What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-03 · 238 added, 212 removed, 349 unchanged (56% of the section changed)

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Condensed Consolidated Balance Sheets

September 30,

(in thousands, except per share amounts)

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Prepaid expenses and other current assets

Short-term restricted cash

Total current assets

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Operating lease liabilities, current

Notes payable, current

Deferred gain from Reverse Termination Fee

Other liabilities, current

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Operating lease liabilities, non-current

Convertible senior notes, net

Other liabilities, non-current

Total liabilities

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Authorized 1,000,000 shares;

issued and outstanding 179,937 shares and 153,119 shares at September 30, 2020 and December 31, 2019, respectively

issued and outstanding 198,340 shares and 192,294 shares at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

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PACIFIC BIOSCIENCES OF CALIFORNIA, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended September 30,

Nine Months Ended September 30,

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended March 31,

(in thousands, except per share amounts)

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Operating loss

Gain from Continuation Advances

Gain (loss) from Continuation Advances

Interest expense

Other income (expense), net

Other comprehensive income (loss):

Other income, net

Net income (loss)

Other comprehensive income:

Unrealized income (loss) on investments

Comprehensive loss

Net loss per share:

Basic and diluted net loss per share

Shares used in computing basic and diluted net loss per share

Comprehensive income (loss)

Net income (loss) per share:

Weighted average shares outstanding used in computing net income (loss) per share

See accompanying notes to the condensed consolidated financial statements.

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Income (Loss)

For the three months ended September 30, 2020

Balance at June 30, 2020

( 1,088,096 )

Other comprehensive loss

Issuance of common stock in conjunction with equity plans

Issuance of common stock from Underwritten Public Equity Offering, net of issuance costs

Stock-based compensation expense

Balance at September 30, 2020

( 1,111,804 )

For the three months ended September 30, 2019

Balance at June 30, 2019

For the three months ended March 31, 2021

Balance at December 31, 2020

( 1,036,869 )

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Stock-based compensation expense

Balance at September 30, 2019

Balance at March 31, 2021

( 1,124,304 )

For the nine months ended September 30, 2020

For the three months ended March 31, 2020

Balance at December 31, 2019

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Adoption effect of Topic 326

Issuance of common stock from Underwritten Public Equity Offering, net of issuance costs

Issuance of common stock in conjunction with equity plans

Stock-based compensation expense

Balance at September 30, 2020

( 1,111,804 )

For the nine months ended September 30, 2019

Balance at December 31, 2018

Other comprehensive income

Issuance of common stock in conjunction with equity plans

Stock-based compensation expense

Balance at September 30, 2019

Balance at March 31, 2020

( 1,065,010 )

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Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities

Gain from Continuation Advances

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities

Loss (gain) from Continuation Advances

Amortization of operating lease right-of-use assets

Amortization of debt discount and financing costs

Gain on derivative

Stock-based compensation

Amortization (accretion) from investment premium (discount)

Loss on disposition of equipment

Changes in assets and liabilities

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Notes payable principal payoff

Proceeds from issuance of common stock from underwritten public equity offering, net of issuance costs

Proceeds from issuance of Convertible Senior Notes, net of issuance costs

Issuance costs paid for underwritten public equity offering

Proceeds from issuance of common stock from equity plans

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Cash and cash equivalents and restricted cash at end of period

Supplemental disclosure of non-cash operating activities

Inventory transferred to property and equipment

Inventory transferred from property and equipment

See accompanying notes to the condensed consolidated financial statements.

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PacBio® sequencing systems, including consumables and software, provide a simple and fast end-to-end workflow for SMRT sequencing.

Our current products include the Sequel II instrument and SMRT Cell 8M, which together are capable of sequencing up to approximately eight million DNA molecules simultaneously, and the previous generation Sequel instrument and Sequel SMRT Cell 1M, which together are capable of sequencing up to approximately one million DNA molecules simultaneously.

Our current products include the Sequel II and Sequel IIe instruments and SMRT Cell 8M, which together are capable of sequencing up to approximately eight million DNA molecules simultaneously, and the previous generation Sequel instrument and Sequel SMRT Cell 1M, which together are capable of sequencing up to approximately one million DNA molecules simultaneously.

In October 2020, we launched the Sequel IIe System, which has increased computational capacity, and is designed to enable customers to generate PacBio HiFi reads more efficiently.

Our customers and our scientific collaborators have published numerous peer-reviewed articles in journals including Nature, Science, Cell, PNAS and The New England Journal of Medicine highlighting the power and applications of SMRT sequencing in projects such as finishing genomes, structural variation discovery, isoform transcriptome characterization, rare mutation discovery and the identification of chemical modifications of DNA related to virulence and pathogenicity.

Our research and development efforts are focused on developing new products and further improving our existing products including continuing chemistry and sample preparation improvements to increase throughput and expand our supported applications.

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The names “Pacific Biosciences,” “PacBio,” “SMRT,” “SMRTbell,” “Sequel” and our logo are our trademarks.

NOTE 2 TERMINATION OF MERGER WITH ILLUMINA

INVITAE COLLABORATION

On January 12, 2021 we entered into a multi-year Development and Commercialization Agreement (the “Development Agreement”) with Invitae Corporation (“Invitae”).

Pursuant to the Development Agreement, Invitae is providing certain funding to PacBio to enable PacBio to develop products relating to production-scale high-throughput sequencing (“Program Products”).

If and when Program Products become commercially available for sale, Invitae may purchase the Program Products.

In addition to selling the Program Products to Invitae, we will have the right to broadly commercialize Program Products for sale to other customers.

The funding Invitae will provide to PacBio will equal certain development costs incurred by PacBio in connection with the Program Products (“Program Development Costs”).

Under the Development Agreement, we will be responsible for conducting a program to develop the Program Products, and subsequently for manufacturing the Program Products.

We will make general decisions regarding the development program jointly with Invitae but PacBio is responsible for all research and development activities.

The entire development program is expected to last approximately sixty months , but may be shorter or longer.

