What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-09 · 157 added, 72 removed, 130 unchanged (64% of the section changed)

25 unchanged sentences

• Continue the development of our benchtop long read and high throughput short-read platforms;

• Implement projects to improve our gross margin and drive manufacturing efficiencies;

• Reduce certain annualized run-rate operating expenses (including the planned reduction of our annualized run-rate operating expenses by the end of 2024).

• Improve our gross margin and drive manufacturing efficiencies;

• Reduce annualized run-rate operating expenses.

We will continue to leverage our commercial organization and significantly improve our products' efficiency and usability to seek to reach a broader customer base.

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Collaborative arrangements add to the awareness of our products and service offerings and may drive new applications for use of our technology.

Recent Developments

During the second quarter of 2024, we announced plans to reduce certain annualized run-rate operating expenses by the end of 2024, with the intent of better aligning our organizational structure and resources with our strategic initiatives.

Our planned expense reduction measures comprise, among other things, workforce reductions, facilities downsizing and a refined pipeline of development activities.

On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of indefinite-lived and long-lived assets.

However, these estimates could change in future periods based on events or changes in circumstances, which could result in material impairment charges.

Refer to the Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the Company's asset impairment assessments.

During the second quarter of 2024, we announced plans to reduce annualized run-rate operating expenses by the end of 2024, with the intent of better aligning our organizational structure and resources with our strategic initiatives.

Our planned and ongoing expense reduction initiatives comprise, among other things, workforce reductions, facilities downsizing and a refined pipeline of development activities, with the majority of the expense reduction activities already initiated during the three months ended June 30, 2024.

For the three months ended June 30, 2024, we incurred approximately $18.0 million of restructuring charges primarily related to employee separation costs, accelerated amortization and depreciation for right-of-use assets, leasehold improvements, and furniture and fixtures relating to the planned abandonment of the San Diego office, as well as charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives.

We also anticipate incurring approximately $8.3 million in additional costs over the remainder of 2024.

Restructuring in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Financial Overview

Key highlights of the three months ended March 31, 2024 consolidated financial results include the following:

• Revenue decreased slightly to $38.8 million for the three months ended March 31, 2024, as compared to $38.9 million for the three months ended March 31, 2023.

Revenue was comprised of $19.0 million in instrument revenue, $16.0 million in consumables revenue and $3.8 million in service and other revenue for the three months ended March 31, 2024.

The decrease was due to lower Revio unit sales which was partially offset by higher consumable sales.

• Gross profit as a percentage of revenue (gross margin) was 29% for the three months ended March 31, 2024, compared to 25% for the three months ended March 31, 2023.

Gross margin increased primarily due to adjustments in the first quarter of 2023 that did not recur in the first quarter of 2024 of approximately $3.5 million relating to excess consumables inventory, partially offset by an increase in amortization of acquired intangible assets.

• Loss from operations decreased $9.9 million, or 11%, to $81.4 million for the three months ended March 31, 2024, as compared to $91.3 million for the three months ended March 31, 2023, driven primarily by a decrease of $8.4 million of operating expenses, including a $12.3 million decrease in the change in the fair value of the contingent consideration and a $5.5 million decrease in research and development expenses, partially offset by a $3.9 million increase in sales, general and administrative expenses and a $5.5 million increase in amortization of acquired intangible assets.

• Cash, cash equivalents, and short-term investments were $561.9 million at March 31, 2024, which represents a 11% decrease compared to the balance at December 31, 2023.

Macroeconomic dynamics impacting the Company may include rising inflation, geopolitical tensions, volatile capital markets, and fluctuating exchange rates.

The median sales cycle for Revio instrument purchases increased more than expected in the first quarter of 2024.

Key highlights of the six months ended June 30, 2024 consolidated financial results include the following:

• Revenue decreased to $74.8 million for the six months ended June 30, 2024, as compared to $86.5 million for the six months ended June 30, 2023.

Revenue was comprised of $33.7 million in instrument revenue, $33.0 million in consumables revenue and $8.1 million in service and other revenue for the six months ended June 30, 2024.

Revenue was comprised of $50.6 million in instrument revenue, $27.7 million in consumables revenue and $8.2 million in service and other revenue for the six months ended June 30, 2023.

The decrease was primarily due to lower Revio unit sales, which was partially offset by higher consumable sales.

