What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-09 · 181 added, 384 removed, 83 unchanged (87% of the section changed)

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The forward-looking statements are contained principally in the section titled “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 income and expenses, unit sales and the selling prices of our products, business strategies and strategic priorities, changes in commercial and strategic focus, restructuring plan, reduction-in-force and real estate footprint reduction plans, microfluidics research and development and marketing investment reduction plans, other cost reduction initiatives, portfolio rationalization initiatives, operating discipline improvement plans, implementation of Standard BioTools Business Systems, expected costs and cost savings associated with such plans and initiatives, future product offerings, financing plans, capital allocation plans, expansion of our business, merger and acquisition opportunities, competitive position, industry environment, potential growth opportunities and drivers, 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 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 and strategic priorities, changes in commercial and strategic focus, restructuring plan, reduction-in-force and real estate footprint reduction plans, microfluidics research and development and marketing investment reduction plans, other cost reduction initiatives, portfolio rationalization initiatives, operating discipline improvement plans, implementation of Standard BioTools Business Systems, expected costs and cost savings associated with such plans and initiatives, future product offerings, financing plans, capital allocation plans, expansion of our business, merger and acquisition opportunities, competitive position, industry environment, potential growth opportunities and drivers, market growth expectations, and the effects of competition and public health crises 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,” 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).

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

S tandard BioTools™, the Standard BioTools logo, Fluidigm®, the Fluidigm logo, 48.Atlas™, Access Array™, Advanta™, Advanta EASE™, Atlas™, Biomark™, Biomark X™, “Bringing new insights to life”™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, the CyTOF XT logo, D3™, Delta Gene™, Direct™, Digital Array™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Flow Conductor™, FluiDesign™, GeckoGrip™, Helios™, High-Precision 96.96 Genotyping™, HTI™, HTI+™, Hyperion™, 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™, SNP Type™, “Unleashing tools to accelerate breakthroughs in human health”™, X9™ Real Time PCR System, and Xgrade™ are trademarks and/or registered trademarks of Standard BioTools Inc.

Standard BioTools, the Standard BioTools logo, Fluidigm®, the Fluidigm logo, 48.Atlas™, Access Array™, Advanta™, Advanta EASE™, Atlas™, Biomark™, “Bringing new insights to life”™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, the CyTOF XT logo, D3™, Delta Gene™, Direct™, Digital Array™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Flow Conductor™, FluiDesign™, Helios™, High-Precision 96.96 Genotyping™, HTI™, Hyperion™, Hyperion+™, IMC™, Imaging Mass Cytometry™, Immune Profiling Assay™, Juno™, Maxpar®, Maxpar® OnDemand™, MCD™, MSL®, Nanoflex™, Open App™, Pathsetter™, Polaris™, qdPCR 37K™, Script Builder™, Script Hub™, Singular™, SNP Trace™, SNP Type™, “Unleashing tools to accelerate breakthroughs in human health”™, X9™ High-Thoughput Genomics System, X9™ Real Time PCR System, and Xgrade™ are trademarks or registered trademarks of Standard BioTools Inc.

or its affiliates in the United States and/or other countries.

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

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

___________________________

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• Recent Developments

• Critical Accounting Policies, Significant Judgments and Estimates

• Recent Accounting Changes and Accounting Pronouncements

• Results of Operations

• Liquidity and Capital Resources

• Critical Accounting Policies and Estimates

• Recent Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements

Standard BioTools Inc.

is driven by a bold vision – unleashing tools to accelerate breakthroughs in human health.

We have an established portfolio of essential, standardized next-generation technologies that help biomedical researchers develop medicines faster and better.

As a leading solutions provider, we provide reliable and repeatable insights in health and disease using our proprietary mass cytometry and microfluidics technologies that help transform scientific discoveries into better patient outcomes.

is driven by a bold purpose – unleashing tools to accelerate breakthroughs in human health.

We have an established portfolio of essential, standardized next-generation high resolution technologies that help biomedical researchers develop medicines faster and better.

Our tools are designed to provide reliable and repeatable insights in health and disease using our proprietary mass cytometry and microfluidics technologies, which serve applications in proteomics and genomics that help transform scientific discoveries into better patient outcomes.

We work with leading academic, government, pharmaceutical, biotechnology, plant and animal research, and clinical laboratories worldwide, focusing on the most pressing needs in translational and clinical research, including oncology, immunology, and immunotherapy.

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Our manufacturing operations are located in Singapore and Canada.

Our facility in Singapore manufactures microfluidics instruments and integrated fluidic circuits (IFCs).

Microfluidics products are currently assembled by a contract manufacturer located within our Singapore facility.

We are transitioning the assembly work back to our production lines which is expected to be completed in the first quarter of 2023.

Mass cytometry instruments, assays and reagents are manufactured at our facility in Canada.

Our total revenue for the nine months ended September 30, 2022 and 2021 was $70.9 million and $92.3 million, respectively.

We have incurred significant net losses since our inception in 1999 and, as of September 30, 2022, our accumulated deficit was $905.3 million.

Recent Developments

Segment Reporting

We have historically operated as a single reportable segment and managed our business operations and evaluated our financial performance on a consolidated basis.

During the third quarter of 2022, our Chief Executive Officer (CEO), who is our Chief Operating Decision Maker (CODM), instituted the practice of evaluating operating performance and making resource allocation decisions using two reportable segments:

mass cytometry and microfluidics.

In the fourth quarter of 2022, we will begin referring to these two segments as proteomics and genomics, respectively.

Each segment is identified by its unique portfolio of products.

The Company determines each segment’s loss from operations by subtracting direct expenses, including cost of product and service revenues, research and development (R&D) expense and sales and marketing expense, from revenues.

Amortization, depreciation, and restructuring expense are included in each segment’s operating expenses.

Corporate costs, including general and administrative expenses for functions shared by both operating segments such as executive management, human resources and finance, along with interest and taxes, are excluded from each segment’s results, which is consistent with how our CODM measures segment performance.

In conjunction with our change in segment reporting, we allocated goodwill to each operating segment using a relative fair value approach and performed trigger-based impairment testing on the goodwill and our long-lived intangible assets.

The tests were performed as of August 31, 2022, and no impairment was identified.

Following the significant decline in the price of our common stock during the month of September, we performed the trigger-based impairment tests again as of September 30, 2022.

No impairment was identified.

Goodwill was tested at the reporting unit level, while our long-lived intangible assets were tested at the asset group level.

Segment reporting for historical periods has been included in this report to ensure comparability with the current year.

We do not prepare or report segmented balance sheet information as our CODM does not use the information to assess operating performance.

Private Placement Issuance

On January 23, 2022, we entered into separate Loan Agreements (together, the Bridge Loan Agreements) with (i) Casdin Private Growth Equity Fund II, L.P.

and Casdin Partners Master Fund, L.P.

(collectively, Casdin) and (ii) Viking Global Opportunities Illiquid Investments Sub-Master LP and Viking Global Opportunities Drawdown (Aggregator) LP (collectively, Viking and, together with Casdin, the Purchasers).

