STANDARD BIOTOOLS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section entitled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, cost of product revenue and product margin, operating and other expenses, unit sales and the selling prices of our products, business strategies, financing plans, expansion of our business, competitive position, industry environment, potential growth opportunities, market growth expectations, and the effects of competition and public health crises (including the COVID-19 pandemic) on our business. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” elsewhere in this quarterly report on Form 10-Q, and in our annual report on Form 10-K filed with the Securities and Exchange Commission (SEC). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. 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®, 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. ___________________________ Unless the context requires otherwise, references in this Form 10-Q to “Fluidigm,” the “Company,” “we,” “us,” and “our” refer to Fluidigm Corporation and its subsidiaries. Overview Fluidigm improves life by driving meaningful insights in health and disease. Our innovative technologies explore the biological complexities of disease to advance human health through research, diagnostics and clinical applications. We create, manufacture, and market a range of products and services, including instruments, consumables, reagents and software that are used by researchers and clinical labs worldwide. Our customers are leading academic and government laboratories, as well as pharmaceutical, biotechnology, plant and animal research organizations, and clinical laboratories worldwide. Together with our customers, we strive to increase the quality of life for all. We distribute our systems through our direct sales force and support organizations located in North America, Europe, and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern, and Asia-Pacific countries. Our manufacturing operations are located in Singapore and Canada. Our facility in Singapore manufactures our microfluidics instruments, which are assembled by our contract manufacturer located within our Singapore facility. All of our microfluidic products are fabricated at our Singapore facility. Our mass cytometry instruments, assays and reagents are manufactured at our facility in Canada. We also use U.S.-based third-party contract manufacturers for reagent manufacturing. 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. 25 Recent Developments The COVID-19 pandemic has given us an opportunity to demonstrate our product capabilities for diagnostics markets and build new accounts, while at the same time accessing a variety of external funding sources to support product development and innovation. 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 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 Our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions believed to be reasonable, which together form the basis for making judgments about the carrying values of assets and liabilities. The full extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on numerous evolving factors including, but not limited to, the magnitude and duration of the pandemic, the extent to which it will impact worldwide macroeconomic conditions, including the speed of recovery, and governmental and business reactions to the pandemic. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. 26 Recent Accounting Changes and Accounting Pronouncements Adoption of New Accounting Guidance In November 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes. The amendments in this update improve consistent application of and simplify GAAP for Topic 740 by clarifying and amending existing guidance for, among other items, intra-period allocation, reporting tax law changes and losses in interim periods, state and local taxes not fully based on income and recognition of deferred tax liability related to certain transactions. There is also new guidance related to consolidated group reporting and tax impacts resulting from business combinations. The new guidance is effective for fiscal years beginning after December 15, 2020. The adoption of the new guidance did not have a significant impact on our financial results. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendment to this ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification, which is expected to result in more convertible instruments being accounted for as a single unit, rather than being bifurcated between debt and equity. The new guidance is effective for fiscal years beginning after December 15, 2021. We are currently evaluating the impact of adoption on our condensed consolidated financial statements. Results of Operations 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: Cost of product revenue 12,730 41 9,483 36 24,393 38 19,123 36 Cost of service revenue 1,867 6 1,237 5 3,957 6 2,762 5 Research and development 9,441 30 8,448 33 20,194 32 17,147 32 Selling, general and administrative 24,248 78 20,616 79 51,856 81 43,311 80 Total costs and expenses 48,286 156 39,784 153 100,400 157 82,343 153 Loss from operations (17,268) (56) (13,726) (53) (36,588) (57) (28,668) (53) Interest expense (896) (3) (897) (3) (1,783) (3) (1,797) (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) Income tax benefit 517 2 1,145 4 2,188 3 1,825 3 Net loss $ (17,143) (55) % $ (13,015) (50) % $ (35,964) (56) % $ (28,995) (54) % Revenue We generate revenue primarily from sales of our products and services, development agreements, license and royalty agreements, and grants. Our product revenue consists of sales of instruments and consumables. Consumables revenue are largely driven by the size of our installed base of instruments and the annual level of pull-through per instrument. Service revenue is linked to the sales and active installed base of our instruments as our service revenue primarily consists of post-warranty service contracts, preventive maintenance plans, instrument parts, installation and training. We sell our products to leading academic and government laboratories, as well as pharmaceutical, biotechnology, clinical, plant and animal research organizations and clinical laboratories worldwide. Development Revenue . Effective March 31, 2020, we signed an OEM Supply and Development Agreement (Development Agreement) with a customer. Under the Development Agreement, Fluidigm will develop products based on our microfluidics technology. 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 27 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. Grant Revenue . 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 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, 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. 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 Revenue: Instruments $ 10,179 33 % $ 8,577 33 % 19 % $ 17,887 28 % $ 18,048 34 % (1) % Consumables 12,448 40 8,828 34 41 % 29,468 46 18,338 34 61 % Product revenue 22,627 73 17,405 67 30 % 47,355 74 36,386 68 30 % Service revenue 6,627 21 5,140 20 29 % 12,913 20 10,326 19 25 % Product and service revenue 29,254 94 22,545 87 30 % 60,268 94 46,712 87 29 % 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 % License revenue 93 — 63 — 48 % 93 — 3,163 6 (97) % Total revenue $ 31,018 100 % $ 26,058 100 % 19 % $ 63,812 100 % $ 53,675 100 % 19 % 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 % EMEA 9,220 30 6,557 25 41 % 18,362 29 14,653 27 25 % Asia-Pacific 5,678 18 5,561 21 2 % 10,807 17 10,238 19 6 % Total revenue $ 31,018 100 % $ 26,058 100 % 19 % $ 63,812 100 % $ 53,675 100 % 19 % 28 Total Revenue 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 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: Instruments $ 7,400 45% $ 5,359 43% 38% $ 12,366 40% $ 12,907 47% (4) % Consumables 4,545 27 3,635 29 25% 9,122 30 7,539 27 21 % Total product revenue 11,945 72 8,994 72 33% 21,488 70 20,446 74 5 % Service revenue 4,686 28 3,552 28 32% 9,173 30 7,064 26 30 % Total product and service revenue $ 16,631 100% $ 12,546 100% 33% $ 30,661 100% $ 27,510 100% 11 % Microfluidics: Instruments $ 2,779 22% $ 3,218 32% (14)% $ 5,521 19% $ 5,141 27% 7 % Consumables 7,903 63 5,193 52 52% 20,346 69 10,799 56 88 % Total product revenue 10,682 85 8,411 84 27% 25,867 88 15,940 83 62 % Service revenue 1,941 15 1,588 16 22% 3,740 12 3,262 17 15 % Total product and service revenue $ 12,623 100% $ 9,999 100% 26% $ 29,607 100% $ 19,202 100% 54 % 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 29 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. Product and Service Cost, Gross Profit and Margin Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty, provisions for slow-moving and obsolete inventory, and stock-based compensation expense. Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities in response to market conditions and the demand for our products. Cost of service revenue includes direct labor hours, overhead, and instrument parts. 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 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 % Cost of service revenue 1,867 1,237 51 % 3,957 2,762 43 % Cost of product and service revenue $ 14,597 $ 10,720 36 % $ 28,350 $ 21,885 30 % Product and service gross profit $ 14,657 $ 11,825 24 % $ 31,918 $ 24,827 29 % 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. 30 Operating Expenses 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 operating expenses $ 33,689 $ 29,064 16 % $ 72,050 $ 60,458 19 % Research and Development Research and development expense consists primarily of compensation-related costs, product development and material expenses, and other allocated facilities and information technology expenses. Our research and development efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services. Research and development expense also includes costs incurred in conjunction with research grants and development arrangements. 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 $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 $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. 31 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 income (expense), net 504 463 9 % 219 (355) (162) % Total $ (392) $ (434) (10) % $ (1,564) $ (2,152) (27) % 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. dollar. 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 Our tax provision is generally driven by three components: (i) tax provision from our foreign operations, (ii) tax benefits from the amortization of acquisition-related intangible assets, and (iii) discrete items, such as changes in valuation allowances or adjustments upon finalization of tax returns. 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 $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 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. 