• Gross profit as a percentage of revenue (gross margin) was 23% for the six months ended June 30, 2024, compared to 29% for the six months ended June 30, 2023.

Gross margin decreased for the six months ended June 30, 2024 primarily due to the decrease in revenue described above, $4.6 million of restructuring charges, and an increase of $3.6 million in amortization of acquired intangible assets, partially offset by adjustments in the first quarter of 2023 of approximately $3.5 million relating to excess consumables inventory.

• Loss from operations increased $92.8 million to $257.2 million for the six months ended June 30, 2024, as compared to $164.4 million for the six months ended June 30, 2023, primarily driven by an increase in operating expenses and the decrease in revenue described above, partially offset by a decrease in cost of revenue.

Operating expenses increased $84.7 million primarily driven by a $93.2 million goodwill impairment charge, $13.4 million of restructuring charges, and a $9.7 million increase in amortization of acquired intangible assets, partially offset by a $14.3 million decrease in the change in the fair value of the contingent consideration and a decrease in research and development expenses.

We anticipate research and development expense and sales, general and administrative expense to continue to decrease for the remainder of 2024 as compared to the prior year driven by our expense reduction initiatives.

• Cash, cash equivalents, and short-term investments were $509.8 million at June 30, 2024, which represents a 19% decrease compared to the balance at December 31, 2023.

The median sales cycle for Revio instrument purchases continues to be longer than expected during 2024.

We believe this has been caused by, among other reasons, the uncertainty surrounding the funding for new capital equipment, particularly in the U.S.

procurement delays;

procurement delays, particularly in the Asia-Pacific and Europe regions;

small-to-mid-size existing customers yet to increase their sample volumes to drive an upgrade to Revio;

and an increasing proportion of the sales pipeline being comprised of new customers, which have shown they have longer sales cycles compared to existing PacBio customers.

new customers, which have shown they have longer sales cycles compared to existing PacBio customers;

and sample volumes materializing slower than expected for some potential Revio customers.

We believe our consumables revenue was also impacted primarily by, among other reasons, slower-than-expected ramp-up in sequencing by our small- to mid-sized customers, many of whom are new to PacBio;

sample delays impacting sequencing volume in the quarter at certain large customers;

sample delays impacting sequencing volume at certain large customers;

and some service providers in China operating at lower utilization as a result of the difficult funding environment.

Macroeconomic dynamics impacting the Company in the future may include rising inflation, geopolitical tensions, volatile capital markets, and fluctuating exchange rates.

These factors could continue to impact our revenues and results of operations in future periods;

however, the magnitude and duration of these impacts is uncertain and inherently unpredictable.

On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of indefinite-lived and finite-lived assets.

However, these estimates could change in future periods based on events or changes in circumstances, which could result in material impairment charges.

We recorded a $93.2 million goodwill impairment charge for the three months ended June 30, 2024.

See additional discussion below in Results of Operations, as well as Note 4 .

Bal ance Sheet Components in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Additionally, refer to the Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the Company's asset impairment assessments.

See the Risk Factors section for further discussion.

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

(in thousands, except percentages) 2024 2023 $ Change % Change

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2,628 183 2,445 1336 %

Loss on purchase commitment

Total cost of revenue 30,075 32,027 (1,952) (6 %)

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Sales, general and administrative 45,877 40,573 5,304 13 %

Goodwill impairment 93,200 — 93,200 —

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

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Operating loss (175,846) (73,175) (102,671) 140 %

Loss on extinguishment of debt — (2,033) 2,033 (100) %

Interest expense (3,542) (3,554) 12 — %

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Net loss $ (173,319) $ (69,833) $ (103,486) 148 %

Revenue decreased slightly to $38.8 million for the three months ended March 31, 2024, as compared to $38.9 million for the three months ended March 31, 2023.

Instrument revenue decreased $1.7 million, or 8%, to $19.0 million for the three months ended March 31, 2024, as compared to $20.7 million for the three months ended March 31, 2023, primarily due to the sale of 28 Revio systems during the three months ended March 31, 2024 compared to 32 Revio systems during the three months ended March 31, 2023.

Consumables revenue increased $2.0 million, or 15%, to $16.0 million for the three months ended March 31, 2024, as compared to $14.0 million for the three months ended March 31, 2023.

Revenue decreased $11.6 million, or 24% to $36.0 million for the three months ended June 30, 2024, as compared to $47.6 million for the three months ended June 30, 2023.

