What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 165 added, 114 removed, 178 unchanged (61% of the section changed)

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You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.

Fluidigm®, the Fluidigm logo, Access Array™, Advanta™, Biomark™, Bringing new insights to life™, C1™, Callisto™, Cell-ID™, CyTOF®, D3™, Delta Gene™, Direct™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Helios™, High-Precision 96.96 Genotyping™, HTI™, Hyperion™, IMC™, Imaging Mass Cytometry™, Immune Profiling Assay™, Juno™, Maxpar®, MCD™, MSL®, Nanoflex™, Open App™, Pathsetter™, Polaris™, qdPCR 37K™, Script Builder™, Script Hub™, Singular™, SNP Trace™, and SNP Type™ are trademarks or registered trademarks of Fluidigm Corporation.

Fluidigm®, the Fluidigm logo, Access Array™, Advanta™, Biomark™, Bringing new insights to life™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, D3™, Delta Gene™, Direct™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Helios™, High-Precision 96.96 Genotyping™, HTI™, Hyperion™, IMC™, Imaging Mass Cytometry™, Immune Profiling Assay™, Juno™, Maxpar®, MCD™, MSL®, Nanoflex™, Open App™, Pathsetter™, Polaris™, qdPCR 37K™, Script Builder™, Script Hub™, Singular™, SNP Trace™, and SNP Type™ are trademarks or registered trademarks of Fluidigm Corporation.

Other service marks, trademarks and trade names referred to in this quarterly report on Form 10-Q are the property of their respective owners.

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We also use U.S.-based third-party contract manufacturers for reagent manufacturing.

Our total revenue for the three months ended March 31, 2021 was $32.8 million compared to $27.6 million for the three months ended March 31, 2020.

Our total revenue was $138.1 million in 2020 and $117.2 million in 2019.

We have incurred significant net losses since our inception in 1999 and, as of March 31, 2021, our accumulated deficit was $695.6 million.

Our total revenue for the six months ended June 30, 2021 was $63.8 million, compared to $53.7 million for the six months ended June 30, 2020.

We have incurred significant net losses since our inception in 1999 and, as of June 30, 2021, our accumulated deficit was $712.7 million.

Recent Developments

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Our response to the pandemic has driven more innovation, exposure of our products to new customers around the world, and increased consumables sales.

As vaccines for the coronavirus have become available and the perceived threat of the pandemic recedes, the demand for our COVID-19 testing products has slowed, resulting in a corresponding decline in COVID-19 testing revenue in the first quarter of 2021, compared to the fourth quarter of 2020.

As a result of these recent trends and ensuing uncertainties around COVID-19 testing, we now expect our revenue related to COVID-19 testing to further decline in each of the subsequent quarters in 2021 and have lowered our revenue expectations for this year.

We expect the improving outlook on our base business (excluding COVID-19 revenues) to partially offset the effect of this decline but at the same time, we are also focused on cost containment and margin improvement and continue to look for alternative, cost-effective funding sources for new product development while mitigating cash usage.

Despite the uncertainties around the demand for COVID-19 testing products, Fluidigm continues to remain focused on growing its business across multiple applications.

To date, our solutions span the spectrum from discovery to diagnostics, and we see an avenue for our products to move deeper into clinical applications.

We remain focused on bringing leading solutions, with a best-in-class value, throughput and accuracy, to our customers and the market.

As vaccines and alternative testing options for the coronavirus have become more available and the perceived threat of the pandemic began to recede in the first half of 2021, the demand for our COVID-19 testing products slowed, resulting in a corresponding decline in COVID-19 testing revenue in the first and second quarters of 2021, compared to the fourth quarter of 2020.

It is difficult to predict the impact of new strains of the coronavirus , such as the highly contagious Delta variant , on our COVID-19 testing business, and we anticipate that our revenue related to COVID-19 testing will continue to decline.

For additional information on the various risks posed by the COVID-19 pandemic, refer to Part II, Item 1A.

Risk Factors of this Form 10-Q.

Despite the uncertainties around the demand for COVID-19 testing products, Fluidigm continues to remain focused on growing its business across multiple applications.

To date, our solutions span the spectrum from discovery to diagnostics, and we see an avenue for our products to move deeper into translational and clinical applications.

We remain focused on bringing leading solutions, with a best-in-class value, throughput and accuracy, to our customers and the market.

We expect the improving outlook of our base business (excluding COVID-19 testing revenue) including the commercial release of CyTOF XT, our next generation mass cytometry instrument in May 2021, to offset the effects of the decline in COVID-19 testing revenue.

We expect our product and service margin to be negatively impacted in the second half of 2021 as we enter a new product transition cycle and a less favorable product mix.