Each Bridge Loan Agreement provided for a $12.5 million term loan to the Company (the Bridge Loans).

The Bridge Loans were fully drawn on January 24, 2022.

The Bridge Loans automatically converted into Series B Preferred Stock (as defined below) upon the completion of the Preferred Equity Financing (as defined below).

Also on January 23, 2022, we entered into separate Series B Convertible Preferred Stock Purchase Agreements (together, the Purchase Agreements) with each Purchaser, relating to, among other things, the issuance and sale of an aggregate

of $225 million of convertible preferred stock, consisting of:

(i) 112,500 shares of our Series B-1 Convertible Preferred Stock, par value $0.001 per share (the Series B-1 Preferred Stock), at a purchase price of $1,000 per share to Casdin;

and (ii) 112,500 shares of our Series B-2 Convertible Preferred Stock, par value $0.001 per share (the Series B-2 Preferred Stock, and together with the Series B-1 Preferred Stock, the Series B Preferred Stock) at a purchase price of $1,000 per share to Viking (the Preferred Equity Financing, and together with the issuance of shares of Series B Preferred Stock in connection with the conversion of the Bridge Loans, the Private Placement Issuance).

On April 4, 2022, following stockholder approval of the Private Placement Issuance and related matters, the Private Placement Issuance closed and in connection therewith (i) we received $225 million, before expenses, and issued 225,000 shares of Series B Preferred Stock, pursuant to the Purchase Agreements and (ii) the Bridge Loans converted into 30,559 shares of Series B Preferred Stock.

In addition, our certificate of incorporation was amended to, among other things, increase the number of shares of our common stock that we are authorized to issue from two hundred millio n (200,000,000) shares to four hundred million (400,000,000) and our name was changed to Standard BioTools Inc.

Shortly thereafter, we also changed our trading symbol for our common stock on the Nasdaq Global Select Market to “LAB”.

Upon the closing of the Private Placement Issuance, Dr.

Michael Egholm was appointed as the Company’s President and Chief Executive Officer and as a member of our board of directors.

The proceeds of the Private Placement Issuance have been and will be used to fund expenses related to the Private Placement Issuance, as well as working capital, general corporate purposes and potential future merger and acquisition opportunities that we may identify from time to time.

Strategic Priorities

Following the Private Placement Issuance, our new leadership team has identified three strategic priorities:

revenue growth, improving operating discipline through the Standard BioTools Business Systems (SBS) and strategic capital allocation.

Revenue Growth

Our top priority is to grow our core product and service revenue.

We have taken several steps including adopting innovative approaches to improving our lead generation to support revenue growth.

While we are encouraged by the early results of these initial steps in the third quarter of 2022, there is still a lot of work remaining to be done to execute on our long-term goal to transform our existing product offerings - accelerating revenue growth in mass cytometry while gearing microfluidics toward profitability, and fulfilling our vision to become a leading life science tools company and an established standard in our customers’ workflows.

Improving Operating Discipline Through SBS

Our second priority is to improve our operating discipline through the implementation of SBS.

Our vision is to establish a culture where the entire organization is driving continuous improvement to achieve world class operational excellence and an exceptional customer experience and value.

We are leveraging SBS with a set of organizing principles and rigorous standard work processes to build best in class operations, commercial execution and a high-performance culture.

A phased restructuring plan, including a reduction in force, is currently underway to improve efficiency, reduce operating costs and better align our workforce with the current needs of our business, with a longer-term goal of significantly reducing operating cash burn and generating positive free cash flow by year-end 2024.

As part of the restructuring, the following steps are being taken:

• Right Sizing General and Administrative Expenses.

We plan to significantly lower general and administrative spend through a reduction in headcount and a decrease in office space to better align our spending with our streamlined operations.

Specifically, we plan to reduce our real estate footprint, including our headquarters location in South San Francisco while fostering remote work for certain employees.

In August 2022, we entered into a sublease agreement for approximately 25% of our corporate headquarters location for a 39 month term commencing in October 2022.

We expect to recognize sublease rental income of $4.7 million over the lease term.

Beyond these near-term initiatives, we will pursue continued process optimization through a focused SBS-based approach which may result in additional cost savings and will direct resources into areas with the highest impact to the business.

• Right Sizing Microfluidics Business.

We expect to significantly reduce our investments in research and development and marketing while narrowing our commercial focus to the high value niche markets for specialized applications that this segment is ideally suited for.

In addition, we plan to pursue additional OEM opportunities, similar to our relationship with Olink® Bioscience, as a lower cost and more efficient go-to-market approach.

• Portfolio Rationalization.

We have rationalized our product portfolio by discontinuing our laser capture microdissection (LCM) and Flow Conductor offerings, and also de-emphasizing our diagnostics/COVID-19 activities.

We currently expect cash expenses related to the reduction in force and sublease activities, consisting primarily of severance, termination benefits, commissions and other related costs, to be in the range of $3 million to $5 million .

We expect to recognize the restructuring and other related costs over the remainder of 2022 and 2023.

We recognized $1.3 million in restructuring expenses for the three months ended September 30, 2022.

We also recognized $1.0 million of other costs for consulting and legal expenses related to future cost efficiencies and business improvements.

As of September 30, 2022, the liability for restructuring and other related costs was $1.0 million.

Based on actions taken to date, we expect to realize annualized operating expense reduction of approximately $8 million.

These estimates are subject to a number of assumptions, and actual results may differ.

See Note 15 within our condensed consolidated financial statements for further details.

Strategic Capital Allocation

Our third priority is strategic capital allocation.

We intend to be active on the business development front with consolidation expected to be a key growth driver sustaining the longer-term value proposition of the Company.

Our vision is to become a preferred partner in the life science industry and embedded in, and integral to our customers’ workflows, and we believe a portfolio approach is essential for our success.

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 (U.S.

The preparation of these condensed financial statements in accordance with U.S.

GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

We base these estimates on historical experience, the current economic environment 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.

We also assessed certain accounting matters that generally require consideration of forecasted financial information, including the unknown impact of the COVID-19 pandemic, the war in Ukraine, supply chain shortages and inflation.

Accounting matters that rely on forecasted financial informa tion included, but were not limited to, our inventory, and related reserves, and the carrying value of goodwill and other long-lived assets and liabilities.

Actual results could differ materially from these estimates and could have a material adverse effect on our condensed consolidated financial statements.

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 also use significant judgment in determining the fair value of financial instruments, including debt and equity instruments.

Recent Accounting Changes and Accounting Pronouncements

Adoption of New Accounting Guidance

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 adopted ASU 2020-06 effective January 1, 2022.

The adoption of ASU 2020-06 did not have an impact on our 2014 Senior Convertible Notes (2014 Notes) and 2019 Senior Convertible Notes (2019 Notes).

In November 2021, the FASB issued ASU 2021-10 Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.

The amendment is effective for annual periods beginning after December 15, 2021.

The amendment establishes financial disclosure requirements for business entities that receive government assistance that they account for by analogizing to a grant or contribution model because there is no specific authoritative guidance under U.S.

