What changed in this filing

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Item 1. Financial Statements

2024-11-12 compared with 2024-08-09 · 136 added, 102 removed, 573 unchanged (29% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

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

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

2024 December 31,

35 unchanged sentences

Authorized 1,000,000 shares;

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

issued and outstanding 273,812 and 267,744 shares at September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,602,592 2,539,892

Accumulated other comprehensive (loss) income ( 523 ) 219

Accumulated other comprehensive income

Accumulated deficit ( 2,151,297 ) ( 1,839,075 )

4 unchanged sentences

Condensed Consolidated Statements of Operations and Comprehensive Loss

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

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

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

14 unchanged sentences

Goodwill impairment — — 93,200 —

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

Amortization of acquired intangible assets 3,649 741 13,377 741

8 unchanged sentences

Net loss ( 60,725 ) ( 66,869 ) ( 312,222 ) ( 224,717 )

Other comprehensive (loss) income:

Unrealized (loss) gain on investments ( 217 ) ( 762 ) ( 742 ) 2,079

Other comprehensive income:

Unrealized gain on investments

2,076 846 1,334 2,925

Comprehensive loss $ ( 58,649 ) $ ( 66,023 ) $ ( 310,888 ) $ ( 221,792 )

8 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Common Stock Additional

1 unchanged sentence

Comprehensive

Loss Accumulated

(Loss) Income

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

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

Net loss — — — — ( 60,725 ) ( 60,725 )

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

Other comprehensive income

— — — 2,076 — 2,076

Issuance of common stock in conjunction with equity plans 1,321 2 810 — — 812

Share-based compensation expense — — 18,259 — — 18,259

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

Six Months Ended June 30, 2024

Balance at September 30, 2024 273,812 $ 274 $ 2,602,592 $ 1,553 $ ( 2,151,297 ) $ 453,122

Nine Months Ended September 30, 2024

Common Stock Additional

1 unchanged sentence

Comprehensive

Income (Loss)

Deficit Total

3 unchanged sentences

Net loss — — — — ( 312,222 ) ( 312,222 )

Other comprehensive loss — — — ( 742 ) — ( 742 )

Other comprehensive income

— — — 1,334 — 1,334

Issuance of common stock in conjunction with equity plans 6,068 6 7,697 — — 7,703

Share-based compensation expense — — 55,003 — — 55,003

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

Three Months Ended June 30, 2023

Balance at September 30, 2024 273,812 $ 274 $ 2,602,592 $ 1,553 $ ( 2,151,297 ) $ 453,122

Three Months Ended September 30, 2023

Common Stock Additional

4 unchanged sentences

(in thousands) Shares Amount

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

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

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

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

Six Months Ended June 30, 2023

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

Nine Months Ended September 30, 2023

Common Stock Additional

7 unchanged sentences

Other comprehensive income — — — 2,925 — 2,925

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

1 unchanged sentence

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

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

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

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2024 2023

7 unchanged sentences

Goodwill impairment 93,200 —

Merger-related compensation expense — 3,395

Accretion of discount and amortization of premium on marketable securities, net ( 10,663 ) ( 10,088 )

2 unchanged sentences

Inventory provision 3,715 4,691

Deferred income taxes — ( 10,706 )

Other 1,002 667

7 unchanged sentences

Operating lease liabilities ( 9,252 ) ( 6,396 )

Contingent consideration liability — ( 732 )

Other liabilities ( 7,053 ) ( 1,147 )

2 unchanged sentences

Purchase of property and equipment ( 4,571 ) ( 6,819 )

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

Purchases of investments ( 418,164 ) ( 553,748 )

1 unchanged sentence

Maturities of investments 480,440 631,253

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

Net cash provided by investing activities 65,766 71,179

Cash flows from financing activities

2 unchanged sentences

Payment of debt issuance costs — ( 7,325 )

Payment of contingent consideration — ( 4,368 )

Notes payable principal payoff ( 490 ) ( 1,397 )

Net cash provided by financing activities 7,213 190,493

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

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 102,429 ) 60,059

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

26 unchanged sentences

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.

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 June 30, 2024.

Actual results could differ materially from these estimates.

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Concentration and Other Risks

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.

For the three months ended September 30, 2024, one customer accounted for 10 % of total revenue during the period.