We expect our use of cash in the second half of 2021 to be lower than the first half of the year, as we expect inventory levels to decline through the second half with the commencement of sales of the CyTOF XT platform.

In addition, capital expenditures associated with the RADx program will decline as that program comes to a close in the third quarter.

On August 2, 2021, the Company amended its Loan and Security Agreement dated as of August 2, 2018, between the Company and Silicon Valley Bank (SVB) (the Amendment).

The Amendment extends the maturity date of our $15.0 million revolving credit facility (Revolving Credit Facility) by one year, to August 2, 2023, and also provides for a term loan facility in an aggregate principal amount of $10.0 million (Term Loan Facility).

The maturity date of the Term Loan Facility is July 1, 2025, subject to the following condition:

in the event the principal amount of our convertible debt exceeds $0.6 million as of June 1, 2024 or if the maturity date of our 2019 Notes has not been extended beyond January 1, 2026 by that date, then the maturity date of the Term Loan Facility will be on June 1, 2024.

Upon execution of the Amendment, we drew a term loan advance of $5.0 million with additional term loans of up to $5.0 million available subject to customary conditions.

Interest on the term loans accrues on the outstanding principal amount thereof at the greater of (i) a floating per annum rate equal to three quarters of one percentage point (0.75%) above the prime rate (as customarily defined), or (ii) 4.00%, with a final payment equal to 6.5% of the original principal amount of each term loan advance due on the earlier of the maturity date of the Term Loan Facility or any earlier date of repayment of a term loan advance.

Interest is payable monthly.

The principal amount of the term loan advances is repayable beginning on August 1, 2023, in twenty-four equal installments of principal plus monthly payments of accrued interest.

The Amendment also added a financial covenant to the Loan and Security Agreement, requiring us to maintain a minimum Adjusted Quick Ratio (as defined) of at least 1.25 to 1.00.

Critical Accounting Policies, Significant Judgments and Estimates

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Results of Operations

The following table presents our historical condensed consolidated statements of operations data for the three months ended March 31, 2021 and 2020, and as a percentage of total revenue for the respective periods (in thousands):

Three Months Ended March 31,

Total revenue $ 32,794 100 % $ 27,617 100 %

The following table presents comparative and common size condensed consolidated statements of operations data for the three and six months ended June 30, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

Revenue $ 31,018 100 % $ 26,058 100 % 63,812 100 % 53,675 100 %

Costs and expenses:

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Interest expense (896) (3) (897) (3) (1,783) (3) (1,797) (3)

Other expense, net (285) (1) (818) (3)

Other income (expense), net 504 2 463 2 219 — (355) (1)

Loss before income taxes (17,660) (57) (14,160) (54) (38,152) (60) (30,820) (57)

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Under the Development Agreement, Fluidigm will develop products based on our microfluidics technology.

The Development Agreement provides up-front and periodic milestone payments of up to $11.7 million during the development stage.

The development stage is expected to be completed in the second half of 2021.

We recognized $1.5 million of development revenue from this agreement in the three months ended March 31, 2021 and cumulatively $10.3 million.

We recognize revenue under the Development Agreement using an input method based on our costs incurred relative to the total expected cost which determines the extent of our progress toward satisfaction of our obligations under the agreement.

The Development Agreement provides up-front and periodic milestone payments during the development stage, which is expected to be completed in the second half of 2021.

We recognized $0.9 million and $3.0 million of development

revenue during the three months ended June 30, 2021 and 2020, respectively.

We recognized $2.3 million and $3.0 million during the six months ended June 30, 2021 and 2020, respectively.

To date, we have recognized $11.1 million of revenue from this agreement and expect to recognize an additional $0.1 million on completion of the Development Agreement.

We recognize revenue associated with the Development Agreement using an input method which determines the extent of our progress toward satisfaction of our performance obligations by comparing actual costs incurred to date to the total expected cost.

Costs associated with the Development Agreement are recorded in research and development expense in the condensed consolidated statement of operations.

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We receive grants to perform research and development activities over contractually defined periods.

Grant revenue in the current year is attributable to a grant agreement entered into in the second half of 2019, which is expected to end in the first half of 2021.

Grant revenue in the current year is attributable to a grant agreement entered into in the second half of 2019, which is expected to end in the second half of 2021.

Costs associated with grant agreements are recorded in research and development expense in the condensed consolidated statement of operations.

License and Royalty Revenue .

In March 2020, we entered into an agreement to settle intellectual property infringement claims, in which we received a $3.5 million payment in exchange for a perpetual license under certain of our intellectual property.

In March 2020, we entered into an agreement to settle intellectual property infringement claims, under which we received a $3.5 million payment in exchange for a perpetual license to certain of our intellectual property.

