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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-06 · 146 added, 153 removed, 190 unchanged (61% of the section changed)

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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 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 income and 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, the global supply chain, and our customers, suppliers, and other business partners.

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).

We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” located 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.

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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®, 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.

Fluidigm®, the Fluidigm logo, Access Array™, Acculift™, Advanta™, Atlas™, Biomark™, Bringing new insights to life™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, CyTOF XT logo, D3™, Delta Gene™, Direct™, Digital Array™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Flow Conductor™, GeckoGrip™, 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 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.

Our total revenue for the nine months ended September 30, 2021 was $92.3 million, compared to $93.5 million for the nine months ended September 30, 2020.

We have incurred significant net losses since our inception in 1999 and, as of September 30, 2021, our accumulated deficit was $726.6 million.

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.

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

It is difficult to predict the impact of new strains of the coronavirus on our business or the impact they may have on the research priorities of our customers.

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.

In addition to the continuing impacts of the COVID-19 pandemic and its aftermath on our business, our financial results for the third quarter of 2021 were negatively impacted by supply chain issues, China trade restrictions, and the ongoing slowdown in the Asia-Pacific region.

Global logistics and supply chain disruptions resulted in component delays and supply constraints with some of our suppliers.

Shortages of certain components resulted in our being unable to fulfill all of our customer orders during the quarter.

We expect to work through these orders over the next few quarters, but continued supply disruptions of components or materials or our inability to obtain components, materials, or assembly services from alternate sources could impact our ability to meet the ongoing demand of our customers.

The third quarter of 2021 also saw continued COVID-related shutdowns in Japan.

Th ese shutdowns, in addition to shipment delays in China due to the Chinese government’s delay in issuing import tax exemptions for our products, adversely impacted our financial results in the Asia-Pacific region.

We are undertaking a review, with the assistance of outside financial, operating, and legal advisors, of various options to maximize stockholder value with regard to strategic alternatives, cost and capital structure, and operations and supply chain.

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.

The stated maturity date of the Term Loan Facility is July 1, 2025, however if 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 June 1, 2024, then the maturity date of the Term Loan Facility will be on June 1, 2024.

There were no borrowings outstanding under the Revolving Credit Facility at September 30, 2021 and the Term Loan Facility was fully drawn as of September 30, 2021.

Critical Accounting Policies, Significant Judgments and Estimates

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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.

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.

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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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Interest expense (968) (4) (885) (2) (2,751) (3) (2,682) (3)

Surplus funding from NIH contract 5,000 18 — — 5,000 5 — —

Other income (expense), net 315 1 107 — 534 1 (248) —

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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

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.

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

The Development Agreement provided up-front and periodic milestone payments during the development stage, which was completed in the third quarter of 2021, and ongoing annual payments of $0.4 million for sustaining efforts.

We recognized $0.1 million and $3.2 million of development revenue during the three months ended September 30, 2021 and 2020, respectively.

We recognized $2.4 million and $6.2 million during the nine months ended September 30, 2021 and 2020, respectively.

Cumulatively, through September 30, 2021 , we recognized $11.2 million of revenue from the Development Agreement.

We recognized 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

Costs associated with development revenue were 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.

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

Costs associated with grant agreements have been 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.

In March 2020, we entered into an agreement to settle intellectual property infringement cla ims, 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

No customer represented more than 10% of total revenue for the three and nine months ended September 30, 2021.

Revenue from one customer exceeded 10% of total revenue for both the three and nine months ended September 30, 2020.

Revenue from our five largest customers represented 21% and 31% of total revenue for the three months ended September 30, 2021 and 2020, respectively.

Revenue from our five largest customers represented 22% and 23% of total revenue for the nine months ended September 30, 2021 and 2020, respectively.

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

Three Months Ended September 30, Year-over-Year Change Nine Months Ended September 30, Year-over-Year Change

2021 2020 2021 2020

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Total revenue $ 28,504 100 % $ 39,861 100 % (28) % $ 92,316 100 % $ 93,536 100 % (1) %

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

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

Three Months Ended September 30, Year-over-Year Change Nine Months Ended September 30, Year-over-Year Change

2021 2020 2021 2020

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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.