For the three months ended September 30, 2023, no customer accounted for 10% or more of total revenue during the period.

For the nine months ended September 30, 2024 and 2023, no customer accounted for 10% or more of total revenue during the respective periods.

As of September 30, 2024, 37 % of our accounts receivable were from domestic customers, compared to 49 % as of December 31, 2023.

As of September 30, 2024, no customer represented 10% or more of our net accounts receivable, while one customer represented 10 % of our net accounts receivable as of December 31, 2023.

Recent Accounting Pronouncements

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Upon achievement of the milestone, we may pay cash in lieu of our common stock to ensure that the issuance of our common stock does not exceed 19.9 % of our outstanding shares of common stock then outstanding.

The contingent consideration is accounted for as a liability at fair value, with changes during each reporting period recognized in our Consolidated Statements of Operations and Comprehensive Loss.

The contingent consideration is accounted for as a liability at fair value, with changes during each reporting period recognized in our Condensed Consolidated Statements of Operations and Comprehensive Loss.

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.

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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:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

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

12 unchanged sentences

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.

As of September 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 six months ended June 30, 2024 were as follows:

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

(in thousands) Level 3

1 unchanged sentence

Change in estimated fair value 1,100

Ending balance as of June 30, 2024 $ 19,480

Ending balance as of September 30, 2024 $ 20,650

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 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.

For the nine months ended September 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

As of September 30, 2024

(in thousands) Amortized

16 unchanged sentences

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 June 30, 2024:

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of September 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 $ 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.

Investment income included in other income, net on the Condensed Consolidated Statement of Operations and Comprehensive Loss was $ 6.0 million and $ 19.8 million for the three and nine months ended September 30, 2024, respectively, and $ 9.2 million and $ 25.0 million for the three and nine months ended September 30, 2023, respectively.

BALANCE SHEET COMPONENTS

1 unchanged sentence

Our inventory, net, consisted of the following components:

(in thousands) June 30,

(in thousands) September 30,

2024 December 31,

7 unchanged sentences

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.

As a result of the interim impairment test performed as of June 30, 2024, we concluded that the carrying amount of the entity-level reporting unit exceeded fair value and recorded a $ 93.2 million goodwill impairment charge.

The impairment charge is included in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2024.

The decline in the fair value of the reporting unit below its carrying value in the second quarter of 2024 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.

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

The discount rate was 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.

The assumptions used were inherently subject to uncertainty and small changes in these assumptions could have had 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.

2 unchanged sentences

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:

Changes to goodwill during the nine months ended September 30, 2024 were as follows:

(in thousands)

Balance as of December 31, 2023

Balance as of June 30, 2024

Balance as of September 30, 2024

Intangible Assets

1 unchanged sentence

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.

We performed our annual assessment of IPR&D in the third quarter of 2024 noting no impairment.

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

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

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

(in thousands, except years)

18 unchanged sentences

Deferred Revenue

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 $ 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.

As of September 30, 2024, we had a total of $ 22.8 million of deferred revenue, $ 17.3 million of which was recorded as deferred revenue, current, and $ 5.5 million of which was recorded as deferred revenue, non-current, which primarily relates to deferred service contract revenues and is scheduled to be recognized in the next five years .

Revenue recorded in the three and nine months ended September 30, 2024 includes $ 4.8 million and $ 10.2 million, respectively, that was included in deferred revenue as of December 31, 2023.

Product Warranties

3 unchanged sentences

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 June 30, Six Months Ended June 30,

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

(in thousands) 2024 2023 2024 2023

4 unchanged sentences

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.

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.

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

Interest expense was not material for the three and nine months ended September 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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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.

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.

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 %.

4 unchanged sentences

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) June 30,

(in thousands) September 30,

2024 December 31,

3 unchanged sentences

Net carrying amount $ 435,274 $ 434,617

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

Interest expense for the 2030 Notes was as follows:

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

(in thousands) 2024 2023 2024 2023

Contractual interest expense $ 1,516 $ 1,516 $ 4,565 $ 1,516

1 unchanged sentence

Total interest expense $ 1,753 $ 1,745 $ 5,277 $ 1,745

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

As of September 30, 2024, the estimated fair value (Level 2) of the 2030 Notes was $ 347.1 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.

2028 Convertible Senior Notes

On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar LP (the “Purchaser”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to the Purchaser of $ 900.0 million in aggregate principal amount of the 2028 Notes.

On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar LP (“SBN”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to SBN of $ 900.0 million in aggregate principal amount of the 2028 Notes.

The 2028 Notes were issued on February 16, 2021.

23 unchanged sentences

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.

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) June 30,

(in thousands) September 30,

2024 December 31,

3 unchanged sentences

Interest expense for the 2028 Notes was as follows:

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

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

(in thousands) 2024 2023 2024 2023

2 unchanged sentences

Total interest expense $ 1,802 $ 1,801 $ 5,406 $ 8,807

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

As of September 30, 2024, the estimated fair value (Level 2) of the 2028 Notes was $ 399.1 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.

As discussed below under Note 11.

Subsequent Events , on November 7, 2024, we entered into an exchange agreement with SBN, pursuant to which we have agreed to exchange the remaining approximately $ 459.0 million in aggregate principal amount of 2028 Notes outstanding for $ 200.0 million aggregate principal amount of notes due August 15, 2029 as well as the issuance of 20,451,570 shares of common stock and $ 50.0 million of cash.

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.

During the nine months ended September 30, 2024, we implemented an expense reduction initiative that included 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

(in thousands) Three Months Ended September 30, 2024 Cumulative amount incurred to date

Employee separation costs $ — $ 10,051

$ 10,051 $ 10,051

Other costs 6,701 14,678

1 unchanged sentence

$ 6,701 $ 24,729

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

(1) For the three months ended September 30, 2024, $ 6.9 million was recorded in sales, general and administrative expense.

Cumulative charges incurred to date include $ 14.4 million in sales, general and administrative expense;

$ 5.9 million in research and development expense;

and $ 4.4 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.

Cumulative charges incurred to date include employee separation costs comprised of 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.

Other costs in the three months ended September 30, 2024 and cumulative charges incurred to date are primarily related to accelerated amortization and depreciation of $ 5.1 million and $ 8.1 million respectively, for the right-of-use asset, leasehold improvements, and furniture and fixtures relating to the abandonment of the San Diego office.

We also incurred cumulative charges to date for excess inventory of $ 3.6 million primarily relating to a decrease in internal demand resulting from the expense reduction initiatives which were recognized in cost of product revenues.

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.

We fully exited our San Diego office in September 2024.

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

Other Costs Total

Expense recorded in YTD 2024 $ 10,051 $ 2,321 $ 12,372

Cash paid during YTD 2024 ( 10,008 ) ( 2,049 ) ( 12,057 )

Amount recorded in current liabilities as of September 30, 2024 $ 43 $ 272 $ 315

Estimated total restructuring costs to still be incurred $ — $ 2,074 $ 2,074

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.

The ending balance of the San Diego office lease liability as of September 30, 2024 is $ 3.4 million, and is included in operating lease liabilities, current on the Condensed Consolidated Balance Sheets.

The other restructuring costs are expected to be incurred and paid by the end of 2025.

COMMITMENTS AND CONTINGENCIES

13 unchanged sentences

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 June 30, 2024 and December 31, 2023.

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

STOCKHOLDERS’ EQUITY

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.

As of September 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.

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.

As of September 30, 2024, we had 26.1 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.

9 unchanged sentences

Canceled ( 1,474 ) 9.35

Outstanding at June 30, 2024 12,157 $ 10.69

Outstanding at September 30, 2024 11,228 $ 10.88

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

10 unchanged sentences

Forfeited ( 4,523 ) ( 39 ) 8.33 9.43

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

Outstanding at September 30, 2024 15,742 502 $ 7.45 $ 9.43

Employee Stock Purchase Plan (“ESPP”)

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.

Shares issued under our ESPP wer e 1,906,529 and 1,735,058 durin g the nine months ended September 30, 2024 and 2023, respectively.

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

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

As of September 30, 2024, 14.3 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 June 30, Six Months Ended June 30,

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

(in thousands) 2024 2023 2024 2023

16 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Expected term in years 4.9 4.9

1 unchanged sentence

Risk-free interest rate 3.48 % - 4.32 %

3.73 % - 4.21 %

Dividend yield — —

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

Expected term in years 0.5 — 2.0

8 unchanged sentences

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 June 30, Six Months Ended June 30,

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

(in thousands, except per share amounts)

8 unchanged sentences

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 June 30, Six Months Ended June 30,

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

(in thousands) 2024 2023 2024 2023

5 unchanged sentences

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

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

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

(in thousands) 2024 2023 2024 2023

4 unchanged sentences

A summary of our revenue by category is as follows:

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

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

(in thousands) 2024 2023 2024 2023

4 unchanged sentences

Total revenue $ 39,967 $ 55,691 $ 114,790 $ 142,164

SUBSEQUENT EVENTS

2028 Convertible Senior Notes Exchange

On November 7, 2024, we entered into an exchange agreement with SBN, pursuant to which we have agreed to exchange the remaining approximately $ 459.0 million in aggregate principal amount of 2028 Notes outstanding for $ 200.0 million aggregate principal amount of notes due August 15, 2029 (the “2029 Notes”) as well as the issuance of 20,451,570 shares of common stock (the “Exchange Shares”) and $ 50.0 million of cash.

The exchange and issuances are expected to close on or about November 21, 2024 (the “Closing Date”).

The 2029 Notes, the Exchange Shares, and shares of common stock issuable upon conversion of the 2029 Notes are subject to certain lock-up restrictions for a six-month period (the “Lock-Up Period”) beginning on the Closing Date of the Exchange Transaction;

the lock-up restrictions will terminate immediately prior to the consummation of any change in control of the Company.

Upon any conversion of the 2029 Notes, SBN will not be entitled to be issued a number of shares of the Company’s common stock which would cause SBN's beneficial ownership of common stock to exceed either 9.9 % of the total number of issued and outstanding shares of common stock or 9.9 % of the combined voting power of all of the securities of the Company, in each case, following such conversion.

The 2029 Notes will be governed by an indenture (the “2029 Indenture”) between the Company and U.S.

Bank Trust Company, National Association, as trustee.

The 2029 Notes will bear interest at a rate of 1.50 % per annum.

Interest on the 2029 Notes will be payable semi-annually in arrears on February 15 and August 15 and will commence on the Closing Date.

The 2029 Notes will mature on August 15, 2029, subject to earlier conversion, redemption or repurchase.

The 2029 Notes will be convertible at the option of the holder at any time from the expiration of the Lock-Up Period until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company.

The 2029 Notes will be convertible into shares of our common stock based on an initial conversion rate of 204.5157 shares of common stock per $1,000 principal amount of the 2029 Notes (which is equal to an initial conversion price of $ 4.89 per share of common stock), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the 2029 Notes, we may elect to settle such conversion obligation in shares of our common stock, cash or a combination of shares of our common stock and cash.

On or after August 20, 2027, the 2029 Notes will be redeemable by the Company in the event that the closing sale price of our common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100 % of the principal amount of such 2029 Notes, plus accrued and unpaid interest up to, but excluding, the redemption date.

Upon the occurrence of a Fundamental Change (as defined in the 2029 Indenture), the holders of the 2029 Notes may require that we repurchase all or part of the principal amount of the 2029 Notes at a purchase price of par plus unpaid interest up to, but excluding, the maturity date.

The 2029 Notes will be subject to certain debt and lien covenants as well as springing guarantees, in each case, the terms of which will to be set forth in a second letter agreement between the Company and SBN to be entered into in connection with the Indenture.

The 2029 Indenture will include customary “events of default,” which may result in the acceleration of the maturity of the 2029 Notes under the 2029 Indenture.

The 2029 Indenture will also include customary covenants for convertible notes of this type.

To the extent we elect, the sole remedy for an event of default relating to our failure to comply with certain of our reporting obligations will, for the first 360 calendar days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the 2029 Notes at a rate equal to (i) 0.25 % per annum of the principal amount of the 2029 Notes outstanding for each day during the first 180 calendar days of the 360 -day period after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50 % per annum of the principal amount of the 2029 Notes outstanding for each day from, and including, the 181 st calendar day to, and including, the 360 th calendar day after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for in the 2029 Indenture).

On the 361 st day after such event of default (if the event of default relating to our failure to comply with its obligations is not cured or waived prior to such 361 st day), the 2029 Notes will be subject to acceleration as will be provided for in the 2029 Indenture.

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