The settlement is considered a multiple-element arrangement with each element accounted for individually.

Accordingly, $3.1 million of the proceeds was recognized as license revenue and $0.4 million was offset against legal costs.

One customer exceeded 10% of total revenue for the three months ended March 31, 2021.

License revenue, recognized as part of a settlement agreement with a party who is not a regular customer, exceeded 10% of revenue for the three months ended March 31, 2020.

No other customer represented more than 10% of total revenue for the three months ended March 31, 2021 or

Revenues from our five largest customers were 27% of total revenue for the three months ended March 31, 2021 and, excluding the license agreement mentioned above, 15% of revenue for the three months ended March 31, 2020.

There was no customer who represented more than 10% of total billed receivables as of March 31, 2021 and December 31, 2020.

The following table presents our revenue by source for the three months ended March 31, 2021 and 2020, and as a percentage of total revenue for the respective periods (in thousands):

Three Months Ended March 31, Year-over-Year Change

Revenue from one customer exceeded 10% of total revenue for the three months ended June 30, 2020.

No customer represented more than 10% of total revenue for the three months ended June 30, 2020 or for the six months ended June 30, 2021 and 2020.

Revenue from our five largest customers represented 24% and 32% of total revenue for the three months ended June 30, 2021 and 2020, respectively.

Excluding the license settlement agreement discussed above, revenue from our five largest customers represented 24% and 19% of total revenue for the six months ended June 30, 2021 and 2020, respectively.

The following table presents our total revenue disaggregated by source for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30, Year-over-Year Change Six Months Ended June 30, Year-over-Year Change

2021 2020 2021 2020

Instruments $ 10,179 33 % $ 8,577 33 % 19 % $ 17,887 28 % $ 18,048 34 % (1) %

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Product and service revenue 29,254 94 22,545 87 30 % 60,268 94 46,712 87 29 %

Development revenue 1,480 4 — — NA

Development revenue 850 3 3,000 11 (72) % 2,330 4 3,000 6 (22) %

Grant revenue 821 3 450 2 82 % 1,121 2 800 1 40 %

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Total revenue $ 31,018 100 % $ 26,058 100 % 19 % $ 63,812 100 % $ 53,675 100 % 19 %

The following table presents our total revenue by geographic area of our customers and as a percentage of total revenue for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31, Year-over-Year Change

The following table presents our total revenue disaggregated by geographic area for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30, Year-over-Year Change Six Months Ended June 30, Year-over-Year Change

2021 2020 2021 2020

Americas $ 16,120 52 % $ 13,940 54 % 16 % $ 34,643 54 % $ 28,784 54 % 20 %

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Total revenue $ 31,018 100 % $ 26,058 100 % 19 % $ 63,812 100 % $ 53,675 100 % 19 %

The Americas revenue includes revenue generated in the United States of $18.1 million and $14.1 million for the three months ended March 31, 2021, and 2020 respectively.

No foreign country or jurisdiction had sales in excess of 10% of total revenues for the three months ended March 31, 2021 and 2020.

Total Revenue

Total revenue increased by $5.2 million or 19%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, driven primarily by higher product, service and development revenue, partially offset by lower license revenue.

Product revenue increased primarily due to COVID-19-related applications which resulted in higher sales of microfluidics consumables.

Americas revenues increased by $3.7 million, or 25%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

This increase includes $5.4 million of higher product and service revenue driven primarily by COVID-19-related opportunities.

Americas revenues for the three months ended March 31, 2021 also includes $1.5 million of development revenue and $0.3 million of grant revenue.

For the three months ended March 31, 2020, Americas revenues included $3.1 million of license revenue as part of a litigation settlement.

In Asia Pacific, higher sales of microfluidics products and mass cytometry consumables were partially offset by lower sales of mass cytometry instruments.

Increases in EMEA revenues reflect higher mass cytometry product and service revenues due to stronger instrument placements.

A stronger Euro contributed 7 of the 13 percentage point increase in EMEA’s revenue during the three months ended March 31, 2021 and 2 of

the 19 percentage point increase in total revenues for the three months ended March 31, 2021 compared to the same period in 2020.

Three months ended June 30, 2021

Total revenue increased by $5.0 million, or 19% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, driven primarily by higher product and service revenue, partially offset by lower development revenue.

Americas revenue, which includes our development, grant and license revenue, increased by $2.2 million, or 16%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

The increase includes $3.9 million of higher product and service revenue driven primarily by increased consumables and service revenue, partially offset by lower development and grant revenues.

In Asia Pacific, revenue increased by $0.1 million as slightly lower product revenues were more than offset by higher services revenues.

The EMEA revenue growth reflects increases in instrument revenue resulting from placements of our CyTOF XT platform that was launched in May 2021 as well as higher consumables and service revenue.