GAAP that applies to the transaction.

Entities that receive this type of assistance should include the following information in their annual report:

(1) the nature of the transaction, (2) the significant terms and conditions, (3) the accounting treatment, (4) the line items on the balance sheet and income statement that are affected along with (5) the respective amounts that have been recorded.

We adopted ASU 2021-10 effective January 1, 2022.

The adoption of ASU 2021-10 did not have a material impact on our financial statements.

Recent Accounting Pronouncements

Following the Private Placement, our new leadership team identified three strategic priorities:

revenue growth, improving operating discipline and strategic capital allocation, as more fully discussed in Part I Item 1 “Business” in our Annual Report on Form 10-K.

We took additional actions in the first quarter of 2023 under our strategic initiative to improve operating discipline, including reductions to our headcount in Europe and additional reductions to our real estate footprint in the U.S.

On February 28, 2023, we signed an agreement to sublease an additional 25% of our corporate headquarters for a period of 77 months.

The agreement resulted in 50% of the space at our headquarters being subleased as of March 31, 2023.

We expect to recognize $9.1 million of sublease income over the term of this new agreement, with payments expected to commence on December 1, 2023.

Results of Operations

The following table presents our historical condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

The following table presents our condensed consolidated statements of operations and as a percentage of total revenue for the three months ended March 31, 2023 and 2022 ($ in thousands):

Three Months Ended March 31,

Revenue $ 25,119 100% $ 26,504 100%

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Loss on Bridge Loans — — (10,655) (40)

Surplus funding from NIH Contract 153 1 5,000 18 153 — 5,000 5

Other income (expense), net (216) (1) 315 1 (272) — 534 1

Other income, net 1,130 4 118 —

Loss before income taxes (16,580) (68) (76,862) (290)

Income tax benefit 713 3 1,422 5 2,900 4 3,609 4

Income tax benefit (expense) (263) (1) 574 2

Net loss $ (16,843) (69)% $ (76,288) (288)%

Strategic Financing and Business Improvement Actions

Our operating results in 2022 include certain items related to the strategic financing transaction and the subsequent business improvement actions taken by the new management team, including the ongoing rationalization of our product portfolio and the restructuring program announced in August 2022.

These items increased our operating loss by $6.1 million and $24.5 million for the three and nine months ended September 30, 2022 as shown below (in thousands):

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

Portfolio rationalization 1

$ — $ (1,588)

Our operating results include costs related to the strategic financing transaction and the subsequent business improvement actions taken by the new leadership team, including the ongoing rationalization of our product portfolio and the phased restructuring plan announced in August 2022.

These items increased our operating loss by $0.6 million and $4.8 million for the three months ended March 31, 2023 and 2022, respectively, as shown below ($ in thousands):

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

Cost of product and service revenue:

Business improvement initiatives 2

Portfolio rationalization 1

Total cost of product and service revenue items 2,465 5,533

Restructuring (see Note 14 )

Research and development:

Retention bonuses 214 562

Portfolio rationalization 1

Restructuring (see Note 14 )

Total research and development items 378 4,252

Selling, general and administrative:

Restructuring and other related costs (see Note 14 )

Strategic financing support 1

Retention bonuses 1,104 2,919

— 3,400 (100) %

Severance costs 2

Restructuring and other related cost 4 (see Note 15)

Business improvement initiatives 2

ERP upgrade 49 49

— 1,390 (100) %

Enterprise resource planning (ERP) upgrade 262 — NA

Total selling, general and administrative items 482 4,790 (90) %

Total $ 619 $ 4,790 (87) %

(1) Costs related to the exit/de-emphasis of the LCM, Flow Conductor and COVID-19 product lines.

Includes $3.5 million of impairment charges for the InstruNor developed technology intangible.

(2) Costs related to the termination of the microfluidics instrument manufacturing contract, strategic advisory, and business consulting expenses.

(3) Costs to prepare the Private Placement Issuance, including legal and consulting expenses.

(1) Costs to prepare the Private Placement, including legal and consulting expenses

(2) Termination benefits for members of the former management team, including the former CEO

Total Revenue

We generate revenue primarily from sales of our products and services and by entering into product development agreements, license and royalty agreements, and grants.

Product and Service Revenue.

We generate revenue primarily from sales of our products and service s.

Other revenue consists of revenue from product development and license agreements.

Our product revenue consists of sales of instruments and consumables.

Consumables revenue is 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 .

In March 2020, we entered into an OEM Supply and Development Agreement with a customer to develop OEM products based on our microfluidics technology.

The agreement provided for up-front and periodic milestone payments during its development stage, which was completed during the third quarter of 2021, and $0.4 million of annual on-going payments for sustaining efforts.

We recognized $0.2 million and $0.1 million of development revenue during the three months ended September 30, 2022 and 2021, respectively.

We recognized $0.6 million and $2.4 million of development revenue during the nine months ended September 30, 2022 and 2021, respectively.

Grant Revenue .

During the three and nine months ended September 30, 2021, we recognized $0.5 million and $1.6 million, respectively, of grant revenue for research and development services performed under a contract we entered into in the second half of 2019.

The contract was completed during the third quarter of 2021.

One microfluidics customer accounted for 15% and 10% of our total revenue for the three and nine months ended September 30, 2022, respectively.

No single customer represented more than 10% of total revenue for the same periods in 2021.

Revenue from our five largest customers represented 28% and 21% of total revenue for the three months ended September 30, 2022, and 2021, respectively.

For the nine months ended September 30, 2022 and 2021, revenue from our five largest customers represented 19% and 22% of total revenue, respectively.

The following table presents our revenue by product type for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Consumables revenue is largely driven by the size of our active installed base of instruments and the level of usage per instrument.

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

No single customer represented more than 10% of our total revenue for the three months ended March 31, 2023, and 2022, respectively.

Revenue from our five largest customers represented 22% and 21% of total revenue for the three months ended March 31, 2023, and 2022, respectively.

Revenues by product type and as a percentage of total revenue were as follows ($ in thousands):

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

Instruments $ 5,923 24 % $ 7,523 28 % (21)%

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Product and service revenue 24,319 97 26,148 98 (7)%

Development revenue 177 — 90 — 97% 621 1 2,420 3 (74)%

Grant revenue — — 461 2 (100)% — — 1,582 2 (100)%

License revenue 300 1 — — NA 964 1 93 — 937%

Other revenue 800 3 356 2 125%

Total revenue $ 25,119 100 % $ 26,504 100 % (5)%

The following table presents our revenue based upon the geographic location of our customers’ facilities for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Total revenue decreased by $1.4 million, or 5%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, driven by a $1.6 million, or 21%, decline in instruments revenue and a $1.0 million, or 8%, decline in consumables revenue, offset in part by a $0.7 million, or 12%, increase in service revenue and a $0.4 million increase in other revenue.

Year-over-year changes in foreign exchange rates negatively impacted the Company’s total revenue by approximately 1.9%, or $0.5 million.

Changes in revenue are more fully discussed in the following sections.