As the primary benefit of its contribution, Invitae will be entitled to preferred pricing on the Program Products if and when they are available for commercial sale.

Each Program Product will have a preferential pricing period, which will not exceed four years from the date of the first delivery of that Program Product (“Preferential Pricing Period”).

During the Preferential Pricing Period for each Program Product, Invitae may purchase the Program Product at a substantially reduced margin until it has recouped a multiple of its contribution as defined in the Development Agreement.

For a specified period after the end of the Preferential Pricing Period, Invitae has the right to purchase the Program Product at a higher price, determined by a formula, than the price during the Preferential Pricing Period (“Extended Pricing Period”).

The Extended Pricing Periods will terminate early if Invitae does not meet certain volume minimums.

We and Invitae may terminate the Development Agreement if the other party remains in material breach of the Development Agreement following a cure period to remedy the material breach.

In addition, the Development Agreement includes certain other circumstances for termination by each party, including circumstances where Invitae may terminate for delays, IP concerns, PacBio’s change in control, or without cause.

In certain termination circumstances, (i) we will be obligated to refund all or a portion of the development costs advanced by Invitae and/or (ii) we will owe Invitae a share of the revenue that may be generated from the sale of the Program Products to third parties if and when they are commercialized, until such time as Invitae has recouped the amounts reimbursed to us, and in certain circumstances, a mutually agreed return.

We expect to incur significant development costs over the duration of the Development Agreement.

There can be no assurances that the development program will be successful or that the Program Products will become ready for commercial sale.

We determined that the primary benefit from the arrangement to Invitae is the ability to procure the Program Products during the Preferential Pricing Period at substantial discounts.

As we expect the Program Products to be available for Invitae to purchase in the future, we concluded the arrangement is within the scope of ASC Topic 606, Revenue from Contracts with Customers.

In addition, Invitae is not expected to substantially benefit from the intellectual property developed under the arrangement, or benefit from other goods or services during the development period.

It is also not a collaboration in the scope of ASC Topic 808 Collaborative Arrangements, as PacBio is responsible for performing the research and development activities.

Accordingly, the amounts received by the Company from Invitae during the development period represent significant discounts toward future supplies of the Program Products during the Preferential Pricing Period, and will be accounted as material rights in accordance with ASC Topic 606 .

Proportionate amounts of t hese material rights will be recognized in revenue when Invitae places purchase orders for Program Products and the associated goods or services are delivered to Invitae.

To the extent the discounts are not expected to be used, they will be recognized consistent with the guidance in Topic 606 relating to breakage, in proportion to the expected purchases by Invitae.

Any remaining unused discounts will be recognized when they expire.

All amounts received from Invitae will be initially deferred and accumulated in non-current deferred revenue.

We determined that a significant financing component exists in relation to the amounts received by Invitae during the development period and until the development is complete.

The resulting financing costs will be recognized by the Company over that period, with corresponding increases in deferred revenues.

As a result, future revenue attributable to the material rights will be increased by the same amount.

Costs incurred to develop the Program Products are considered research and development and are expensed as incurred.

There are no origination or fulfilment costs related to the arrangement with Invitae that are eligible to be capitalized.

As of March 31, 2021, cumulative payments received from Invitae amounted to $ 4.1 million, and are included in “Deferred revenue, non-current” on the Condensed Consolidated Balance Sheet.

TERMINATION OF MERGER WITH ILLUMINA

On November 1, 2018, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Illumina, Inc.

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On January 2, 2020, we, Illumina and Merger Subsidiary, entered into an agreement to terminate the Merger Agreement (the “Termination Agreement”).

As part of the Termination Agreement, Illumina paid us a $ 98.0 million termination fee (the “Reverse Termination Fee”), from which we paid our financial advisor associated fees of $ 6.0 million in April 2020.

In addition, Illumina paid us cash payments (“Continuation Advances”) of $ 18.0 million during the fourth quarter of 2019 and $ 34.0 million during the first quarter of 2020.

However, pursuant to the Termination Agreement, in the event that, on or prior to September 30, 2020, we entered into a definitive agreement providing for, or consummated, a Change of Control Transaction (as defined in the Termination Agreement) (“Change of Control Transaction”), then we may have been required to repay the Reverse Termination Fee (without interest) to Illumina in connection with the consummation of such Change of Control Transaction.

No such definitive agreement was entered into nor was a Change of Control Transaction consummated as of September 30, 2020.

Please refer to “Note 5.

Balance Sheet Components” for the accounting treatment of the Reverse Termination Fee.

In addition, up to the full $ 52.0 million of Continuation Advances paid to us are repayable without interest to Illumina if, within two years of March 31, 2020, we enter into, or consummate a Change of Control Transaction or raise at least $ 100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

Continuation Advances from Illumina

As part of the Termination Agreement, Illumina paid us cash payments (“Continuation Advances”) of $ 18.0 million during the fourth quarter of 2019 and $ 34.0 million during the first quarter of 2020.

We recorded the $ 34.0 million as part of other income in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2020.

Up to the full $ 52.0 million of Continuation Advances paid to us were repayable without interest to Illumina if, within two years of March 31, 2020, we entered into, or consummated a Change of Control Transaction or raised at least $ 100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

Resulting from the issuance and sale of $ 900 million of 1.50 % Convertible Senior Notes due February 15, 2028 , $ 52.0 million of Continuation Advances were paid without interest to Illumina in February 2021 and recorded as other expense in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2021.

Please refer to Note 4.

Summary of Significant Accounting Policies for the accounting treatment of the Continuation Advances.

Reverse Termination Fee from Illumina

Pursuant to the Termination Agreement, in the event that, on or prior to September 30, 2020, we entered into a definitive agreement providing for, or consummated, a Change of Control Transaction, then we may have been required to repay the Reverse Termination Fee (without interest) to Illumina in connection with the consummation of such Change of Control Transaction.

As indicated in ASC 450, Contingencies, a gain contingency usually is not recognized in the financial statements until the period in which all contingencies are resolved and the gain is realizable.