Changes in foreign exchange rates contributed 2 percentage points and 9 percentage points of the year-over-year growth in our total worldwide and EMEA revenues, respectively.

Six months ended June 30, 2021

Total revenue increased by $10.1 million, or 19%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, driven primarily by higher product, service and grant revenues, partially offset by lower development and license revenue.

Americas revenue increased by $5.9 million, or 20%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase includes $9.3 million of higher product and service revenue, partially offset by lower development and license revenue.

The increase in product and service revenue was primarily attributable to consumables revenue related to our saliva based COVID-19 test, which received FDA Emergency Use Authorization in August 2020.

In Asia Pacific, revenues increased due to higher service revenue as product revenue was essentially unchanged with lower instrument sales offset by higher consumables sales.

The growth in EMEA revenue was broad-based, occurring in all revenue categories.

Changes in foreign exchange rates contributed 2 percentage points and 8 percentage points of the year-over-year growth in our total worldwide and EMEA revenues, respectively.

Product and Service Revenue .

The following tables present the split of product and service revenue between mass cytometry and microfluidic product categories and as a percentage of the respective category’s total product and service revenue for the respective periods presented (in thousands):

Three Months Ended March 31, Year-over-Year Change

The following table presents our revenue disaggregated by target market and by source for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30, Year-Over-Year Change Six Months Ended June 30, Year-over-Year Change

2021 2020 2021 2020

Mass cytometry:

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Total product and service revenue $ 16,631 100% $ 12,546 100% 33% $ 30,661 100% $ 27,510 100% 11 %

Three Months Ended March 31, Year-over Year Change

Microfluidics:

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Total product and service revenue $ 12,623 100% $ 9,999 100% 26% $ 29,607 100% $ 19,202 100% 54 %

Higher microfluidics instrument revenue was attributable to higher unit sales of Biomark and Juno instruments.

Higher microfluidics consumables revenue was driven by increases in COVID-19 tests.

Mass cytometry revenue was lower due to lower instrument volumes, and to a lesser extent, lower average unit selling prices, partially offset by higher consumables sales.

Mass cytometry revenue increased in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 as instruments, consumables and service revenues were each up year-over-year.

The year-over-year increase was primarily attributable to low demand in the three months ended June 30, 2020 as a result of COVID-related lab closures.

The release of the CyTOF XT, a new mass cytometry instrument, in May 2021 also contributed to the revenue growth in the current quarter.

Microfluidics revenue increase was driven by increased levels of customer activity.

Revenues related to our COVID-19 test, which received FDA Emergency Use Authorization in August 2020 were essentially flat compared to the three months

ended June 30, 2021.

Increases in mass cytometry and microfluidics service revenues were primarily attributable to service plans and product maintenance.

Mass cytometry revenue increased for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 as many of our customers' facilities that were closed or operating at lower capacity in the first half of 2020 began to reopen in late 2020.

Increased microfluidics revenues for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 were driven by sales of consumables related to our saliva based COVID-19 test, which received FDA Emergency Use Authorization in August 2020, as well as customers beginning to return to pre-COVID levels of activity.

Increases in mass cytometry and microfluidics service revenues were primarily attributable to service plans, spare parts and product maintenance.

We expect the average selling prices of our products to fluctuate over time based on market conditions, product mix, and currency fluctuations.

Service plan revenues, which are recognized over the life of the service agreement and are not activity-dependent, drove nearly half of the increase in service revenues.

As more customers were open during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, we are also seeing increases in parts and repair-related service revenues.

Product and Service Cost, Gross Profit and Margin

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Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing instruments.

The following table presents our product and service cost, product and service gross profit and product and service margin for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31, Year-over-Year Change

The following table presents our product and service cost, product and service gross profit and product and service margin for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30, Year-over-Year Change Six Months Ended June 30, Year-over-Year Change

2021 2020 2021 2020

Cost of product revenue $ 12,730 $ 9,483 34 % $ 24,393 19,123 28 %

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Product and service gross profit $ 14,657 $ 11,825 24 % $ 31,918 $ 24,827 29 %

Product and service margin 55.7 % 53.8 % 1.9 ppt

Product and service margin increased by 1.9 percentage points for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Fixed depreciation and amortization costs on a higher revenue base positively impacted margins by 2.8 percentage points.

This favorability was partially offset by lower average selling prices of mass cytometry instruments, and product mix, which included lower margin microfluidics instruments.