Revenue by Geographic Area

Revenue by geographic region of our customers’ facilities and as a percentage of total revenue were as follows ($ in thousands):

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

Americas $ 11,662 46 % $ 12,930 49 % (10)%

EMEA 8,074 32 % 10,108 35 % (20)% 22,352 32 % 28,470 31 % (21)%

Europe, Middle East and Africa (EMEA) 7,837 32 8,609 32 (9)%

Asia-Pacific 5,620 22 4,965 19 13%

Total revenue $ 25,119 100 % $ 26,504 100 % (5)%

Three months ended September 30, 2022

Total revenue decreased by $2.9 million, or 10%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, driven by a $2.2 million, or 22%, decline in instruments revenue and a $0.4 million, or 4%, decline in consumables revenue.

Year over year changes in foreign exchange rates negatively impacted the Company’s total revenue by approximately 4.4 percent.

Americas revenue decreased by $1.9 million, or 15%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The decline was primarily attributable to lower revenue from COVID-19 test products

and lower instruments revenue.

EMEA revenue decreased by $2.0 million, or 20%, driven by a decline in instruments and service revenue, partially offset by higher consumables revenue.

A stronger dollar negatively impacted EMEA revenues by approximately 7.7 percent.

In Asia-Pacific, revenue increased by $1.1 million, or 20%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, driven by an increase in instruments revenue.

A stronger dollar negatively impacted Asia-Pacific revenues by approximately 8.7 percent.

Nine months ended September 30, 2022

Total revenue decreased by $21.4 million, or 23%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven by a $9.9 million decline in instruments revenue, a $7.9 million d ecline in consumables revenue and a $2.5 million net reduction in development, grant and license revenue.

A stronger dollar negatively impacted the Company’s total revenue by approximately 2.8 percent.

Americas revenue decreased by $14.2 million, or 30%, for the nine months ended September 30, 2022 compared to th e nine months ended September 30, 2021.

The decline was primarily attributable to a reduction in product revenue driven by lower unit sales of instruments and consumables.

EMEA revenue decreased by $6.1 million, or 21%, primarily driven by a decline in instrument revenue.

A stronger dollar negatively impacted EMEA revenue by approximately 6.2 percent.

In Asia-Pacific, revenue decreased by $1.1 million, or 7%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to a decline in consumables revenue, partially offset by an increase in instruments revenue.

A stronger dollar negatively impacted Asia-Pacific revenues by approximately 5.2 percent.

Segment Product and Service Revenu e

The following tables present the split of product and service revenue between our mass cytometry and microfluidic segments f or the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Mass cytometry:

Americas revenue decreased by $1.3 million, or 10%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The year-over-year decline was primarily attributable to a $1.2 million, or 45%, decrease in instruments revenue and a $0.7 million, or 11%, decline in consumables revenue, partially offset by a $0.4 million increase in other revenue.

Lower consumables revenue reflects a $2.3 million decrease in sales of COVID 19 test products revenue, partially offset by higher sales of other consumables.

EMEA region revenue decreased by $0.8 million, or 9%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The year-over-year decline was due to a $0.6 million, or 20%, reduction in instruments revenue and a $0.4 million, or 9%, decrease in consumables revenue, partially offset by a $0.2 million, or 9%, increase in service revenue.

A stronger dollar negatively impacted EMEA revenues by approximately $0.3 million or 3.3%.

In Asia-Pacific, revenue increased by $0.7 million, or 13%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, driven primarily by a $0.3 million, or 8%, increase in product revenue, and a $0.3 million, or 33%, increase in service revenue.

A stronger dollar negatively impacted Asia-Pacific revenues by approximately $0.2 million or 4.5% percent.

Segment Revenue - Product and Service

Segment product and service revenue and as a percentage of the respective segment’s total revenue was as follows ($ in thousands):

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

Instruments $ 4,499 30% $ 4,370 32% 3%

Consumables 4,263 30 4,254 27 NA 12,864 34 13,376 29 (4)%

Total product revenue 10,081 71 11,379 72 (11)% 25,347 67 32,867 71 (23)%

Consumables 5,548 37 4,766 35 16%

Product revenue 10,047 67 9,136 67 10%

Service revenue 5,153 33 4,394 33 17%

Total product and service revenue $ 14,266 100% $ 15,837 100% (10)% $ 37,914 100% $ 46,498 100% (18)%

Microfluidics:

Product and service revenue $ 15,200 100% $ 13,530 100% 12%

Instruments $ 1,424 16% $ 3,153 25% (55)%

2 unchanged sentences

Service revenue 1,728 19 1,750 14 (1)%

Total product and service revenue $ 10,903 100% $ 12,116 100% (10)% $ 31,428 100% $ 41,723 100% (25)%

Mass cytometry .

Mass cytometry product and service revenue declined by $1.6 million, or 10%, and $8.6 million, or 18%, respectively, during the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

The year-over-year declines were primarily attributable to reduced unit sales of imaging instrument systems.

Microfluidics.

Microfluidics product and service revenue declined by $1.2 million, or 10%, and $10.3 million, or 25%, respectively, during the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

The year-over-year declines were primarily attributable to lower revenue from COVID-19 test products and lower instruments revenue.

Product and Service Cost, Gross Profit and Margin

Product and service revenue $ 9,119 100% $ 12,618 100% (28)%

Proteomics product and service revenue increased by $1.7 million, or 12%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The year-over-year increase was primarily attributable to a $0.8 million, or 16%, increase in consumables revenue and a $0.8 million, or 17%, increase in service revenue.

Genomics product and service revenue declined by $3.5 million, or 28%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The year-over-year decline was due in part to a $1.7 million, or 55%, reduction in instruments revenue, driven by lower unit sales, and a $1.7 million, or 23%, decline in consumables revenue.

Lower revenue from consumable products reflects a $2.3 million decrease in sales of COVID-19 test products, partially offset by growth in other consumables revenue.

Segment Revenue - Other

Segment other revenue and as a percentage of total other revenue was as follows ($ in thousands):

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

Proteomics $ — —% $ 250 70% (100)%

Genomics 800 100 106 30 NA

Total other revenue $ 800 100% $ 356 100% 125%

Other revenue is principally comprised of sales from product development and license agreements.

Other revenue increased by $0.4 million due to a $0.7 million increase in genomics product development revenue, partially offset by a decline in proteomics licensing revenue.

Product and Service Cost, Product and Service Gross Profit, and Product and Service 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, and

provisions for slow-moving and obsolete inventory.

In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty costs, provisions for slow-moving excess 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 of material and labor costs required to service instruments.

The following table presents our product and service cost, product and service gross profit, and product and service m argin for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

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

Product and service cost, product and service gross profit, and product and service m argin were as follows ($ in thousands):

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

Cost of product revenue $ 10,203 $ 12,339 (17)%

2 unchanged sentences

Product and service gross profit $ 11,324 $ 11,881 (5)%

Product and service margin 34.7 % 46.9 % (12.2) ppt 35.0 % 51.0 % (16.0) ppt

Product and service margin decreased by 12.2 percentage points for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Increased provisions for excess and obsolete inventory contributed 9.5 percentage points of the decrease in the product and service margin.