Instrument revenue decreased $15.2 million, or 51%, to $14.7 million for the three months ended June 30, 2024, as compared to $29.9 million for the three months ended June 30, 2023, primarily due to the sale of 24 Revio systems during the three months ended June 30, 2024 compared to 45 Revio systems during the three months ended June 30, 2023.

Consumables revenue increased $3.3 million, or 24%, to $17.0 million for the three months ended June 30, 2024, as compared to $13.7 million for the three months ended June 30, 2023.

The increase in consumable sales was primarily due to higher Revio consumables sales attributable to the growth in the Revio instrument installed base, partially offset by a decline in Sequel II and IIe consumables as customers transition to Revio.

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While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Service and other revenue decreased $0.4 million, or 10%, to $3.8 million for the three months ended March 31, 2024, as compared to $4.2 million for the three months ended March 31, 2023, primarily due to customers transitioning to the Revio system, which includes a first-year warranty, and opting not to renew their Sequel II/IIe plans.

We expect service revenue to begin to increase during the second half of the year as we anticipate customers transitioning their service contracts to Revio following the standard warranty period.

Service and other revenue increased $0.3 million, or 9%, to $4.3 million for the three months ended June 30, 2024, as compared to $3.9 million for the three months ended June 30, 2023.

Cost of Revenue, Gross Profit and Gross Margin

Cost of product revenue decreased $2.7 million, or 11%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

The cost of product revenue decreased primarily due to lower instrument sales and adjustments of approximately $3.5 million recognized in the first quarter of 2023 primarily relating to excess consumables inventory due to the product transition to Revio, partially offset by higher consumable sales and for the three months ended March 31, 2024.

Cost of revenue included share-based compensation expense of $2.1 million and $1.9 million during the three months ended March 31, 2024 and 2023, respectively.

Gross profit increased $1.5 million, or 16%, to $11.3 million for the three months ended March 31, 2024, compared to $9.8 million for the three months ended March 31, 2023.

Gross margin was 29% for the three months ended March 31, 2024, compared to gross margin of 25% for the three months ended March 31, 2023.

We anticipate gross margin to increase as we implement projects designed to improve our product costs and drive manufacturing efficiencies.

However, gross margins could fluctuate depending on the timing of the reduction of Revio instrument product costs and changes in Revio consumable volume.

Additionally gross margins may be impacted by manufacturing efficiencies, improvement of warranty costs, and fluctuations in average selling prices.

Cost of product revenue decreased $5.3 million, or 19%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 primarily driven by the decrease in revenue described above, partially offset by restructuring charges of $4.6 million, including charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the three months ended June 30, 2024.

Cost of revenue included amortization attributable to acquired intangible assets of $2.6 million that are related to sales generating activities.

Cost of revenue included share-based compensation expense of $1.1 million and $1.2 million during the three months ended June 30, 2024 and 2023, respectively.

Gross profit decreased $9.6 million, or 62%, to $5.9 million for the three months ended June 30, 2024, compared to $15.5 million for the three months ended June 30, 2023.

Gross margin was 16% for the three months ended June 30, 2024, compared to gross margin of 33% for the three months ended June 30, 2023.

The decrease was primarily due to the decrease in revenue described above, restructuring charges, and an increase of $2.4 million in amortization of acquired intangible assets.

We anticipate higher gross margins from ongoing cost reductions on the Revio instrument and consumable yield improvements, but fluctuations may occur based on implementation timing and consumable volume changes.

Gross margins may also be affected by product mix, manufacturing efficiencies, warranty cost improvements, and average selling price fluctuations.

Research and Development Expense

Research and development expense decreased by $5.5 million, or 11%, to $43.5 million for the three months ended March 31, 2024, compared to $48.9 million for the three months ended March 31, 2023.

The decrease was primarily driven by a decrease in personnel expenses due to restructuring activities in the fourth quarter of 2023 and the transition of recently launched products from development to commercialization.

Research and development expense included share-based compensation expense of $5.8 million and $6.7 million during the three months ended March 31, 2024 and 2023, respectively.

We anticipate research and development expense to further decrease during 2024 in connection with our recently announced expense reduction initiatives, primarily due to headcount reductions.

Research and development expense decreased by $7.7 million, or 17%, to $38.5 million for the three months ended June 30, 2024, compared to $46.2 million for the three months ended June 30, 2023.