Product and service margin 50.1 % 52.5 % (2.4) ppt 53.0 % 53.1 % (0.1) ppt

Product and service margin decreased by 2.4 percentage points for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Higher provisions for excess and obsolete inventory primarily related to COVID-19 testing consumables products reduced product and service margin by 2.7 percentage points for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Other factors, including lower average selling prices of mass cytometry instruments and higher service costs further reduced product and service margin by 2.9 percentage points for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Fixed depreciation and amortization costs on a higher revenue base partially offset these increases, positively impacting margin by 3.2 percentage points.

Product and service margin decreased by 0.1 percentage points for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Higher provisions for excess and obsolete inventory reduced gross margins by 1.4 percentage points.

Other factors, including lower average selling prices for mass cytometry instruments and higher consumables costs, further reduced product and service margin by 1.8 percentage points.

Fixed depreciation and amortization costs on a higher revenue base largely offset these increases, positively impacting margin by 3.1 percentage points.

Operating Expenses

The following table presents our operating expenses for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31, Year-over-Year Change

The following table presents our operating expenses for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30, Year-over-Year Change Six Months Ended June 30, Year-over-Year Change

2021 2020 2021 2020

Research and development $ 9,441 $ 8,448 12 % $ 20,194 $ 17,147 18 %

Selling, general and administrative 24,248 20,616 18 % 51,856 43,311 20 %

Total $ 38,361 $ 31,394 22 %

Total operating expenses $ 33,689 $ 29,064 16 % $ 72,050 $ 60,458 19 %

Research and Development

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We have made substantial investments in research and development since our inception and expect to continue to do so.

Research and development expense increased by $2.1 million, or 24%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Compensation and benefit costs increased by $1.0 million, primarily due to cost attributable to higher headcount and annual merit increases.

Consulting costs and laboratory supplies increased by $0.6 million and $0.3 million, respectively, due to development and grant projects.

Stock based compensation costs also increased by $0.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to retention awards granted in the second quarter of 2020.

We believe our continued investment in research and development is essential to our long-term competitive position and these expenses may increase in future periods.

Research and development expense increased by $1.0 million, or 12%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Compensation and benefit costs increased by $0.8 million, primarily due to temporary salary reductions in the second quarter of 2020.

Consulting costs increased by $0.3 million due to development and grant related projects.

Research and development expense increased by $3.0 million, or 18%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Compensation and benefit costs increased by $1.9 million, primarily due to the absence of the 2020 temporary salary reductions, higher headcount, and annual merit increases.

Consulting costs increased by $0.9 million driven by development and grant related projects.

Stock based compensation costs also increased by $0.2 million for the six months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due an increase in the number of equity awards outstanding as a result of the retention awards granted in the second quarter of 2020.

We believe our continued investment in research and development is essential to our long-term competitive position.

Accordingly, these expenses may increase in future periods.

Selling, General and Administrative

Selling, general and administrative expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources, information technology, and general management, as well as professional services, such as legal and accounting services.

Selling, general and administrative expense increased by $4.9 million, or 22%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Salaries and benefits costs increased by $1.4 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to increased headcount and annual merit increases.

Commission and incentive compensation costs increased by $1.3 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Facilities costs increased by approximately $0.6 million for the

three months ended March 31, 2021 compared to the three months ended March 31, 2020, reflecting higher lease costs associated with a lease on our new corporate headquarters which commenced in March 2020.

Stock-based compensation costs increased by $1.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to retention awards granted in the second quarter of 2020.

Higher litigation-related expenses were offset by lower travel costs.

Interest Expense and Other Expense, Net

The following table presents these items for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31, Year-over-Year Change

Selling, general and administrative expense increased by $3.6 million, or 18%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Salaries and benefits costs increased by $1.7 million in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to temporary salary reductions implemented in the second quarter of 2020, as well as the absence of COVID-19 related government subsidies.

Consulting costs increased by $1.3 million due to market research-related initiatives.

Travel and advertising and promotion expense each increased by $0.3 million, reflecting a return to more normal spending levels following 2020 expense declines due to the COVID-19 pandemic.

Selling, general and administrative expense increased by $8.5 million, or 20%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Salaries and benefits costs increased by $4.5 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to the absence of the 2020 temporary salary reductions and COVID-19 related government subsidies, higher headcount and annual merit increases.

Stock-based compensation costs increased by $1.2 million for the six months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to retention awards granted in the second quarter of 2020.

Consulting costs increased by $2.4 million due to market research-related initiatives and the use of contract employees to fill open positions.

The remaining increase in selling, general and administrative expense was due to a variety of smaller items.

Interest Expense and Other Income (Expense), Net

The following table presents these items for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30, Year-over-Year Change Six Months Ended June 30, Year-over-Year Change

2021 2020 2021 2020

Interest expense $ (896) $ (897) (0) % (1,783) (1,797) (1) %

Other expense, net (285) (818) (65) %

Other income (expense), net 504 463 9 % 219 (355) (162) %

Total $ (392) $ (434) (10) % $ (1,564) $ (2,152) (27) %

Interest expense consists primarily of interest on our convertible debt.