As such, we deferred the gain from the Reverse Termination Fee from Illumina until the date when the associated contingency lapsed.

On October 1, 2020, the contingency clauses lapsed and we recorded the $ 98.0 million as a part of other income in the fourth quarter of 2020.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31 , 2020.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire year or any future periods.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the entire year or any future periods.

The condensed consolidated financial statements include the accounts of Pacific Biosciences and our wholly-owned subsidiaries.

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The extent of the impact of the COVID-19 pandemic on our business is highly uncertain as responses to the pandemic can change quickly and information is rapidly evolving.

We considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of September 30, 2020.

We considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of March 31, 2021.

Use of Estimates

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GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements.

Our estimates include, but are not limited to, the valuation of inventory, the determination of stand-alone selling prices for revenue recognition, the valuation of a financing derivative and long-term notes, the probability of repaying the Continuation Advances and Reverse Termination Fee to Illumina, the valuation and recognition of share-based compensation, the expected renewal period for service contracts to derive the amortization period for capitalized commissions, the useful lives assigned to long-lived assets, the computation of provisions for income taxes and the determination of the internal borrowing rate used in calculating the operating lease right-of-use assets and operating lease liabilities.

Our estimates include, but are not limited to, the valuation of inventory, the determination of stand-alone selling prices for revenue recognition, the probability of repaying the Continuation Advances and Reverse Termination Fee to Illumina, the valuation and recognition of share-based compensation, the expected renewal period for service contracts to derive the amortization period for capitalized commissions, the useful lives assigned to long-lived assets, the computation of provisions for income taxes, the borrowing rate used in calculating the operating lease right-of-use assets and operating lease liabilities, the borrowing rate used in calculating the financing component of the Invitae collaboration and valuations related to our convertible senior notes.

Actual results could differ materially from these estimates.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of September 30, 2020 and December 31, 2019 respectively:

September 30, 2020

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of March 31, 2021 and December 31, 2020 respectively:

March 31, 2021

December 31, 2020

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Commercial paper

government & agency securities

Treasury security

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government & agency securities

Treasury security

Total investments

Short-term restricted cash:

Long-term restricted cash:

Total assets measured at fair value

Financing Derivative

Continuation Advances

Total liabilities measured at fair value

Estimated fair value of the Financing Derivative liability

The estimated fair value of the Financing Derivative liability (as defined in the “Notes payable, current” section in “Note 5.

Balance Sheet Components”) was determined using Level 3 inputs, or significant unobservable inputs.

Changes to the estimated fair value of the Financing Derivative are recorded in “Other income, net” in the consolidated statements of operations and comprehensive loss.

The estimated fair value of the Financing Derivative was determined by comparing the difference between the fair value of the Notes from the debt facility that we entered into during the first quarter of 2013 (the “Notes”) with and without the Financing Derivative by calculating the respective present values from future cash flows using a 6.5 % discount rate at December 31, 2019.

The estimated fair value of the Financing Derivative as of December 31, 2019 was $ 0 .

In February 2020, upon maturity of the Notes, the Financing Derivative was extinguished.

Refer to the “Notes payable, current” section in “Note 5.

Balance Sheet Components” for a detailed description and valuation approach.

Estimated fair value of the Continuation Advances liability

In accordance with the terms of the Merger Agreement, we received Continuation Advances of $ 18.0 million and $ 34.0 million from Illumina during the fourth quarter of 2019 and the first quarter of 2020, respectively.

In accordance with the terms of the Merger Agreement, we received financing from Illumina in the form of Continuation Advances of $ 18.0 million and $ 34.0 million from Illumina during the fourth quarter of 2019 and the first quarter of 2020, respectively.

The Continuation Advances were provided to the Company to support the Company’s working capital needs in light of the continued negative cash flows incurred by the Company during the extended regulatory approval period for the merger and the Company’s need for additional capital to meet its debt repayment obligations and to fund its operations.

As discussed in Note 3.

Termination of Merger with Illumina , the Merger Agreement was entered into in November 2018 and was ultimately terminated in January 2020.

We determined that the Continuation Advances, which are subject to repayment under certain circumstances as discussed below, constitute a financial liability.

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The estimated fair value of the liability related to the Continuation Advances was determined using Level 3 inputs, or significant unobservable inputs.

Management estimated that there would be no future cash outflows associated with this financial instrument because the probabilities of either of the following events occurring and requiring repayment to Illumina were evaluated as being remote as of September 30, 2020 and December 31, 2019:

Management estimated that the fair value of this financial instrument was immaterial because of the low probability of either of the following events occurring and requiring repayment to Illumina as of December 31, 2020:

 we enter into a Change of Control Transaction within two years following March 31, 2020;

 we raise $ 100 million or more in a single equity or debt financing (that may have multiple closings) within two years following March 31, 2020.

As a result, the estimated fair value of the liability associated with the contingent repayment of the Continuation Advances received in the first quarter of 2020 was assessed to be zero as of March 31, 2020, June 30, 2020 and September 30, 2020, respectively, with a resulting non-operating gain of $ 34.0 million recorded as “Gain from Continuation Advances from Illumina” for the quarter ended March 31, 2020.

 we raise $ 100 million or more in a single equity or debt financing (that may have multiple closings) within two years following March 31, 2020, with the amount repayable dependent on the amount raised by us.

As a result, the estimated fair value of the liability associated with the contingent repayment of the Continuation Advances was assessed to be zero as of March 31, 2020 and December 31, 2020, with a resulting non-operating gain of $ 34.0 million recorded as “Gain from Continuation Advances from Illumina” for the quarter ended March 31, 2020.

We recorded a similar gain of $ 18.0 million in 2019 for the Continuation Advances received during the fourth quarter of 2019.

For the quarter ended September 30, 2020, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

Net Loss per Share

The following outstanding common stock options, restricted stock units (“RSUs”), with time-based vesting and RSUs with performance-based vesting, were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.

The Company was first approached by SB Northstar LP during the quarter ended March 31, 2021 regarding a potential convertible debt transaction.

As discussed further below in Note 7.

