Standard BioTools(LAB) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited condensed consolidated financial statements for the period ended June 30, 2021, show a decrease in total assets to $289.3 million from $324.8 million at year-end 2020, primarily due to a reduction in cash and cash equivalents, with net loss widening to $36.0 million despite a 19% year-over-year increase in total revenue to $63.8 million for the six-month period Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $78,206 | $117,663 | | Total assets | $289,315 | $324,757 | | Total current liabilities | $52,848 | $54,249 | | Total liabilities | $179,865 | $185,707 | | Total stockholders' equity | $109,450 | $139,050 | Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $31,018 | $26,058 | $63,812 | $53,675 | | Loss from operations | $(17,268) | $(13,726) | $(36,588) | $(28,668) | | Net loss | $(17,143) | $(13,015) | $(35,964) | $(28,995) | | Net loss per share | $(0.23) | $(0.18) | $(0.48) | $(0.41) | Condensed Consolidated Statements of Cash Flows (in thousands) | | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(27,565) | $(7,085) | | Net cash provided by (used in) investing activities | $(9,095) | $27,586 | | Net cash provided by (used in) financing activities | $(1,159) | $8 | | Net (decrease) increase in cash | $(37,657) | $20,304 | - The company has a contract with the National Institutes of Health (NIH) under the RADx program with a total value of up to $34.0 million to expand production capacity for COVID-19 testing[53] - As of June 30, 2021, the total value of milestones reasonably assured was $31.4 million, with a total deferred grant income of $28.2 million[68][71] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial results for Q2 and H1 2021 highlights a 19% year-over-year revenue increase for both periods, driven by strong growth in consumables and services, with expectations for lower cash usage in the second half of 2021 despite potential negative impacts on product and service margins due to product transition and mix Results of Operations Total revenue grew 19% year-over-year to $31.0 million for Q2 and $63.8 million for H1 2021, driven by a 30% increase in product and service revenue, though product and service margin decreased by 2.4 percentage points to 50.1% due to higher provisions for obsolete inventory and lower average selling prices Revenue by Source (in thousands) | Revenue Source | Three Months Ended June 30, 2021 | YoY Change | | :--- | :--- | :--- | | Instruments | $10,179 | 19% | | Consumables | $12,448 | 41% | | Product revenue | $22,627 | 30% | | Service revenue | $6,627 | 29% | | Development revenue | $850 | (72)% | | Total revenue | $31,018 | 19% | Revenue by Geographic Area (in thousands) | Geographic Area | Three Months Ended June 30, 2021 | YoY Change | | :--- | :--- | :--- | | Americas | $16,120 | 16% | | EMEA | $9,220 | 41% | | Asia-Pacific | $5,678 | 2% | | Total revenue | $31,018 | 19% | - Product and service margin decreased by 2.4 percentage points for Q2 2021 compared to Q2 2020, falling to 50.1%, primarily due to higher provisions for excess and obsolete inventory related to COVID-19 testing consumables, lower average selling prices of mass cytometry instruments, and higher service costs[176] - Operating expenses increased by 16% in Q2 2021 compared to Q2 2020, with R&D expenses rising 12% to $9.4 million and SG&A expenses increasing 18% to $24.2 million, driven by higher compensation costs, consulting fees, and travel expenses[178][180][184] Liquidity and Capital Resources As of June 30, 2021, the company's principal liquidity sources were $30.9 million in cash and cash equivalents and $10.9 million available under its revolving credit facility, with net cash used in operating activities significantly increasing to $27.6 million for H1 2021, though management believes existing resources are sufficient for at least the next 18 months following a recent credit facility amendment Cash Flow Summary (in thousands) | | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(27,565) | $(7,085) | | Net cash provided by (used in) investing activities | $(9,095) | $27,586 | | Net cash provided by (used in) financing activities | $(1,159) | $8 | - As of June 30, 2021, principal sources of liquidity consisted of $30.9 million of cash and cash equivalents and $10.9 million of availability under the Revolving Credit Facility[191][213] - On August 2, 2021, the company amended its credit agreement, extending its $15.0 million Revolving Credit Facility to August 2, 2023, and adding a new $10.0 million Term Loan Facility, from which the company immediately drew a $5.0 million term loan advance[134][151][208] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks stem from fluctuations in foreign currency exchange rates and interest rates, with a majority of revenue denominated in U.S. dollars while expenses are incurred in various currencies, creating exposure to currency fluctuations, though interest rate risk is considered minimal - The company's results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, as revenues are primarily in USD while expenses are in multiple currencies, and the company does not currently engage in foreign currency hedging[219][220] - Interest rate risk is considered immaterial, as cash and cash equivalents are held in short-term deposits and money market funds, and a 10% change in interest rates would not have materially affected interest income[221] Controls and Procedures Based on an evaluation as of June 30, 2021, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective at the reasonable assurance level[223] - There were no changes in the company's internal control over financial reporting during the six months ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[224] PART II. OTHER INFORMATION Legal Proceedings The company is a defendant in a putative class action lawsuit filed in September 2020, alleging violations of federal securities laws, for which the court granted the company's motion to dismiss with leave for the plaintiff to amend on August 4, 2021, and the company intends to vigorously defend the action - A putative class action complaint alleging federal securities law violations was filed against the company in September 2020, and the company's motion to dismiss was granted with leave to amend on August 4, 2021, with the company believing the claims are without merit and intending to defend the action vigorously[131][229] Risk Factors The company faces numerous significant risks that could adversely affect its business, including the ongoing impact of the COVID-19 pandemic, a history of incurring net losses, intense competition, reliance on single-source suppliers, potential manufacturing disruptions, the need to retain key personnel, regulatory uncertainty regarding "research use only" products, and financial risks from significant outstanding debt and uncertain future capital needs - The COVID-19 pandemic has significantly affected business operations, causing reduced demand for some products, operational inefficiencies, and supply chain disruptions, and while it created opportunities in diagnostics, the demand for COVID-19 testing products has slowed, leading to lowered revenue expectations for 2021[241][242][243] - The company has a history of significant net losses, with an accumulated deficit of $712.7 million as of June 30, 2021, and may continue to incur substantial losses for the foreseeable future due to investments in R&D and sales and marketing[251] - The company relies on single and sole source suppliers for critical components, such as the specialized polymer for IFCs and the electron multiplier detector for Helios/Hyperion systems, and the loss of any of these suppliers could significantly disrupt production[279][281] - The company's products, currently labeled as "research use only" (RUO), could become subject to stricter regulation as medical devices by the FDA, especially if customers use them in laboratory-developed tests (LDTs), and evolving FDA oversight of LDTs could adversely impact sales and require changes to the business model[319][320][323] - The company has a significant amount of outstanding debt, including $55.0 million of 5.25% convertible senior notes due 2024, which requires cash flow for interest payments and limits financial flexibility[350][354] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the reporting period - None Defaults Upon Senior Securities The company reported no defaults upon senior securities during the reporting period - None Mine Safety Disclosures This item is not applicable to the company - None Other Information The company reported no information required to be disclosed under this item - None Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to the NIH contract and lease agreements, new employment terms for an executive, the amended 2011 Equity Incentive Plan, an amendment to the loan and security agreement with Silicon Valley Bank, and required CEO/CFO certifications - The report includes a list of filed exhibits, such as amendments to the NIH contract, lease agreements, management compensation plans, and the Fourth Amendment to the Loan and Security Agreement with Silicon Valley Bank[395][397]