The decrease was primarily driven by a decrease in personnel expenses due to restructuring activities and the transition of recently launched products from development to commercialization.

We incurred restructuring charges of $5.9 million, primarily related to employee separation benefits during the three months ended June 30, 2024.

Research and development expense included share-based compensation expense of $4.6 million and $5.4 million during the three months ended June 30, 2024 and 2023, respectively.

Sales, General and Administrative Expense

Sales, general and administrative expense increased by $3.9 million, or 10%, to $43.8 million for the three months ended March 31, 2024, compared to $39.8 million for the three months ended March 31, 2023.

The increase was primarily driven by an increase in personnel expenses as we expanded our commercial organization.

Sales, general, and administrative expense included share-based compensation expense of $11.6 million and $9.3 million during the three months ended March 31, 2024 and 2023, respectively.

Sales, general and administrative expense increased by $5.3 million, or 13%, to $45.9 million for the three months ended June 30, 2024, compared to $40.6 million for the three months ended June 30, 2023.

The increase was primarily driven by restructuring charges partially offset by lower personnel expense.

We incurred restructuring charges of $7.5 million, primarily related to employee separation benefits and lease-related costs during the three months ended June 30, 2024.

Sales, general, and administrative expense included share-based compensation expense of $11.5 million and $11.3 million during the three months ended June 30, 2024 and 2023, respectively.

We expect to incur an additional $8.3 million of remaining estimated restructuring costs during the remainder of 2024.

Goodwill 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 indication that the fair value of the reporting unit might be less than it’s carrying amount and performed an interim impairment test on goodwill.

The interim impairment test showed the reporting unit's carrying amount exceeded fair value.

As a result, we recorded a $93.2 million goodwill impairment charge for the three months ended June 30, 2024, mainly due to the decline in the 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.

Change in Fair Value of Contingent Consideration

The change in fair value of contingent consideration during the three months ended March 31, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone, while the change in fair value of contingent consideration during the three months ended March 31, 2023, represents the remeasurement impact of the Omniome contingent consideration, which was achieved in the third quarter of 2023.

The decrease in the change in fair value of contingent consideration was primarily due to the change in the milestone in the first quarter of 2024 as compared to the first quarter of 2023.

The contingent consideration milestone for the Omniome acquisition was defined as the first commercial shipment to a customer of both an instrument and related consumables, utilizing SBB technology.

As a result of the milestone achievement in September 2023, former Omniome securityholders received 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.

In connection with the acquisition of Apton, we entered into an arrangement where we are obligated to pay former holders of Apton's outstanding equity interests $25.0 million upon the achievement of $50 million in revenue associated with a high throughput sequencer using Apton's technology, provided that the milestone event occurs prior to the 5-year anniversary of the closing date of the acquisition, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock.

Change in fair value of contingent consideration of $2.0 million during the three months ended June 30, 2023, represents the remeasurement impact of the Omniome contingent consideration liability of approximately $200 million that was due upon the achievement of a milestone.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets included in operating expenses of $5.5 million during the three months ended March 31, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Amortization of acquired intangible assets included in operating expenses of $4.2 million during the three months ended June 30, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Loss on Extinguishment of Debt

Loss on extinguishment of debt of $2.0 million during the three months ended June 30, 2023, represents the loss resulting from the difference in the fair value of the 2030 Notes and the principal, in addition to the write-off of the unamortized debt issuance costs on the portion of the 2028 Notes that were exchanged as part of the debt modification during the three months ended June 30, 2023.

Interest Expense

Interest expense for the three months ended March 31, 2024, was $3.6 million compared to $3.6 million for the three months ended March 31, 2023 and was primarily comprised of interest on the convertible senior notes.

Interest expense for the three months ended June 30, 2024, was $3.5 million compared to $3.6 million for the three months ended June 30, 2023 and was primarily comprised of interest on the convertible senior notes.

Other Income, Net

Other income, net for the three months ended March 31, 2024, was $6.8 million compared to $6.9 million for the three months ended March 31, 2023.

Other income, net for the three months ended June 30, 2024, was $6.1 million compared to $8.9 million for the three months ended June 30, 2023.

The decrease was primarily driven by lower investment income due to lower cash and investment balances.

Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30,

(in thousands, except percentages) 2024 2023 $ Change % Change

Product revenue $ 66,755 $ 78,309 $ (11,554) (15) %

Service and other revenue 8,068 8,164 (96) (1) %

Total revenue 74,823 86,473 (11,650) (13) %

Cost of Revenue:

Cost of product revenue 45,530 53,596 (8,066) (15) %

Cost of service and other revenue 7,104 7,204 (100) (1) %

Amortization of acquired intangible assets

3,971 366 3,605 985 %

Loss on purchase commitment

Total cost of revenue 57,603 61,166 (3,563) (6) %

Gross profit 17,220 25,307 (8,087) (32) %

Operating Expense:

Research and development 81,940 95,112 (13,172) (14) %

Sales, general and administrative 89,630 80,391 9,239 11 %

Goodwill impairment 93,200 — 93,200 —

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

Change in fair value of contingent consideration (70) 14,231 (14,301) (100) %

Total operating expense 274,428 189,734 84,694 45 %

Operating loss (257,208) (164,427) (92,781) 56 %

Loss on extinguishment of debt — (2,033) 2,033 (100) %

Interest expense (7,117) (7,184) 67 (1) %

Other income, net 12,828 15,796 (2,968) (19) %

Net loss $ (251,497) $ (157,848) $ (93,649) 59 %

Revenue decreased $11.7 million, or 13%, to $74.8 million for the six months ended June 30, 2024, as compared to $86.5 million for the six months ended June 30, 2023.

Instrument revenue decreased $16.9 million, or 33%, to $33.7 million for the six months ended June 30, 2024, as compared to $50.6 million for the six months ended June 30, 2023, primarily due to the sale of 52 Revio systems during the six months ended June 30, 2024 compared to 77 Revio systems during the six months ended June 30, 2023.

Consumables revenue increased $5.4 million, or 19%, to $33.0 million for the six months ended June 30, 2024, as compared to $27.7 million for the six months ended June 30, 2023.

We expect Revio consumable sales to increase as the installed base grows.

While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Service and other revenue of $8.1 million for the six months ended June 30, 2024 was relatively flat as compared the six months ended June 30, 2023.

Cost of Revenue, Gross Profit and Gross Margin

Cost of product revenue decreased $8.1 million, or 15%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023 primarily driven by the decrease in revenue described above, partially offset by restructuring charges of $4.6 million, including charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the six months ended June 30, 2024.

Cost of product revenue for the six months ended June 30, 2023 included adjustments of approximately $3.5 million primarily relating to excess consumables inventory due to the product transition to Revio we recognized during the first quarter of 2023.

Cost of revenue included amortization attributable to acquired intangible assets of $4.0 million that are related to sales generating activities.

Cost of revenue included share-based compensation expense of $3.2 million and $3.1 million during the six months ended June 30, 2024 and 2023, respectively.

Gross profit decreased $8.1 million, or 32%, to $17.2 million for the six months ended June 30, 2024, compared to $25.3 million for the six months ended June 30, 2023.

Gross margin was 23% for the six months ended June 30, 2024, compared to gross margin of 29% for the six months ended June 30, 2023.

The decrease was primarily due to the decrease in revenue described above, restructuring charges, and an increase of $3.6 million in amortization of acquired intangible assets.

Gross margins may also be affected by product mix, manufacturing efficiencies, warranty cost improvements, and average selling price fluctuations.

Research and Development Expense

Research and development expense decreased by $13.2 million, or 14%, to $81.9 million for the six months ended June 30, 2024, compared to $95.1 million for the six months ended June 30, 2023.

The decrease was primarily driven by a decrease in personnel expenses due to restructuring activities and the transition of recently launched products from development to commercialization.

We incurred restructuring charges of $5.9 million, primarily related to employee separation benefits during the six months ended June 30, 2024.

Research and development expense included share-based compensation expense of $10.4 million and $12.1 million during the six months ended June 30, 2024 and 2023, respectively.

Sales, General and Administrative Expense

Sales, general and administrative expense increased by $9.2 million, or 11%, to $89.6 million for the six months ended June 30, 2024, compared to $80.4 million for the six months ended June 30, 2023.

The increase was primarily driven by restructuring charges and higher personnel costs.

We incurred restructuring charges of $7.5 million, primarily related to employee separation benefits and lease-related costs during the six months ended June 30, 2024.

