What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-03 · 144 added, 174 removed, 456 unchanged (41% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts) September 30,

(in thousands, except per share amounts) March 31,

2024 December 31,

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Other liabilities, current 2,836 8,326

Contingent consideration liability, current 96,193 172,094

Total current liabilities 72,951 95,029

12 unchanged sentences

Authorized 1,000,000 shares;

issued and outstanding 258,374 and 226,505 shares at September 30, 2023 and December 31, 2022, respectively

issued and outstanding 272,280 and 267,744 shares at March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,566,304 2,539,892

Accumulated other comprehensive loss ( 1,840 ) ( 4,765 )

Accumulated other comprehensive (loss) income ( 306 ) 219

Accumulated deficit ( 1,917,253 ) ( 1,839,075 )

4 unchanged sentences

Condensed Consolidated Statements of Operations and Comprehensive Loss

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

Three Months Ended March 31,

(in thousands, except per share amounts) 2024 2023

5 unchanged sentences

Cost of service and other revenue 3,738 3,792

Amortization of acquired intangible assets

Total cost of revenue 27,528 29,139

3 unchanged sentences

Sales, general and administrative 43,753 39,818

Merger-related expenses 8,979 — 8,979 —

Amortization of acquired intangible assets 5,506 —

2 unchanged sentences

Operating loss ( 81,362 ) ( 91,252 )

Loss on extinguishment of debt — — ( 2,033 ) —

Interest expense ( 3,575 ) ( 3,630 )

3 unchanged sentences

Net loss ( 78,178 ) ( 88,015 )

Other comprehensive income (loss):

Unrealized gain (loss) on investments 846 ( 803 ) 2,925 ( 5,173 )

Other comprehensive (loss) income:

Unrealized (loss) gain on investments ( 525 ) 2,841

Comprehensive loss $ ( 78,703 ) $ ( 85,174 )

8 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2024

Common Stock Additional

Capital Accumulated

Comprehensive

(Loss) Income Accumulated

Comprehensive Income (Loss) Accumulated

Deficit Total

1 unchanged sentence

(in thousands) Shares Amount

For the three months ended September 30, 2023

Balance at June 30, 2023 250,473 $ 250 $ 2,334,623 $ ( 2,686 ) $ ( 1,690,188 ) $ 641,999

Net loss — — — — ( 66,869 ) ( 66,869 )

Other comprehensive income — — — 846 — 846

Shares issuable following milestone achievement — — 84,761 — — 84,761

Issuance of common stock in acquisition of Apton 6,121 6 76,636 — — 76,642

Issuance of common stock in connection with liquidity event bonus plan 169 — 2,111 — — 2,111

Issuance of common stock in conjunction with equity plans 1,611 2 4,560 — — 4,562

Share-based compensation expense — — 19,691 — — 19,691

Balance at September 30, 2023 258,374 $ 258 $ 2,522,382 $ ( 1,840 ) $ ( 1,757,057 ) $ 763,743

For the three months ended September 30, 2022

Balance at June 30, 2022 224,756 $ 225 $ 2,058,103 $ ( 5,457 ) $ ( 1,370,985 ) $ 681,886

Balance at December 31, 2023 267,744 $ 268 $ 2,539,892 $ 219 $ ( 1,839,075 ) $ 701,304

Net loss — — — — ( 78,178 ) ( 78,178 )

2 unchanged sentences

Share-based compensation expense — — 19,525 — — 19,525

Balance at September 30, 2022 225,916 $ 226 $ 2,080,581 $ ( 6,260 ) $ ( 1,447,956 ) $ 626,591

For the nine months ended September 30, 2023

Balance at March 31, 2024 272,280 $ 272 $ 2,566,304 $ ( 306 ) $ ( 1,917,253 ) $ 649,017

Three Months Ended March 31, 2023

Common Stock Additional

Capital Accumulated

Comprehensive Loss

Deficit Total

Stockholders'

(in thousands) Shares Amount

Balance at December 31, 2022 226,505 $ 227 $ 2,099,782 $ ( 4,765 ) $ ( 1,532,340 ) $ 562,904

1 unchanged sentence

Other comprehensive income — — — 2,841 — 2,841

Shares issuable following milestone achievement — — 84,761 — — 84,761

Issuance of common stock in acquisition of Apton 6,121 6 76,636 — — 76,642

Issuance of common stock in connection with liquidity event bonus plan 169 — 2,111 — — 2,111

Issuance of common stock from Underwritten Public Equity Offering, net of issuance costs 20,125 20 189,180 — — 189,200

Issuance of common stock in conjunction with equity plans 5,454 5 14,378 — — 14,383

Share-based compensation expense — — 55,534 — — 55,534

Balance at September 30, 2023 258,374 $ 258 $ 2,522,382 $ ( 1,840 ) $ ( 1,757,057 ) $ 763,743

For the nine months ended September 30, 2022

Balance at December 31, 2021 220,978 $ 221 $ 2,009,945 $ ( 1,087 ) $ ( 1,218,092 ) $ 790,987

Net loss — — — — ( 229,864 ) ( 229,864 )

Other comprehensive loss — — — ( 5,173 ) — ( 5,173 )

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

20,125 20 189,180 — — 189,200

Issuance of common stock in conjunction with equity plans 3,173 3 7,232 — — 7,235

Share-based compensation expense — — 17,952 — — 17,952

Balance at September 30, 2022 225,916 $ 226 $ 2,080,581 $ ( 6,260 ) $ ( 1,447,956 ) $ 626,591

Balance at March 31, 2023 249,803 $ 250 $ 2,314,146 $ ( 1,924 ) $ ( 1,620,355 ) $ 692,117

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2024 2023

6 unchanged sentences

Share-based compensation expense 19,525 17,952

Merger-related compensation expense 3,395 —

Accretion of discount and amortization of premium on marketable securities, net ( 4,031 ) ( 2,155 )

Change in the estimated fair value of contingent consideration ( 70 ) 12,256

Loss on extinguishment of debt 2,033 —

Inventory provision 3 3,521

Deferred income taxes ( 10,706 ) —

Other 403 363

1 unchanged sentence

Accounts receivable, net 6,292 ( 10,803 )

Inventory ( 22,849 ) ( 23,367 )

Inventory, net ( 11,655 ) ( 13,319 )

Prepaid expenses and other assets 3,051 ( 6,888 )

3 unchanged sentences

Operating lease liabilities ( 2,376 ) ( 1,969 )

Contingent consideration liability ( 732 ) —

Other liabilities ( 5,152 ) ( 2,455 )

2 unchanged sentences

Purchase of property and equipment ( 3,879 ) ( 3,721 )

Cash paid for purchase of Apton, net of cash acquired ( 102 ) —

Purchases of investments ( 191,907 ) ( 233,291 )

1 unchanged sentence

Maturities of investments 161,650 163,864

Net cash provided by investing activities 71,179 35,680

Net cash used in investing activities ( 34,136 ) ( 72,553 )

Cash flows from financing activities

1 unchanged sentence

Proceeds from issuance of common stock from equity plans 6,891 7,235

Payment of debt issuance costs ( 7,325 ) —

Payment of contingent consideration ( 4,368 ) —

Notes payable principal payoff ( 338 ) ( 446 )

Net cash provided by financing activities 6,553 195,989

Net increase (decrease) in cash, cash equivalents, and restricted cash 60,059 ( 158,162 )

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 103,265 ) 28,745

Cash, cash equivalents, and restricted cash at beginning of period 182,633 328,311

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We are a life science technology company that is designing, developing, and manufacturing advanced sequencing solutions that enable scientists and clinical researchers to improve their understanding of the genome and ultimately, resolve genetically complex problems.

Our products and technology under development stem from two highly differentiated core technologies focused on accuracy, quality, and completeness, which include our existing HiFi long-read sequencing technology and our emerging short-read Sequencing by Binding (SBB TM ) technology.

Our products address solutions across a broad set of applications including human genomics, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.

Our focus is on providing our customers with advanced sequencing solutions with higher throughput and improved workflows that we believe will enable dramatic advancements in routine healthcare.

Our products and technology under development stem from two highly differentiated core technologies focused on accuracy, quality, and completeness, which include our HiFi long-read sequencing technology and our Sequencing by Binding (SBB TM ) short-read sequencing technology.

Our products address solutions across a broad set of applications including human genetics, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.

Our focus is on creating some of the world's most advanced sequencing systems to provide our customers with the most complete and accurate view of genomes, transcriptomes, and epigenomes.

Our customers include academic and governmental research institutions, commercial testing and service laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research organizations (CROs), pharmaceutical companies, and agricultural companies.

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The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements.

On an ongoing basis, we evaluate our significant estimates including, but not limited to, the valuation of inventory, the determination of stand-alone selling prices for revenue recognition, the fair value of contingent consideration, the valuation of acquired intangible assets, the fair value of certain equity awards, 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 probability associated with variable payments under partnership development agreements, and the valuations related to our convertible senior notes.

While the extent of the potential impact of the current macroeconomic conditions on our business is highly uncertain, we considered information available related to assumptions and estimates used to determine the results reported and asset valuations as of September 30, 2023.

On an ongoing basis, we evaluate our significant estimates, including those relating to the valuation of inventory, fair value of contingent consideration, valuation of acquired intangible assets, useful lives assigned to long-lived assets, asset impairment assessments, computation of provisions for income taxes, and valuations related to our convertible senior notes.

While the extent of the potential impact of current macroeconomic conditions on our business is highly uncertain, we considered information available related to assumptions and estimates used to determine the results reported and asset valuations as of March 31, 2024.

Actual results could differ materially from these estimates.

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Premium and discount amortization is recorded in other income (expense), net.

We have the ability to hold, and do not intend to sell investments in unrealized loss positions before the recovery of their amortized cost bases.

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

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Concentration and Other Risks

For the three and nine months ended September 30, 2023, no customer exceeded 10% of total revenue during each of the respective periods.

For the three and nine months ended September 30, 2022, one customer accounted for approximately 13 % and 11 % of total revenue during the period.

As of September 30, 2023, 45 % of our accounts receivable were from domestic customers, compared to 57 % as of December 31, 2022.

As of September 30, 2023, no customer represented 10% or greater of our accounts receivable, while one customer represented approximately 10% of our net accounts receivable as of December 31, 2022.

For the three months ended March 31, 2024, no customer exceeded 10% of total revenue during the period.

For the three months ended March 31, 2023, no customer exceeded 10% of total revenue during the period.

As of March 31, 2024, 42 % of our accounts receivable were from domestic customers, compared to 49 % as of December 31, 2023.

As of March 31, 2024, no customer represented 10% or greater of our net accounts receivable, while one customer represented approximately 10 % of our net accounts receivable as of December 31, 2023.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In October 2021, the FASB issued Accounting Standards Update ("ASU") No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

This ASU provides specific guidance on how to recognize contract assets and contract liabilities related to revenue contracts with customers acquired in a business combination.

This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination.

We adopted this ASU on January 1, 2023.

The adoption of this guidance did not have a material effect on our consolidated financial statements.

Accounting Pronouncements Pending Adoption

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This ASU requires entities to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid.

This authoritative guidance will be effective for us in fiscal year 2025, with early adoption permitted.

The Company is currently evaluating the impact of the ASU but does not expect any material impact upon adoption.

Significant Accounting Policies

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Total consideration transferred $ 94,008

The purchase price allocation is preliminary, primarily due to the pending finalization of the valuation analysis and review of various tax attributes.

We continue to collect information regarding certain estimates and assumptions, including potential liabilities and contingencies.

We will record adjustments to the fair value of the assets acquired, liabilities assumed and goodwill within the twelve months measurement period, if necessary.

We incurred costs related to the Apton acquisition of approximately $ 9.0 million during the nine months ended September 30, 2023, which are included in merger-related expenses on the Condensed Consolidated Statement of Operations and Comprehensive Loss.

The purchase price allocation is preliminary, primarily due to the pending finalization of the review of various tax attributes.

We expect to finalize the purchase price allocation within 12 months of the acquisition date.

We will recognize adjustments to the preliminary amounts with a corresponding adjustment to goodwill in the reporting period in which the adjustments to the preliminary amounts are determined.

We incurred costs related to the Apton acquisition of approxim ately $ 9.0 million during the year ended December 31, 2023 .

Merger-related expenses include $ 2.8 million relating to a liquidity event bonus plan that was treated as a separate transaction and included the issuance of 168,621 shares of common stock that were issued with a fair value of $ 2.1 million based on the closing market price of our common stock on the acquisition date.

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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 (in thousands):

September 30, 2023 December 31, 2022

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis:

March 31, 2024 December 31, 2023

(in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 71,652 $ 4,994 $ — $ 76,646 $ 70,172 $ 109,739 $ — $ 179,911

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Estimates and assumptions used in the Monte Carlo simulation include risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an estimated credit spread.

On September 20, 2023, we achieved the commercial milestone in connection with the acquisition of Omniome.

Consequently, former Omniome securityholders were entitled to receive as milestone consideration, among other things, an aggregate of approximately $ 100.9 million in cash and approximately 9.0 million shares of our common stock, representing $ 95.9 million divided by the volume-weighted average of the trading prices of our common stock for the twenty trading days ending with and including the trading day that was two days immediately prior to the achievement of the milestone.

The $ 95.9 million represents the $ 100.0 million that was to be paid in shares of our common stock offset by $ 4.1 million attributable to stock options issued by PacBio in replacement of Omniome’s unvested options as part of the transaction, pursuant to the terms of the Omniome merger agreement.

Following the achievement of the commercial milestone, $ 5.1 million of the contingent consideration was paid during the three and nine months ended September 30, 2023.

Additionally, as the shares payable pursuant to the commercial milestone became fixed, and the contingency was resolved, the value attributable to the shares to be issued of $ 84.8 million was reclassified to additional paid-in capital on the Condensed Consolidated Balance Sheets.

Such shares were issued to the former Omniome securityholders and the remainder of the cash payment was in October 2023.

The remaining liability balance attributable to the achievement of the commercial milestone in September 2023 of $ 96.2 million is included in contingent consideration liability, current, in the Condensed Consolidated Balance Sheets as of September 30, 2023.

As a result of the achievement of the milestone, the contingent consideration liability incurred in connection with the acquisition of Omniome was no longer considered a Level 3 liability at September 30, 2023.

There were no other transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis for the nine months ended September 30, 2023, and our valuation techniques did not change compared to the prior year.

Changes in the estimated fair value of the contingent consideration liability for the nine months ended September 30, 2023 were as follows (in thousands):

We estimate the fair value of the contingent consideration liability based on the simulated revenue of the Company through the 5 -year anniversary of the closing date of the acquisition.

As of March 31, 2024, the key input used in the determination of the fair value included projected revenues of the high-throughput short-read products and services leveraging Apton's technology.

A decrease in the projected revenues would result in a decrease in the fair value of the liability.

The discount rates used are the sum of the U.S.

risk-free rate and the estimated subordinated credit spread for B- credit rating, which ranges from 7.4 % to 7.7 %.

Changes in our estimated subordinated credit spread can result in changes in the fair value of the contingent consideration liability, where a lower credit spread may result in an increased liability valuation.

Changes in the estimated fair value of the contingent consideration liability for the three months ended March 31, 2024 were as follows:

(in thousands) Level 3

Beginning balance as of December 31, 2023 $ 19,550

Additions 18,450

Change in estimated fair value ( 70 )

Achievement of milestone $ ( 186,054 )

Ending balance as of September 30, 2023 $ 18,450

Ending balance as of March 31, 2024 $ 19,480

Changes to the fair value are recorded as change in fair value of contingent consideration in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

The following tables summarize our cash, cash equivalents and investments (in thousands):

As of September 30, 2023

For the three months ended March 31, 2024, 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.

The following tables summarize our cash, cash equivalents and investments:

As of March 31, 2024

(in thousands) Amortized

Cash and cash equivalents $ 76,646 $ — $ — $ 76,646

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As of December 31, 2023

(in thousands) Amortized

Cash and cash equivalents $ 179,958 $ 13 $ ( 60 ) $ 179,911

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Long-term restricted cash $ 2,422 $ — $ — $ 2,422

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of September 30, 2023 (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, 2024:

(in thousands) Fair Value

Due in one year or less $ 380,422

2 unchanged sentences

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

Investment income included in other income, net on the Condensed Consolidated Statement of Operations and Comprehensive Loss was $ 9.2 million and $ 25.0 million for the three and nine months ended September 30, 2023, respectively, and $ 2.8 million and $ 4.3 million for the three and nine months ended September 30, 2022, respectively.

Investment income included in other income, net on the Condensed Consolidated Statement of Operations and Comprehensive Loss was $ 7.2 million for the three months ended March 31, 2024 and $ 6.8 million for the three months ended March 31, 2023.

BALANCE SHEET COMPONENTS

Inventory, net

Our inventory, net, consisted of the following components (in thousands):

September 30,

Our inventory, net, consisted of the following components:

(in thousands) March 31,

2024 December 31,

3 unchanged sentences

Inventory, net $ 67,343 $ 56,676

Intangible Assets and Goodwill

Goodwill and Intangible Assets

We had goodwill of $ 462.3 million as of March 31, 2024 and December 31, 2023.

Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment.

We performed our annual assessment for goodwill impairment in the second quarter of 2023, noting no impairment.

Intangible Assets

Intangible assets include acquired in-process research and development ("IPR&D") of $ 55.0 million as a result of the Apton acquisition in August 2023.

The IPR&D will remain on our Consolidated Balance Sheet as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development activities.

During the development period following the acquisition, IPR&D will not be amortized, but instead will be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

Upon completion of the development, we will begin to amortize the asset over the life of the product or record an impairment charge if the asset is determined to be impaired.

In addition to IPR&D, definite-lived intangible assets included the following (in thousands, except years):

As of September 30, 2023 As of December 31, 2022

During the development period following the acquisition, IPR&D is not amortized, but instead is tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

Upon completion of the development, we will amortize the asset over the life of the product or record an impairment charge if the asset is determined to be impaired.

We performed our annual assessment of IPR&D in the third quarter of 2023 in connection with the completion of the IPR&D acquired through the acquisition of Omniome, noting no impairment.

In addition to IPR&D, definite-lived intangible assets included the following:

As of March 31, 2024 As of December 31, 2023

(in thousands, except years)

(in years) Gross

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Total $ 411,539 $ ( 16,408 ) $ 395,131 $ 411,539 $ ( 9,555 ) $ 401,984

The developed technology as of September 30, 2023 includes the completed IPR&D from the Omniome acquisition that was completed in September 2023.

The estimated future amortization expense of intangible assets with definite lives is as follows (in thousands):

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Amortization expense for intangible assets that are not directly related to sales generating activities are amortized to operating expenses.

For developed technology intangible assets that are utilized in both revenue generating activities and in research and development activities, we allocate the amortization expense between cost of revenue and operating expenses.

The definite-lived intangible assets are amortized using the straight-line method over their estimated useful lives.

We review definite-lived intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

We had goodwill of $ 463.8 million as of September 30, 2023, which preliminarily increased by $ 53.9 million, due to the Apton acquisition, of which $ 10.9 million relates to a deferred income tax liability, as compared to $ 410.0 million as of December 31, 2022.

Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment.

We performed our annual assessment for goodwill impairment in the second quarter of 2023, noting no impairment.

Deferred Revenue

As of September 30, 2023, we had a total of $ 27.5 million of deferred revenue, $ 22.4 million of which was recorded as deferred revenue, current, and primarily relates to future performance obligations under the Amended and Restated Agreement with Invitae Corporation ("Invitae") and deferred service contract revenues.

The deferred revenue, non-current balance of $ 5.1 million primarily relates to future performance obligations under the Amended and Restated Agreement with Invitae and deferred service contract revenues and is scheduled to be recognized in the next 5 years.

The deferred revenue, non-current balance includes $ 3.0 million that was reclassified from deferred revenue, current to deferred revenue, non-current following receipt of a non-cancellable order from Invitae during the nine months ended September 30, 2023 for partial utilization of the available credits, which is expected to be recognized in revenue after 12 months from September 30, 2023.

Revenue recorded in the three and nine months ended September 30, 2023 includes $ 3.7 million and $ 11.7 million, respectively, that was included in deferred revenue as of December 31, 2022, of which $ 2.1 million and $ 4.2 million was included in product revenue recognized from the partial utilization of available credits by Invitae during the three and nine months ended September 30, 2023, respectively.

As of March 31, 2024, we had a total of $ 23.4 million of deferred revenue, $ 17.3 million of which was recorded as deferred revenue, current, and primarily relates to future performance obligations under the Amended and Restated Agreement with Invitae Corporation ("Invitae") and deferred service contract revenues.

Refer to Note 3 – Invitae Collaboration , in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2023 for more information .

The deferred revenue, non-current balance of $ 6.1 million primarily relates to deferred service contract revenues and is scheduled to be recognized in the next 6 years.

Revenue recorded in the three months ended March 31, 2024 includes $ 3.2 million that was included in deferred revenue as of December 31, 2023.

Product Warranties

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We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred.

Warranty expense is recorded as a component of cost of product revenue.

Warranties are recorded as part of accrued expenses on the Condensed Consolidated Balance Sheets and warranty expense is recorded as a component of cost of product revenue in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

There were no material changes in estimates for the periods presented below.

Changes in the reserve for product warranties were as follows for the periods indicated (in thousands):

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

2023 2022 2023 2022

Changes in the reserve for product warranties were as follows for the periods indicated:

Three Months Ended March 31,

(in thousands) 2024 2023

Balance at beginning of period $ 4,681 $ 1,651

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Payments are made in equal monthly installments including principal and interest.

As of September 30, 2023, the carrying value of term loans outstanding was $ 0.9 million, recorded as part of other liabilities, current on the Condensed Consolidated Balance Sheet.

The interest expense was $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2023, which was included as part of interest expense in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

As of March 31, 2024, the carrying value of term loans outstanding was $ 0.2 million, recorded as part of other liabilities, current on the Condensed Consolidated Balance Sheet.

Interest expense was not material for the three months ended March 31, 2024, and was included as part of interest expense in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

The following table presents the future principal payments on the term loans (in thousands):

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The Exchange Transaction was accounted for as an extinguishment driven by the change in fair value of the embedded conversion option.

We recorded a loss on extinguishment of debt of approximately $ 2.0 million in connection with the Exchange Transaction during the nine months ended September 30, 2023, which represents the difference between the fair value and the principal amount of the 2030 Notes of the debt at the modification date, plus unamortized debt issuance costs of $ 1.5 million related to the respective portion of the 2028 Notes.

We incurred issuance costs related to the 2030 Notes of approximately $ 7.3 million, which were recorded as debt issuance costs and are presented as a reduction to the 2030 Notes on our Consolidated Balance Sheets and are amortized to interest expense using the effective interest method over the term of the 2030 Notes, resulting in an effective interest rate of 1.6 %.

We recorded a loss on extinguishment of debt of approximately $ 2.0 million in connection with the Exchange Transaction during the year ended December 31, 2023, which represents the difference between the fair value and the principal amount of the 2030 Notes of the debt at the modification date, plus unamortized debt issuance costs of $ 1.5 million related to the respective portion of the 2028 Notes.

The debt issuance costs are amortized to interest expense using the effective interest method over the term of the 2030 Notes, resulting in an effective interest rate of 1.6 %.

We also paid accrued but unpaid interest of $ 2.5 million on the 2028 Notes in connection with the Exchange Transaction on June 30, 2023.

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Following the closing of the Exchange Transaction, $ 459.0 million in aggregate principal amount of 2028 Notes remained outstanding with terms unchanged.

The net carrying amount of the liability for the 2030 Notes is included as convertible senior notes, net, non-current in the Condensed Consolidated Balance Sheets as follows (in thousands):

September 30,

The net carrying amount of the liability for the 2030 Notes is included as convertible senior notes, net, non-current in the Condensed Consolidated Balance Sheets as follows:

(in thousands) March 31,

2024 December 31,

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Net carrying amount $ 434,837 $ 434,617

For the three and nine months ended September 30, 2023 and 2022, interest expense for the 2030 Notes was as follows (in thousands):

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

2023 2022 2023 2022

For the three months ended March 31, 2024 and 2023, interest expense for the 2030 Notes was as follows:

Three Months Ended March 31,

(in thousands) 2024 2023

Contractual interest expense $ 1,533 $ —

1 unchanged sentence

Total interest expense $ 1,772 $ —

As of September 30, 2023, the estimated fair value (Level 2) of the 2030 Notes was $ 356.6 million.

As of March 31, 2024, the estimated fair value (Level 2) of the 2030 Notes was $ 343.6 million.

The fair value of the 2030 Notes is estimated using a binomial lattice model that is primarily affected by the trading price of our common stock, market interest rates and volatility.

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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 2028 Notes of approximately $ 4.5 million, which were recorded as debt issuance costs and are presented as a reduction to the 2028 Notes on our Consolidated Balance Sheets and are amortized to interest expense using the effective interest method over the term of the 2028 Notes, resulting in an effective interest rate of 1.6 %.

The net carrying amount of the liability for the 2028 Notes is included as convertible senior notes, net, non-current in the Condensed Consolidated Balance Sheets as follows (in thousands):

September 30,

The debt issuance costs are amortized to interest expense using the effective interest method over the term of the 2028 Notes, resulting in an effective interest rate of 1.6 %.

The net carrying amount of the liability for the 2028 Notes is included as convertible senior notes, net, non-current in the Condensed Consolidated Balance Sheets as follows:

(in thousands) March 31,

2024 December 31,

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Net carrying amount $ 457,708 $ 457,626

For the three and nine months ended September 30, 2023 and 2022, interest expense for the 2028 Notes was as follows (in thousands):

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

2023 2022 2023 2022

For the three months ended March 31, 2024 and 2023, interest expense for the 2028 Notes was as follows:

Three Months Ended March 31,

(in thousands) 2024 2023

Contractual interest expense $ 1,721 $ 3,375

1 unchanged sentence

Total interest expense $ 1,802 $ 3,531

As of September 30, 2023, the estimated fair value (Level 2) of the 2028 Notes was $ 358.6 million.

As of March 31, 2024, the estimated fair value (Level 2) of the 2028 Notes was $ 381.7 million.

The fair value of the 2028 Notes is estimated using a binomial lattice model that is primarily affected by the trading price of our common stock, market interest rates and volatility.

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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, 2023 and December 31, 2022.

No additional liability associated with such indemnification obligations has been recorded as of March 31, 2024 and December 31, 2023.

STOCKHOLDERS’ EQUITY

Underwritten Public Equity Offering

In January 2023, we entered into an underwriting agreement, relating to the public offering of 17.5 million shares of our common stock, $ 0.001 par value per share, at a price to the public of $ 10.00 per share.

Under the terms of the underwriting agreement, we also granted the underwriters a 30 -day option to purchase up to an additional 2.6 million 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 January 2023.

In total, we sold 20.1 million shares of our common stock.

We paid a commission equal to 5.75 % 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 $ 189.7 million, excluding approximately $ 0.5 million of offering expenses.

Refer to Note 10 – Stockholders' Equity , in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2022 for more information on the Company's underwritten public equity offerings and private placement of common stock .

As of September 30, 2023, the Company had share-based compensation awards outstanding under the 2020 Equity Incentive Plan (the “2020 Plan”), the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”), the 2021 adopted Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc.

As of March 31, 2024, the Company had share-based compensation awards outstanding under the 2020 Equity Incentive Plan (the “2020 Plan”), the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”), the 2021 adopted Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc.

(the “Omniome Plan”) and the 2010 Employee Stock Purchase Plan, from which we issued equity awards and employee stock.

As of September 30, 2023, we had 12.3 million shares remaining and available for future issuance under the 2020 Plan, Inducement Plan, and the Omniome Plan.

As of March 31, 2024, we had 1.5 million shares remaining and available for future issuance under the 2020 Plan, Inducement Plan, and the Omniome Plan.

Shares remaining and available for future issuance reflect shares that may become eligible to vest upon the achievement of maximum targets for certain equity awards.

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Stock Options

Time-based Stock Options

The following table summarizes stock option activity for time-based awards (shares in thousands):

The following table summarizes stock option activity for time-based awards:

(Shares in thousands)

of shares Weighted

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Canceled ( 239 ) 11.87

Outstanding at September 30, 2023 13,211 $ 10.60

Performance-based Stock Options

The following table summarizes stock option activity for performance-based awards (shares in thousands):

of shares Weighted

exercise price

Outstanding at December 31, 2022 258 $ 4.71

Exercised ( 251 ) 4.71

Canceled ( 4 ) 4.71

Outstanding at September 30, 2023 3 $ 4.74

Outstanding at March 31, 2024 12,237 $ 10.90

Restricted Stock Units (“RSU”) and Performance Stock Units ("PSU")

We issue RSUs for which the respective shares vest when the requisite service period is achieved.

We issue PSUs for which the number of shares issuable in the third year of the performance period based on performance relative to specified revenue targets and continued employment through the vesting period.

We issue PSUs for which the number of shares issuable is based on performance relative to specified revenue targets and continued employment through the vesting period.

These PSU shares are issuable following the third year of the performance period.

Maximum achievement of the revenue goal under the PSUs will result in up to 200 % of the target number of shares subject to the PSUs to become eligible to vest, while not meeting the minimum achievement of the revenue goal under the PSUs will result in no shares subject to the PSUs becoming eligible to vest.

The following table summarizes the time-based RSUs and PSUs activity (shares in thousands):

The following table summarizes the time-based RSUs and PSUs activity:

Restricted Stock Units (RSU) Performance Stock Units (PSU) Weighted average grant date

(Shares in thousands) RSU PSU

Outstanding at December 31, 2023 11,308 541 $ 12.06 $ 9.43

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Forfeited ( 587 ) — 9.92 —

Outstanding at September 30, 2023 11,959 541 $ 12.23 $ 9.43

Outstanding at March 31, 2024 20,088 541 $ 7.80 $ 9.43

Employee Stock Purchase Plan (“ESPP”)

Shares issued under our ESPP wer e 1,735,058 and 1,878,168 during the nine months ended September 30, 2023 and 2022, respectively.

In February 2023, an additional 4.0 million shares were reserved under the ESPP.

As of September 30, 2023, 12.2 million shares of our common stock remain available for issuance under our ESPP.

Shares issued under our ESPP wer e 1,194,436 and 1,052,908 during the three months ended March 31, 2024 and 2023, respectively.

In the first quarter of 2024, an additional 4.0 million shares were reserved under the ESPP.

As of March 31, 2024, 15.0 million shares of our common stock remain available for issuance under our ESPP.

Share-Based Compensation

The following table summarizes share-based compensation expense (in thousands):

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

2023 2022 2023 2022

The following table summarizes share-based compensation expense:

Three Months Ended March 31,

(in thousands) 2024 2023

Cost of revenue $ 2,106 $ 1,948

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We estimate forfeitures of stock options, RSUs and shares purchased under our ESPP which is utilized to determine the compensation expense to be recorded over the requisite service period.

• Expected Term - The expected term used in the Black-Scholes valuation method represents the period that the stock options are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock options and vesting schedules.

• Expected Term - The expected term used in the Black-Scholes valuation method represents the period that the stock options are expected to be outstanding and is determined based on historical experience of similar awards, considering the contractual terms of the stock options and vesting schedules.

• Expected Volatility - The expected volatility used in the Black-Scholes valuation method is derived from the implied volatility related to our share price over the expected term.

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Treasury constant maturities issued with a term equivalent to the expected terms.

For the three months ended March 31, 2023, there were no employee stock options granted.

The fair value of employee stock options was estimated using the following assumptions:

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term in years 4.9

1 unchanged sentence

Risk-free interest rate 4.32 %

0.41 % — 3.66 %

Dividend yield —

1 unchanged sentence

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

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term in years 0.5 — 2.0

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Diluted net 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 equity awards using the treasury stock method.

The following table presents the calculation of the basic and diluted net loss per share amounts presented in the Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts):

The following table presents the calculation of the basic and diluted net loss per share amounts presented in the Condensed Consolidated Statements of Operations and Comprehensive Loss:

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands, except per share amounts)

Net loss $ ( 78,178 ) $ ( 88,015 )

Weighted average shares used in computing basic net loss 255,001 225,123 249,082 223,981

Weighted average shares used in computing basic net loss per share 269,578 242,032

Basic net loss per share $ ( 0.29 ) $ ( 0.36 )

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Diluted net loss per share $ ( 0.29 ) $ ( 0.36 )

The following shares issuable upon conversion of the convertible senior notes and outstanding equity awards were excluded from the computation of diluted net loss per share for the periods presented because the effect of including such shares would have been antidilutive (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands) 2024 2023

Shares issuable upon conversion of convertible senior notes 31,063 20,690

Equity Awards 36,924 30,366

A summary of our revenue by geographic location is as follows (in thousands):

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

2023 2022 2023 2022

Business Acquisitions for detailed information on contingently issuable shares due upon achievement of a milestone.

Stockholders’ Equity for detailed information on equity awards.

A summary of our revenue by geographic location is as follows:

Three Months Ended March 31,

(in thousands) 2024 2023

Americas $ 17,678 $ 19,071

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Total $ 38,810 $ 38,900

A summary of our revenue by category is as follows (in thousands):

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

2023 2022 2023 2022

A summary of our revenue by category is as follows:

Three Months Ended March 31,

(in thousands) 2024 2023

Instrument revenue $ 19,025 $ 20,700

3 unchanged sentences

Total revenue $ 38,810 $ 38,900

SUBSEQUENT EVENTS

On April 16, 2024, we announced plans to reduce operating costs.

In connection with our expense reduction initiatives, we began implementing a reduction of our global workforce and will close our San Diego office.

As a result of these actions, we expect to record a restructuring charge, comprised primarily of compensation and benefits afforded to terminated employees and lease-related costs.

At this time, we are unable to make a determination of the estimated amount or range of amounts for charges to be incurred in connection with these actions.

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