Standard BioTools(LAB) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q2 2020 detail financial position, operations, and cash flows, reflecting decreased revenue, continued net loss, and balance sheet changes from a new lease and acquisition Condensed Consolidated Balance Sheets Balance Sheet Comparison (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $42,965 | $21,661 | | Total current assets | $78,450 | $96,096 | | Goodwill | $106,328 | $104,108 | | Total assets | $282,348 | $264,812 | | Liabilities & Equity | | | | Total current liabilities | $38,348 | $32,821 | | Convertible notes, net | $54,013 | $53,821 | | Operating lease liabilities, non-current | $39,139 | $4,323 | | Total liabilities | $149,629 | $111,200 | | Total stockholders' equity | $132,719 | $153,612 | - A significant increase in the operating lease right-of-use asset and corresponding non-current lease liabilities was recorded, rising from approximately $4.9 million and $4.3 million to $39.0 million and $39.1 million respectively, primarily due to a new corporate headquarters lease[11][108] Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $26,058 | $28,196 | $53,675 | $58,307 | | Loss from operations | $(13,726) | $(14,636) | $(28,668) | $(28,842) | | Net loss | $(13,015) | $(13,753) | $(28,995) | $(39,218) | | Net loss per share | $(0.18) | $(0.20) | $(0.41) | $(0.61) | - The company recognized new sources of revenue in 2020, including $3.0 million in Development revenue and $4.0 million in Other revenue for the six months ended June 30, 2020, which were not present in the same period of 2019[14] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,085) | $(25,143) | | Net cash provided by (used in) investing activities | $27,586 | $(45,299) | | Net cash provided by financing activities | $8 | $1,187 | | Net increase (decrease) in cash | $20,304 | $(69,280) | | Cash at end of period | $44,040 | $26,121 | - Cash from investing activities was positive in H1 2020 due to $34.4 million in proceeds from sales and maturities of investments, partially offset by a $5.2 million acquisition, a reversal from H1 2019 which saw a $44.6 million purchase of investments[23] Notes to Condensed Consolidated Financial Statements - On January 17, 2020, the company acquired InstruNor AS for a purchase price of $7.2 million, consisting of $5.2 million in cash and $2.0 million in common stock, resulting in $2.2 million of goodwill and $5.4 million of developed technology[71][73][75] - In March 2020, the company entered into an agreement to settle intellectual property infringement claims, receiving a $3.5 million payment, of which $3.1 million was recognized as license revenue[42] - As of June 30, 2020, the company had $54.0 million in net carrying value of convertible notes, comprising $1.1 million of 2.75% notes due 2034 and $53.0 million of 5.25% notes due 2024[100] - A new operating lease for the corporate headquarters commenced in March 2020, resulting in the recognition of a Right-of-Use (ROU) asset of $35.7 million and an operating lease liability of $35.3 million over a ten-year term[108] - Effective March 31, 2020, the company signed an OEM Supply and Development Agreement, expected to provide up to $11.7 million in payments, with $3.0 million of development revenue recognized from this agreement in Q2 2020[151] - Subsequent to the quarter end, in July 2020, the company entered into a letter contract with the NIH under the RADx program for COVID-19 testing, with a total proposed budget of up to $37.0 million and initial funding access of up to $12.2 million[154] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2020 financial results, noting an 8% revenue decrease due to COVID-19, partially offset by new revenue streams, expense management, and a new NIH contract, with sufficient liquidity for 18 months Overview and Recent Developments - The company's business was significantly impacted by the COVID-19 pandemic, with an estimated 30-40% of customers closed or at reduced capacity as of June 30, 2020, an improvement from 60-70% in April 2020[167] - In response to the pandemic, the company filed for Emergency Use Authorization (EUA) from the FDA for its saliva-based Advanta Dx SARS-CoV-2 Assay in June 2020[168] - In July 2020, Fluidigm entered into a letter contract with the NIH under the RADx program to expand production capacity for COVID-19 testing, with a total proposed budget of up to $37.0 million[170] - To manage liquidity during the pandemic, the company implemented operating expense reductions, including temporary salary cuts and constrained hiring, and deferred payment of U.S. payroll taxes under the CARES Act[169] Results of Operations Revenue by Source - Q2 2020 vs Q2 2019 (in thousands) | Revenue Source | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Instruments | $8,577 | $12,201 | (30)% | | Consumables | $8,828 | $11,034 | (20)% | | Product revenue | $17,405 | $23,235 | (25)% | | Service revenue | $5,140 | $4,961 | 4% | | Development revenue | $3,000 | $0 | NA | | Other (Grant/License) | $513 | $0 | NA | | Total revenue | $26,058 | $28,196 | (8)% | Revenue by Geography - Q2 2020 vs Q2 2019 (in thousands) | Geography | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Americas | $13,940 | $11,120 | 25% | | EMEA | $6,557 | $11,217 | (42)% | | Asia-Pacific | $5,561 | $5,859 | (5)% | | Total revenue | $26,058 | $28,196 | (8)% | - The increase in Americas revenue was driven by $3.0 million in development revenue and $0.5 million in grant revenue, which offset declines in product sales[186] - Product and service margin decreased by 2.0 percentage points in Q2 2020 compared to Q2 2019, primarily due to fixed depreciation and amortization costs on a lower revenue base and lower factory utilization[201] - Selling, general and administrative (SG&A) expenses decreased by $1.5 million (7%) in Q2 2020, driven by lower compensation, sales commissions, and a $1.2 million reduction in travel expenses, partially offset by a $1.1 million increase in facilities costs for the new headquarters[208] Liquidity and Capital Resources - As of June 30, 2020, principal sources of liquidity consisted of $43.0 million in cash and cash equivalents and $2.4 million in short-term investments[220] - Net cash used in operating activities for the first six months of 2020 was $7.1 million, a significant improvement from the $25.1 million used in the same period of 2019[220][222][223] - The company has a $15.0 million revolving credit facility, which was amended in April 2020 to extend the maturity to August 2022, with $7.3 million availability and no borrowings outstanding as of June 30, 2020[237][238] - In March 2020, the company established an "at the market" (ATM) equity offering program to sell up to $50 million of common stock, though no shares had been sold under this program as of the report date[239] - Management believes that existing cash, cash equivalents, and investments will be sufficient to meet working capital and capital expenditure needs for at least the next 18 months[240] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are foreign currency and interest rate fluctuations, with a 10% change in either not materially impacting financial position, and no hedging contracts are currently used - The company's primary market risks are foreign currency exchange and interest rate sensitivity[245] - A 10% change in foreign currency exchange rates or interest rates would not have had a material impact on the company's financial position or results of operations for the periods presented[246][247] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective at the reasonable assurance level[251] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[252] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings, with management believing no pending matters will materially adversely affect its business or financial condition - The company states that it does not currently believe any pending legal matters would have a material adverse effect on its business or financial condition[255] Risk Factors The company faces significant risks including the ongoing adverse effects of the COVID-19 pandemic, a history of net losses, intense competition, reliance on single-source suppliers, and substantial outstanding debt - The COVID-19 pandemic is identified as a primary risk, having significantly and adversely affected business operations, financial position, and cash flows through reduced demand, operational inefficiencies, and supply chain disruptions[258][259] - The company has a history of significant losses, with an accumulated deficit of $652.7 million as of June 30, 2020, and may continue to incur substantial losses for the foreseeable future[266] - The company faces high competition from established life science companies with greater resources and name recognition, such as Illumina, Thermo Fisher Scientific, and Becton, Dickinson and Company[268][269] - There is a risk that the FDA may not grant the Emergency Use Authorization (EUA) for the company's Advanta™ Dx SARS-CoV-2 RT-PCR assay, or could revoke it after issuance, which would require halting commercial distribution[313] - The company is dependent on single and sole source suppliers for critical components, such as the specialized polymer for IFCs and detectors for Hyperion/Helios systems, making it vulnerable to supply disruptions[297][298] - As of June 30, 2020, the company had significant outstanding debt, including $55.0 million of 5.25% convertible senior notes due 2024, which poses risks such as requiring cash flow for interest payments and limiting operational flexibility[362] Other Information On August 4, 2020, the compensation committee approved the 2020 Change of Control and Severance Plan, replacing the prior plan and detailing executive severance benefits - On August 4, 2020, the company's board approved the Fluidigm Corporation 2020 Change of Control and Severance Plan, which replaces the prior plan expiring on August 21, 2020[397] - Under the new plan, in the event of a qualifying termination following a change of control, the CEO is entitled to 250% of base salary plus target bonus, 30 months of COBRA, and 100% equity vesting acceleration[400] Exhibits This section lists exhibits filed with the Form 10-Q, including the Open Market Sale Agreement, amended employee stock plans, and the new Change of Control and Severance Plan - Key exhibits filed include the Open Market Sale Agreement with Jefferies, the amended 2017 Employee Stock Purchase Plan, the amended 2011 Equity Incentive Plan, and the new 2020 Change of Control and Severance Plan[407]