Convertible Senior Notes , in February 2021, the Company entered into an investment agreement with SB Northstar LP for the issuance and sale of $ 900 million of 1.50 % Convertible Senior Notes due February 15, 2028 .

As a result, $ 52.0 million of Continuation Advances were repaid without interest to Illumina in February 2021 and recorded as other expense in the condensed consolidated statements of operations and comprehensive income (loss) for the quarter ended March 31, 2021.

There was no further liability exposure for Continuation Advances as of March 31, 2021.

For the quarter ended March 31, 2021, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding and potential shares assuming the dilutive effect of the convertible senior notes, using the if-converted method, and outstanding stock options, restricted stock units and common stock issuable pursuant to our employee stock purchase plan, or ESPP, using the treasury stock method.

The following table presents the calculation of weighted average shares of common stock used in the computations of basic and diluted net income (loss) per share amounts presented in the accompanying condensed consolidated statements of operations and comprehensive income (loss) (in thousands, except per share amounts):

Three Months Ended March 31,

Net income (loss)

Weighted average shares used in computing basic net income (loss) per share

Basic net income (loss) per share

Weighted average shares used in computing basic net income (loss) per share

weighted average stock options

weighted average restricted stock units

Weighted average shares used in computing diluted net income (loss) per share

Diluted net income (loss) per share

The following outstanding shares issuable upon conversion of the convertible senior notes, common stock options, restricted stock units (“RSUs”), with time-based vesting and RSUs with performance-based vesting, were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.

Stockholders’ Equity for detailed information on RSUs with time-based vesting and RSUs with performance-based vesting.

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Shares issuable upon conversion of convertible senior notes

Options to purchase common stock

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Concentration and Other Risks

For the three and nine months ended September 30, 2020, Gene Company Limited accounted for approximately 18 % and 14 %, respectively, of our total revenue during the period with no other customer exceeding 10% during those periods.

For the three and nine months ended September 30, 2019, Gene Company Limited accounted for approximately 14 % and 18 % of our total revenue, respectively, with no other customer exceeding 10% during those periods.

Gene Company Limited is our primary distributor in China.

For the three months ended March 31, 2021, Gene Company Limited accounted for approximately 12 % of our total revenue during the period with no other customer exceeding 10% during the period.

For the three months ended March 31, 2020, TOMY Digital Biology Co.

accounted for approximately 11 % of our total revenue with no other customer exceeding 10% during the period.

Gene Company Limited is our primary distributor in China and TOMY Digital Biology Co.

is our distributor in Japan.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“Topic 326”), which replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost.

We adopted Topic 326 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment to the opening balance of retained earnings/accumulated deficit to be recognized on the date of adoption with prior periods not restated.

The cumulative-effect adjustment recorded on January 1, 2020, is shown below (in thousands):

Balance Sheets

Balance at December 31, 2019

Adjustments Due to Topic 326

Balance at January 1, 2020

Accounts receivable

Liabilities and Stockholders'

Accumulated deficit

( 1,066,240 )

( 1,066,272 )

The adoption of Topic 326 did not have a material impact on our financial statements and our bad debt expense was immaterial as of September 30, 2020.

Please see the description of our “Credit Losses” accounting policy in the “Significant Accounting Policies” section below.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

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.

This guidance simplifies the accounting for convertible instruments primarily by eliminating the existing cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being accounted for separately from the debt host.

The guidance also amends and simplifies the calculation of earnings per share relating to convertible instruments.

This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that reporting period, excluding smaller reporting companies.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within that reporting period, using either a full or modified retrospective approach.

We adopted ASU 2020-06 on January 1, 2021.

Because we had no convertible instruments within the scope of ASU 2020-06 at the time of adoption, there was no impact of adoption on our condensed consolidated financial statements.

However, in February 2021 we issued $ 900 million of 1.50 % Convertible Senior Notes due February 15, 2028 , as described in Note 7.

Convertible Senior Notes , which are accounted for under ASU 2020-06.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740 ):

Simplifying the Accounting for Income Taxes .

This ASU simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications.

The standard is effective for our annual reporting periods beginning after December 15, 2020, including interim reporting periods within those fiscal years.

We adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on our condensed consolidated financial statements.

Significant Accounting Policies

With the exception of the change for the accounting of credit losses as a result of the adoption of Topic 326, there have been no new or material changes to the significant accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, that are of significance, or potential significance, to us.

Credit Losses

Trade accounts receivable.

The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts.

We regularly review the allowance by considering factors such as the age of the accounts receivable balances, customer creditworthiness, customer industry, and current and forecasted economic conditions that may affect a customer’s ability to pay.

Available-for-sale debt securities.

Our investment portfolio at any point in time contains investments in cash deposits, money market funds, commercial paper, corporate debt securities and US government and agency securities.

We regularly review the securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as significance of loss, historical experience, market data, issuer-specific factors, and current economic conditions and concluded that an allowance for credit losses was not required as of September 30 2020.

Although we have historically not experienced significant credit losses, our exposure to credit losses may increase if our customers are adversely affected by changes in economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors.

Except for the adoption of ASU 2020-06 as discussed above and in Note 7 .

Convertible Senior Notes , there have been no new or material changes to the significant accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

CASH, CASH EQUIVALENTS AND INVESTMENTS

The following tables summarize our cash, cash equivalents and investments as of September 30, 2020 and December 31, 2019 (in thousands):

As of September 30, 2020

The following tables summarize our cash, cash equivalents and investments as of March 31, 2021 and December 31, 2020 (in thousands):

As of March 31, 2021

Cash and cash equivalents:

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Commercial paper

Treasury security

Total cash and cash equivalents

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government & agency securities

Treasury security

Total investments

Total cash, cash equivalents and investments

Short-term restricted cash:

Long-term restricted cash:

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Commercial paper

government & agency securities

Treasury security

Total cash and cash equivalents

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Corporate debt securities

government & agency securities

Total investments

Total cash, cash equivalents and investments

Short-term restricted cash:

Long-term restricted cash:

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of September 30, 2020 (in thousands):

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of March 31, 2021 (in thousands):

Due in one year or less

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BALANCE SHEET COMPONENTS

As of September 30, 2020 and December 31, 2019, our inventory consisted of the following components:

September 30,

Short-term restricted cash

As of March 31, 2021 and December 31, 2020, the short-term restricted cash balance of $ 0.8 million was comprised of $ 0.5 million of a customer deposit and $ 0.3 million of the security deposit for the credit cards for employees.