Other expense, net of $0.3 million for the three months ended March 31, 2021 is primarily attributable to $0.4 million of foreign exchange losses, partially offset by interest income.

Other expense, net for the three months ended March 31, 2021 also includes a $9 thousand loss on the repurchase of the 2014 Notes.

Other expense, net of $0.8 million for the three months ended March 31, 2020 includes $1.0 million of foreign exchange losses partially offset by $0.2 million of interest income.

Interest expense is comprised primarily of interest on our convertible debt.

For the three months ended June 30, 2021, other income, net totaled $0.5 million and included $0.3 million of foreign exchange gains attributable to a weaker U.S.

For the three months ended June 30, 2020, other income, net totaled $0.5 million and included $0.4 million of foreign exchange gains.

For the six months ended June 30, 2021, other income, net totaled $0.2 million and included $0.1 million of foreign exchange losses offset by $0.3 million of interest and other income.

Other income, net for the six months ended June 30, 2021 also includes a $9 thousand loss associated with the February 2021 repurchase of convertible debt.

For the six months ended June 30, 2020, other expense, net totaled $0.4 million and included $0.6 million of foreign exchange losses partially offset by $0.2 million of interest income.

Income Tax Benefit

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Depending on the relative value of these components, we can have either a tax benefit or expense for any given period.

We recorded a tax benefit of $1.7 million, for an effective tax rate of 8.2%, for the three months ended March 31, 2021.

For the three months ended March 31, 2020, we recorded a tax benefit of $0.7 million for an effective tax rate of 4.1%.

The benefit increased for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to higher pre-tax losses from our foreign operations compared to the same period last year.

We recorded a tax benefit of $0.5 million for an effective tax rate of 2.9%, for the three months ended June 30, 2021.

In the three months ended June 30, 2020, we recorded a tax benefit of $1.1 million for an effective tax rate of 8.1%.

Higher earnings in our foreign operations in the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020 resulted in higher tax expense for our foreign operations for three months ended June 30, 2021.

Discrete items primarily related to the finalization of 2020 tax returns offset these higher foreign taxes, contributing $1.3 million to the tax benefit for the three months ended June 30, 2021.

For the six months ended June 30, 2021, we recorded a tax benefit of $2.2 million, resulting in an effective tax rate of 5.7%.

For the six months ended June 30, 2020, we recorded a tax benefit of $1.8 million, resulting in an effective rate of 5.9%.

The benefit increased for the six months ended June 30, 2021 compared to the same period the previous year due to the discrete items discussed in the preceding paragraph.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2021, our principal sources of liquidity consisted of $49.7 million of cash and cash equivalents, as well as $1.0 million of restricted cash and $13.2 million of availability under our Revolving Credit Facility.

The following table presents our cash flow summary for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

As of June 30, 2021, our principal sources of liquidity consisted of $30.9 million of cash and cash equivalents, as well as $1.0 million of restricted cash and $10.9 million of availability under our Revolving Credit Facility.

The following table presents a comparative summary of our cash flows for the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended June 30,

Cash flow summary:

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Net cash provided by (used in) investing activities (9,095) 27,586

Net cash used in financing activities (1,026) (503)

Net cash provided by (used in) financing activities (1,159) 8

Effect of foreign exchange rate fluctuations on cash and cash equivalents 162 (205)

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Net Cash Used in Operating Activities

We derive cash flows from operations primarily from cash collected from the sale of our products and services, and license agreements and grants.

We derive cash flows from operations primarily from cash collected from the sale of our products and services, development arrangements, license agreements and grants.

Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses and working capital to support our business.

We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure domestically and internationally.

Net cash used in operating activities in the three months ended March 31, 2021 was $12.9 million and consisted of net loss of $18.8 million, adjusted for non-cash items of $8.2 million and cash used in assets and liabilities, net, of $2.3 million.

Non-cash items included stock-based compensation expense of $3.7 million, amortization of developed technology of $3.0 million, depreciation and amortization of $0.9 million, a provision for excess and obsolete inventory of $0.3 million, lease amortization of $0.2 million, and a variety of smaller items.

The cash used in assets and liabilities, net was primarily due to a decrease of other liabilities of $10.0 million, an increase in prepaid expenses and other assets of $2.8 million, and an increase of inventories, net of $2.9 million.

Net cash used in operating activities for the six months ended June 30, 2021 was $27.6 million and consisted of net loss of $36.0 million, adjusted for non-cash items of $17.0 million and cash used in assets and liabilities, net, of $8.6 million.