Sales, general, and administrative expense included share-based compensation expense of $23.1 million and $20.6 million during the six months ended June 30, 2024 and 2023, respectively.

We expect to incur an additional $8.3 million of remaining estimated restructuring costs during the remainder of 2024.

Goodwill Impairment

The interim impairment test showed the reporting unit's carrying amount exceeded fair value.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets included in operating expenses of $9.7 million during the six months ended June 30, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration during the six months ended June 30, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone.

Change in fair value of contingent consideration of $14.3 million during the six months ended June 30, 2023, represents the remeasurement impact of the Omniome contingent consideration liability of approximately $200 million that was due upon the achievement of a milestone.

Loss on Extinguishment of Debt

Loss on extinguishment of debt of $2.0 million during the six months ended June 30, 2023, represents the loss resulting from the difference in the fair value of the 2030 Notes and the principal, in addition to the write-off of the unamortized debt issuance costs on the portion of the 2028 Notes that were exchanged as part of the debt modification during the six months ended June 30, 2023.

Interest Expense

Interest expense for the six months ended June 30, 2024, was $7.1 million compared to $7.2 million for the six months ended June 30, 2023 and was primarily comprised of interest on the convertible senior notes.

Other Income, Net

Other income, net for the six months ended June 30, 2024, was $12.8 million compared to $15.8 million for the six months ended June 30, 2023.

The decrease was primarily driven by lower investment income due to lower cash and investment balances.

Liquidity and Capital Resources

As of March 31, 2024, we had cash, cash equivalents and investments of $561.9 million compared to $631.4 million as of December 31, 2023.

We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements beyond the next 12 months from the date of filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024.

As of June 30, 2024, we had cash, cash equivalents and investments of $509.8 million compared to $631.4 million as of December 31, 2023.

Our primary sources of liquidity, other than our holdings of cash, cash equivalents, and investments, have primarily been through the issuance of debt or equity securities, together with cash flow from operating activities.

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We approved and began implementing certain efficiency and expense reduction initiatives in the second quarter of 2024.

These expense reduction initiatives include workforce reductions, facilities downsizing and a refined pipeline of development activities.

The cost-savings initiatives are expected to reduce certain annualized run-rate operating expenses by the end of 2024.

These expense reduction initiatives include workforce reductions, facilities downsizing and a refined pipeline of development activities and are expected to reduce annualized run-rate operating expenses by the end of 2024.

Factors that may affect our capital needs include, but are not limited to, the pace of adoption of our products, which affects the sales of our products and services;

our ability to efficiently manage our operations;

the effectiveness of our expense reduction measures;

the effectiveness of our expense reduction initiatives;

our ability to obtain new collaboration and customer arrangements and maintain existing collaborations and arrangements;

the progress of our research and development programs;

initiation or expansion of research programs and collaborations;

initiation, expansion, or funding of research programs and collaborations;

the purchase of patent licenses;

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Contingent Consideration

In connection with the acquisition of Apton, we entered into an arrangement where we are obligated to pay former holders of Apton's outstanding equity interests $25.0 million upon the achievement of $50.0 million in revenue associated with a high throughput sequencer using Apton's technology, provided that the milestone event occurs prior to the five-year anniversary of the closing date of the acquisition, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock.

Business Acquisitions in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Summary of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2024 2023

Cash used in operating activities $ (129,945) $ (136,432)

Cash used in investing activities (34,136) (72,553)

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

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)

Operating Activities

Our primary uses of cash in operating activities include the development of future products and product enhancements, manufacturing, and support functions related to our sales, general and administrative activities.

Cash used in operating activities for the three months ended March 31, 2024 of $75.7 million was due primarily to a $78.2 million net loss that included non-cash items such as share-based compensation of $19.5 million, amortization of intangible assets of $6.9 million, depreciation expense of $3.2 million, and amortization of right-of-use assets of $1.9 million.

Cash used in operating activities for the six months ended June 30, 2024 of $129.9 million was due primarily to a $251.5 million net loss that included non-cash items such as a goodwill impairment charge of $93.2 million, share-based compensation of $36.7 million, amortization of acquired intangible assets of $13.7 million, depreciation expense of $6.7 million and amortization of right-of-use assets of $5.9 million.

This was offset by the accretion of discount and amortization of premium on marketable securities, net of $7.6 million and $31.7 million in net changes to operating assets and liabilities.