As of March 31, 2021 and December 31, 2020, our inventory consisted of the following components:

(in thousands)

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For our facility located at 1305 O’Brien Drive, Menlo Park, California (the “O’Brien Lease”), we were required to establish a letter of credit for the benefit of the landlord and to submit $ 4.5 million as a deposit for the letter of credit in October 2015.

Subsequently, pursuant to the terms of the O’Brien Lease, on May 1, 2019, the amount of the letter of credit was reduced from $ 4.5 million to $ 4.0 million.

As such, $ 4.0 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of December 31, 2019.

Pursuant to the terms of the O’Brien Lease, the letter of credit balance of $ 4.0 million was reduced again in May 2020 by $ 500,000 .

As such, $ 3.5 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of September 30, 2020.

Deferred gain from Reverse Termination Fee

As part of the Termination Agreement, Illumina paid us a Reverse Termination Fee of $ 98.0 million, from which we owed our financial advisor associated fees of $ 6.0 million.

We recorded the $ 6.0 million of associated fees owed to our financial advisor in the “Sales, general and administrative” expense line in the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2020.

If such Change of Control Transaction was not consummated by the two year anniversary of the execution of the definitive agreement for such Change of Control Transaction, then we would not have been required to repay the Reverse Termination Fee.

As indicated in ASC 450, Contingencies , a gain contingency usually is not recognized in the financial statements until the period in which all contingencies are resolved and the gain is realizable.

As such, we deferred the gain from the Reverse Termination Fee from Illumina until the date when the associated contingency was resolved and accordingly, we recorded the $ 98.0 million as “Deferred Gain from Reverse Termination Fee” in the condensed consolidated balance sheet as of September 30, 2020.

Subsequently, on October 1, 2020, the contingency clauses lapsed.

Notes payable, current

As of December 31, 2019, a balance of $ 16.0 million aggregate principal amount of debt remained outstanding under the debt agreement with Deerfield entered into in February 2013 (the “Facility Agreement”) and was presented as “Notes payable, current” on the condensed consolidated balance sheet as of December 31, 2019.

In February 2020, upon the maturity of the Facility Agreement, we repaid the remaining outstanding principal of $ 16.0 million and interest.

Financing Derivative

A number of features embedded in the Notes required accounting for them as a derivative, including the indemnification of certain withholding taxes and the acceleration of debt upon (i) a qualified financing, (ii) an event of default, (iii) a Major Transaction (as such term is defined in the Facility Agreement), and (iv) the exercise of the warrant via offset to the debt principal.

These features represent a single derivative (the “Financing Derivative”) that was bifurcated from the debt instrument and accounted for as a liability at fair value, with changes in fair value between reporting periods recorded in other income (expense), net.

The estimated fair value of the Financing Derivative was determined by comparing the difference between the fair value of the Notes with and without the Financing Derivative by calculating the respective present values from future cash flows using a 6.5 % discount rate at December 31, 2019.

The estimated fair value of the Financing Derivative as of December 31, 2019 was $ 0 .

In February 2020, after we repaid the remaining outstanding principal of $ 16.0 million and interest to Deerfield, the related Financing Derivative expired.

Subsequently, pursuant to the terms of the O’Brien Lease, on May 1, 2019, the amount of the letter of credit was reduced from $ 4.5 million to $ 4.0 million and in May 2020 was reduced to $ 3.5 million.

As such, $ 3.5 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020.

Deferred revenue

As of September 30, 2020, we had a total of $ 8.7 million of deferred revenue from our service contracts, $ 6.9 million of which was recorded as “Deferred revenue, current” to be recognized over the next year and the remaining $ 1.8 million was recorded as “Deferred revenue, non-current” to be recognized in the next 3 years.

Revenue recorded in the three and nine months ended September 30, 2020 includes $ 1.6 million and $ 6.5 million, respectively, of previously deferred revenue that was included in “Deferred revenue, current” as of December 31, 2019.

Contract assets as of September 30, 2020 and December 31, 2019 were not material.

As of September 30, 2020, we had a total of $ 0.6 million of deferred commissions included in “Prepaid expenses and other current assets” which is recognized as the related revenue is recognized.

As of March 31, 2021, we had a total of $ 15.3 million of deferred revenue, $ 9.6 million of which was recorded as “Deferred revenue, current” and primarily relates to our service contracts to be recognized over the next year and the remaining $ 5.7 million was recorded as “Deferred revenue, non-current.” Of the “Deferred revenue, non-current” balance, $ 1.6 million primarily relates to our service contracts and is scheduled to be recognized in the next 5 years, while $ 4.1 million relates to payments received under the Invitae collaboration described in Note 2.

Revenue recorded in the three months ended March 31, 2021 includes $ 3.1 million of previously deferred revenue that was included in “Deferred revenue, current” as of December 31, 2020.

Contract assets as of March 31, 2021 and December 31, 2020 were not material.

As of March 31, 2021, we had a total of $ 0.7 million of deferred commissions included in “Prepaid expenses and other current assets” which is recognized as the related revenue is recognized.

Additionally, as a practical expedient, we expense costs to obtain a contract as incurred if the amortization period would have been a year or less.

CONVERTIBLE SENIOR NOTES

On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar LP (the “Purchaser”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to the Purchaser of $ 900 million in aggregate principal amount of the Company’s 1.50 % Convertible Senior Notes due February 15, 2028 (the “Notes”).

The Notes were issued on February 16, 2021 .

The Notes are governed by an indenture (the “Indenture”) between the Company and U.S.

Bank National Association, as trustee.

The Notes bear interest at a rate of 1.50 % per annum.

Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 commencing on August 15, 2021.

The Notes will mature on February 15, 2028 , subject to earlier conversion, redemption or repurchase.

The Notes are convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company.

The Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 22.9885 shares of common stock per $ 1,000 principal amount of the Notes (which is equal to an initial conversion price of $ 43.50 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the Notes, we may elect to settle such conversion obligation in shares, cash or a combination of shares and cash.

On or after February 20, 2026, the Notes will be redeemable by the Company in the event that the closing sale price of the Company’s common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides the redemption notice at a redemption price of 100 % of the principal amount of such Notes, plus accrued and unpaid interest to, but excluding, the redemption date.

With certain exceptions, upon a change of control of the Company or the failure of the Company’s common stock to be listed on certain stock exchanges (a “Fundamental Change”), the holders of the Notes may require that the Company repurchase all or part of the principal amount of the Notes at a purchase price of par plus unpaid interest to, but excluding, the maturity date.

The Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the Notes under the Indenture.

The Indenture also includes customary covenants for convertible notes of this type.

To the extent the Company elects, the sole remedy for an event of default relating to the Company’s failure to comply with certain of its reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the Notes at a rate equal to (i) 0.25 % per annum of the principal amount of the Notes outstanding for each day during the first 180 calendar days of the 360-day period after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50 % per annum of the principal amount of the Notes outstanding for each day from, and including, the 181st calendar day to, and including, the 360th calendar day after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for in the Indenture).

On the 361st day after such event of default (if the event of default relating to the Company’s failure to comply with its obligations is not cured or waived prior to such 361st day), the Notes shall be subject to acceleration as provided for in the Indenture.

Accounting Treatment

Under ASU 2020-06, a debt with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature unless the conversion feature is required to be accounted for separately as an embedded derivative or the conversion feature results in a substantial premium.

The conversion feature of the Notes is not required to be accounted for as an embedded derivative because it is considered to be indexed to the Company’s stock, and the Notes were not issued at a premium;

therefore, the Notes are accounted for in their entirety as a liability.

Because we may elect to settle any conversions entirely in shares, and because settlement in shares is the default settlement method, the liability is classified as non-current.

The requirement to repurchase the Notes including unpaid interest to the maturity date in the event of a Fundamental Change is considered a put option for certain periods requiring bifurcation under ASC 815 – Derivatives and Hedging.

However, given the low probability of a Fundamental Change occurring during the applicable periods, the value of the embedded derivative is immaterial.

The additional interest feature in the event of the Company’s failure to comply with certain reporting obligations is also considered an embedded derivative requiring bifurcation under ASC 815.

However, due to the nature and terms of the reporting obligations, the value of the embedded derivative is immaterial.

We incurred issuance costs related to the Notes of approximately $ 4.4 million, which were recorded as debt issuance cost and are presented as a reduction to the Notes on our Condensed Consolidated Balance Sheet and are amortized to interest expense using the effective interest method over the term of the Notes, resulting in an effective interest rate of 1.6 %.

As of March 31, 2021, the net carrying amount of the liability for the Notes is classified as a long-term liability in the “Convertible senior notes, net” line item in the Company’s Condensed Consolidated Balance Sheet as follows (in thousands):

Principal amount

Unamortized debt issuance costs

Net carrying amount

For the three months ended March 31, 2021, interest expense for the Notes was as follows (in thousands):

Contractual interest expense

Amortization of debt issuance costs

Total interest expense

As of March 31, 2021, the estimated fair value (Level 2) of the Notes was $ 975.6 million.

The fair value of the Notes is estimated using a pricing model that is primarily affected by the trading price of the Company’s common stock and market interest rates.

COMMITMENTS AND CONTINGENCIES

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If the rent is not received within five days of the due date, there will be an additional sum equal to 5 % of the amount overdue as a late charge.

Any amount not paid within 10 days after receipt of landlord’s written notice will bear interest from the date due until paid, at the lesser rate of (1) the prime rate of interest as published in the Wall Street Journal, plus 2 % or (2) the maximum rate allowed by law, in addition to the late payment charge.

We were required to establish a letter of credit for the benefits of the landlord and to submit $ 4.5 million as a deposit for the letter of credit in October 2015.

Any amount not paid within 10 days after receipt of the landlord’s written notice will bear interest from the date due until paid, at the lesser rate of (1) the prime rate of interest as published in the Wall Street Journal, plus 2 % or (2) the maximum rate allowed by law, in addition to the late payment charge.

We were required to establish a letter of credit for the benefit of the landlord and to submit $ 4.5 million as a deposit for the letter of credit in October 2015.

Subsequently, pursuant to the terms of the O’Brien Lease, on May 1, 2019 the $ 4.5 million in restricted cash was reduced to $ 4.0 million and on May 1, 2020 the $ 4.0 million in restricted cash was reduced to $ 3.5 million.

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Operating lease assets and liabilities are reflected within “Operating lease right-of-use assets, net”, “Operating lease liabilities, current” and “Operating lease liabilities, non-current” on the condensed consolidated balance sheets.

These assets and liabilities are recognized at the commencement date based on the present value of remaining minimum lease payments over the lease term using our estimated secured incremental borrowing rates at the effective date of January 1, 2019.

Lease payments included in the measurement of the lease liability comprise the base rent per the term of the Lease.

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We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors.

The weighted average remaining lease term for our operating leases as of September 30, 2020 was 7.1 years.

The weighted average remaining lease term for our operating leases as of March 31, 2021 was 6.6 years.

The discount rate implicit within our leases is generally not determinable and therefore we determine the discount rate based on our incremental borrowing rate.

The incremental borrowing rate for our leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral.

The weighted average discount rate used to measure our operating lease liabilities as of September 30, 2020 was 7.9 %.

The following table presents information as to the amount and timing of cash flows arising from our operating leases as of September 30, 2020:

The weighted average discount rate used to measure our operating lease liabilities as of March 31, 2021 was 7.9 %.

The following table presents information as to the amount and timing of cash flows arising from our operating leases as of March 31, 2021:

Maturity of Lease Liabilities

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(in thousands)

Remaining of 2020

Remainder of 2021

Total undiscounted operating lease payments

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Total operating lease liabilities

Cash paid for amounts included in the present value of operating lease liabilities was $ 1.8 million and $ 5.4 million, respectively, for the three and nine months ended September 30, 2020 and included in operating cash flow.

Cash paid for amounts included in the present value of operating lease liabilities was $ 1.8 million for the three months ended March 31, 2021 and included in operating cash flow.

Operating Lease Costs

Operating lease costs were $ 1.6 million and $ 4.7 million for the three and nine months ended September 30, 2020, respectively.

Operating lease costs were $ 1.6 million and $ 4.7 million for the three and nine months ended September 30, 2019, respectively.

For both 2020 and 2019 the operating lease costs primarily related to our operating leases, but also included immaterial amounts for variable leases.

Operating lease costs were $ 1.6 million for both the three months ended March 31, 2021 and 2020, primarily related to our operating leases, but also included immaterial amounts for variable leases.

Contingencies

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for patent infringement (C.A.

17-cv-275 (“275 Action”)).

17-cv-275) (the “275 Action”).

The complaint is based on our U.S.

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for patent infringement (C.A.

17-cv-1353 (“1353 Action”)).

17-cv-1353) (the “1353 Action”).

The complaint is based on our U.S.

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The jury determined that ONT Inc.

infringed the ‘056 Patent, the ‘400 Patent, and the ‘323 Patent, but the jury declined to find these patents valid based on enablement and, in the case of claim one of the ’056 Patent, written description and indefiniteness.

infringed the ‘056 Patent, the ‘400 Patent, and the ‘323 Patent, but the jury declined to find these patents valid based on enablement and, in the case of the ’056 Patent, written description and indefiniteness.

The jury declined to find valid or infringed U.S.

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District Court for the District of Delaware against us for patent infringement (C.A.

The complaint (the “PGI District Court complaint”) is based on PGI’s U.S.

19-cv-1810) (the “PGI District Court matter”).

The matter from this complaint is based on PGI’s U.S.

7,767,441 (the “‘441 Patent”).

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On November 20, 2019, we filed our answer to the complaint, denying infringement and seeking a declaratory judgement of invalidity of the ‘441 Patent.

A trial for this matter is scheduled to begin on March 14, 2022.

On June 22, 2020, we filed a petition requesting institution of an inter-partes review (IPR) to the Patent Trial and Appeals Board (the “Board”) at the United States Patent Office requesting the Board to find a set of claims in the ‘441 invalid.

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The two petitions (the “PacBio IPR Petitions”) requesting IPRs assert that all of the claims relevant to the PGI complaint are invalid.

On August 19, 2020, the court ordered a stay of the PGI District Court complaint based on a joint stipulation by the parties.

The matter is stayed pending the decision by the Patent Trial and Appeals Board on institution of the PacBio IPR petitions expected January 2021.

If both IPR petitions are instituted, the stay will extend until the final written decision on the IPRs.

On May 19, 2020, PGI filed a complaint in the Wuhan People’s Court alleging infringement of one or more claims of China patent No.

CN101743321B, which is related to the ‘441 Patent.

We have not received service.

We plan to vigorously defend in this matter.

On January 19, 2021, the Board ordered that both PacBio IPR Petitions are instituted on all grounds presented.

On August 19, 2020, the court ordered a stay of the PGI District Court matter based on a joint stipulation by the parties.

With the institution of the PacBio IPR Petitions described above, pursuant to the joint stipulation, the matter is now stayed pending a final written decision on the IPRs.

Proceedings in China

On May 12, 2020, PGI filed a complaint in the Wuhan Intermediate People’s Court in China alleging infringement of one or more claims of China patent No.

CN101743321B (the “CN321 Patent”), which is related to the ‘441 Patent.

We were served on January 20, 2021 and plan to vigorously defend in this matter.

On November 23, 2020 we filed an Invalidation Petition at the China National Intellectual Property Administration (CNIPA) demonstrating the invalidity of the claims in the CN321 Patent on grounds of insufficient disclosure, and the lack of support, essential technical features, clarity, novelty, and inventiveness.

A hearing in the invalidation proceeding at the CNIPA was held on April 29, 2021.

Other Proceedings

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Indemnification

Pursuant to Delaware law and agreements entered into with each of our directors and officers, we may have obligations, under certain circumstances, to hold harmless and indemnify each of our directors and officers against losses suffered or incurred by the indemnified party in connection with their service to us, and judgements, fines, settlements and expenses related to claims arising against such directors and officers to the fullest extent permitted under Delaware law, our bylaws and certificate of incorporation.

We also enter and have entered into indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

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To the extent that any such indemnification obligations apply to the lawsuits described above, any associated expenses incurred are included within the related accrued litigation expense amounts.

No additional liability associated with such indemnification obligations has been recorded as of September 30, 2020.

No additional liability associated with such indemnification obligations has been recorded as of March 31, 2021.

STOCKHOLDERS’ EQUITY

Underwritten Public Equity Offering

In June 2020, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may, from time to time, sell up to an aggregate of $ 250.0 million of our common stock, preferred stock, depository shares, warrants, units or debt securities.

On July 14, 2020, the registration statement was declared effective by the SEC, which allows us to access the capital markets for the three year period following this effective date.

In August 2020, we entered into an underwriting agreement, relating to the public offering of 19,430,000 shares of our common stock, $ 0.001 par value per share, at a price to the public of $ 4.47 per share.

Under the terms of the underwriting agreement, we also granted the underwriters a 30 -day option to purchase up to an additional 2,914,500 shares of our common stock, which was subsequently exercised in full, and the offering including the sale of shares of common stock subject to the underwriters’ option, closed in August 2020.

In total, we sold 22.3 million shares of our common stock.

We paid a commission equal to 6 % of the gross proceeds from the sale of shares of our common stock.

The total net proceeds to us from the offering after deducting the underwriting discount were approximately $ 93.9 million, excluding approximately $ 0.3 million of offering expenses, $ 0.2 million of which was unpaid as of September 30, 2020.

The Termination Agreement currently limits our ability to issue additional securities or incur indebtedness as up to the $ 52.0 million of the Continuation Advances paid to us are repayable without interest to Illumina if, within two years of March 31, 2020, we enter into, or consummate a Change of Control Transaction or raise at least $ 100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

At June 30, 2020, in total, we had three active equity compensation plans:

At March 31, 2020, in total, we had three active equity compensation plans:

the 2010 Equity Incentive Plan (“2010 Plan”), the 2010 Outside Director Equity Incentive Plan (“2010 Director Plan”) and the 2010 Employee Stock Purchase Plan (“ESPP”).

Our 2010 Plan and 2010 Director Plan expired on July 29, 2020.

On August 4, 2020, stockholders approved our new 2020 Equity Incentive Plan.

A description of the 2020 Equity Incentive Plan can be found in our Proxy Statement for the 2020 Annual Meeting of Stockholders, dated June 24, 2020.

Pursuant to the terms of the then-in-process Merger Agreement with Illumina, offerings under our ESPP were suspended after the completion of the purchase period ended March 1, 2019.

After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period beginning March 1, 2020.

On August 4, 2020, stockholders approved our new 2020 Equity Incentive Plan (the “2020 Plan”) and reserved 11,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the 2020 Plan.

On December 2, 2020, the Board of Directors (the “Board”) adopted the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 2,500,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan.

On April 18, 2021, the Board amended the Inducement Plan to reserve an additional 750,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan.

Stock Options

The following table summarizes stock option activity for all our stock option plans for the nine months ended September 30, 2020 (in thousands, except per share amounts):

The following table summarizes stock option activity for all our stock option plans for the three months ended March 31, 2021 (in thousands, except per share amounts):

Stock Options Outstanding

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Options granted

31.18 – 46.37

Options exercised

Options canceled

Balances, September 30, 2020

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 1.4 million and $ 4.2 million, respectively, related to options.

Balances, March 31, 2021

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 2.5 million related to options.

Time-based RSUs

The following table summarizes the time-based RSUs activity for the nine months ended September 30, 2020 (in thousands, except per share amounts):

The following table summarizes the time-based RSUs activity for the three months ended March 31, 2021 (in thousands, except per share amounts):

Weighted average

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RSUs forfeited

Unvested RSUs outstanding at September 30, 2020

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 1.7 million and $ 5.5 million, respectively, related to time-based RSUs.

Unvested RSUs outstanding at March 31, 2021

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 5.0 million related to time-based RSUs.

Performance-based RSUs

The following table summarizes the performance-based RSUs (“PSUs”) activity for the nine months ended September 30, 2020 (in thousands, except per share amounts):

The following table summarizes the performance-based RSUs (“PSUs”) activity for the three months ended March 31, 2021 (in thousands, except per share amounts):

Weighted average

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PSUs forfeited

Unvested PSUs outstanding at September 30, 2020

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 0 related to the performance-based RSUs.

In January 2020, an additional 7.7 million shares and 1.5 million shares, respectively, were reserved under the 2010 Plan and the 2010 Director Plan.

The 2010 Plan and the 2010 Director Plan expired on July 29, 2020.

On August 4, 2020, stockholders at the 2020 Annual Meeting approved a new 2020 Equity Incentive Plan with 11,000,000 shares available for issuance and the 2010 Plan and 2010 Director Plan were terminated.

As of September 30, 2020, we had 7.9 million shares of common stock available for future issuance.

Shares issued under our ESPP were 834,677 and 1,306,329 during the nine months ended September 30, 2020 and 2019, respectively.

Unvested PSUs outstanding at March 31, 2021

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 0 related to the performance-based RSUs.

As of March 31, 2021, we had a total of 6.7 million shares of common stock available for future issuance under the 2020 Plan and the Inducement Plan.

Shares issued under our ESPP were 983,180 and none during the three months ended March 31, 2021 and 2020, respectively.

In January 2021, an additional 3.8 million shares were reserved under the ESPP.

As of September 30, 2020, 5,878,770 shares of our common stock remain available for issuance under our ESPP.

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 1.8 million and $ 2.3 million, respectively, related to the ESPP shares.

As of March 31, 2021, 8,741,461 shares of our common stock remain available for issuance under our ESPP.

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 2.5 million related to the ESPP shares.

Stock-Based Compensation

The following table summarizes the stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

The following table summarizes the stock-based compensation expense for the three months ended March 31, 2021 and 2020, respectively (in thousands):

Three Months Ended March 31,

Cost of revenue

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The estimated fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards.

We did no t grant any stock options for the year ended December 31, 2019 due to the then-in-process merger with Illumina.

The fair value of shares to be purchased under our stock option was estimated using the following assumptions:

Three Months Ended September 30,

Nine Months Ended September 30,

The fair value of shares to be purchased under our stock options was estimated using the following assumptions:

Three Months Ended March 31,

Expected term in years

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Risk-free interest rate

0.3 % - 1.2 %

Dividend yield

We estimate the value of employee stock purchase rights on the grant date using the Black-Scholes option pricing model.

Pursuant to the terms of the then-in-process merger with Illumina, the ESPP was terminated after the completion of the purchase period ended March 1, 2019 and there were no offerings after March 1, 2019.

As such there were no new Black-Scholes calculations performed to calculate the fair value of new purchase rights granted for the year ended December 31, 2019.

After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period on March 1, 2020.

The fair value of shares to be purchased under our ESPP was estimated using the following assumptions:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term in years

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0.07 % - 0.13 %

0.8 % - 1.0 %

Dividend yield

A summary of our revenue by geographic location for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

A summary of our revenue by geographic location for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

Three Months Ended March 31,

North America

Europe (including the Middle East and Africa)

A summary of our revenue by category for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

A summary of our revenue by category for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

Three Months Ended March 31,

(in thousands)

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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 1. Financial Statements