Three months ended September 30, 2021

Total revenue decreased by $11.4 million, or 28%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily driven by a decline of COVID-19-related product revenue of $7.9 million and the impact of lower instrument pricing of $1.4 million.

In addition, development revenue declined as we completed the development phase of the Development Agreement.

Americas revenue decreased by $10.6 million, or 45%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

The year over year decline is primarily attributable to a reduction in product revenue driven by the sharp decline in the demand for COVID-19 testing products.

Development revenue also declined by $3.1 million as we completed the development phase of the Development Agreement.

In Asia-Pacific, revenue decreased by $2.0 million, or 27.0%, primarily due to lower unit sales of instruments, lower average selling prices on instruments and product mix variability.

Japan experienced significant disruptions from COVID-19-related shutdowns, and our business in China continued to be impacted by the government failing to resolve tax permit issues.

EMEA revenue increased by $1.3 million driven by higher mass cytometry instruments .

A weaker dollar contributed 1.1 percentage points of the 14 percentage point increase in EMEA revenue.

Foreign exchange had an immaterial impact on total company revenues.

Nine months ended September 30, 2021

Total revenue decreased by $1.2 million, or 1%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, driven primarily by lower development, license and grant revenue, partially offset by higher product and service revenue.

Americas revenue declined by $4.8 million, or 9%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, driven by lower unit sales of instruments and lower development, grant and license revenue, partially offset by higher consumable and service revenue.

The decline in instrument revenue is attributable to reduced demand for analytical test instruments used in COVID-19 test applications.

The reduction in development and grant revenue reflects decelerating project activity as the underlying contracts neared completion, while the reduction in license revenue is attributable to the non-recurring nature of last year’s settlement agreement.

In Asia-Pacific, revenue decreased by 8% primarily due to lower unit sales of instruments, partially offset by increased consumable and service revenues.

EMEA revenue increased by $5.0 million, driven by higher unit sales of instruments.

A weaker dollar contributed 5.4 percentage points of the 21 percentage point increase in EMEA revenue.

Changes in foreign exchange contributed 1.4 percentage points to the change in total company revenues.

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

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

Three Months Ended September 30, Year-Over-Year Change Nine Months Ended September 30, Year-over-Year Change

2021 2020 2021 2020

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Total product and service revenue $ 12,116 100% $ 20,232 100% (38)% $ 41,723 100% $ 39,433 100% 6 %

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.

Mass cytometry revenue increased during the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

The year-over-year increase was primarily attributable to sales of the new CyTOF XT instrument, which was released in May 2021, partially offset by lower sales of our Helios instrument and consumables.

The decline in Microfluidics revenue during the three months ended September 30, 2021 compared to the three months ended September 30, 2020 is directly attributable to reduced demand for COVID-19 testing products.

Mass cytometry revenue increased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Product revenue increased $1.6 million primarily due to sales of CyTOF XT that was launched in May 2021 and growth in our imaging platforms partially offset by lower Helios sales.

Service revenue increased $2.3 million.

Microfluidics revenue increased during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The year over year increase is primarily attributable to higher consumables revenue from COVID-19 test products, which received FDA Emergency Use Authorization in August 2020, partially offset by higher 2020 sales of instrument systems for COVID testing.

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

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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 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

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

Three Months Ended September 30, Year-over-Year Change Nine Months Ended September 30, Year-over-Year Change

2021 2020 2021 2020

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Product and service margin 46.9 % 58.9 % (12.0) ppt 51.0 % 55.6 % (4.6) 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.

Product and service margin decreased by 12.0 percentage points for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Fixed depreciation and amortization costs on a lower revenue base contributed 2.6 percentage points to the decline in product and service margins for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Other factors, including unfavorable product mix from lower COVID-19 consumables sales in 2021 vs 2020 coupled with a new product transition cycle, lower capacity utilization for consumables, and lower average selling prices on mass cytometry instruments, further reduced product and service margin by 9.4 percentage points for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Product and service margin decreased by 4.6 percentage points for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Higher provisions for excess and obsolete inventory primarily related to COVID-19 testing consumables products reduced product and service margin by 0.9 percentage points.

Other factors, including lower capacity utilization for consumables manufacturing, lower average selling prices for mass cytometry instruments, and new product transition cycles further reduced product and service margin by 4.4 percentage points.

Fixed depreciation and amortization costs on a higher revenue base partially offset these increases, positively impacting product and service margin by 0.7 percentage points.

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

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

Three Months Ended September 30, Year-over-Year Change Nine Months Ended September 30, Year-over-Year Change

2021 2020 2021 2020

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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 $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.

Research and development expense increased by $1.1 million, or 13%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Compensation and benefit costs increased by $0.9 million, primarily due to the absence of the 2020 COVID-19 related subsidies received by certain of our foreign subsidiaries.

Consulting costs increased by $0.2 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.

Research and development expense increased by $4.1 million, or 16%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Compensation and benefit costs increased by $2.7 million, primarily due to the absence of the 2020 temporary salary reductions and government subsidies.

Consulting costs increased by $1.1 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.

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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.

Selling, general and administrative expense increased by $1.4 million, or 6%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Salaries and benefits costs increased by $0.6 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the absence of COVID-19 related government subsidies.

Consulting costs increased by $1.0 million due to higher market research expenses.

Travel and advertising and promotion expense together increased by $1.1 million reflecting a return to more normal spending levels following 2020 expense declines due to the COVID-19 pandemic.

Lower commissions, legal expenses and other costs partially offset these cost increases.

Selling, general and administrative expense increased by $10.0 million, or 15%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Salaries and benefits costs increased by $4.5 million in the nine months ended September 30, 2021 compared to the nine months ended September 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.

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

Commissions increased by $0.8 million, reflecting the impact of higher product sales, while travel and advertising and promotion expense together increased by $1.5 million , reflecting a return to more normal spending levels following 2020 expense declines due to the COVID-19 pandemic.

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

These increases were partially offset by decreases in 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

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

Three Months Ended September 30, Year-over-Year Change Nine Months Ended September 30, Year-over-Year Change

Interest expense $ (968) $ (885) 9 % $ (2,751) $ (2,682) 3 %

Surplus funding from NIH contract 5,000 — NA 5,000 — NA

Other income (expense), net 315 107 194 % 534 (248) (315) %

Total $ 4,347 $ (778) (659) % $ 2,783 $ (2,930) (195) %

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.

Interest expense is comprised primarily of interest on our convertible debt and new Term Loan Facility.

The increase in the interest expense for the three months ended September 30, 2021 compared to the prior year is due to our new Term Loan Facility.

For the three months ended September 30, 2021, we recognized $5.0 million of proceeds under the NIH Contract in excess of amounts expected to be spent for capital expenditures and operating expenses.

O ther income, net consisted primarily of $0.3 million from the settlement of an insurance claim.

For the nine months ended September 30, 2021, we recognized $5.0 million of proceeds under the NIH Contract in excess of amounts expected to be spent for capital expenditures and operating expenses.

Other income, net included $0.5 million from the settlement of insurance claims.

Other income, net for the nine months ended September 30, 2021 also includes a $9 thousand loss associated with the February 2021 repurchase of the 2014 Notes.

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 $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.

We recorded a tax benefit of $1.4 million for an effective tax rate of 9.3%, for the three months ended September 30, 2021.

In the three months ended September 30, 2020, we recorded a tax benefit of $0.2 million for an effective tax rate of 3.9%.

Higher losses in certain of foreign operations in the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020 resulted in a higher tax benefit for our foreign operations for the three months ended September 30, 2021.

For the nine months ended September 30, 2021, we recorded a tax benefit of $3.6 million, resulting in an effective tax rate of 6.8%.

For the nine months ended September 30, 2020, we recorded a tax benefit of $2.1 million, resulting in an effective rate of 5.6%.

The increased tax benefit for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily attributable to discrete items, in addition to the higher losses and corresponding tax benefit in certain parts of our foreign operations.

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.

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,

As of September 30, 2021, our principal sources of liquidity consisted of $29.3 million of cash and cash equivalents, as well as $1.0 million of restricted cash and $10.3 million of availability under our Revolving Credit Facility.

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

Nine Months Ended September 30,

Cash flow summary:

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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.

Net cash used in operating activities for the nine months ended September 30, 2021 was $37.1 million and consisted of net loss of $49.8 million, less non-cash items of $25.8 million and cash used in assets and liabilities, net, of $13.0 million.

Non-cash items included stock-based compensation expense of $11.7 million, amortization of developed technology of $8.9 million, depreciation and amortization of $2.7 million, provisions for excess and obsolete inventory of $1.5 million, lease amortization of $0.4 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.

The cash used in assets and liabilities, net was primarily attributable to a $5.4 million reduction of accrued compensation and related benefits from bonus payments made in the first quarter of 2021, a reduction of deferred revenue of $2.3 million, a reduction of other liabilities of $8.0 million, an increase in prepaid expenses and other assets of $2.7 million, and an increase of inventories, net of $7.5 million.

These uses of funds were partially offset by a reduction of accounts receivable, net, of $11.4 million, and an increase in accounts payable of $1.4 million.

Net cash used in operating activities for the nine months ended September 30, 2020 was $11.7 million and consisted of net loss of $35.0 million, less non-cash items of $25.4 million, partially offset by a net increase in assets and liabilities of $2.1 million.

Non-cash items primarily included amortization of developed technology of $8.9 million, stock-based compensation expense of $10.4 million, depreciation and amortization of $3.0 million, lease amortization of $1.9 million, and a variety of smaller items.

The cash used by assets and liabilities was primarily due to an increase in inventories of $6.8 million, an increase in prepaid expenses and other assets of $2.4 million, primarily comprised of payments to vendors involved with our facility expansion in Singapore, partially offset by a decrease in accounts receivable, net of $1.0 million, an increase in accounts payable of $5.0 million, and an increase in deferred revenue of $1.3 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.

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.

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.

Net cash used in investing activities for the nine months ended September 30, 2021 was $10.8 million.

Capital expenditures of $12.8 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.

We received $2.0 million from the NIH under the terms of the agreement to fund the facility expansion.

Net cash provided by investing activities for the nine months ended September 30, 2020 was $40.8 million, which included $11.2 million of proceeds from the NIH contract under the terms of the agreement to fund the facility expansion, $31.8 million of proceeds from maturities of investments, and $5.0 million of proceeds from the sale of investments, partially offset by the $5.2 million expenditure associated with the acquisition of InstruNor AS and $2.0 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.

Net cash provided by financing activities totaled $8.7 million during the nine months ended September 30, 2021.

The principal source of cash was $10 million of advances drawn against our new Term Loan Facility with Silicon Valley Bank.

Other sources include $0.7 million of ESPP proceeds and $0.2 million of proceeds from the exercise of stock options.

Partially offsetting these sources was $1.7 million of withholding tax payments related to the net share settlement of equity awards and the $0.5 million repurchase of 2014 Notes completed in February 2021.

During the nine months ended September 30, 2020, we generated $20.4 million of cash from financing activities, principally from the $20.2 million “at the market” equity offering.

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.

At September 30, 2021 and December 31, 2020, our working capital, excluding deferred revenues and restricted cash, was $39.0 million and $76.9 million, respectively, including cash and cash equivalents of $29.3 million and $68.5 million, respectively.

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

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

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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.

In March 2020, we entered into an Open Market Sale Agreement (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 an at-the-market (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).

On August 2, 2018, we entered into a Loan and Security Agreement with SVB (the Credit Agreement) for our Revolving Credit Facility, which provides for secured revolving loans in an aggregate amount of up to $15.0 million, In August 2021, we amended our Revolving Credit Facility to extend the maturity date to August 2, 2023 and to provide for a new $10.0 million Term Loan Facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facility).

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

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.

As of September 30, 2021, the balance outstanding on the Term Loan Facility was $10.0 million.

Interest on the term loan 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 4.0% 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, the acceleration of the term loan advances or any prepayment 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.

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

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

As of September 30, 2021, total availability under the Revolving Credit Facility was $10.3 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.

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

We believe our existing cash, cash equivalents, and investments, along with funding available from the Revolving Credit Facility, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.

However, because we have experienced lower than expected cash generated from operating activities, we anticipate continued near-term supply chain constraints and ongoing uncertainty regarding COVID-19-related lab closures and resolution of tax permit issues in China, and we may also experience greater than expected cost of revenue, we may need to raise additional capital to fund our operations.

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.

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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.

Other than as disclosed above, there have been no material changes during the nine months ended September 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