P rovisions for excess and obsolete inventory were $2.6 million, or 10.5%, of product and service revenue for the three months ended September 30, 2022 compared to $0.3 million, or 1.0%, of product and service revenue for the three months ended September 30, 2021.

The increase in these provisions primarily reflected the impact of our ongoing portfolio rationalization initiatives.

Fixed depreciation and amortization costs on a lower revenue base contributed 1.1 percentage points to the decline in the product and service margin, while product mix primarily accounted for the remainder of the decline.

Product and service margin decreased by 16.0 percentage points for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Increased provisions for excess and obsolete inventory contributed 8.7 percentage points of the decrease in the product and service margin.

Provisions for excess and obsolete inventory were $7.2 million, or 10.4%, of product and service revenue for the nine months ended September 30, 2022 compared to $1.5 million, or 1.7%, of product and service revenue for the nine months ended September 30, 2021.

The increase in these provisions primarily reflected the impact of our ongoing portfolio rationalization initiatives.

Fixed depreciation and amortization costs on a lower revenue base contributed 2.7 percentage points to the decline in the product and service margin, while other factors, including product mix and lower mass cytometry plant utilization accounted for the remainder of the decline.

Product and service margin 46.6 % 45.4 % 1.2 ppt

Product and service gross profit declined by $0.6 million, or 5%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The year-over-year reduction in gross profit was primarily attributable to lower revenue.

The year-over-year increase in product and service margin reflects an improved mix of higher-margin revenue and better pricing, partially offset by lower manufacturing capacity utilization, and increases in warranty expense and service cost.

Operating Expenses

The following table presents our operating expenses for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Operating expenses were as follows ($ in thousands):

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

Research and development $ 6,409 $ 8,865 (28)%

1 unchanged sentence

Total operating expenses $ 28,717 $ 39,740 (28)%

Research and Development

Research and development expense consists primarily of compensation-related costs, material and product development 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 product development arrangements.

Research and development expense decreased by $0.6 million, or 6%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to lower compensation costs as a result of reduced headcount and a decline in consulting costs.

Research and development expense increased by $0.7 million, or 2%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The increase was primarily attributable to a $3.5 million impairment charge the Company recorded in June 2022 to write off the InstruNor AS developed technology intangible asset.

The non-cash impairment charge was partially offset by a $1.7 million reduction in laboratory supplies and a $1.3 million reduction in consulting costs as a result of planned reduction in program activity.

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 $5.5 million, or 23%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The increase included $1.1 million in restructuring costs related to the phased restructuring plan that was announced in August 2022, along with $1.1 million of retention bonuses and $1.1 million in higher incentive compensation.

Legal and consulting expenses increased by $1.0 million primarily due to operational efficiency activities while travel expense increased by $0.5 million as travel restrictions eased.

Selling, general and administrative expense increased by $14.9 million, or 20%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

The increase was primarily driven by an increase in retention bonuses and severance costs of $5.4 million, $2.0 million of restructuring and operational efficiency costs, $2.8 million of legal and consulting fees reflecting the costs of the Private Placement Issuance, Company name change and rebranding activities, $1.4 million of stock-based compensation expense from equity awards provided to the new management team and key employees, and $1.4 million of travel expense, as COVID-related restrictions continued to relax.

Research and Development (R&D)

R&D expense consists primarily of compensation-related costs, product development and material expenses, and other allocated facilities and information technology expenses.

Our R&D efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services.

R&D expense also includes costs incurred in conjunction with research grants and product development arrangements.

R&D expense decreased by $2.5 million, or 28%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to lower compensation and consulting costs and reduced spending on laboratory supplies.

These reductions were related to our strategic initiatives to reduce headcount and improve operating efficiencies by engaging in lower-cost and more focused R&D projects and activities.

Selling, General and Administrative (SG&A)

SG&A 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, including legal and accounting.

SG&A expense decreased by $8.6 million, or 28%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The year-over-year decline was primarily attributable to expenses incurred in the first quarter of last year, including $3.4 million in legal and other professional fees related to the Private Placement and $1.2 million in severance costs for our former CEO.

Salaries and benefits expense and stock-based compensation expense were also lower by $2.2 million and $0.8 million, respectively, as a result of the restructuring plan initiated in August 2022 that downsized our global workforce.

Segment Loss from Operations

The following table presents loss from operations for our mass cytometry and microfluidics segments for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Mass cytometry $ (4,851) $ (3,574) 36% $ (22,929) $ (12,080) 90%

Microfluidics $ (8,552) $ (4,819) 77% $ (24,612) $ (8,483) 190%

Mass cytometry .

Mass cytometry loss from operations increased by $1.3 million, or 36%, for the for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to an increase in operating expenses.

Mass cytometry loss from operations increased by $10.8 million, or 90%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by lower units sales of instruments and an impairment of the InstruNor AS development technology intangible.

Microfluidics.

Microfluidics loss from operations increased by $3.7 million, or 77%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to lower revenue from COVID-19 test products, lower instruments revenue and higher provisions for excess and obsolete inventory.

Microfluidics loss from operations increased by $16.1 million, or 190%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the LCM revenue reserve, lower revenue from COVID-19 test products, lower instruments revenue, higher provisions for excess and obsolete inventory and higher operating expenses.

Interest Expense and Other Non-Operating Items

The following table presents interest expense and other non-operating items for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Segment losses from operations were as follows ($ in thousands):

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

Loss from operations:

Proteomics $ (5,673) $ (5,350) 6%

Genomics (230) (5,482) (96)%

Corporate expenses (10,690) (16,671) (36)%

Total loss from operations $ (16,593) $ (27,503) (40)%

Proteomics loss from operations for the three months ended March 31, 2023 increased by $0.3 million, or 6%, over the three months ended March 31, 2022, due primarily to lower product and service margin, driven by lower manufacturing capacity utilization, and increases in warranty expense and service cost.

Genomics loss from operations for the three months ended March 31, 2023 decreased by $5.3 million, or 96%, from the three months ended March 31, 2022, due primarily to a $4.9 million reduction in operating expenses, including a $2.5 million decline in salaries and benefits expense and a $0.6 million decrease in share-based compensation expense.

The year-over-year reduction in operating loss also reflects improvement in product and service margin, partially offset by a $2.8 million decline in revenue.

Corporate expenses include general and administrative expenses for functions shared by both operating segments, such as executive management, human resources and finance.

Corporate expenses in the three months ended March 31, 2023, declined by $6.0 million, or 36%, from the same period in 2022, due primarily to the prior-year SG&A expenses related to the Private Placement and severance costs, as more fully discussed above.