32 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, 2021 2020 Cash flow summary: 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 Effect of foreign exchange rate fluctuations on cash and cash equivalents 162 (205) Net increase (decrease) in cash, cash equivalents and restricted cash $ (37,657) $ 20,304 Net Cash Used in Operating Activities 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 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. 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 $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 Our primary investing activities consist of purchases, sales, and maturities of our short-term investments and to a much lesser extent, capital expenditures for manufacturing, laboratory, computer equipment and software to support our infrastructure and work force. We expect to continue to incur costs for capital expenditures to expand capacity under the NIH Contract, improve manufacturing efficiencies and strengthen information technology and network security, as well as capital expenditures incurred in moving our corporate headquarters in 2020. 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 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. 33 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 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. Pursuant to the Indenture governing the 2014 Notes, holders of the 2014 Notes have the right, subject to certain conditions specified in such indenture, to require the Company to repurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024, and February 6, 2029, at a repurchase price in cash equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. On February 6, 2021, holders of $0.5 million of the 2014 Notes caused us to repurchase their notes in accordance with this provision leaving $0.6 million of 2014 Notes outstanding. In November 2019, we closed a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of $55.0 million aggregate principal amount of our 2019 Notes. The 2019 Notes bear interest at 5.25% per annum, payable semiannually on June 1 and December 1 of each year, beginning on June 1, 2020. The Notes will mature on December 1, 2024, unless earlier repurchased or converted pursuant to their terms. 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 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. The 2019 Notes will also be convertible at our option upon certain conditions in accordance with the terms of the indenture governing the 2019 Notes. On or after December 1, 2021 to December 1, 2022, if the price of the Company’s common stock has equaled or exceeded 150% of the Conversion Price (as defined in the indenture, currently $2.90, subject to adjustment) for a specified number of days (Issuer’s Conversion Option), we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company, determined in accordance with the terms of the indenture. On or after December 1, 2022, if the price of the Company’s common stock has equaled or exceeded 130% of the Conversion Price then in effect for a specified number of days, we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company, determined in accordance with the terms of the indenture. The foregoing summaries of the 2014 Notes and the 2019 Notes are not complete and are qualified in their entirety by the applicable indentures, forms of global notes, and other agreements and documents filed with the SEC. In March 2020, we entered into the Sale Agreement with Jefferies to sell shares of our common stock having aggregate sales proceeds of up to $50,000,000, from time to time, through the ATM equity offering program under which Jefferies acts as sales agent. During the third quarter of 2020, we sold 2.5 million shares of our common stock, pursuant to the Sale Agreement. 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 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: 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 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 34 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, 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. Our future funding requirements will depend on many factors, including market acceptance of our products, the cost of our research and development activities, the cost of filing and prosecuting patent applications, the cost associated with litigation or disputes relating to intellectual property rights or otherwise, the cost and timing of regulatory clearances or approvals, if any, the cost and timing of establishing additional sales, marketing, and distribution capabilities, the cost and timing of establishing additional technical support capabilities, and the effect of competing technological and market developments. In the future, we may acquire businesses or technologies from third parties, and we may decide to raise additional capital through debt or equity financing to the extent we believe this is necessary to successfully complete these acquisitions. If we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic. If we raise additional funds by issuing equity securities, our stockholders could experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support, research and development, or other resources devoted to our products. Contractual Obligations and Commitments 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 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 Since our inception, we have not had any off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.