PACIFIC BIOSCIENCES OF CALIFORNIA, INC. 10-Q

Item 1. Financial Statements PACIFIC BIOSCIENCES OF CALIFORNIA, INC. Condensed Consolidated Balance Sheets (Unaudited) March 31, December 31, (in thousands, except per share amounts) 2021 2020 Assets Current assets Cash and cash equivalents $ 932,398 $ 81,611 Investments 227,921 237,203 Accounts receivable 12,906 16,837 Inventory 16,268 14,230 Prepaid expenses and other current assets 5,623 4,870 Short-term restricted cash 836 836 Total current assets 1,195,952 355,587 Property and equipment, net 24,207 24,899 Operating lease right-of-use assets, net 29,162 29,951 Long-term restricted cash 3,500 3,500 Other long-term assets 67 43 Total assets $ 1,252,888 $ 413,980 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 3,471 $ 3,579 Accrued expenses 14,672 17,350 Deferred revenue, current 9,607 8,722 Operating lease liabilities, current 4,448 4,332 Other liabilities, current 1,539 4,519 Total current liabilities 33,737 38,502 Deferred revenue, non-current 5,687 1,568 Operating lease liabilities, non-current 36,485 37,667 Convertible senior notes, net 895,674 — Other liabilities, non-current 752 752 Total liabilities 972,335 78,489 Commitments and contingencies Stockholders’ equity Preferred stock, $ 0.001 par value: Authorized 50,000 shares; No shares issued or outstanding — — Common stock, $ 0.001 par value: Authorized 1,000,000 shares; issued and outstanding 198,340 shares and 192,294 shares at March 31, 2021 and December 31, 2020, respectively 198 192 Additional paid-in capital 1,404,585 1,372,083 Accumulated other comprehensive income 74 85 Accumulated deficit ( 1,124,304 ) ( 1,036,869 ) Total stockholders’ equity 280,553 335,491 Total liabilities and stockholders’ equity $ 1,252,888 $ 413,980 See accompanying notes to the condensed consolidated financial statements. 4 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, (in thousands, except per share amounts) 2021 2020 Revenue: Product revenue $ 25,303 $ 12,293 Service and other revenue 3,694 3,305 Total revenue 28,997 15,598 Cost of revenue: Cost of product revenue 12,697 5,421 Cost of service and other revenue 3,323 2,689 Total cost of revenue 16,020 8,110 Gross profit 12,977 7,488 Operating expense: Research and development 20,548 15,250 Sales, general and administrative 26,139 24,947 Total operating expense 46,687 40,197 Operating loss ( 33,710 ) ( 32,709 ) Gain (loss) from Continuation Advances ( 52,000 ) 34,000 Interest expense ( 1,789 ) ( 267 ) Other income, net 64 238 Net income (loss) ( 87,435 ) 1,262 Other comprehensive income: Unrealized income (loss) on investments ( 11 ) 25 Comprehensive income (loss) $ ( 87,446 ) $ 1,287 Net income (loss) per share: Basic $ ( 0.45 ) $ 0.01 Diluted $ ( 0.45 ) $ 0.01 Weighted average shares outstanding used in computing net income (loss) per share Basic 194,790 153,453 Diluted 194,790 155,855 See accompanying notes to the condensed consolidated financial statements. ‎ 5 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. Condensed Consolidated Statements of Stockholders ’ Equity (Unaudited) Accumulated Additional Other Total Paid-in Comprehensive Accumulated Stockholders' (in thousands) Common Stock Capital Income (Loss) Deficit Equity For the three months ended March 31, 2021 Balance at December 31, 2020 192,294 $ 192 $ 1,372,083 $ 85 $ ( 1,036,869 ) $ 335,491 Net loss — — — — ( 87,435 ) ( 87,435 ) Other comprehensive loss — — — ( 11 ) — ( 11 ) Issuance of common stock in conjunction with equity plans 6,046 6 22,337 — — 22,343 Stock-based compensation expense — — 10,165 — — 10,165 Balance at March 31, 2021 198,340 $ 198 $ 1,404,585 $ 74 $ ( 1,124,304 ) $ 280,553 For the three months ended March 31, 2020 Balance at December 31, 2019 153,119 $ 153 $ 1,120,999 $ 5 $ ( 1,066,240 ) $ 54,917 Net income — — — — 1,262 1,262 Other comprehensive income — — — 25 — 25 Adoption effect of Topic 326 — — — — ( 32 ) ( 32 ) Issuance of common stock in conjunction with equity plans 834 1 198 — — 199 Stock-based compensation expense — — 4,032 — — 4,032 Balance at March 31, 2020 153,953 $ 154 $ 1,125,229 $ 30 $ ( 1,065,010 ) $ 60,403 See accompanying notes to the condensed consolidated financial statements 6 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in thousands) 2021 2020 Cash flows from operating activities Net income (loss) $ ( 87,435 ) $ 1,262 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Loss (gain) from Continuation Advances 52,000 ( 34,000 ) Depreciation 1,606 1,657 Amortization of operating lease right-of-use assets 790 709 Amortization of debt discount and financing costs 74 129 Stock-based compensation 10,165 4,032 Amortization (accretion) from investment premium (discount) 565 ( 83 ) Changes in assets and liabilities Accounts receivable 3,931 7,909 Inventory ( 2,556 ) ( 3,374 ) Prepaid expenses and other assets ( 675 ) ( 58 ) Accounts payable 153 ( 4,129 ) Accrued expenses ( 2,680 ) 4,721 Deferred revenue 5,004 ( 970 ) Operating lease liabilities ( 1,066 ) ( 931 ) Other liabilities ( 2,980 ) 489 Deferred gain from Reverse Termination Fee — 98,000 Net cash provided by (used in) operating activities ( 23,104 ) 75,363 Cash flows from investing activities Purchase of property and equipment ( 401 ) ( 117 ) Purchase of investments ( 64,426 ) ( 72,960 ) Sales of investments 4,597 — Maturities of investments 68,400 18,750 Net cash provided by (used in) investing activities 8,170 ( 54,327 ) Cash flows from financing activities Continuation Advances ( 52,000 ) 34,000 Notes payable principal payoff — ( 16,000 ) Proceeds from issuance of Convertible Senior Notes, net of issuance costs 895,624 — Issuance costs paid for underwritten public equity offering ( 246 ) — Proceeds from issuance of common stock from equity plans 22,343 199 Net cash provided by financing activities 865,721 18,199 Net increase in cash and cash equivalents and restricted cash 850,787 39,235 Cash and cash equivalents and restricted cash at beginning of period 85,947 33,627 Cash and cash equivalents and restricted cash at end of period $ 936,734 $ 72,862 Cash and cash equivalents at end of period $ 932,398 $ 68,862 Restricted cash at end of period 4,336 4,000 Cash and cash equivalents and restricted cash at end of period $ 936,734 $ 72,862 See accompanying notes to the condensed consolidated financial statements. 7 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 1. OVERVIEW We design, develop and manufacture sequencing systems to help scientists resolve genetically complex problems. Based on our novel Single Molecule, Real-Time (SMRT®) sequencing technology, our products enable: de novo genome assembly to finish genomes in order to more fully identify, annotate and decipher genomic structures; full-length transcript analysis to improve annotations in reference genomes, characterize alternatively spliced isoforms in important gene families, and find novel genes; targeted sequencing to more comprehensively characterize genetic variations; and real-time kinetic information for epigenome characterization. Our technology provides high accuracy, ultra-long reads, uniform coverage and the ability to simultaneously detect epigenetic changes. 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 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 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. By providing access to genetic information that was previously inaccessible, we enable scientists to confidently increase their understanding of biological systems. The names “Pacific Biosciences,” “PacBio,” “SMRT,” “SMRTbell,” “Sequel” and our logo are our trademarks. NOTE 2. 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. 8 Table of Contents 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. NOTE 3. 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. (“Illumina”) and FC Ops Corp., a wholly owned subsidiary of Illumina (“Merger Subsidiary”). On January 2, 2020, we, Illumina and Merger Subsidiary, entered into an agreement to terminate the Merger Agreement (the “Termination Agreement”). 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. 9 Table of Contents Reverse Termination Fee from Illumina 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. 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. NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation In the opinion of management, our accompanying unaudited condensed consolidated financial statements (“Financial Statements”) have been prepared on a consistent basis with our December 31, 2020 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, as permitted by such rules and regulations, omit certain information and footnote disclosures necessary to present the statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). 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 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. All intercompany transactions and balances have been eliminated. COVID-19 We are subject to risks and uncertainties as a result of the novel coronavirus pandemic (“COVID-19”). 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 March 31, 2021. Use of Estimates The preparation of financial statements in conformity with U.S. 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 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. 10 Table of Contents Fair Value of Financial Instruments The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities, current, approximate fair value due to their short maturities. The fair value hierarchy established under U.S. GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:  Level 1: quoted prices in active markets for identical assets or liabilities;  Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and  Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider an active market as one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, we view an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our non-performance risk, or that of our counterparty, is considered in determining the fair values of liabilities and assets, respectively. We classify our cash deposits and money market funds within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. We classify our investments as Level 2 instruments based on market pricing and other observable inputs. We did not classify any of our investments within Level 3 of the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. 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 March 31, 2021 and December 31, 2020 respectively: March 31, 2021 December 31, 2020 (in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents: Cash and money market funds $ 906,453 $ — $ — $ 906,453 $ 43,040 $ — $ — $ 43,040 Commercial paper — 25,945 — 25,945 — 32,537 — 32,537 U.S. government & agency securities — — — — — 170 — 170 U.S. Treasury security — — — — — 5,864 — 5,864 Total cash and cash equivalents 906,453 25,945 — 932,398 43,040 38,571 — 81,611 Investments: Commercial paper — 75,465 — 75,465 — 112,644 — 112,644 Corporate debt securities — 15,548 — 15,548 — 17,456 — 17,456 U.S. government & agency securities — 136,908 — 136,908 — 107,103 — 107,103 Total investments — 227,921 — 227,921 — 237,203 — 237,203 Short-term restricted cash: Cash 836 — — 836 836 — — 836 Long-term restricted cash: Cash 3,500 — — 3,500 3,500 — — 3,500 Total assets measured at fair value $ 910,789 $ 253,866 $ — $ 1,164,655 $ 47,376 $ 275,774 $ — $ 323,150 Liabilities Continuation Advances $ — $ — $ — $ — $ — $ — $ — $ — Total liabilities measured at fair value $ — $ — $ — $ — $ — $ — $ — $ — 11 Table of Contents Estimated fair value of the Continuation Advances liability 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. The fair value option was elected for the financial liability because management believes that among all measurement methods allowed by Accounting Standards Codification, or ASC, 825, Financial Instruments , the fair value option would most fairly represent the value of such a financial liability. Management applied the income approach to estimate the fair value of this financial liability. 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 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; or  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. 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): 12 Table of Contents Three Months Ended March 31, 2021 2020 Net income (loss) $ ( 87,435 ) $ 1,262 Basic Weighted average shares used in computing basic net income (loss) per share 194,790 153,453 Basic net income (loss) per share $ ( 0.45 ) $ 0.01 Diluted Weighted average shares used in computing basic net income (loss) per share 194,790 153,453 Add: weighted average stock options — 1,926 Add: weighted average restricted stock units — 476 Weighted average shares used in computing diluted net income (loss) per share 194,790 155,855 Diluted net income (loss) per share $ ( 0.45 ) $ 0.01 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. See Note 9. Stockholders’ Equity for detailed information on RSUs with time-based vesting and RSUs with performance-based vesting. Three Months Ended March 31, (in thousands) 2021 2020 Shares issuable upon conversion of convertible senior notes 20,690 — Options to purchase common stock 12,332 14,265 RSUs with time-based vesting 6,527 2,208 RSUs with performance-based vesting — 138 ESPP shares — 1,346 Concentration and Other Risks 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 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. 13 Table of Contents 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 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. NOTE 5. CASH, CASH EQUIVALENTS AND INVESTMENTS 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 Gross Gross Amortized unrealized unrealized Fair Cost gains losses Value Cash and cash equivalents: Cash and money market funds $ 906,453 $ — $ — $ 906,453 Commercial paper 25,947 — ( 2 ) 25,945 Total cash and cash equivalents 932,400 — ( 2 ) 932,398 Investments: Commercial paper 75,470 2 ( 7 ) 75,465 Corporate debt securities 15,492 63 ( 7 ) 15,548 U.S. government & agency securities 136,883 29 ( 4 ) 136,908 Total investments 227,845 94 ( 18 ) 227,921 Total cash, cash equivalents and investments $ 1,160,245 $ 94 $ ( 20 ) $ 1,160,319 Short-term restricted cash: Cash $ 836 $ — $ — $ 836 Long-term restricted cash: Cash $ 3,500 $ — $ — $ 3,500 As of December 31, 2020 Gross Gross Amortized unrealized unrealized Fair Cost gains losses Value Cash and cash equivalents: Cash and money market funds $ 43,040 $ — $ — $ 43,040 Commercial paper 32,538 — ( 1 ) 32,537 U.S. government & agency securities 170 — — 170 U.S. Treasury security 5,864 — — 5,864 Total cash and cash equivalents 81,612 — ( 1 ) 81,611 Investments: Commercial paper 112,648 4 ( 8 ) 112,644 Corporate debt securities 17,360 96 — 17,456 U.S. government & agency securities 107,109 6 ( 12 ) 107,103 Total investments 237,117 106 ( 20 ) 237,203 Total cash, cash equivalents and investments $ 318,729 $ 106 $ ( 21 ) $ 318,814 Short-term restricted cash: Cash $ 836 $ — $ — $ 836 Long-term restricted cash: Cash $ 3,500 $ — $ — $ 3,500 14 Table of Contents 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): Fair Value Due in one year or less $ 236,278 Due after one year through 5 years 17,588 Total investments $ 253,866 Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties. NOTE 6. BALANCE SHEET COMPONENTS 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. Inventory As of March 31, 2021 and December 31, 2020, our inventory consisted of the following components: March 31, December 31, (in thousands) 2021 2020 Purchased materials $ 4,458 $ 3,531 Work in process 6,862 6,651 Finished goods 4,948 4,048 Inventory $ 16,268 $ 14,230 Long-term restricted cash 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 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 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. 15 Table of Contents NOTE 7. 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. 16 Table of Contents 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 $ 900,000 Unamortized debt issuance costs ( 4,326 ) Net carrying amount $ 895,674 For the three months ended March 31, 2021, interest expense for the Notes was as follows (in thousands): Contractual interest expense $ 1,688 Amortization of debt issuance costs 74 Total interest expense $ 1,762 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. NOTE 8. COMMITMENTS AND CONTINGENCIES Leases On July 22, 2015, we entered into a lease agreement with respect to our facility located at 1305 O’Brien Drive, Menlo Park, California. The term of the O’Brien Lease is one hundred thirty-two ( 132 ) months. In December 2016, we entered into an amendment to the O’Brien Lease which defined the commencement date of the lease to be October 25, 2016, notwithstanding that such substantial completion did not occur until the first quarter of 2017. Base monthly rent was abated for the first six (6) months of the lease term and thereafter was $ 540,000 per month during the first year of the lease term, with specified annual increases thereafter until reaching $ 711,000 per month during the last twelve (12) months of the lease term. 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 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. All of our leases are operating leases. 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. Lease payments included in the measurement of the lease liability comprise the base rent per the term of the Lease. Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments, such as common area maintenance fees, recognized in the period those payments are incurred. We often have options to renew lease terms for buildings. For the O’Brien Lease, the renewal option is 5 years and the rent will be based on fair market value at the time of renewal and was not included in the lease term. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. 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 March 31, 2021 was 6.6 years. 17 Table of Contents 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 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 Amount Years ending December 31, (in thousands) Remainder of 2021 $ 5,494 2022 7,502 2023 7,704 2024 7,920 2025 8,136 Thereafter 15,462 Total undiscounted operating lease payments 52,218 Less: imputed interest ( 11,285 ) Present value of operating lease liabilities $ 40,933 Balance Sheet Classification Operating lease liabilities, current $ 4,448 Operating lease liabilities, non-current 36,485 Total operating lease liabilities $ 40,933 Cash Flows 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 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 We may become involved in legal proceedings, claims and assessments from time to time in the ordinary course of business. We accrue liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Legal U.S. District Court Proceedings On March 15, 2017, we filed a complaint in the U.S. District Court for the District of Delaware against ONT Inc. for patent infringement (C.A. No. 17-cv-275) (the “275 Action”). The complaint is based on our U.S. Patent No. 9,546,400 (the “’400 Patent”) which covers novel methods for nanopore sequencing of nucleic acid molecules using the signals from multiple monomeric units. We are seeking remedies including injunctive relief, damages and costs. On August 23, 2018, we filed an amended complaint, adding allegations of willful infringement and adding ONT Ltd. as a defendant in the 275 Action, which was granted on August 15, 2019. On September 25, 2017, we filed a second complaint in the U.S. District Court for the District of Delaware against ONT Inc. for patent infringement (C.A. No. 17-cv-1353) (the “1353 Action”). The complaint is based on our U.S. Patent No. 9,678,056 (the “’056 Patent”) and U.S. Patent No. 9,738,929. We are seeking remedies including injunctive relief, damages and costs. On March 28, 2018, we added a claim for infringement of our U.S. Patent No. 9,772,323 (the “’323 Patent”). On August 23, 2018 we filed an amended complaint, adding allegations of willful infringement and adding ONT Ltd. as a defendant in the 1353 Action, which was granted on August 15, 2019. 18 Table of Contents A trial for the U.S. District Court matters was held from March 9 through March 18, 2020. The jury determined that ONT Inc. and ONT Ltd. 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. Patent No. 9,738,929. We are pursuing an appeal of the decision at the U.S. Court of Appeals for the Federal Circuit. Unrelated to the preceding matters, on September 26, 2019, Personal Genomics of Taiwan, Inc. (“PGI”) filed a complaint in the U.S. District Court for the District of Delaware against us for patent infringement (C.A. No. 19-cv-1810) (the “PGI District Court matter”). The matter from this complaint is based on PGI’s U.S. Patent No. 7,767,441 (the “‘441 Patent”). We plan to vigorously defend in this matter. On November 20, 2019, we filed our answer to the complaint, denying infringement and seeking a declaratory judgement of invalidity of the ‘441 Patent. 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. On June 27, 2020, we filed a second petition requesting institution of an IPR requesting the Board to find another set of claims in the ‘441 invalid. The two petitions (the “PacBio IPR Petitions”) requesting IPRs assert that all of the claims relevant to the PGI complaint are invalid. 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 From time to time, we may also be involved in a variety of other claims, lawsuits, investigations and proceedings relating to securities laws, product liability, patent infringement, contract disputes, employment and other matters that arise in the normal course of our business. In addition, third parties may, from time to time, assert claims against us in the form of letters and other communications. We record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We currently do not believe that the ultimate outcome of any of the matters described above is probable or reasonably estimable, or that these matters will have a material adverse effect on our business; however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of litigation and settlement costs, diversion of management resources and other factors. 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 our 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. In addition, we may have obligations to hold harmless and indemnify third parties involved with our fundraising efforts and their respective affiliates, directors, officers, employees, agents or other representatives against any and all losses, claims, damages and liabilities related to claims arising against such parties pursuant to the terms of agreements entered into between such third parties and us in connection with such fundraising efforts. 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 March 31, 2021. 19 Table of Contents NOTE 9. STOCKHOLDERS’ EQUITY Equity 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 (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 three months ended March 31, 2021 (in thousands, except per share amounts): Stock Options Outstanding Weighted Number average of shares Exercise price exercise price Balances, December 31, 2020 14,638 $ 1.16 – 20.90 $ 5.53 Options granted 1,697 31.18 – 46.37 37.37 Options exercised ( 3,558 ) 1.16 – 15.98 5.43 Options canceled ( 445 ) 2.54 – 5.27 3.79 Balances, March 31, 2021 12,332 $ 1.16 – 46.37 $ 10.00 For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 2.5 million related to options. RSUs Time-based RSUs 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 Number grant date of shares fair value RSUs outstanding at December 31, 2020 5,919 $ 5.25 RSUs granted 2,123 42.39 RSUs released ( 1,412 ) 4.45 RSUs forfeited ( 103 ) 12.10 Unvested RSUs outstanding at March 31, 2021 6,527 $ 17.40 For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 5.0 million related to time-based RSUs. 20 Table of Contents Performance-based RSUs 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 Number grant date of shares fair value PSUs outstanding at December 31, 2020 94 $ 2.63 PSUs granted — — PSUs released — — PSUs forfeited ( 94 ) 2.63 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. ESPP shares 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 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 months ended March 31, 2021 and 2020, respectively (in thousands): Three Months Ended March 31, 2021 2020 Cost of revenue $ 992 $ 527 Research and development 3,048 1,759 Sales, general and administrative 6,125 1,746 Total stock-based compensation expense $ 10,165 $ 4,032 W e estimated the fair value of employee stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards. The fair value of shares to be purchased under our stock options was estimated using the following assumptions: Three Months Ended March 31, Stock Option 2021 2020 Expected term in years 4.6 5.1 Expected volatility 68 % 57 % Risk-free interest rate 0.50 % 1.20 % Dividend yield — — 21 Table of Contents We estimate the value of employee stock purchase rights on the grant date using the Black-Scholes option pricing model. The fair value of shares to be purchased under our ESPP was estimated using the following assumptions: Three Months Ended March 31, ESPP 2021 2020 Expected term in years 0.5 - 2.0 0.5 - 2.0 Expected volatility 68 % 57 % Risk-free interest rate 0.07 % - 0.13 % 0.8 % - 1.0 % Dividend yield — — NOTE 10. REVENUE 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, 2021 2020 North America $ 12,157 $ 7,761 Europe (including the Middle East and Africa) 8,325 3,395 Asia Pacific 8,515 4,442 Total $ 28,997 $ 15,598 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) 2021 2020 Instrument revenue $ 14,939 $ 4,024 Consumable revenue 10,364 8,269 Product revenue 25,303 12,293 Service and other revenue 3,694 3,305 Total revenue $ 28,997 $ 15,598 22 Table of Contents