Interest Expense and Other Non-Operating Income (Expense)

Interest expense and other non-operating income (expense) were as follows ($ in thousands):

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

Interest expense $ (1,117) $ (1,030) 8%

Loss on forward sale of Series B Preferred Stock — — NA (60,081) — NA

Loss on bridge loans — — NA (13,719) — NA

Surplus funding from NIH Contract 153 5,000 (97)% 153 5,000 (97)%

Other income (expense), net (216) 315 (169)% (272) 534 (151)%

Total $ (1,112) $ 4,347 (126)% $ (77,060) $ 2,783 NA

I nterest expense is primarily comprised of interest on our convertible debt and our Term Loan Facility (as defined below).

The increase in interest expense for the three and nine months ended September 30, 2022 compared to the same periods in the prior year is due primarily to our Term Loan Facility, which was established on August 1, 2021.

The Purchase Agreements for the issuance of 225,000 shares of Series B Preferred Stock for $225 million were accounted for as forward sales contracts at fair value in accordance with ASC 480 Distinguishing Liabilities from Equities.

The fair value of the payable portion of the Purchase Agreements was determined to be $285.1 million as of April 4, 2022 (the closing date of the Private Placement Issuance).

The $60.1 million loss on the forward sales of Series B Preferred Stock for the nine months ended September 30, 2022 reflects the increase in the share price of our common stock from $2.84 per share at the inception of the Agreements to $3.99 per share as of April 4, 2022.

Applying the guidance in ASC 825 Financial Instruments, we elected to record the Bridge Loans at their fair value.

The change in fair value of the Bridge Loans from inception to their conversion on April 4, 2022 was recorded as a loss on Bridge Loans.

The fair value of the Bridge Loans was largely driven by the value of our common stock and the value of the Series B Preferred Stock into which they were converted.

The loss on Bridge Loans of $13.7 million for the nine months ended September 30, 2022 was largely driven by the increase in the price of our common stock from inception to the conversion date.

Refer to Note 3 within our condensed consolidated financial statements for additional details relating to the Series B Preferred Stock and the Bridge Loans.

In September 2020, we executed a definitive contract with the National Institutes of Health (NIH), which amended the letter contract we entered into with NIH in July 2020 (collectively, the NIH Contract), under the NIH Rapid Acceleration of Diagnostics (RADx) program to support the expansion of our production capacity and throughput capabilities for COVID-19 test products that use our microfluidics technology.

We recognized $0.2 million and $5.0 million of income from the NIH Contract during the three and nine months ended September 30, 2022 and 2021, respectively.

A s of September 30, 2022, the capacity expansion project funded by the NIH Contract has been completed and all of the related assets aggregating $22.2 million have been placed in service.

The cumulative amount of income recognized from the NIH Contract totaled $7.3 million.

Income Tax Benefit

Our tax provision is generally driven by three components:

(i) tax provision from foreign operations, (ii) tax benefits from 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 $0.7 million, or an effective tax rate of 2.4%, for the three months ended September 30, 2022.

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

Higher profitability in certain of our foreign operations in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 resulted in a lower tax benefit for our foreign operations for the three months ended September 30, 2022.

For the nine months ended September 30, 2022, we recorded a tax benefit of $2.9 million, and the effective tax rate was 1.7%.

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

The lower effective tax rates for the three and nine months ended September 30, 2022 were a result of higher pre-tax losses compared to the same periods in 2021.

Loss on forward sale of Series B Preferred Stock — (37,792) NA

Loss on Bridge Loans — (10,655) NA

Other income, net 1,130 118 NA

Total $ 13 $ (49,359) (100)%

The improvement in non-operating income (expense) in the first quarter of 2023 compared to the first quarter of 2022 primarily reflects 2022 losses related to the Private Placement.

The Purchase Agreements for the Series B Preferred Stock were accounted for as forward sales contracts and recorded at fair value.

T he Bridge Loans were also recorded at fair value.

In the three months ended March 31, 2022, the $37.8 million loss on the forward sales of Series B Preferred Stock and the loss on the Bridge Loans of $10.7 million reflected the increase in the price of our common stock from January 23, 2022 (the date of the Purchase Agreements and the Bridge Loan agreements) to March 31, 2022.

The increase in other income, net of $1.0 million for the three months ending March 31, 2023 compared to March 31, 2022 was primarily due to the interest earned on money market funds and short-term investments.

We had no such investments until after the closing date of the Private Placement on April 4, 2022.

Income Tax Benefit (Expense)

We recorded an income tax expense of $0.3 million in the three months ended March 31, 2023 and an income tax benefit of $0.6 million for the three months ended March 31, 2022 .

The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the first quarter of 2023 and pre-tax loss in the first quarter of 2022.

The effective tax rate (benefit) was 1.6% in the three months ended March 31, 2023 compared to (0.7%) in the three months ended March 31, 2022.

The Company’s effective tax rates for both periods differ from the 21% U.S.

Federal statutory tax rate primarily due to valuation allowances recorded against deferred tax assets on domestic losses and the tax rate differences between the U.S.

and foreign countries.

Liquidity and Capital Resources

Our liquidity and capital requirements depend upon many factors, including market acceptance of our products and services;

effectiveness of our business improvement initiatives and restructuring programs;

costs of supporting sales growth, product quality, R&D, and capital expenditures, including our ERP upgrade;

and costs and timing of acquiring other businesses, assets or technologies.

We continually evaluate our liquidity requirements considering our operating needs, growth initiatives, and capital resources.

We expect that our existing liquidity and sources of capital will be sufficient to support our operations over the next 12 months f rom the filing date of this Form 10-Q.

Sources of Liquidity

As of September 30, 2022, our principal sources of liquidity consisted of $60.2 million of cash and cash equivalents, $125.0 million of short-term investments and $1.0 million of restricted cash, as well as $12.5 million of availability under the Revolving Credit Facility (as defined below).

The following table presents our cash flow summary for the nine months ended September 30, 2022 and 2021 (in thousands):

Nine Months Ended September 30,

Our principal sources of liquidity are cash and cash equivalents, short-term investments, and to a lesser extent, borrowings available under our Revolving Credit Facility that matures August 2, 2023.

Our collective balances of cash, cash equivalents and short-term investments were $154.5 million at March 31, 2023 and $165.8 million at December 31, 2022.

Under our Revolving Credit Facility, borrowings of up to $15.0 million are limited to the amount of our eligible accounts receivable and inventory collateral.

As of March 31, 2023, we had no borrowings outstanding under the Revolving Credit Facility and the total availability was $7.1 million.

Capital Resources and Commitments

We enter into arrangements that serve as sources of capital and the associated contractual agreements may result in firm or contingent obligations of the Company.

In addition to our common stockholders’ equity, our sources of capital primarily include debt, mezzanine equity, and operating leases.

Our Series B Preferred Stock, which is classified as mezzanine equity, contains rights that may result in their conversion to our common stock or their redemption in cash.

Our term loan and operating lease arrangements require cash repayment and our convertible debt that matures on December 1, 2024 contains rights that may result in their conversion to our common stock prior to maturity.

We also enter into contractual and legally binding commitments to purchase goods.

Most of these contracts are cancellable with little or no notice or penalty.

However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation.

