What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-13 · 105 added, 43 removed, 153 unchanged (49% of the section changed)

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The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in our filings with the SEC.

filings with the SEC.

The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

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We have incurred losses in each year since our inception.

Our net loss was $9.9 million for the three months ended March 31, 2021.

As of March 31, 2021, we had an accumulated deficit of $153.6 million.

Our net loss was $18.8 million and $28.7 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2021, we had an accumulated deficit of $172.4 million.

We expect to continue to incur significant expenses and operating losses as we:

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Recent Highlights

We shipped 11 Saphyr systems during the quarter ended March 31, 2021, compared to 5 systems shipped in the same quarter in 2020.

The installed base of Saphyr systems was 107 at the end of the quarter.

We sold 2,603 nanochannel array flow cells during the quarter ended March 31, 2021, which represents an increase of 275% over the same period in 2020.

We analyzed 227 samples in our Saphyr service lab.

We shipped 13 Saphyr systems during the quarter ended June 30, 2021, compared to 6 systems shipped in the same quarter in 2020.

The installed base of Saphyr systems was 121 as of June 30, 2021, compared to 87 as of June 30, 2020.

We sold 2,742 nanochannel array flow cells during the quarter ended June 30, 2021, which represents an increase of 118% over the same period in 2020.

We analyzed 190 samples in our Saphyr service lab during the quarter ended June 30, 2021, compared to 77 samples analyzed in the same quarter in 2020.

COVID-19 Overview

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As a result of such uncertainties, the duration of the disruption and the related impact on our business, operating results and financial condition cannot be reasonably estimated at this time.

We are continuing to closely monitor the impact of the COVID-19 pandemic on our business and are taking proactive

efforts designed to protect the health and safety of our workforce, continue our business operations and advance our corporate objectives.

We are continuing to closely monitor the impact of the COVID-19 pandemic on our business and are taking proactive efforts designed to protect the health and safety of our workforce, continue our business operations and advance our corporate objectives.

Financial Overview

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The following table presents our revenue for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Product revenue $ 2,496,000 $ 940,000 $ 4,545,000 $ 1,923,000

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Total $ 3,856,000 $ 1,182,000 $ 7,024,000 $ 2,318,000

1 Includes $851,000 of revenue generated from Lineagen during the three months ended March 31, 2021.

1 Includes $1,115,000 and $1,966,000 of revenue generated from Lineagen during the three and six months ended June 30, 2021, respectively.

The following table reflects total revenue by geography and as a percentage of total revenue, based on the billing address of our customers.

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Asia Pacific includes China, Japan, South Korea, Singapore and Australia.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

$ % $ % $ % $ %

North America 2

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Total $ 3,856,000 100 % $ 1,182,000 100 % $ 7,024,000 100 % $ 2,318,000 100 %

2 Includes $851,000 of revenue generated from Lineagen during the three months ended March 31, 2021.

2 Includes $1,115,000 and $1,966,000 of revenue generated from Lineagen during the three and six months ended June 30, 2021, respectively.

Cost of Revenue

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Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table sets forth our results of operations for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, Period-to-Period Change

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table sets forth our results of operations for the three months ended June 30, 2021 and 2020:

Three Months Ended June 30, Period-to-Period Change

Product revenue $ 2,496,000 $ 940,000 $ 1,556,000 165.5 %

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Interest expense $ (210,000) $ (561,000) 351,000 (62.6) %

Loss on debt extinguishment $ (2,076,000) $ — (2,076,000) 100.0 %

Other income (expenses) $ (15,000) $ (73,000) 58,000 (79.5) %

Total other income (expenses) (2,301,000) (634,000) (1,667,000) 262.9 %

Loss before income taxes (18,777,000) (8,069,000) (10,708,000) 132.7 %

Provision for income taxes $ (9,000) $ (5,000) (4,000) 80.0 %

Net loss $ (18,786,000) $ (8,074,000) $ (10,712,000) 132.7 %

Total revenue increased by $2.7 million, or 226.2%, to $3.9 million for the three months ended June 30, 2021 compared to $1.2 million for the same period in 2020.

The increase impacted all regions.