Non-cash items included stock-based compensation expense of $7.4 million, amortization of developed technology of $6.0 million, depreciation and amortization of $1.9 million, provisions for excess and obsolete inventory of $1.2 million, lease amortization of $0.3 million, and a variety of smaller items.

The cash used in assets and liabilities, net was primarily driven by a reduction of accrued compensation and related benefits of $5.4 million due primarily to bonus payments in the first quarter of 2021, a reduction of other liabilities of $3.9 million, an increase in prepaid expenses and other assets of $2.6 million, and an increase of inventories, net of $7.5 million.

These uses of funds were partially offset by a decrease in accounts receivable, net, of $9.4 million, an increase in accounts payable of $1.9 million, and an increase in deferred revenue of $0.6 million.

Net cash used in operating activities for the three months ended March 31, 2020 was $4.3 million and consisted of net loss of $16.0 million, adjusted for non-cash items of $7.0 million, and cash provided by assets and liabilities, net, of $4.7 million.

Also included in net cash from operating activities was $3.5 million of funding from the NIH Contract that has or will be used to offset costs.

Net cash used in operating activities for the six months ended June 30, 2020 was $7.1 million and consisted of net loss of $29.0 million, adjusted for non-cash items of $16.1 million, and cash provided by assets and liabilities, net, of $5.8 million.

Non-cash items primarily included an amortization of developed technology of $5.9 million, stock-based compensation expense of $6.0 million, depreciation and amortization of $2.0 million, lease amortization of $1.3 million, and a variety of smaller items.

The cash provided by assets and liabilities, net was primarily due to a decrease in accounts receivable, net of $4.7 million, an increase in accounts payable of $3.1 million, and an increase in deferred revenue of $1.0 million, partially offset by an increase of inventory, net of $2.3 million and a decrease in other liabilities of $2.1 million.

The cash provided by assets and liabilities, net was primarily due to a decrease in accounts receivable, net of $9.1 million, an increase in accounts payable of $3.1 million, an increase in accrued compensation and related benefits of $1.5 million, and an increase in deferred revenue of $2.0 million, partially offset by an increase of inventory, net of $4.9 million and a decrease in other liabilities of $4.3 million.

Net Cash Provided by (Used in) Investing Activities

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However, we may choose to decrease or defer certain capital expenditures and development activities, while further optimizing our organization.

Net cash used in investing activities in the three months ended March 31, 2021 was $4.9 million.

Capital expenditures of $6.9 million were incurred primarily to expand our production in Singapore.

We also received proceeds from the NIH Contract of $2.0 million.

Net cash provided by investing activities in the three months ended March 31, 2020 was $17.5 million, which was mainly due to proceeds of maturities of investments of $23.6 million, and partially offset by the acquisition of InstruNor AS, net of cash acquired of $5.2 million.

Net Cash Used in Financing Activities

We used cash in financing activities of $1.0 million during the three months ended March 31, 2021, which was primarily due to the repurchase of $0.5 million of 2014 Notes and payments for income tax withholding related to net share settlement of equity awards of $0.5 million.

We used cash in financing activities of $0.5 million during the three months ended March 31, 2020, which was primarily due to payments of debt issuance costs of $0.4 million for the November 2019 issuance of the 2019 Notes.

Net cash used in investing activities for the six months ended June 30, 2021 was $9.1 million.

Capital expenditures of $11.1 million were incurred primarily to expand our microfluidics IFC production capacity in Singapore related to the NIH Contract.

We also received proceeds from the NIH Contract of $2.0 million that will be used to fund the expansion of our Singapore facility.

Net cash provided by investing activities for the six months ended June 30, 2020 was $27.6 million.

The amount included $29.4 million of proceeds from the redemption of fixed maturity investments and $5.0 million of proceeds from the sale of investments, partially offset by cash paid of $5.2 million in connection with the acquisition of InstruNor AS and $1.7 million of capital expenditures.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities totaled $1.2 million during the six months ended June 30, 2021.

The $1.2 million outflow was attributable to the $0.5 million repurchase of 2014 Notes completed in February 2021 and $1.6 million of withholding tax payments related to the net share settlement of equity awards, partially offset by $0.7 million of ESPP proceeds and $0.2 million of proceeds from the exercise of stock options.

During the six months ended June 30, 2020, our cash flow associated with financing activities was negligible, as the $0.6 million of ESPP proceeds we received were offset by $0.4 million of payments for debt issuance costs and $0.3 million of payments for withholding taxes associated with equity awards.

Capital Resources

At March 31, 2021 and December 31, 2020, our working capital, excluding deferred revenues and restricted cash, was $57.0 million and $76.9 million, respectively, including cash and cash equivalents of $49.7 million and $68.5 million, respectively.