In the first three months of 2023, there have been no material changes to the cash commitments and contingent obligations associated with the arrangements described above, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The terms and provisions of our debt, leases and mezzanine equity are more fully discussed in Notes 6 , 7 and 9 , respectively, in the unaudited condensed consolidated financial statements.

Cash Flow Activity

Our cash flow summary was as follows ($ in thousands):

Three Months Ended March 31,

Cash flow summary:

Net cash used in operating activities $ (8,485) $ (15,590)

Net cash used in investing activities (128,372) (10,801)

Net cash provided by financing activities 231,028 8,662

Net cash provided by (used in) investing activities 43,154 (868)

Net cash provided by (used in) financing activities (2,558) 18,075

Effect of foreign exchange rate fluctuations on cash and cash equivalents 23 (85)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 31,748 $ (39,211)

Net Cash Used in Operating Activities

We derive cash flows from operations primarily from cash collected on sales of products and services, license agreements and grants.

Net increase in cash, cash equivalents and restricted cash $ 32,134 $ 1,532

We derive cash flows from operations primarily by collecting amounts due from sales of our products and services, and fees earned under our product development and license agreements.

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

We have historically experienced negative cash flows from operating activities due to the expansion of our business and infrastructure, both domestically and internationally.

Net cash used in operating activities for the nine months ended September 30, 2022 was $70.2 million and consisted of a $169.3 million net loss, less non-cash items of $110.0 million and net cash used by assets and liabilities of $10.9 million.

Non-cash items included a loss on forward sale of Series B Preferred Stock of $60.1 million , a loss on Bridge Loans of $13.7 million, st ock-based compensation expense of $13.2 million, amortization of developed technology of $8.7 million, depreciation and amortization of $2.7 million, provision for excess and obsolete inventory of $7.2 million, an impairment charge of $3.5 million, and other smaller items.

The net increase in assets and liabilities was primarily attributable to an increase in inventories, net of $7.8 million, a decrease of other liabilities of $5.8 million, a decrease of accounts payable of $1.5 million, and a decrease of deferred revenue of $2.4 million.

These items were partially offset by a reduction of accounts receivable, net of $1.1 million, and a $5.6 million increase in accrued compensation and related benefits primarily due to an increase in severance and retention bonus expenses and restructuring costs associated with the phased restructuring program.

Net cash used in operating activities for the nine months ended September 30, 2021 was $37.1 million and consisted of a net loss of $49.8 million, less non-cash items of $25.8 million and net cash used in assets and liabilities 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, provision for excess and obsolete inventory of $1.5 million, and a variety of smaller items.

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 Investing Activities

Our primary investing activities consist of purchases, sales, and maturities of ou r short-term investments and capital expenditures for manufacturing, laboratory, computer equipment and software to support our infrastructure and workforce.

We expect to continue to incur costs for capital expenditures to 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 nine months ended September 30, 2022 was $128.4 million, which was primarily due to purchases of short-term investments of $137.3 million, and capital expenditures of $3.1 million.

These items were partially offset by $12.0 million in maturities of investments.

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 received $2.0 million from the NIH during this period under the terms of the agreement to fund the facility’s capacity expansion.

Net Cash Provided by Financing Activities

Net cash provided by financing activities totaled $231.0 million during the nine months ended September 30, 2022.

The principal sources of cash were proceeds from issuance of Series B Preferred Stock of $225.0 million, and proceeds from Bridge Loans of $25.0 million, which were subsequently converted into Series B Preferred Stock on April 4, 2022.

These proceeds were also partially offset by a $12.5 million payment for e qui ty issuance costs on the Series B Preferred Stock and a repayment of $6.8 million of advances under the Revolving Credit Facility.

Net cash provided by financing activities totaled $8.7 million during the nine months ended September 30, 2022.

The principal source of cash was $10.0 million of advances drawn against our Term Loan Facility with Silicon Valley Bank.

Other sources included $0.7 million of Employee Stock Purchase Plan (ESPP) receipts and $0.2 million of proceeds from the exercise of stock options.

Partially offsetting these inflows 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.

Purchase Obligations and Commitments

Purchase obligations consist of contractual and legally binding commitments to purchase goods and services.

The majority of our contracts are cancellable with little or no notice or penalty.

However, if a vendor incurs costs to fulfill a contract with us, and the vendor cannot use those items for some other purpose, we are liable for those costs upon cancellation.

We have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures and other purchase obligations and commitments for purchases of goods and services.

See Note 3 within our condensed consolidated financial statements for information on our contingent obligations as a result of our issuance of Series B Preferred Stock.

See Note 8 within our condensed consolidated financial statements for information about our short-term and long-term debt obligations.

See Note 9 within our condensed consolidated financial statements for information about our lease obligations and see Note 16 within our condensed consolidated financial statements for information about certain commitments and contingencies.

Other than as disclosed above, there have been no material changes during the nine months ended September 30, 2022 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, 2021.

The expected timing of payments of our obligations is estimated based on current information.

Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations.

In addition, some of our purchasing requirements are not current obligations and are therefore not included in the amounts above.

For example, some of these requirements are not managed through binding contracts or are fulfilled by vendors on a purchase order basis within short time horizons.

Capital Resources

At September 30, 2022 and December 31, 2021, our working capital, excluding deferred revenues, current and deferred grant income, current, and restricted cash, was $197.8 million and $38.0 million, respectively, including cash and cash equivalents of $60.2 million and $28.5 million, respectively.

We had $125.0 million short-term investments as of September 30, 2022 and no short-term investments as of December 31, 2021.

See “Recent Developments — Strategic Priorities ” above for additional information regarding our restructuring plans.

We expect our cash, cash equivalents, and short-term investments, along with the funding available under the Revolving Credit Facility, will be sufficient to support the operations of our business for at least the next 12 months.

2014 Notes and 2019 Notes

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

The 2014 Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2014 Notes.

Holders may require us to repurchase all or a portion of their 2014 Notes on each of 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.

As provided by the indenture governing the 2014 Notes, in February 2021, holders of $0.5 million of the 2014 Notes required us to repurchase their notes at 100% of the principal amount plus accrued and unpaid interest.

As of September 30, 2022, there was $0.6 million aggregate principal of the 2014 Notes outstanding.

In November 2019, we issued $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.

The 2019 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 the close of business on the second scheduled trading day preceding the maturity date.

The initial conversion rate of the 2019 Notes is 344.8276 shares of our common stock per $1,000 principal amount of 2019 Notes (which is equivalent to an initial conversion price of approximately $2.90 per share).

The conversion rate is 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 volume weighted average price of our common stock has equaled or exceeded 150% of the Conversion Price (as defined in the indenture governing the 2019 Notes), then in effect 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 our common stock, determined in accordance with the terms of the indenture governing the 2019 Notes.

On or after December 1, 2022, if the volume-weighted average price of our 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 our common stock, determined in accordance with the terms of the indenture governing the 2019 Notes.