The increase in product sales was driven by increased demand of our reagent rental program and consumables, while the increase in service and other revenue was mostly driven by sales generated by our Lineagen subsidiary.

Furthermore, below is a summary of changes for the three months ended June 30, 2021 as compared to the same period in 2020:

• North America revenue increased by $1.6 million, or 200%;

• EMEIA revenue increased by $0.6 million, or 198%;

• Asia Pacific revenue increased by $0.5 million, or 597%.

Revenue for the three months ended June 30, 2021, includes service revenue of $1.1 million generated from our Lineagen subsidiary.

Cost of Revenue

Total cost of revenue increased by $1.8 million, or 300.8%, to $2.4 million for the three months ended June 30, 2021 compared to $0.6 million for the same period in 2020.

The increase was due to an increase in sales volume.

Gross margins were affected by a shift in our product mix towards lower margin instrument sales .

Research and Development Expenses

Research and development expenses increased by $1.7 million, or 70.2%, to $4.1 million for the three months ended June 30, 2021 compared to $2.4 million for the same period in 2020.

The increase is primarily due to a $1.0 million increase in compensation expenses and an increase of $0.5 million in product development costs.

The increase in compensation expense is driven by a 22% increase in headcount as well as wages returning against a lower comparable last year where wages were reduced 25% as part of a COVID-related savings measure.

In addition, compensation expense included a $0.3 million increase in stock-based compensation expense as a result of increased grant date fair values of options issued this year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $8.2 million, or 146.4%, to $13.8 million for the three months ended June 30, 2021 compared to $5.6 million for the same period in 2020.

The increase is primarily due to a $4.6 million increase in compensation expenses, $1.0 million in other headcount-related expenses, and $1.9 million in professional services.

The increase in compensation expense is driven mainly by a 133% increase in headcount, over half of which are employees of Lineagen, as well as wages returning against a lower comparable last year where wages were reduced 25% as part of a COVID-related savings measure.

In addition, compensation expense included a $1.4 million increase in stock-based compensation expense as a result of increased grant date fair values of options issued.

Other headcount-related expenses include the cost of recruiting, temporary employment, and facilities expenses incurred in order to support increased product demand.

Professional services include expenses incurred to expand our global marketing outreach as well consulting, audit, legal, and other fees necessary to satisfy our obligations as a public company.

Interest Expense

Interest expense decreased by $0.4 million, or 62.6%, to $0.2 million for the three months ended June 30, 2021 compared to $0.6 million for the same period in 2020, driven by payment in full of the LSA Innovatus Term Loan during the three months ended June 30, 2021.

Loss on debt extinguishment

A loss on debt extinguishment of $2.1 million was recognized during the three months ended June 30, 2021 in connection with our payment in full of the LSA Innovatus Term Loan, including all accrued interest, an end of term fee, a prepayment fee, and write-off of unamortized debt issuance costs.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table sets forth our results of operations for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30, Period-to-Period Change

Product revenue $ 4,545,000 $ 1,923,000 $ 2,622,000 136.3 %

Service and other revenue 2,479,000 395,000 2,084,000 527.6 %

Total revenue 7,024,000 2,318,000 4,706,000 203.0 %

Cost of revenue:

Cost of product revenue 3,383,000 1,289,000 2,094,000 162.5 %

Cost of other revenue 1,159,000 170,000 989,000 581.8 %

Total cost of revenue 4,542,000 1,459,000 3,083,000 211.3 %

Operating expenses:

Research and development 6,765,000 5,075,000 1,690,000 33.3 %

Selling, general and administrative 23,357,000 12,981,000 10,376,000 79.9 %

Total operating expenses 30,122,000 18,056,000 12,066,000 66.8 %

Loss from operations (27,640,000) (17,197,000) (10,443,000) 60.7 %

Other income (expenses):

Interest expense (748,000) (1,322,000) 574,000 (43.4) %

Gain on forgiveness of Paycheck Protection Program loan 1,775,000 — 1,775,000 100.0 %

Loss on debt extinguishment (2,076,000) — (2,076,000) 100.0 %

Other income (expenses) (29,000) (55,000) 26,000 (47.3) %

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Net loss $ (28,733,000) $ (18,584,000) $ (10,149,000) 54.6 %

Total revenue increased by $2.0 million, or 178.9%, to $3.2 million for the three months ended March 31, 2021 compared to $1.1 million for the same period in 2020.

Total revenue increased by $4.7 million, or 203.0%, to $7.0 million for the six months ended June 30, 2021 compared to $2.3 million for the same period in 2020.

The increase impacted all regions.

Furthermore, below is a summary of changes for the three months ended March 31, 2021 as compared to the same period in 2020:

Furthermore, below is a summary of changes for the six months ended June 30, 2021 as compared to the same period in 2020:

• North America revenue increased by $2.4 million, or 156%;

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• Asia Pacific revenue increased by $0.5 million, or 540%.

Revenue for the three months ended March 31, 2021, includes service revenue of $0.9 million generated from our Lineagen subsidiary.

Revenue for the six months ended June 30, 2021, includes service revenue of $2.0 million generated from our Lineagen subsidiary.

Cost of Revenue

Total cost of revenue increased by $1.3 million, or 148.2%, to $2.1 million for the three months ended March 31, 2021 compared to $0.9 million for the same period in 2020.

The increase was primarily due to a shift in our product mix towards higher margin consumables and services.

Total cost of revenue increased by $3.1 million, or 211.3%, to $4.5 million for the six months ended June 30, 2021 compared to $1.5 million for the same period in 2020.

The increase was primarily due to an increase in sales volume.

Gross margins reduced due to a shift in our product mix towards lower margin instrument sales.

Research and Development Expenses

Research and development expenses increased by $1.7 million, or 33.3%, to $6.8 million for the six months ended June 30, 2021 compared to $5.1 million for the same period in 2020.

The increase is primarily due to a $1.1 million increase in

compensation expenses and an increase of $0.3 million in product development costs.

In addition, compensation expense included a $0.3 million increase in stock-based compensation expense as a result of increased grant date fair values of options issued this year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $2.2 million, or 29.3%, to $9.5 million for the three months ended March 31, 2021 compared to $7.4 million for the same period in 2020.

This is primarily due to additional headcount-related costs resulting from the acquisition of Lineagen, completed in August 2020.

These were offset by a decrease in bad debt expense by $1.0M when compared to the same period last year.

Selling, general and administrative expenses increased by $10.4 million, or 79.9%, to $23.4 million for the six months ended June 30, 2021 compared to $13.0 million for the same period in 2020.

The increase is primarily due to a $5.9 million increase in compensation expenses, $1.1 million in other headcount-related expenses, and $2.6 million in professional services.

In addition, compensation expense included a $1.5 million increase in stock-based compensation expense as a result of increased grant date fair values of options issued.

Other headcount-related expenses include the cost of recruiting, temporary employment, and facilities expenses incurred in order to support increased product demand.

Professional services include expenses incurred to expand our global marketing outreach as well consulting, audit, legal, and other fees necessary to satisfy our obligations as a public company.

Interest Expense

Interest expense decreased by $0.2 million, or 29.3%, to $0.5 million for the three months ended March 31, 2021 compared to $0.8 million for the same period in 2020, driven by changes in our term-loan debt.

In April 2020, we paid down $5 million of the $20 million outstanding under the Innovatus LSA (as defined below), resulting in a decrease to our quarterly interest expense.

Interest expense decreased by $0.6 million, or 43.4%, to $0.7 million for the six months ended June 30, 2021 compared to $1.3 million for the same period in 2020, driven by payment in full of the LSA Innovatus Term Loan during the three months ended June 30, 2021.

Gain on forgiveness of Paycheck Protection Program loan

A gain on forgiveness of Paycheck Protection Program loan of $1.8 million was recognized during the three months ended March 31, 2021 in connection with the forgiveness of our PPP Loan (as defined below), including all accrued interest in full.

A gain on forgiveness of Paycheck Protection Program loan of $1.8 million was recognized during the six months ended June 30, 2021 in connection with the forgiveness of our PPP Loan, including all accrued interest in full.

Loss on debt extinguishment

A loss on debt extinguishment of $2.1 million was recognized during the six months ended June 30, 2021 in connection with our payment in full of the LSA Innovatus Term Loan, including all accrued interest, an end of term fee, a prepayment fee, and write-off of unamortized debt issuance costs.

Liquidity and Capital Resources

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See Note 6 to our condensed consolidated financial statements for a discussion of our recent equity activity and Note 5 to our condensed consolidated financial statements for a discussion of terms and provisions of our debt included elsewhere in this Quarterly Report on Form 10-Q for more information.

We incurred net losses of $9.9 million and $10.5 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, we had an accumulated deficit of $153.6 million and cash and cash equivalents of $362.1 million.

We incurred net losses of $28.7 million and $18.6 million for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, we had an accumulated deficit of $172.4 million and cash and cash equivalents of $332.6 million.

The following table sets forth the cash flow from operating, investing and financing activities for the periods presented:

Net cash provided by (used in):

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities $ (26,323,000) $ (15,250,000)

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We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure and this may continue in the future.

Net cash used in operating activities was $13.9 million during the three months ended March 31, 2021 as compared to $8.0 million during the same period in 2020.

The increase in cash used in operating activities of $5.9 million is primarily attributed to increased headcount-related costs resulting from the acquisition of Lineagen.

Net cash used in operating activities was $26.3 million during the six months ended June 30, 2021 as compared to $15.3 million during the same period in 2020.

The increase in cash used in operating activities of $11.0 million is primarily attributed to increased headcount-related costs resulting from the acquisition of Lineagen plus incremental headcount growth exceeding 40%.

Investing Activities

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We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods.

During the three months ended March 31, 2021, cash used in investing activities was negligible.

During the six months ended June 30, 2021, cash provided by investing activities was negligible.

Financing Activities

Net cash provided by financing activities was $337.5 million during the three months ended March 31, 2021 as compared to the same period in 2020 where we had net cash used in financing activities of $1.1 million, an increase of $338.7 million.

During the three months ended March 31, 2021, we raised approximately $328.6 million in net proceeds from executing two follow-on offerings and sales under our at-the-market facility with Ladenburg Thalmann.

Net cash provided by financing activities was $320.4 million during the six months ended June 30, 2021 as compared to the same period in 2020 where we had net cash provided by financing activities of $15.1 million, an increase of $305.2 million.

During the six months ended June 30, 2021, we raised approximately $328.6 million in gross proceeds from executing two follow-on offerings and sales under our at-the-market facility with Ladenburg Thalmann.

In addition, we raised approximately $9.8 million from warrant and option exercises.

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Capital Resources

As of March 31, 2021, we had approximately $362.1 million in cash and cash equivalents, and working capital of $363.1 million.

We have a $5.0 million revolving line of credit with Innovatus Life Sciences Lending Fund I, LP (the “Innovatus LSA”), under which no borrowings were outstanding as of March 31, 2021.

This facility is scheduled to expire in March 2024.

In addition, the carrying value of our outstanding debt as of March 31, 2021 was $14.9 million.

As of June 30, 2021, we had approximately $332.6 million in cash and cash equivalents, and working capital of $331.2 million.

In August 2020, we filed a shelf registration statement on Form S-3 with the SEC covering the offering, issuance and sale of up to $125.0 million of our securities, including up to $40.0 million of common stock pursuant to an at-the-market facility (“ATM”) with Ladenburg Thalmann & Co.

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On January 12, 2021, we completed an underwritten public offering of 33,368,851 shares of common stock, including 4,352,458 shares of common stock sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares.

The price to the public in the offering was $3.05 per share and the underwriters purchased the shares from us pursuant to

the underwriting agreement at a price of $2.867 per share.

The price to the public in the offering was $3.05 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $2.867 per share.

The gross proceeds were approximately $101.8 million before deducting underwriting discounts and commissions and other offering expenses.

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Actual results may materially differ from these estimates under different assumptions or conditions.

There were no material changes in our critical accounting policies and estimates during the three months ended March 31, 2021.

There were no material changes in our critical accounting policies and estimates during the six months ended June 30, 2021.

See Note 2 to the condensed consolidated financial statements in our Annual Report.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis