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Item 1. Financial Statements

2024-08-09 compared with 2024-05-09 · 172 added, 97 removed, 503 unchanged (35% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

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

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

2024 December 31,

35 unchanged sentences

Authorized 1,000,000 shares;

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

issued and outstanding 272,491 and 267,744 shares at June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,583,523 2,539,892

6 unchanged sentences

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share amounts) 2024 2023 2024 2023

6 unchanged sentences

Amortization of acquired intangible assets

2,628 183 3,971 366

Loss on purchase commitment

Total cost of revenue 30,075 32,027 57,603 61,166

3 unchanged sentences

Sales, general and administrative 45,877 40,573 89,630 80,391

Goodwill impairment 93,200 — 93,200 —

Amortization of acquired intangible assets 4,222 — 9,728 —

2 unchanged sentences

Operating loss ( 175,846 ) ( 73,175 ) ( 257,208 ) ( 164,427 )

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

Interest expense ( 3,542 ) ( 3,554 ) ( 7,117 ) ( 7,184 )

15 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Common Stock Additional

Capital Accumulated

Comprehensive Income (Loss) Accumulated

Comprehensive

Loss Accumulated

Deficit Total

1 unchanged sentence

(in thousands) Shares Amount

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

Net loss — — — — ( 173,319 ) ( 173,319 )

Other comprehensive loss — — — ( 217 ) — ( 217 )

Issuance of common stock in conjunction with equity plans 211 — — — — —

Share-based compensation expense — — 17,219 — — 17,219

Balance at June 30, 2024 272,491 $ 272 $ 2,583,523 $ ( 523 ) $ ( 2,090,572 ) $ 492,700

Six Months Ended June 30, 2024

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders'

(in thousands) Shares Amount

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

3 unchanged sentences

Share-based compensation expense — — 36,744 — — 36,744

Balance at June 30, 2024 272,491 $ 272 $ 2,583,523 $ ( 523 ) $ ( 2,090,572 ) $ 492,700

Three Months Ended June 30, 2023

Common Stock Additional

Capital Accumulated

Comprehensive Loss Accumulated

Deficit Total

Stockholders'

(in thousands) Shares Amount

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

Three Months Ended March 31, 2023

Net loss — — — — ( 69,833 ) ( 69,833 )

Other comprehensive loss — — — ( 762 ) — ( 762 )

Issuance of common stock in conjunction with equity plans 670 — 2,586 — — 2,586

Share-based compensation expense — — 17,891 — — 17,891

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

Six Months Ended June 30, 2023

Common Stock Additional

Capital Accumulated

Comprehensive Loss

Comprehensive Loss Accumulated

Deficit Total

4 unchanged sentences

Other comprehensive income — — — 2,079 — 2,079

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

20,125 20 189,180 — — 189,200

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 3,843 3 9,818 — — 9,821

Share-based compensation expense — — 35,843 — — 35,843

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

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

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2024 2023

3 unchanged sentences

Depreciation 6,739 5,584

Amortization of intangible assets 6,853 234

Amortization of acquired intangible assets 13,706 466

Amortization of right-of-use assets 5,858 3,330

Share-based compensation expense 36,744 35,843

Goodwill impairment 93,200 —

Accretion of discount and amortization of premium on marketable securities, net ( 7,572 ) ( 6,113 )

Change in the estimated fair value of contingent consideration ( 70 ) 14,231

Loss on extinguishment of debt — 2,033

Inventory provision 3,922 4,295

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Maturities of investments 351,623 311,129

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

Net cash provided by (used in) investing activities 42,701 ( 171,144 )

Cash flows from financing activities

1 unchanged sentence

Proceeds from issuance of common stock from equity plans 6,891 9,821

Payment of debt issuance costs — ( 6,836 )

Notes payable principal payoff ( 490 ) ( 911 )

Net cash provided by financing activities 6,401 191,274

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

Net decrease in cash, cash equivalents, and restricted cash ( 80,843 ) ( 116,302 )

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

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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 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.

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 finite-lived assets, asset impairment assessments, computation of provisions for income taxes, and valuations related to our convertible senior notes.

Actual results could differ materially from these estimates.

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Concentration and Other Risks

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.

For the three months ended June 30, 2024, no customer exceeded 10% of total revenue during the period.

For the three months ended June 30, 2023, one customer accounted for approximately 10 % of total revenue during the period.

For the six months ended June 30, 2024 and June 30, 2023, no customer exceeded 10% of total revenue during the respective periods.

As of June 30, 2024, 49 % of our accounts receivable were from domestic customers, compared to 49 % as of December 31, 2023.

As of June 30, 2024, one customer represented approximately 11 % of our net accounts receivable, while one customer represented approximately 10 % of our net accounts receivable as of December 31, 2023.

Recent Accounting Pronouncements

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(“Apton”), a California-based genomics company focused on developing a high throughput short-read sequencer using highly differentiated optics and image processing, paired with novel clustering and chemistry (the “Apton acquisition”).

In connection with the Apton acquisition, all outstanding equity securities of Apton were cancelled in exchange for s hares of our common stock with a fair value of $ 76.6 million , cash of $ 0.2 million , and contingent consideration with a preliminary estimated fair value of $ 18.5 million .

Excluded from consideration transferred was $ 1.3 million attributable to accelerated share-based compensation expense.

The fair value of the 6,121,571 common shares issued was determined based on the closing market price of our common stock on the acquisition date.

In connection with the Apton acquisition, contingent consideration of $ 25.0 million, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock, is due upon the achievement of a milestone, defined as the achievement of $ 50.0 million in revenue associated with Apton's technology, provided that the milestone event occurs prior to the 5 -year anniversary of the closing date of the acquisition.

In connection with the Apton acquisition, contingent consideration of $ 25.0 million, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock, is due upon the achievement of a milestone, defined as the achievement of $ 50.0 million in revenue associated with Apton's technology, provided that the milestone event occurs prior to the five-year anniversary of the closing date of the acquisition.

At this time, the number of shares, if any, to be issued in connection with the achievement of the specified milestone is not known and will be calculated based on the daily volume-weighted average price of our common stock for the twenty trading days ending on and including the fifth trading day immediately prior to the occurrence of the specified milestone.

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The fair value of the contingent consideration liability is calculated, with the assistance from a third-party valuation firm, using a Monte Carlo Simulation to estimate the volatility and systematic relative risk of revenues subject to sales milestone payments and discounting the associated cash payment amounts to their present values using a credit-risk-adjusted interest rate.

We allocated the consideration transferred to the identifiable assets acquired and liabilities assumed based on preliminary estimates of their respective fair values at the date of the completion of the Apton acquisition, and such allocation is subject to adjustment for up to one year after the close of the acquisition as additional information is obtained.

The major classes of assets and liabilities to which we have allocated the total fair value of the consideration transferred, based on the preliminary estimated fair values were as follows (in thousands):

The acquisition was accounted for as a business combination and, accordingly, the total fair value of the consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values on the acquisition date.

As of December 31, 2023, the major classes of assets and liabilities to which we have allocated the total fair value of the consideration transferred were as follows (in thousands):

Cash and cash equivalents $ 97

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Total consideration transferred $ 94,008

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 have finalized the purchase price allocation for the Apton acquisition.

There were no material adjustments from those amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

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

2 unchanged sentences

The excess of the value of consideration paid over the aggregate fair value of those net assets has been recorded as goodwill.

We recognized goodwill of $ 52.3 million, based on preliminary estimates, which is primarily attributable to the synergies expected to occur from the integration of Apton and is not deductible for income tax purposes.

We preliminarily allocated $ 55.0 million of the purchase price to acquired in-process research and development ("IPR&D").

We recognized goodwill of $ 52.3 million, which is primarily attributable to the synergies expected to occur from the integration of Apton and is not deductible for income tax purposes.

We allocated $ 55.0 million of the purchase price to acquired in-process research and development ("IPR&D").

The fair value of the IPR&D was determined, with the assistance of a third-party valuation firm, using an income approach based on a forecast of expected future cash flows.

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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

June 30, 2024 December 31, 2023

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

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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.

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.

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

As of June 30, 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.

2 unchanged sentences

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:

Changes in the estimated fair value of the contingent consideration liability for the six months ended June 30, 2024 were as follows:

(in thousands) Level 3

1 unchanged sentence

Change in estimated fair value ( 70 )

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

Ending balance as of June 30, 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.

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

For the six months ended June 30, 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, restricted cash, and investments:

As of June 30, 2024

(in thousands) Amortized

Cash and cash equivalents $ 99,531 $ — $ ( 5 ) $ 99,526

Commercial paper 10,078 — — 10,078

Corporate debt securities 84,326 59 ( 146 ) 84,239

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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 March 31, 2024:

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

(in thousands) Fair Value

3 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 $ 7.2 million for the three months ended March 31, 2024 and $ 6.8 million for the three months ended March 31, 2023.

Investment income included in other income, net on the Condensed Consolidated Statement of Operations and Comprehensive Loss was $ 6.5 million and $ 13.8 million for the three and six months ended June 30, 2024, respectively, and $ 9.0 million and $ 15.8 million for the three and six months ended June 30, 2023, respectively.

BALANCE SHEET COMPONENTS

1 unchanged sentence

Our inventory, net, consisted of the following components:

(in thousands) March 31,

(in thousands) June 30,

2024 December 31,

4 unchanged sentences

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.

We performed our annual assessment for goodwill impairment in the second quarter of 2024, as of the beginning of April 2024, noting no impairment.

Based primarily on the sustained decrease in our stock price during the second quarter and overall market capitalization as of the end of the second quarter of 2024 as well as other factors, we concluded that there was an indicator that it was more likely than not that the fair value of the reporting unit was less than its carrying amount that required an interim impairment test be performed on goodwill.

As a result of the interim impairment test, we concluded that the carrying amount of the entity-level reporting unit exceeded fair value and recorded a $ 93.2 million goodwill impairment charge for the three months ended June 30, 2024 in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The decline in the fair value of the reporting unit below its carrying value resulted primarily from the decline in our stock price and changes in the timing of expected future cash flows as compared to our initial long-term plan due to continued impact of longer than expected median sales cycles resulting from various factors.

We performed our impairment test using a combination of an income and a market approach to determine the fair value of goodwill.

The income approach utilized estimated discounted cash flows, while the market approach utilized comparable company information.

Significant assumptions used in the income approach include revenue growth expectations and a selected discount rate of 12.0 %.

The discount rate is based on the weighted average cost of capital, determined using market, industry data, and related risk factors.

The assessment is a level 3 measurement due to its reliance on certain unobservable inputs and significant management judgment.

The assumptions used are inherently subject to uncertainty and small changes in these assumptions could have a significant impact on the concluded value.

An increase of 100 basis points to the discount rate used in our assessment would have resulted in additional goodwill impairment of approximately $ 85 million.

The assessed fair value was deemed reasonable based on a market capitalization reconciliation and a supportable control premium.

As a result of the impairment, the carrying value of goodwill now approximates fair value.

Changes in our future operating results, cash flows, share price, market capitalization or discount rates used when conducting future goodwill impairment tests could affect the estimated fair value of goodwill and may result in additional impairment charges in the future.

Changes to goodwill during six months ended June 30, 2024 were as follows:

(in thousands)

Balance as of December 31, 2023

Balance as of June 30, 2024

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.

Intangible assets include acquired 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 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.

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

As of June 30, 2024 As of December 31, 2023

(in thousands, except years)

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Total $ 411,539 $ ( 23,261 ) $ 388,278 $ 411,539 $ ( 9,555 ) $ 401,984

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

The estimated future amortization expense of intangible assets with definite lives is as follows:

(in thousands)

Remainder of 2024 $ 13,706

1 unchanged sentence

Total $ 388,278

Amortization of intangible assets is included within our cost of revenue if the costs and expenses related to the intangible assets are attributable to revenue generating activities.

Amortization of acquired intangible assets is included within our cost of revenue if the costs and expenses related to the intangible assets are attributable to revenue generating activities.

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.

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

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

Deferred Revenue

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.

As of June 30, 2024, we had a total of $ 24.9 million of deferred revenue, $ 19.2 million of which was recorded as deferred revenue, current, and primarily relates to deferred service contract revenues and future performance obligations under the Amended and Restated Agreement with Invitae Corporation ("Invitae").

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.

The deferred revenue, non-current balance of $ 5.7 million primarily relates to deferred service contract revenues and is scheduled to be recognized in the next five years .

Revenue recorded in the three and six months ended June 30, 2024 includes $ 2.3 million and $ 5.5 million, respectively, 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.

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.

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:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

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In connection with the acquisition of Omniome, we acquired $ 1.3 million in short-term debt and $ 3.0 million in long-term debt relating to a term loan facility that Omniome obtained in April 2020.

Borrowings on the term loan facility were used to fund Omniome’s purchases of equipment, which serves as collateral.

Each term loan has a term of 43 months and bears a fixed interest rate of approximately 17 % annually.

The fee for the elective option to prepay all, but not less than all, of the borrowed amounts at any time after the 24 th month and before the 43 rd month after the commencement date, is 4 % of the outstanding loan balance.

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

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):

Remainder of 2024 $ 152

As of June 30, 2024, no amounts were outstanding on the term loans.

Interest expense was not material for the three and six months ended June 30, 2024, and was included as part of interest expense in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

CONVERTIBLE SENIOR NOTES

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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,

(in thousands) June 30,

2024 December 31,

3 unchanged sentences

Net carrying amount $ 435,055 $ 434,617

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

Interest expense for the 2030 Notes was not material for the three and six months ended June 30, 2023.

Interest expense for the 2030 Notes for the three and six months ended June 30, 2024 was as follows:

(in thousands) Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

Contractual interest expense $ 1,516 $ 3,049

1 unchanged sentence

Total interest expense $ 1,752 $ 3,524

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

As of June 30, 2024, the estimated fair value (Level 2) of the 2030 Notes was $ 326.4 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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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,

(in thousands) June 30,

2024 December 31,

2 unchanged sentences

Net carrying amount $ 457,789 $ 457,626

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

Three Months Ended March 31,

Interest expense for the 2028 Notes was as follows:

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

2 unchanged sentences

Total interest expense $ 1,802 $ 3,474 $ 3,604 $ 7,005

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

As of June 30, 2024, the estimated fair value (Level 2) of the 2028 Notes was $ 384.8 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.

RESTRUCTURING

During the three months ended June 30, 2024, we initiated expense reduction initiatives that include workforce reductions, the closing of our San Diego office, and other actions to reduce annualized run-rate operating expenses.

A summary of the pre-tax restructuring charges are as follows:

(in thousands) Three Months Ended June 30, 2024 Cumulative charges recorded since inception

Employee separation costs

$ 10,051 $ 10,051

Other costs 7,977 7,977

Total restructuring charges (1)

$ 18,028 $ 18,028

(1) $ 7.5 million was recorded in sales, general and administrative expense;

$ 5.9 million in research and development expense;

and $ 4.6 million in cost of revenue.

Charges included in employee separation costs include approximately $ 5.5 million related to salaries, wages and other employee benefits paid to terminated employees pursuant to the Worker Adjustment and Retraining Notification (WARN) Act and approximately $ 4.5 million of severance costs.

Charges included in other costs are primarily related to accelerated amortization and depreciation of $ 3.0 million for the right-of-use asset, leasehold improvements, and furniture and fixtures relating to the planned abandonment of the San Diego office, as well as charges for excess inventory of $ 3.8 million primarily relating to a decrease in internal demand resulting from the expense reduction initiatives which were recognized in cost of product revenues.

The accelerated amortization and depreciation, which was recognized in sales, general and administrative expense, was determined as a result of the Company's change in estimate pertaining to its remaining useful life of the San Diego office utilizing the estimated date on which it plans to abandon the San Diego office.

The lease liability pertaining to the San Diego office was also remeasured during the three months ended June 30, 2024 resulting in a reduction in the operating lease liability balance of $ 4.4 million, which was offset against the right-of-use asset on the Condensed Consolidated Balance Sheets.

As of June 30, 2024, we had approximately $ 5.1 million assets related to our San Diego office, consisting primarily of unamortized right-of-use assets and leasehold improvements, the balance of which will be recognized over the remaining estimated useful life.

A summary of the liabilities related to the restructuring is as follows:

(in thousands) Employee Separation Costs

Expense recorded in Q2 2024

$ 10,051 $ 1,143 $ 11,194

Cash paid during Q2 2024

( 6,088 ) ( 709 ) ( 6,797 )

Amount recorded in current liabilities as of June 30, 2024

$ 3,963 $ 434 $ 4,397

Estimated total restructuring costs to still be incurred $ — $ 8,332 $ 8,332

The table above excludes noncash activities and amounts incurred relating to the San Diego office lease liability.

The ending balance of the San Diego office lease liability as of June 30, 2024 is $ 6.3 million, and is included in operating lease liabilities, current on the Condensed Consolidated Balance Sheets.

Most employee separation costs are expected to be incurred and paid by the end of 2024.

We also plan to exit our San Diego office by September 2024.

COMMITMENTS AND CONTINGENCIES

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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 March 31, 2024 and December 31, 2023.

No additional liability associated with such indemnification obligations has been recorded as of June 30, 2024 and December 31, 2023.

STOCKHOLDERS’ EQUITY

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.

As of June 30, 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 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.

On June 18, 2024, stockholders approved an amendment to the 2020 Plan, and we reserved an additional 20 million shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan.

As of June 30, 2024, we had 24.9 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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Canceled ( 582 ) 11.36

Outstanding at March 31, 2024 12,237 $ 10.90

Outstanding at June 30, 2024 12,157 $ 10.69

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

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

(Shares in thousands) RSU PSU

(shares in thousands)

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

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Forfeited ( 4,118 ) ( 39 ) 8.39 9.43

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

Outstanding at June 30, 2024 16,653 502 $ 7.55 $ 9.43

Employee Stock Purchase Plan (“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.

Shares issued under our ESPP wer e 1,194,436 and 1,052,908 durin g the six months ended June 30, 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.

As of June 30, 2024, 15.0 million shares of our common stock remain avai lable for issuance under our ESPP.

Share-Based Compensation

The following table summarizes share-based compensation expense:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

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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:

Three Months Ended March 31,

Six Months Ended June 30,

Expected term in years 4.9 4.9

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

Three Months Ended March 31,

Six Months Ended June 30,

Expected term in years 0.5 — 2.0

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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

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share amounts)

2024 2023 2024 2023

Net loss $ ( 173,319 ) $ ( 69,833 ) $ ( 251,497 ) $ ( 157,848 )

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

Weighted average shares used in computing

basic net loss per share 272,385 250,070 270,982 246,074

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

Basic net loss per share $ ( 0.64 ) $ ( 0.28 ) $ ( 0.93 ) $ ( 0.64 )

Weighted average shares used in computing

diluted net loss per share 272,385 250,070 270,982 246,074

Diluted net loss per share $ ( 0.64 ) $ ( 0.28 ) $ ( 0.93 ) $ ( 0.64 )

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:

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

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

Shares issuable upon conversion of

convertible senior notes 31,063 31,063 31,063 31,063

Equity Awards 33,370 29,773 33,370 29,773

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

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A summary of our revenue by category is as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

4 unchanged sentences

Total revenue $ 36,013 $ 47,573 $ 74,823 $ 86,473

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