue | $26,496 | $28,963 | (9)% | $84,803 | $80,639 | 5% | | Gross profit | $14,038 | $15,822 | (11)% | $46,391 | $42,838 | 8% | | Loss from operations | $(13,816) | $(11,628) | (19)% | $(42,658) | $(37,046) | (15)% | | Interest expense | $(444) | $(4,019) | 89% | $(3,636) | $(9,824) | 63% | | Loss on extinguishment of debt | — | — | NA | $(9,000) | — | NA | | Net loss | $(12,887) | $(14,750) | 13% | $(52,105) | $(44,238) | (18)% | | Net loss per share, basic & diluted | $(0.19) | $(0.38) | 50% | $(0.79) | $(1.13) | 30% | | Shares used in computing net loss per share | 69,469 | 39,235 | 77% | 65,792 | 39,033 | 69% | - Total revenue decreased by 9% for the three months ended September 30, 2019, but increased by 5% for the nine months ended September 30, 2019, compared to the respective prior year periods[13] - Net loss improved by 13% for the three months ended September 30, 2019, but worsened by 18% for the nine months ended September 30, 2019, primarily due to a $9.0 million loss on extinguishment of debt in the nine-month period[13] - Interest expense significantly decreased by 89% and 63% for the three and nine months ended September 30, 2019, respectively, due to the retirement of the 2018 Convertible Notes[13] Condensed Consolidated Statements of Comprehensive Loss This section presents the net loss and other comprehensive income or loss components, leading to total comprehensive loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(12,887) | $(14,750) | $(52,105) | $(44,238) | | Foreign currency translation adjustment | $(121) | $(11) | $(122) | $59 | | Net change in unrealized gain (loss) on investments | $(14) | $1 | $51 | $(1) | | Other comprehensive income (loss), net of tax | $(135) | $(10) | $(71) | $58 | | Comprehensive loss | $(13,022) | $(14,760) | $(52,176) | $(44,180) | - Comprehensive loss for the three months ended September 30, 2019, was $(13.0) million, an improvement from $(14.8) million in the prior year, primarily driven by a lower net loss[16] - For the nine months ended September 30, 2019, comprehensive loss increased to $(52.2) million from $(44.2) million, mainly due to the higher net loss[16] - Foreign currency translation adjustments resulted in losses of $(121) thousand and $(122) thousand for the three and nine months ended September 30, 2019, respectively, compared to smaller losses or gains in the prior year[16] Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (in thousands) | Item | Balance as of Dec 31, 2018 | Issuance of common stock on bond conversion | Stock-based compensation expense | Net loss | Other comprehensive income (loss) | Balance as of Sep 30, 2019 | | :-------------------------------- | :------------------------- | :---------------------------------- | :----------------------------- | :------- | :-------------------------------- | :------------------------- | | Common Stock Shares | 49,338 | 19,460 | — | — | — | 69,550 | | Common Stock Amount | $49 | $19 | — | — | — | $70 | | Additional Paid-in Capital | $631,605 | $133,279 | $8,247 | — | — | $774,249 | | Accumulated Other Comprehensive Loss | $(687) | — | — | — | $(71) | $(758) | | Accumulated Deficit | $(558,851) | — | — | $(52,105) | — | $(610,956) | | Total Stockholders' Equity | $72,116 | $133,298 | $8,247 | $(52,105) | $(71) | $162,605 | - Total stockholders' equity increased significantly from $72.1 million at December 31, 2018, to $162.6 million at September 30, 2019[17] - The primary driver for the increase in equity was the issuance of 19.5 million shares of common stock due to the conversion of 2018 Convertible Notes, contributing $133.3 million to additional paid-in capital[17][94] - Stock-based compensation expense added $8.2 million to additional paid-in capital during the nine months ended September 30, 2019[17][111] Condensed Consolidated Statements of Cash Flows This section reports cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(29,691) | $(24,563) | | Net cash provided by (used in) investing activities | $(38,750) | $4,738 | | Net cash provided by (used in) financing activities | $1,006 | $(2,292) | | Net decrease in cash, cash equivalents and restricted cash | $(67,440) | $(22,227) | | Cash, cash equivalents and restricted cash at end of period | $27,961 | $35,829 | - Net cash used in operating activities increased to $29.7 million for the nine months ended September 30, 2019, from $24.6 million in the prior year, primarily due to a higher net loss and changes in working capital[21][174][175] - Investing activities shifted from providing $4.7 million in cash in 2018 to using $38.8 million in 2019, driven by increased purchases of investments[21][177] - Financing activities provided $1.0 million in 2019, a significant improvement from using $2.3 million in 2018, mainly due to proceeds from stock option exercises and ESPP, and lower debt issuance costs[21][178] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the significant accounting policies and specific line items within the financial statements Note 1. Description of Business This note describes Fluidigm Corporation's business, products, and strategic focus in life science tools - Fluidigm Corporation, reincorporated in Delaware in 2007, develops, manufactures, and markets innovative life science tools, including instruments for Mass Cytometry, PCR, Library Prep, Single Cell Genomics, and related consumables[23][24] - The company focuses on translational and clinical research, particularly in cancer, immunology, and immunotherapy, utilizing proprietary CyTOF® and microfluidics technologies[24] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and policies used in preparing the financial statements - The financial statements are prepared in conformity with U.S. GAAP, consolidating wholly-owned subsidiaries in Singapore, Canada, the Netherlands, Japan, France, the United Kingdom, China, and Germany[25] - Potentially dilutive common shares, including stock options, RSUs, performance awards, and convertible notes, were excluded from diluted net loss per share calculations as their effect was anti-dilutive[27][28] - Revenue is primarily generated from product sales (instruments, consumables) and service revenue (contracts, repairs, training), recognized when control transfers or over the service period[30][32][34][35] - The company adopted ASC 842, Leases, on January 1, 2019, recognizing $9.2 million in lease liabilities and $7.4 million in ROU assets, with no impact to retained earnings[45][46][48] - New accounting guidance being evaluated includes ASU 2018-15 (cloud computing costs), ASU 2017-04 (goodwill impairment simplification), and ASUs 2016-13/2018-19 (credit losses)[50][51][52] Note 3. Revenue This note disaggregates revenue by geographic market and source, and details deferred revenue and performance obligations Revenue Disaggregation by Geographic Markets (in thousands) | Geographic Market | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Americas | $11,112 | $13,654 | $35,203 | $37,008 | | Europe | $9,092 | $8,783 | $28,465 | $26,365 | | Asia-Pacific | $6,292 | $6,526 | $21,135 | $17,266 | | Total revenue | $26,496 | $28,963 | $84,803 | $80,639 | Revenue Disaggregation by Product, Service and Grant (in thousands) | Revenue Source | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Instruments | $9,159 | $13,890 | $34,200 | $31,831 | | Consumables | $11,507 | $10,352 | $34,528 | $34,665 | | Product revenue | $20,666 | $24,242 | $68,728 | $66,496 | | Service | $5,630 | $4,721 | $15,875 | $14,143 | | Grant | $200 | — | $200 | — | | Total revenue | $26,496 | $28,963 | $84,803 | $80,639 | - Deferred revenue increased from $17.8 million at December 31, 2018, to $19.4 million at September 30, 2019, with $9.0 million recognized and $10.6 million in new advance payments[54] Expected Revenue Recognition for Unfulfilled Performance Obligations (in thousands) | Fiscal Year | Expected Revenue | | :---------- | :--------------- | | 2019 (remainder) | $3,417 | | 2020 | $8,425 | | 2021 | $5,052 | | Thereafter | $4,110 | | Total | $21,004 | Note 4. Goodwill and Intangible Assets, net This note provides details on the company's goodwill and other intangible assets, including amortization schedules - Goodwill of $104.1 million was recognized from the DVS Sciences, Inc. acquisition in February 2014 and remained unchanged[58] Intangible Assets, Net (in thousands) | Asset Category | September 30, 2019 Net | December 31, 2018 Net | Weighted Average Amortization Period | | :--------------- | :--------------------- | :-------------------- | :----------------------------------- | | Developed technology | $49,000 | $57,400 | 10.0 years | | Patents and licenses | $3,634 | $4,413 | 7.8 years | - Amortization of intangibles was $3.0 million and $9.2 million for the three and nine months ended September 30, 2019, respectively[58] Expected Annual Amortization Expense (in thousands) | Fiscal Year | Developed Technology Amortization Expense | Patents and Licenses Amortization Expense | Total | | :---------- | :---------------------------------------- | :---------------------------------------- | :---- | | 2019 (remainder) | $2,800 | $260 | $3,060 | | 2020 | $11,200 | $1,042 | $12,242 | | 2021 | $11,200 | $887 | $12,087 | | 2022 | $11,200 | $804 | $12,004 | | 2023 | $11,200 | $634 | $11,834 | | Thereafter | $1,400 | $7 | $1,407 | | Total | $49,000 | $3,634 | $52,634 | Note 5. Balance Sheet Details This note provides detailed breakdowns of specific balance sheet accounts such as cash, inventories, and property and equipment Cash, Cash Equivalents and Restricted Cash (in thousands) | Item | September 30, 2019 | December 31, 2018 | | :-------------------------------------- | :----------------- | :---------------- | | Cash and cash equivalents | $25,886 | $95,401 | | Restricted cash | $2,075 | — | | Cash, cash equivalents and restricted cash | $27,961 | $95,401 | Inventories (in thousands) | Item | September 30, 2019 | December 31, 2018 | | :-------------- | :----------------- | :---------------- | | Raw materials | $7,504 | $5,996 | | Work-in-process | $319 | $650 | | Finished goods | $7,175 | $6,357 | | Total inventories, net | $14,998 | $13,003 | Property and Equipment, Net (in thousands) | Item | September 30, 2019 | December 31, 2018 | | :---------------------------------- | :----------------- | :---------------- | | Property and equipment, gross | $32,356 | $31,660 | | Less accumulated depreciation and amortization | $(23,967) | $(22,855) |\ | Construction-in-progress | $7 | $20 | | Property and equipment, net | $8,396 | $8,825 | Warranty Accrual Activity (in thousands) | Item | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $1,091 | $608 | $863 | $699 |\ | Accrual for warranties | $255 | $458 | $912 | $1,195 | | Warranty costs incurred | $(239) | $(325) | $(668) | $(1,153) | | Ending balance | $1,107 | $741 | $1,107 | $741 | Note 6. Convertible Notes and Credit Facility This note details the company's convertible debt instruments and its revolving credit facility - The 2018 Senior Convertible Notes, with an aggregate principal amount of $150.0 million, were fully converted into 19.5 million shares of common stock and retired in the first quarter of 2019, resulting in a $9.0 million loss on extinguishment of debt[44][69][77] - As of September 30, 2019, $51.3 million aggregate principal amount of the 2.75% 2014 Senior Convertible Notes due 2034 remained outstanding[43][79] Carrying Values of Convertible Notes (in thousands) | Note Type | September 30, 2019 | December 31, 2018 | | :---------------------- | :----------------- | :---------------- | | 2.75% 2014 Notes due 2034 | $49,853 | $49,794 | | 2.75% 2018 Notes due 2034 | — | $122,264 | | Total | $49,853 | $172,058 | - The company has a $15.0 million Revolving Credit Facility with Silicon Valley Bank, maturing on August 2, 2020, with $9.0 million available as of September 30, 2019, and no outstanding borrowings[80][81] Note 7. Leases This note provides information on the company's lease arrangements, including right-of-use assets and lease liabilities Operating Lease Right-of-Use Assets, Net (in thousands) | Asset Category | September 30, 2019 Net | | :----------------------------- | :--------------------- | | Operating lease right-of-use buildings | $5,070 | | Operating lease right-of-use equipment | $42 | | Operating lease right-of-use vehicles | $240 | | Total | $5,352 | - Operating lease cost (including variable costs) for the nine months ended September 30, 2019, was $4.7 million, with $2.1 million attributed to variable costs[86] - The weighted-average remaining lease term is 4.6 years, with a weighted-average discount rate of 5.1%[86] Future Minimum Lease Payments and Sublease Income (in thousands) | Fiscal Year | Minimum Lease Payments for Operating Leases | Minimum Sublease Income | Net Amount | | :---------- | :---------------------------------------- | :---------------------- | :--------- | | 2019 (remainder) | $996 | $(132) | $864 | | 2020 | $1,956 | $(131) | $1,825 | | 2021 | $1,267 | — | $1,267 | | 2022 | $932 | — | $932 | | 2023 | $720 | — | $720 | | Thereafter | $1,800 | — | $1,800 | | Total future minimum payments (income) | $7,671 | $(263) | $7,408 | - A new operating lease for the corporate headquarters, commencing in early 2020, is expected to result in a ROU asset and lease liability of approximately $47.4 million[85] Note 8. Fair Value of Financial Instruments This note presents the fair value measurements for various financial instruments, including cash, investments, and convertible notes Fair Value of Cash and Available-for-Sale Securities (in thousands) | Asset Category | September 30, 2019 Fair Value | December 31, 2018 Fair Value | | :--------------- | :---------------------------- | :--------------------------- | | Cash-non-restricted | $14,053 | $17,685 | | Cash-restricted | $2,075 | — | | Money market funds | $11,833 | $77,716 | | U.S. treasury securities | $36,875 | — | | Total | $64,836 | $95,401 | Fair Value of Convertible Notes (in thousands) | Note Type | September 30, 2019 Fair Value | December 31, 2018 Fair Value | | :---------------------- | :---------------------------- | :--------------------------- | | 2014 Notes | $49,713 | $43,665 | | 2018 Notes | — | $171,843 | | Total | $49,713 | $215,508 | - The fair value of the 2014 and 2018 Notes is based on a Level II valuation using a market approach and market-based risk measurements[91] Note 9. Shareholders' Equity This note details changes in shareholders' equity, particularly related to common stock issuance and convertible note conversions - In Q1 2019, 19,460,260 shares of common stock were issued from the conversion of 2018 Notes, adding $133.3 million to equity, equivalent to the fair value of the retired bonds[94] Note 10. Stock-Based Plans This note describes the company's stock-based compensation plans, including RSUs, stock options, and PSUs - The 2011 Equity Incentive Plan was amended in April 2019, increasing shares reserved by approximately 5.0 million and extending its term to April 2029[99] Restricted Stock Units (RSUs) Activity (in thousands) | Item | Number of Units | Weighted-Average Grant Date Fair Value per Unit | | :-------------------------- | :-------------- | :-------------------------------------------- | | Balance as of Dec 31, 2018 | 1,812 | $7.09 | | RSU granted | 1,638 | $8.59 | | RSU released | (525) | $8.30 | | RSU forfeited | (284) | $7.97 | | Balance as of Sep 30, 2019 | 2,641 | $7.69 | - Unrecognized compensation costs for RSUs were $17.4 million as of September 30, 2019, to be recognized over a weighted average of 3.3 years[103] Stock Options Activity (in thousands) | Item | Number of Options | Weighted-Average Exercise Price per Option | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | | :-------------------------- | :---------------- | :--------------------------------------- | :-------------------------------------------------- | :------------------------ | | Balance as of Dec 31, 2018 | 2,385 | $7.56 | 7.8 | $5,991 | | Options granted | 50 | $13.08 | | — | | Options exercised | (185) | $5.73 | | $1,147 | | Options forfeited | (164) | $9.56 | | — | | Balance as of Sep 30, 2019 | 2,086 | $7.69 | 7.1 | $244 | - Unrecognized compensation costs for stock options were $2.8 million as of September 30, 2019, to be recognized over a weighted average of 2.0 years[104] - 400,839 performance stock units (PSUs) were granted in 2019, with vesting tied to Total Shareholder Return (TSR) relative to peers over three years, valued at $16.90 per unit using a Monte Carlo simulation[105][106] Share-based Compensation Expense (in thousands) | Item | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Options and Restricted Stock Units | $2,738 | $2,185 | $7,731 | $5,699 | | Employee Stock Purchase Plan | $291 | $118 | $561 | $358 | | Total Share-based Compensation | $3,029 | $2,303 | $8,292 | $6,057 | Note 11. Income Taxes This note provides details on the company's income tax benefit and deferred tax assets and liabilities Income Tax Benefit (in thousands) | Period | Income Tax Benefit | | :-------------------------- | :----------------- | | 3 Months Ended Sep 30, 2019 | $1,168 | | 3 Months Ended Sep 30, 2018 | $780 | | 9 Months Ended Sep 30, 2019 | $2,269 | | 9 Months Ended Sep 30, 2018 | $2,167 | - The tax benefit was primarily due to the amortization of acquisition-related deferred tax liability, partially offset by foreign operations' tax provision[113] - The company maintains a valuation allowance for deferred tax assets, mainly net operating loss carryforwards, which differs from the 21% U.S. Federal statutory rate[114][116] Note 12. Information about Geographic Areas This note disaggregates revenue by geographic region, highlighting sales to key markets - Sales to customers in the United States represented 40% ($10.5 million) and 39% ($32.9 million) of total revenues for the three and nine months ended September 30, 2019, respectively[119] - Sales to customers in China represented 15% ($3.9 million) and 13% ($11.4 million) of total revenues for the three and nine months ended September 30, 2019, respectively[120] - No individual customer accounted for more than 10% of total revenues for the periods presented[121] Note 13. Commitments and Contingencies This note outlines the company's indemnification provisions and involvement in legal proceedings - The company enters into indemnification provisions with business partners, customers, and suppliers, typically for intellectual property infringement claims, with maximum potential payments often unlimited[122] - Fluidigm is subject to various legal proceedings and claims in the ordinary course of business, including intellectual property and employment matters, for which liabilities are accrued if probable and estimable[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, discussing revenue drivers, cost trends, and liquidity. It highlights the impact of strategic initiatives and accounting changes on financial results Overview This section provides a high-level summary of Fluidigm's business, strategic initiatives, and financial performance - Fluidigm is a global biotechnology tools provider focused on improving health insights through innovative technologies and multi-omic tools for translational and clinical research, particularly in cancer and immunology[130][131] - Total revenue for the nine months ended September 30, 2019, was $84.8 million, up from $80.6 million in the prior year, but the company has an accumulated deficit of $611.0 million as of September 30, 2019[133] - Strategic initiatives since 2017, including resource reallocation, operational efficiencies, and cost-savings, have led to reduced net losses and a strengthened balance sheet through common stock issuance and debt reduction[134] Critical Accounting Policies, Significant Judgments and Estimates This section discusses the key accounting policies and estimates that require significant management judgment - The preparation of financial statements requires significant estimates and assumptions, which, if materially different from actual results, could affect financial presentation[135] - No material changes in critical accounting policies occurred during the nine months ended September 30, 2019, except for the adoption of ASC 842, Leases[136][137] Recent Accounting Pronouncements This section details the impact of recently adopted and pending accounting standards on the company's financial statements - The company adopted ASC 842, Leases, on January 1, 2019, using a modified retrospective approach, recognizing $9.2 million in lease liabilities and $7.4 million in ROU assets[137][138][140] - The company elected practical expedients for lease identification, classification, and initial direct costs, and chose not to recognize ROU assets or lease liabilities for short-term leases (one year or less)[139][141] Results of Operations This section analyzes the company's revenues, costs, and profitability for the reported periods Key Financial Metrics and YoY Changes (in thousands, except percentages) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | YoY Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | YoY Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Total revenue | $26,496 | $28,963 | (9)% | $84,803 | $80,639 | 5% | | Product revenue | $20,666 | $24,242 | (15)% | $68,728 | $66,496 | 3% | | Service revenue | $5,630 | $4,721 | 19% | $15,875 | $14,143 | 12% | | Gross profit | $14,038 | $15,822 | (11)% | $46,391 | $42,838 | 8% | | Gross margin | 53.0% | 54.6% | (1.6) ppts | 54.7% | 53.1% | 1.6 ppts | | Research and development | $7,125 | $7,430 | (4)% | $23,362 | $22,072 | 6% | | Selling, general and administrative | $20,729 | $20,020 | 4% | $65,687 | $57,812 | 14% | | Loss from operations | $(13,816) | $(11,628) | (19)% | $(42,658) | $(37,046) | (15)% | | Interest expense | $(444) | $(4,019) | 89% | $(3,636) | $(9,824) | 63% | | Net loss | $(12,887) | $(14,750) | 13% | $(52,105) | $(44,238) | (18)% | - Instrument sales decreased by 34% for the three months ended September 30, 2019, due to lower unit sales of mass cytometry instruments, while consumables revenue increased by 11%[150] - Gross margin decreased by 1.6 percentage points for the three months due to lower plant utilization and service margins, but increased by 1.6 percentage points for the nine months due to higher capacity utilization[155][156] - Selling, general and administrative expenses increased by 4% for the three months and 14% for the nine months, driven by higher headcount-related costs and stock-based compensation, partially offset by lower employee compensation accruals[162][163] Liquidity and Capital Resources This section discusses the company's cash position, sources of liquidity, and capital needs - As of September 30, 2019, principal liquidity sources included $25.9 million in cash and cash equivalents, $36.9 million in short-term investments, $2.1 million in restricted cash, and $9.0 million available under the Revolving Credit Facility[172] - Net cash used in operating activities was $29.7 million for the nine months ended September 30, 2019, primarily due to net loss and changes in working capital[174] - The company believes existing cash, cash equivalents, and short-term investments will be sufficient through December 31, 2020, but may need additional capital for operations, R&D, or acquisitions[182][183] - The $150.0 million 2018 Convertible Notes were converted into common stock in Q1 2019, leaving $51.3 million of 2014 Notes outstanding, which holders can require repurchase of in 2021, 2024, and 2029[179][180] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, primarily from foreign currency exchange rates and interest rates, and its approach to managing these risks - The company's financial position is subject to fluctuations from foreign currency exchange rates, as international revenue and expenses are denominated in various local currencies[188] - For the nine months ended September 30, 2019 and 2018, foreign exchange gains and losses were less than $0.1 million, and a 10% change in exchange rates would not have a material impact[188] - The company holds $62.8 million in cash, cash equivalents, and short-term investments, primarily in short-term instruments, limiting material exposure to interest rate changes[189] Item 4. Controls and Procedures This section details management's evaluation of the company's disclosure controls and procedures, confirming their effectiveness, and notes no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2019[191] - There were no material changes in internal control over financial reporting during the three months ended September 30, 2019[192] - Control systems provide reasonable, not absolute, assurance, and inherent limitations mean misstatements due to error or fraud may occur and not be detected[193] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, and other supplementary information Item 1. Legal Proceedings This section states that the company is involved in various legal proceedings in the normal course of business, but currently believes that the outcomes will not have a material adverse effect on its financial condition or operations - Fluidigm is periodically involved in legal proceedings, including those related to employment and intellectual property[196] - Management believes the final outcome of currently pending matters will not have a material adverse effect on the business, operating results, financial condition, or cash flows[196] - Litigation, regardless of outcome, can adversely impact the company due to defense and settlement costs and diversion of management resources[196] Item 1A. Risk Factors This section details various risks that could materially affect Fluidigm's business, financial condition, and operating results, categorized into business and strategy risks, and intellectual property risks Risks Related to Fluidigm's Business and Strategy This section details various risks inherent to Fluidigm's business model, market, operations, and financial strategy - Financial results and revenue growth rates have varied significantly, leading to stock price volatility, and the company may continue to incur substantial losses due to ongoing investments in R&D, sales, and marketing[199][200][201][202] - The life science markets are highly competitive and subject to rapid technological change, posing risks from established and emerging competitors with greater resources and broader product lines[203][204] - Market opportunities for emerging applications like mass cytometry may not develop as quickly as expected, and failure to achieve sufficient market acceptance for products could adversely affect revenue[205][206][207][208] - Development or manufacturing problems, reliance on single/sole source suppliers, and potential defects or errors in complex products could limit revenue growth, increase losses, and harm reputation[209][210][211][212][214][215][216][217][226][227] - Dependence on customer R&D spending, international revenue exposure to foreign currency fluctuations and regulatory risks, and potential disruptions in shipping or manufacturing facilities could adversely affect business[218][219][220][221][222][223][224][225] - Future success relies on expanding the customer base, introducing new applications, and retaining key management and skilled personnel, with risks if these efforts are unsuccessful[228][229][230][231][232] - Potential acquisitions carry integration risks, and security breaches or IT failures could disrupt operations, damage reputation, and incur significant costs[233][234][235][236][237][238] - Efficiency and cost-savings initiatives could be disruptive, and reliance on specialized reagents from third parties could limit product marketing if availability or formulation changes[239][240][241][242] - Seeking medical device regulation (FDA/foreign) would entail significant time, expense, and ongoing compliance, and current RUO products could become subject to such regulation before approval, harming sales[243][244][245][246][247][248][249][250][251] - Failure to maintain effective internal controls over financial reporting could impair accuracy and timing of financial reporting, and impairment of goodwill or other intangible assets could materially affect financial condition[254][255][256][257][258] - Future capital needs are uncertain, and additional funding may cause dilution or unfavorable terms; failure to comply with credit facility covenants could accelerate debt repayment[259][260][261][262] - Risks related to taxation in multiple jurisdictions, including disagreements with authorities and limitations on net operating loss carryforwards, could adversely affect the effective income tax rate and financial position[263][264][265][266][267] - Adverse global economic conditions, inability to expand sales and marketing, and challenges in implementing an ERP system could harm revenue, profitability, and operations[268][269][270][271][272] - Changes in accounting principles or interpretations could significantly impact financial position and results of operations, requiring system and process changes[273][274][275][276] - Significant outstanding indebtedness, particularly the 2014 Notes, poses risks including cash flow diversion for interest payments, increased vulnerability to economic conditions, and limitations on future borrowing capacity[277][278][279] Risks Related to Intellectual Property This section outlines risks associated with protecting and enforcing the company's intellectual property rights - The ability to protect intellectual property through patents, copyrights, trade secrets, and trademarks is uncertain, as patents may not issue or may be challenged, and competitors could design around them[281][282][283][284][285] - Involvement in lawsuits to protect or enforce IP rights, or defend against infringement claims, could be time-intensive, costly, and adversely impact business or stock price, potentially requiring licenses or royalty payments[286][287][288] - Claims of wrongful use or disclosure of trade secrets by employees could lead to litigation, injunctive relief, and loss of key personnel or work product, harming future product development and sales[289] - Dependence on licensed technologies, including core IFC and mass cytometry, means loss of rights or disputes over license terms could prevent product sales and materially affect business[290][291][292] - Manufacturing restrictions related to U.S. governmental grants (domestic manufacturing requirements) and Canadian government agencies (commercialization efforts, march-in rights) could adversely affect operations and financial condition[293][294][295] Item 5. Other Information This section states that there is no other information to report - No other information is reported in this section[296] Item 6. Exhibits This section lists the documents filed as exhibits to the Form 10-Q, including amendments to lease agreements, certifications from executive officers, and XBRL-related documents - Exhibits include the Tenth Amendment to Lease Agreement, CEO and CFO certifications (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and various XBRL documents[300] SIGNATURES This section contains the required signatures of the registrant's authorized officers, confirming the filing of the report - The report is signed by Stephen Christopher Linthwaite, President and Chief Executive Officer, and Vikram Jog, Chief Financial Officer, on November 7, 2019[304]