Credit Facility

In August 2018, we entered into a revolving credit facility with Silicon Valley Bank (as amended, the Revolving Credit Facility) in an aggregate principal amount of up to the lesser of (i) $15.0 million or (ii) the sum of (a) 85% of our eligible receivables and (b) 50% of our eligible inventory, in each case, subject to certain limitations (Borrowing Base), provided that the amount of eligible inventory that may be counted towards the Borrowing Base shall be subject to a cap as set forth in the Revolving Credit Facility.

On August 2, 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 stated maturity 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 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 June 1, 2024.

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

The Credit Facility also includes a financial covenant that requires us to maintain a minimum Adjusted Quick Ratio (as defined in the Credit Facility) of at least 1.25 to 1.00.

As of September 30, 2022, the balance outstanding on the Term Loan Facility was $10.2 million .

The interest rate on the Term Loan Facility is the greater of 4.0% or a floating per annum rate equal to three quarters of one percentage point (0.75%) above the prime rate.

Interest on any outstanding term loan advances is due and payable monthly.

In addition to the monthly interest payments, a final payment equal to 6.5% of the original principal amount of each advance is due on the earlier of the maturity date or the date the advance is repaid.

Principal balances are required to be repaid in twenty-four equal installments beginning on August 1, 2023.

Current portion of the Term Loan Facility of $0.8 million represents principal debt repayments to be made in the third quarter of 2023.

As of September 30, 2022, tota l availability unde r the Revolving Credit Facility was $12.5 million.

We currently have no outstanding debt under the Revolving Credit Facility, and we are in compliance with all terms and conditions of the Revolving Credit Facility as of September 30, 2022.

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

Series B Preferred Stock

On April 4, 2022, we completed the Private Placement Issuance, issuing 255,559 shares of Series B Preferred Stock.

The rights, preferences and privileges of the Series B Preferred Stock are set forth in the Series B-1 Certificate of Designations and Series B-2 Certificate of Designations (collectively, the Series B Certificates of Designations).

The Series B Preferred Stock ranks senior to our common stock with respect to dividend rights, redemption rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

The holders of Series B Preferred Stock are entitled to participate in all dividends declared on our common stock on an as-converted basis, on the terms and subject to the conditions set forth in the Series B Certificates of Designations.

The following is a brief summary of the conversion rights and other key provisions of the Series B Preferred Stock:

Holder Voluntary Conversion Rights

The Series B Preferred Stock is convertible at the option of the holders thereof at any time into a number of shares of common stock equal to the Conversion Rate (as defined in the Series B Certificates of Designations), which is initially

294.1176 shares of common stock per share of Series B Preferred Stock, in each case subject to certain adjustments and certain limitations on conversion.

Issuer Call Provision

At any time after the fifth anniversary of the closing of the Private Placement Issuance, if the last reported sale price of the common stock is greater than 250% of the Conversion Price (as defined in the Series B Certificates of Designations) as of such time for at least 20 consecutive trading days, we may elect to convert all of the outstanding shares of Series B Preferred Stock into shares of common stock.

Issuer Redemption Provision

After the seventh anniversary of the closing of the Private Placement Issuance, subject to certain conditions, we may, at our option, redeem all of the outstanding shares of Series B Preferred Stock at a redemption price per share of Series B Preferred Stock, payable in cash, equal to the Liquidation Preference (as defined in the Series B Certificates of Designations).

Change of Control Provisions

If we undergo certain change of control transactions, each holder of outstanding shares of Series B Preferred Stock will have the option, subject to the holder’s right to convert all or a portion of the shares of Series B Preferred Stock held by such holder into common stock, to require us to purchase all or a portion of such holder’s outstanding shares of Series B Preferred Stock that have not been converted into common stock at a purchase price per share of Series B Preferred Stock, payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that such holder would have been entitled to receive if such holder had converted such share of Series B Preferred Stock into common stock immediately prior to the change of control transaction (Change of Control Put).

In the event of a change of control in which we are not expected to be the surviving corporation or if our common stock will no longer be listed on a U.S.

national securities exchange, we will have a right to redeem, subject to the holder’s right to convert into common stock prior to such redemption, all of such holder’s shares of Series B Preferred Stock, or if a holder exercises the Change of Control Put in part, the remainder of such holder’s shares of Series B Preferred Stock, at a redemption price per share payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that the holder would have received if such holder had converted such share of Series B Preferred Stock into common stock immediately prior to the change of control transaction.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the Series B Preferred Stock has a liquidation preference equal to the greater of (i) the Liquidation Preference (as defined in the Series B Certificates of Designations, currently $3.40) and (ii) the amount per share of Series B Preferred Stock that such holder would have received had all holders of Series B Preferred Stock, immediately prior to such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, converted all shares of Series B Preferred Stock into common stock pursuant to the terms of the Series B Certificates of Designations (without regard to any limitations on conversion contained therein).

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

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

In the three months ended March 31, 2023, we used $44.2 million of net proceeds from the sales and maturities of short-term investments to help fund $8.5 million of net cash used in operating activities, $2.5 million of common stock repurchases, and a $32.1 million increase in cash and cash equivalents.

In the three months ended March 31, 2022 , we used $18.2 million of net debt proceeds in part to fund $15.6 million used in operating activities.

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2023 declined by $7.1 million compared to the same period in 2022.

The improvement reflects a lower net loss and adjustments for non-cash items, which collectively used $9.8 million in the first three months of 2023 compared to $18.7 million used in the same period of 2022.

This improvement was partially offset by unfavorable changes in net operating assets and liabilities, which provided $1.3 million and $3.1 million in the three months ended March 31, 2023 and 2022.

Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2023 was $43.2 million compared to $0.9 million used in the three months ended March 31, 2022.

The first quarter of 2023 primarily reflects $44.2 million of proceeds from sales and maturities of short-term investments, net of purchases.

Financing Activities

Financing activities used cash of $2.6 million in the first three months of 2023 and provided cash of $18.1 million in the same period of 2022.

These first-quarter changes in cash from financing activities primarily reflect $2.5 million of common stock share repurchases in 2023 and $18.2 million of net debt proceeds in 2022, reflecting $25.0 million of borrowings under the Bridge Loans and the repayment of $6.8 million borrowed under our Revolving Credit Facility.

Repurchases of common stock are expected to be funded by cash on hand.

The timing and amount of any future common stock repurchases will depend on several factors, including stock price, market and business conditions, the daily trading volume of our stock and applicable SEC regulations.

Repurchases may be suspended or discontinued at any time.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements and related notes, which have been prepared in accordance with generally accepted accounting principles in the United States (U.S.

The preparation of these financial statements requires the use of estimates and assumptions to determine the value of the assets, liabilities, revenues and expenses reported on the condensed consolidated balance sheets and statements of operations.

We develop these estimates after considering historical transactions, the current economic environment and various other assumptions considered reasonable under the circumstances.

Actual results may differ materially from these estimates and judgments.

Accounts that rely heavily on estimated information to determine their values include revenue, trade receivables, inventories, right-of-use assets, goodwill, long-lived intangible assets, lease liabilities, income tax liabilities (assets), and preferred equity.

Refer to Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding our critical accounting policies and estimates.

There have been no significant changes to the Company's significant accounting policies described in Note 2 in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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