We had no investments as of March 31, 2021 and December 31, 2020.

At June 30, 2021 and December 31, 2020, our working capital, excluding deferred revenues and restricted cash, was $11.4 million and $49.9 million, respectively, including cash and cash equivalents of $30.9 million and $68.5 million, respectively.

We had no investments as of June 30, 2021 and December 31, 2020.

In February 2014, we closed an underwritten public offering of our 2014 Notes.

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The 2019 Notes will be convertible at the option of the holder at any point prior to close of business on the second scheduled trading day preceding the maturity date.

The initial conversion rate of the 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 $2.90 per share).

The initial conversion rate of the 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 $2.90 per share).

The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest.

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Our net proceeds were approximately $20.1 million, after deducting related expenses, including commissions of approximately $0.6 million and issuance costs of approximately $0.2 million.

On August 2, 2018, we entered into our Revolving Credit Facility with Silicon Valley Bank (SVB), with a maturity date of August 2, 2020.

The Revolving Credit Facility is collateralized by substantially all our property, other than intellectual property.

The Revolving Credit Facility was amended and extended on April 21, 2020.

The amendment extends the maturity date by two years, to August 2, 2022.

We also amended the interest rate to be the greater of (i) prime rate (as customarily defined), plus 0.50%, floating, and (ii) 5.25%.

Interest on any outstanding loans continues to be due and payable monthly and the principal balance is due at maturity though loans can be prepaid at any time without penalty.

Amounts drawn under the Revolving Credit Facility will be used for working capital and general corporate purposes.

As of March 31, 2021, total availability under the Revolving Credit Facility was $13.2 million.

We currently have no outstanding debt under the Revolving Credit Facility, and we are in compliance with all the terms and conditions of the Revolving Credit Agreement governing the Revolving Credit Facility.

On August 2, 2018, we entered into a Loan and Security Agreement with SVB (the Credit Agreement) for our Revolving Credit Facility.

The Credit Agreement is collateralized by substantially all our property, other than intellectual property.

On August 2, 2021, we amended our Credit Agreement with SVB (the Amendment).

The Amendment extends the maturity date of our $15.0 million Revolving Credit Facility by one year, to August 2, 2023, and also provides for a term loan facility in an aggregate principal amount of $10.0 million (Term Loan Facility).

The maturity date of the Term Loan Facility is July 1, 2025, subject to the following condition:

Upon execution of the Amendment, we drew a term loan advance of $5.0 million, with additional term loans of up to $5.0 million available subject to customary conditions.

Interest on the term loans accrues on the outstanding principal amount

thereof at the greater of (i) a floating per annum rate equal to three quarters of one percentage point (0.75%) above the prime rate (as customarily defined), or 4.00%, with a final payment equal to 6.5% of the aggregate original principal amounts of each term loan advance due on the earlier of the maturity date of the Term Loan Facility or any earlier date of repayment of a term loan advance.

Interest is payable monthly.

The principal amount of the term loan advances is repayable beginning on August 1, 2023, in twenty-four equal installments of principal plus monthly payments of accrued interest.

The Amendment also added a financial covenant to the Credit Agreement, requiring us to maintain a minimum Adjusted Quick Ratio (as defined) of at least 1.25 to 1.00.

As of June 30, 2021, total availability under the Revolving Credit Facility was $10.9 million.

We currently have no outstanding debt under the Revolving Credit Facility, and we are in compliance with all the terms and conditions of the Credit Agreement governing the Revolving Credit Facility.

See Note 8 to our condensed consolidated financial statements for more information about the Revolving Credit Facility.

We believe our existing cash, cash equivalents, and investments will be sufficient to meet our working capital and capital expenditure needs for at least the next 18 months.

We believe our existing cash, cash equivalents, and investments, along with funding available from the Term Loan Facility and Revolving Credit Facility, will be sufficient to meet our working capital and capital expenditure needs for at least the next 18 months.

However, we may experience lower than expected cash generated from operating activities or greater than expected capital expenditures, cost of revenue, or operating expenses, and we may need to raise additional capital to fund our operations, further our research and development activities, or acquire or invest in a business.

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Our operating lease obligations relate to leases for our current corporate headquarters and leases for manufacturing and office space for our foreign subsidiaries.

In the second quarter of 2021, we entered into an agreement to extend our current lease in Singapore from June 2022 to June 2027.

Please see Note 9 to our condensed consolidated financial statements for a discussion of our lease obligations.

Other than as disclosed above, there have been no material changes during the three months ended March 31, 2021 to our contractual obligations disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the year ended December 31, 2020.

Other than as disclosed above, there have been no material changes during the six months ended June 30, 2021 to our contractual obligations disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

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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