Cash flow impact from changes in net operating assets and liabilities was primarily driven by an increase in inventory, as well as decreases in accrued expenses, other liabilities, and operating lease liabilities.

Cash flow impact from changes in net operating assets and liabilities was primarily driven by an increase in inventory, as well as decreases in accrued expenses and operating lease liabilities.

These uses of cash were partially offset by decreases in accounts receivable and prepaid expenses and other assets and increases in accounts payable and deferred revenue.

Cash used in operating activities for the three months ended March 31, 2023, of $94.7 million was due primarily to a $88.0 million net loss that included non-cash items such as share-based compensation of $18.0 million, change in estimated fair value of contingent consideration of $12.3 million, depreciation expense of $2.8 million, amortization of right-of-use assets of $1.5 million.

Cash used in operating activities for the six months ended June 30, 2023 of $136.4 million was due primarily to a $157.8 million net loss that included non-cash items such as share-based compensation of $35.8 million, change in estimated fair value of contingent consideration of $14.2 million, depreciation expense of $5.6 million, inventory provisions of $4.3 million, amortization of right-of-use assets of $3.3 million, and loss on extinguishment of debt of $2.0 million.

This was offset by the accretion of discount and amortization of premium on marketable securities, net of $6.1 million and $38.6 million in net changes to operating assets and liabilities.

Cash flow impact from changes in net operating assets and liabilities were primarily driven by increases in inventory, accounts receivable and prepaid and other assets, as well as decreases in accrued expenses, other liabilities and operating lease liabilities.

Cash flow impact from changes in net operating assets and liabilities was primarily driven by increases in inventory, accounts receivable and prepaid and other assets, as well as decreases in accrued expenses, operating lease liabilities and deferred revenue.

These uses of cash were partially offset by an increase in accounts payable.

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Our investing activities consist primarily of capital expenditures and investment purchases, sales, and maturities.

Cash used in investing activities for the three months ended March 31, 2024, was primarily due to $191.9 million in purchases of investments and $3.9 million in purchases of property and equipment partially offset by $161.7 million of maturities of investments.

Cash used in investing activities for the three months ended March 31, 2023, was due to $233.3 million in purchases of investments and $3.7 million in purchases of property and equipment offset by $164.5 million of maturities and sales of investments.

Cash provided by investing activities for the six months ended June 30, 2024, was primarily from $351.6 million of maturities of investments partially offset by $303.6 million in purchases of investments and $5.4 million in purchases of property and equipment.

Cash used in investing activities for the six months ended June 30, 2023, was due to $311.7 million of maturities and sales of investments offset by $476.9 million in purchases of investments, and $6.0 million in purchases of property and equipment.

Financing Activities

Cash provided by financing activities during the three months ended March 31, 2024 resulted primarily from $6.9 million from the issuance of common stock through our equity compensation plans.

Cash provided by financing activities during the three months ended March 31, 2023 primarily resulted from $189.2 million in net proceeds related to the issuance of common stock from the underwritten public equity offering and $7.2 million from the issuance of common stock through our equity compensation plans.

Cash provided by financing activities during the six months ended June 30, 2024 resulted primarily from $6.9 million of proceeds from the issuance of common stock through our equity compensation plans.

Cash provided by financing activities during the six months ended June 30, 2023 primarily resulted from $189.2 million in net proceeds related to the issuance of common stock from the underwritten public equity offering and $9.8 million from the issuance of common stock through our equity compensation plans offset by $6.8 million from the payment of debt issuance costs.

Contractual Obligations

We presented our contractual obligations at December 31, 2023 in our Annual Report on Form 10-K for the year then ended.

There were no material changes outside the ordinary course of business to our contractual obligations during the three months ended March 31, 2024.

There were no material changes outside the ordinary course of business to our contractual obligations during the six months ended June 30, 2024.

Critical Accounting Policies and Estimates

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Off-Balance Sheet Arrangements

As of March 31, 2024, we did not have any off-balance sheet arrangements.

As of June 30, 2024, we did not have any off-balance sheet arrangements.

In the ordinary course of business, we enter into standard indemnification arrangements.

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Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q, any associated expenses incurred are included within the related accrued litigation expense amounts.

No additional liability associated with such indemnification agreements has been recorded as of March 31, 2024.

No additional liability associated with such indemnification agreements has been recorded as of June 30, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis