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Item 7. Management’s Discussion and Analysis

2025-03-17 compared with 2024-02-28 · 236 added, 135 removed, 216 unchanged (63% of the section changed)

7 unchanged sentences

• Liquidity and Capital Resources

• Off Balance Sheet Arrangements

• Critical Accounting Policies and Estimates

• Quantitative and Qualitative Disclosure of Market Risk

• Recent Accounting Pronouncements

• Contractual Obligations

• Off Balance Sheet Arrangements

OVERVIEW AND OUTLOOK

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

We are a premier life science technology company that designs, develops, and manufactures advanced sequencing solutions that enable scientists and clinical researchers to improve their understanding of the genome and ultimately, resolve genetically complex problems.

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

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

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

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

As of December 31, 2023, our commercial team is comprised of approximately 215 employees, including 71 quota-carrying representatives, many with advanced degrees in biology and significant experience in the genomics industry.

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

Long-read sequencing was recognized by the journal Nature Methods as its “method of the year” for 2022 for its contributions to biological understanding and future potential.

Long-read sequencing has been applied to produce telomere-to-telomere genomes of humans, pangenome references, and has been recognized for its ability to provide more complete views of human variation .

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

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

Fiscal 2024 Form 10-K

Strategic Objectives

2023 exceeded our expectations as we drove adoption of our advanced sequencing technologies, demonstrated short-read accuracy with our Onso platform, and progressed development of our pipeline technologies and products.

Our 2024 strategic objectives are to:

• Increase technology adoption by increasing market share via new customer acquisition, continue Sequel II conversions to Revio, and scale Onso production;

• Leverage innovation to complete development of new sequencing platforms and launch on-market system improvements;

• Build upon clinical momentum by expanding HiFi usage in large-scale programs and translational research projects;

• Drive towards positive cash flow through gross margin expansion, disciplined operating expense management, and a focus on working capital.

We will continue to leverage our commercial organization and make significant improvements in the efficiency and usability of our products in pursuit of a broader customer base.

We believe the commercial investments we have recently made will further help drive growth in our business.

To increase the adoption of HiFi sequencing, we have various development programs in progress to expand our product portfolio as well as increase the throughput and improve the usability of our existing sequencing technologies.

We continue to focus on programs to accelerate new platform launches in the near to mid-term as well as increase applications for our technologies.

Though challenging, 2024 was a productive year for PacBio as we launched products, improved our financial flexibility, and made progress in reducing cash burn.

Looking ahead to 2025, our main objectives are to grow revenue and expand gross margins through the following four activities:

• Enabling the full-scale release of the Vega benchtop platform to broaden our market reach.

We believe this platform broadens the long-read market opportunity.

• Accelerating samples onto the Revio platform via SPRQ chemistry and application kits.

The SPRQ chemistry enables the sub-$500 HiFi genome, improves methylation detection capabilities, and achieves a 75% reduction in DNA input requirements for human whole genome sequencing.

These features can drive more samples onto HiFi sequencing than ever before.

• Investing in future product launches to diversify our offerings.

We continue to develop sequencing systems designed to increase throughput and lower the cost to sequence a genome, which we believe will allow us to address an even larger part of the market.

Additionally, we continue to develop kitted-solutions, like our Kinnex Full-length RNA kits and PureTarget, and enhance our on-market sequencers with products like SPRQ chemistry to drive more sequencing volume.

• Progressing our clinical strategy to improve outcomes and create durability.

In 2024 Revio was increasingly being used in LDT and clinical research settings to consolidate multiple tests and address complex genetic challenges.

We continue to believe that with the capabilities of our HiFi chemistry and SMRT technology, we can be a market leader in whole-genome clinical sequencing.

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Key highlights of our 2024 consolidated financial results include the following:

• Revenue increased $72.2 million, or 56%, to $200.5 million for the year ended December 31, 2023, as compared to $128.3 million for the year ended December 31, 2022.

Revenue was comprised of $120.5 million in instrument revenue, $63.4 million in consumables revenue and $16.6 million in service and other revenue for the year ended December 31, 2023.

The increase was primarily driven by the launch of Revio in the first quarter of 2023, which is sold at a higher average selling price than our previous Sequel II and IIe platforms.

We ended the year with an installed base of 173 Revio systems.

• Gross profit as a percentage of revenue (gross margin) was 26.3% for the year ended December 31, 2023, compared to 38.2% for the year ended December 31, 2022.

Gross margin declined due primarily to the instrument mix, as Revio instruments sold during the period had a lower margin than the Sequel II/IIe system, primarily due to loyalty discounts provided and higher initial manufacturing costs, including warranty costs as well as charges for scrap inventory.

In addition, we recognized an adjustment during the year ended December 31, 2023 primarily related to excess instrument and consumables inventory.

The excess instrument adjustment was primarily due to a change in the Sequel II demand primarily from one customer.

The consumables inventory adjustment was primarily resulting from a faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system.

• Loss from operations increased $27.3 million or 9%, to $334.5 million for the year ended December 31, 2023, as compared to $307.2 million for the year ended December 31, 2022, driven primarily by an increase of $31.0 million of operating expenses, including a $12.7 million increase in the change in the fair value of the contingent consideration, a $9.0 million increase in non-recurring merger-related costs incurred, and a $9.0 million increase in sales, general, and administrative expenses, partially offset by a $5.8 million decrease in research and development expenses.

Business Acquisitions for further details.

• Cash, cash equivalents, and short-term investments were $631.4 million at December 31, 2023, which represents an 18% decrease compared to the balance at December 31, 2022.

Macroeconomic dynamics including inflation, exchange rates and concerns about an economic downturn, have impacted both the Company and our customers’ behavior.

For example, some customers and potential customers are managing capital more conservatively, resulting in lengthened sales cycles, and capital funding in China is being deferred, resulting in less capital equipment purchases.

These factors could continue to impact our revenues and results of operations in 2024;

however, as the size and duration of these impacts is uncertain, we cannot reasonably estimate the future impact to our operations and financial results.

See the Risk Factors section for further discussion of the possible impact of macroeconomic factors on our business.

Revenue of Gross Profit of

Operating Loss of Cash, cash equivalents, and investments of

$154 M $37 M $474 M

compared to $201 M in the prior year

representing 24% of gross margin

compared to $334 M in the prior year

compared to $631 M last year

• Revenue decreased $46.5 million, or 23%, to $154.0 million for the year ended December 31, 2024, as compared to $200.5 million for the year ended December 31, 2023.

Revenue was comprised of $65.8 million in instrument revenue, approximately $70.3 million in consumables revenue and $17.9 million in service and other revenue for the year ended December 31, 2024.

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

While we do not expect Vega to meaningfully impact Revio sales, we are mindful that there may be some cases where potential customers take more time to assess our new offerings, which may prolong some sales cycles.

We ended the year with cumulative shipments of 270 Revio systems.

Fiscal 2024 Form 10-K

• Gross profit decreased for the year ended December 31, 2024, primarily due to the decrease in revenue described above, $4.4 million of restructuring charges, and an increase of $7.4 million in amortization of acquired intangible assets, partially offset by lower inventory adjustments.

During the year ended December 31, 2023 we recognized an increase of approximately $4.6 million of inventory adjustments primarily related to excess consumables inventory resulting from faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system.

Gross margins may also be affected by product mix, manufacturing efficiencies, warranty cost improvements, average selling price fluctuations, future product launches, changes to inventory reserves, and costs of raw materials.

• Loss from operations increased $139.8 million or 42%, to $474.3 million for the year ended December 31, 2024, as compared to $334.5 million for the year ended December 31, 2023.

Operating expenses increased $124.3 million primarily driven by $184.5 million of impairment charges, $20.8 million of restructuring charges, and an increase of $11.8 million in amortization of acquired intangible assets, partially offset by a $15.9 million decrease in the change in the fair value of the contingent consideration, a $9.0 million decrease in non-recurring merger-related costs, and a decrease in research and development expenses primarily driven by a decrease in personnel and related expenses due to restructuring activities.

• Cash, cash equivalents, and investments were $389.9 million at December 31, 2024, which represents a 38% decrease compared to the balance of $631.4 million at December 31, 2023.

The decrease in cash includes approximately $50.2 million of payments made in conjunction with the convertible notes exchange transaction in November 2024.

The median sales cycle for Revio instrument purchases continues to be elongated.

We believe this has been caused by, among other reasons, the uncertainty surrounding the funding for new capital equipment, in particular, uncertainty in the United States related to NIH and academic funding;

procurement delays;

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

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 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 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, tariffs, uncertainty in the United States related to NIH and academic funding, 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 goodwill, 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 future impairment charges.

We recorded $184.5 million of impairment charges during the year ended December 31, 2024.

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

Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Additionally, refer to the Critical Accounting Policies and Estimates section later in this Item 7 for further discussion on the Company's asset impairment assessments.

See the Risk Factors section for further discussion.

Fiscal 2024 Form 10-K

RESULTS OF OPERATIONS

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Sales, general and administrative 175,017 169,818 5,199 3 %

Impairment charges 184,500 — 184,500 —

Merger-related expenses — 9,042 (9,042) (100) %

Amortization of acquired intangible assets

6,157 — 6,157 —

Change in fair value of contingent consideration (850) 15,060 (15,910) (106 %)

Amortization of acquired intangible assets 18,006 6,157 11,849 192 %

Total operating expense 511,595 387,247 124,348 32 %

1 unchanged sentence

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

Gain on debt restructuring 154,407 — 154,407 —

Interest expense (13,412) (14,343) 931 (6 %)

Other income, net 23,783 32,684 (8,901) (27 %)

Loss before benefit from income taxes (318,159) (314,248) (3,911) 1 %

Benefit from income taxes (11,424) — (11,424) —

Net loss $ (306,735) $ (314,248) $ 7,513 (2 %)

The increase in product revenue resulted primarily from an increase of $71.7 million in instrument revenue, as well as an increase of $3.4 million in consumable revenue.

The increase in instrument revenue was primarily due to the sale of 173 Revio systems that have a higher average selling price as compared to the Sequel II/IIe platform.

We expect the installed base of Revio instruments to grow, reflecting customer demand for the new product.

As a result of this new product launch, we anticipate the installed base and sales volumes of Sequel II/IIe to continue to decline compared to recent

Additionally, we commenced the shipment of Onso products during the year ended December 31, 2023 and expect the installed base to continue to grow.

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 consumables as customers transition to the new platform.

As the Revio installed base continues to grow, we anticipate the related consumable sales to continue to increase.

The decrease in service and other revenue was primarily due to the change in our terms of the warranty provided with the instrument during the first quarter of 2022 to remove the service component.

As a result, the warranty is no longer a separate performance obligation and, accordingly, we accrue for the cost of the assurance warranty when revenue of the instrument is recognized, and no longer recognize a component of the instrument revenue in service and other revenue over the warranty period.

Service revenue also declined as customers transition to Revio, which includes a first-year warranty, and opt to not renew their Sequel II/IIe plans.

As the Revio installed base begins to surpass the warranty period in 2024 and customers transition to service plans, we expect the retrospective decline in growth trend to reverse within the year and service revenues to potentially exceed 2023 levels.

Loss before income taxes

(309,535) (318,159) 8,624 (3 %)

Income tax provision (benefit) 316 (11,424) 11,740 (103 %)

$ (309,851) $ (306,735) $ (3,116) 1 %

Fiscal 2024 Form 10-K

Total Revenue

Total revenue decreased $46.5 million, or 23%, to $154.0 million for the year ended December 31, 2024, as compared to $200.5 million for the year ended December 31, 2023.

The decrease in product revenue resulted primarily from a decrease of $54.7 million in instrument revenue, partially offset by an increase of approximately $6.9 million in consumable revenue.

Service and other revenue increased approximately $1.3 million to $17.9 million for the year ended December 31, 2024 as compared to $16.6 million for the year ended December 31, 2023.

Instrument Revenue

Instrument revenue decreased $54.7 million, or 45%, to $65.8 million for the year ended December 31, 2024, as compared to $120.5 million for the year ended December 31, 2023, primarily due to the sale of 97 Revio systems during the year ended December 31, 2024 compared to 173 Revio systems during the year ended December 31, 2023.

Consumables Revenue

Consumables revenue increased approximately $6.9 million, or 11%, to $70.3 million for the year ended December 31, 2024, as compared to $63.4 million for the year ended December 31, 2023.

The increase in consumable sales was primarily due to higher Revio consumables and library preparation 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.

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.

Fiscal 2024 Form 10-K

Cost of Revenue, Gross Profit, and Gross Margin

The increase in the cost of product revenue was driven primarily by an increase in system placements and higher overall product costs on the Revio platform, including warranty costs, as well as an increase in adjustments of approximately $4.6 million as compared to the prior year primarily relating to excess consumables inventory resulting from faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system.

Cost of product revenue decreased $35.3 million, or 28%, for the year ended December 31, 2024, compared to the year ended December 31, 2023 primarily driven by the decrease in revenue described above and lower inventory adjustments.

During the year ended December 31, 2023, we recognized an increase of approximately $4.6 million of inventory adjustments primarily related to excess consumables inventory resulting from faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system.

These decreases were partially offset by restructuring charges in cost of revenue of $4.4 million, including $3.6 million of charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the year ended December 31, 2024.

Cost of revenue included amortization attributable to acquired intangible assets of $9.4 million and $2.0 million that are related to sales generating activities during the years ended December 31, 2024 and 2023, respectively.

Cost of revenue included share-based compensation expense of $5.7 million and $5.4 million during the years ended December 31, 2024 and 2023, respectively.

1 unchanged sentence

The purchase commitment loss is based on an estimate of future excess inventory related to supply agreements, for which we do not expect to have related sales.

Gross profit increased $3.7 million, or 8%.

Gross margin was 26.3% for the year ended December 31, 2023 compared to 38.2% for the year ended December 31, 2022.

The decrease in gross margin percentage was primarily due to instrument mix, in addition to charges for scrap inventory and an increase in adjustments primarily relating to excess consumables inventory resulting from a faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system.

Revio instruments sold during the period had a lower margin primarily due to loyalty discounts provided and higher initial manufacturing costs, including warranty costs.

Gross margin could fluctuate depending on the pace at which Sequel II/IIe revenue declines, Revio consumable revenue ramps, manufacturing efficiencies and warranty costs improve, as well as fluctuation in average selling prices.

Gross profit decreased $15.5 million, or 29% to $37.3 million for the year ended December 31, 2024, compared to $52.8 million for the year ended December 31, 2023.

Gross margin was 24% for the year ended December 31, 2024, compared to gross margin of 26% for the year ended December 31, 2023.

The decrease was primarily due to the decrease in revenue described above, restructuring charges, and an increase of $7.4 million in amortization of acquired intangible assets, partially offset by lower inventory adjustments.

Research and Development Expense

The decrease in research and development expense was primarily driven by the transition of Revio from development to commercialization.

Research and development expense decreased by $52.2 million, or 28%, to $134.9 million for the year ended December 31, 2024, compared to $187.2 million for the year ended December 31, 2023.

The decrease was primarily driven by a decrease in personnel and related expenses due to restructuring activities, as well as the transition of products from development to commercialization.

We incurred restructuring charges of $5.9 million, primarily related to employee separation benefits during the year ended December 31, 2024.

Research and development expense included share-based compensation of $19.2 million and $22.4 million during the years ended December 31, 2024 and 2023, respectively.

Sales, General, and Administrative Expense

The increase in sales, general, and administrative expense was primarily driven by an increase in sales and marketing headcount as we continue to grow our commercial footprint.

Sales, general and administrative expense increased by $5.2 million, or 3%, to $175.0 million for the year ended December 31, 2024, compared to $169.8 million for the year ended December 31, 2023.

The increase was primarily driven by restructuring charges of $14.9 million, primarily related to employee separation benefits and lease-related costs during the year ended December 31, 2024, partially offset by a decrease in personnel expenses.

We expect to incur an additional $0.9 million of remaining estimated restructuring costs through 2025 relating to the actions taken in 2024.

Sales, general, and administrative expense included share-based compensation expenses of $46.2 million and $44.3 million during the years ended December 31, 2024 and 2023, respectively.

Impairment Charges

We identified indicators of impairment primarily relating to significant declines in our stock price and market capitalization compared to net book value, increases in the carrying value of the reporting unit, and changes in the amount and timing of expected future cash flows due to macroeconomic headwinds, among others, and performed interim impairment tests during the year ended December 31, 2024.

The impairment tests showed the carrying amounts of our goodwill and in-process research and development ("IPR&D") exceeded fair values.

As a result, we recorded $184.5 million of impairment charges for the year ended December 31, 2024.

Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further details.

Fiscal 2024 Form 10-K

Merger-Related Expenses

2 unchanged sentences

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets of $6.2 million during the year ended December 31, 2023 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Amortization of acquired intangible assets of $18.0 million and $6.2 million during the years ended December 31, 2024 and 2023, respectively, 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

The change in fair value of contingent consideration during the year ended December 31, 2023, represents the remeasurement impact of the Omniome and Apton contingent consideration due upon the achievement of the respective milestone.

The increase in the change in fair value of contingent consideration during the year was primarily due to the Omniome contingent consideration and was primarily attributable to the passage of time, changes in the discount rates and probabilities of milestone achievement.

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.

Change in fair value of contingent consideration during the year ended December 31, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone.

Change in fair value of contingent consideration during the year ended December 31, 2023, represents the remeasurement impact of the Omniome and Apton contingent consideration liability due upon the achievement of the respective milestone.

The Omniome milestone was achieved in September 2023.

Loss on Extinguishment of Debt

Loss on extinguishment of debt of $2.0 million during the year ended December 31, 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 year ended December 31, 2023.

Gain on Debt Restructuring

Gain on debt restructuring of $154.4 million during the year ended December 31, 2024, represents the gain resulting from the Exchange Transaction, which qualified as a troubled debt restructuring under Accounting Standards Codification ("ASC") 470-60, Debt - Troubled Debt Restructurings by Debtors.

Since the undiscounted cash flows of the new 2029 Notes were less than the carrying amount of the exchanged 2028 Notes, the carrying value of the 2029 Notes was determined based on the total undiscounted cash flows.

The gain was calculated as the difference between the carrying amount of the old debt and the carrying amount of the new debt, adjusted for debt issuance costs.

Convertible Senior Notes in Part II, Item 8 of this Annual Report on Form 10-K for further details.

Interest Expense

Interest expense for the year ended December 31, 2023 was $14.3 million compared to $14.7 million for the year ended December 31, 2022 and was primarily comprised of interest on the Convertible Senior Notes.

Interest expense for the year ended December 31, 2024 was $13.4 million compared to $14.3 million for the year ended December 31, 2023 and was primarily comprised of interest on the Notes.

Other Income, Net

The increase in other income, net was primarily driven by investment income.

Benefit from Income Taxes

The decrease in other income, net was primarily driven by lower investment income due to lower cash and investment balances.

Fiscal 2024 Form 10-K

Income Tax Provision (Benefit)

We recorded an income tax provision of $0.3 million for the year ended December 31, 2024.

A deferred income tax benefit of $11.4 million for the year ended December 31, 2023, is related to the release of the valuation allowance for deferred tax assets due to the recognition of deferred tax liabilities in connection with the Apton acquisition.

Accordingly, this benefit from income taxes is reflected on our consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

We maintain a valuation allowance on the net deferred tax assets of our U.S.

entities as we have concluded that it is more likely than not that we will not realize our deferred tax assets.

Accordingly, this benefit from income taxes is reflected on our consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

LIQUIDITY AND CAPITAL RESOURCES

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

For example, in January 2023, as discussed above, we issued and sold an aggregate of 20,125,000 shares of our common stock in a follow-on public offering for aggregate gross proceeds of approximately $201.3 million.

For example, in January 2023, as discussed in Note 9 .

Stockholders’ Equity in Part II, Item 8 of this Annual Report on Form 10-K, we issued and sold an aggregate of 20,125,000 shares of our common stock in a follow-on public offering for aggregate gross proceeds of approximately $201.3 million.

We have historically incurred, and expect to continue to incur, operating losses and generate negative cash flows from operations on an annual basis due to the investments we intend to make as described in Results of Operations above, and as a result, we may require additional capital resources to execute our strategic initiatives to grow our business.

We approved and implemented certain efficiency and expense reduction initiatives during 2024.

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

Cash, Cash Equivalents, and Investments

As of December 31, 2024, we had $389.9 million in cash, cash equivalents, and investments, compared to $631.4 million at December 31, 2023.

The decrease was primarily attributable to $259.2 million cash used in operating activities for the twelve months ended December 31, 2023.

The decrease was primarily attributable to $206.1 million cash used in operating activities during the year ended December 31, 2024 and an additional $50.2 million of payments made in conjunction with the convertible notes exchange transaction in November 2024.

Convertible Senior Notes

At December 31, 2022, we had $900 million of principal Convertible Senior Notes outstanding resulting from our February 9, 2021, issuance of convertible notes due 2028 (the “2028 Notes”) with an aggregate principal of $900 million.

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

Interest on the 2028 Notes is payable semi-

annually in arrears on February 15 and August 15 commencing on August 15, 2021.

The 2028 Notes will mature on February 15, 2028, subject to earlier conversion, redemption, or repurchase.

The proceeds from the issuance of the convertible notes are being used to fund operations, strategic investments, and capital requirements.

The 2028 Notes are convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by us.

The 2028 Notes are convertible into shares of our common stock based on an initial conversion rate of 22.9885 shares of common stock per $1,000 principal amount of the 2028 Notes (which is equal to an initial conversion price of $43.50 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the 2028 Notes, we may elect to settle such conversion obligation in shares, cash or a combination of shares and cash.

In June 2023, we entered into a privately negotiated exchange agreement with the holder of our outstanding 2028 Notes, pursuant to which we issued $441.0 million in aggregate principal amount of our 1.375% Convertible Senior Notes due in 2030 (the "2030 Notes") in exchange for $441.0 million principal amount of the 2028 Notes.

On February 9, 2021, we entered into an 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 our 2028 Notes.

The 2028 Notes were issued on February 16, 2021 and, as of November 21, 2024, no 2028 Notes were outstanding.

In June 2023, we entered into a privately negotiated exchange agreement with a holder of our outstanding 2028 Notes, pursuant to which we issued $441.0 million in aggregate principal amount of our 2030 Notes in exchange for $441.0 million principal amount of the 2028 Notes, leaving approximately $459.0 million in aggregate principal amount outstanding of our 2028 Notes.

Interest on the 2030 Notes is payable semi-annually in arrears on June 15 and December 15 commencing on December 15, 2023.

The 2030 Notes will mature on December 15, 2030, subject to earlier conversion, redemption, or repurchase.

Fiscal 2024 Form 10-K

In November 2024, we entered into an exchange agreement with SBN, pursuant to which we agreed to exchange the remaining approximately $459.0 million in aggregate principal amount of 2028 Notes outstanding for (i) $200.0 million aggregate principal amount of the 2029 Notes, (ii) 20,451,570 shares of common stock (the “Exchange Shares”) and (iii) $50.0 million of cash.

The exchange and issuances closed on 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.

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

Interest on the 2029 Notes is payable semi-annually in arrears on February 15 and August 15 and commencing on February 15, 2025.

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

The 2029 Notes are 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 are 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 approximately $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.

The 2030 Notes are convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company.

The 2030 Notes are convertible into shares of our common stock based on an initial conversion rate of 46.5116 shares of common stock per $1,000 principal amount of the 2030 Notes (which is equal to an initial conversion price of $21.50 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the 2030 Notes, we may elect to settle such conversion obligation in shares, cash or a combination of shares and cash.

With certain exceptions, upon a change of control of our company or the failure of our common stock to be listed on certain stock exchanges, the holders of the 2028 Notes and 2030 notes may require that we repurchase all or part of the principal amount of those Notes at a purchase price of par plus unpaid interest up to, but excluding, the maturity date.

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

The Indenture also includes customary covenants for convertible notes of this type.

Convertible Senior Notes for further details.

The 2030 Notes are convertible into shares of our common stock based on an initial conversion rate of 46.5116 shares of common stock per $1,000 principal amount of the 2030 Notes (which is equal to an initial conversion price of approximately $21.50 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 2030 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.

With certain exceptions, upon a change of control of our company or the failure of our common stock to be listed on certain stock exchanges, the holders of the Notes may require that we repurchase all or part of the principal amount of those Notes at a purchase price of par plus unpaid interest up to, but excluding, the maturity date.

The indenture governing the 2029 Notes and the 2030 Notes include customary “events of default,” which may result in the acceleration of the maturity of the Notes under the respective indentures.

The indentures also include customary covenants for convertible notes of this type.

Additionally, on November 21, 2024, in connection with the issuance of the 2029 Notes, the Company and SBN entered into the Letter Agreement pursuant to which the Company and SBN agreed that, for so long as SBN and its affiliates hold at least $180 million aggregate principal amount of the 2029 Notes, the Company and its subsidiaries are subject to certain negative covenants that restrict the Company’s and its subsidiaries’ ability to incur additional indebtedness and create liens, in each case, subject to the exceptions set forth in the Letter Agreement, including exceptions which permit the Company to incur up to $75 million in aggregate principal amount of secured indebtedness pursuant to Credit Facilities (as defined in the Letter Agreement).

In addition, the Letter Agreement restricts the ability of the Company and its subsidiaries from guaranteeing any indebtedness or incurring certain indebtedness outside of the ordinary course of business unless, in each case, the Company and its subsidiaries concurrently provide a guarantee of the Company’s obligations under the 2029 Notes.

Convertible Senior Notes in Part II, Item 8 of this Annual Report on Form 10-K for further details.

Fiscal 2024 Form 10-K

Additional Capital Requirements

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Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.

• As described in more detail in Note 8 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements, we signed a Supply Agreement, which was amended in October 2022, with a supplier for the purchase of certain products over the period of 2023 through 2026.

• As described in more detail in Note 7 - Commitments and Contingencies in Part II, Item 8 of this Annual Report on Form 10-K we signed a Supply Agreement, which was most recently amended in September 2024, with a supplier for the purchase of certain products over the period of 2023 through 2027.

As part of the Supply Agreement, we made a $9.0 million deposit during the year ended December 31, 2022, and an additional deposit of $6.0 million in 2023, to secure the supply of certain products through the term of the contract.

$3.0 million was refunded to us during the year ended December 31, 2024.

If we breach the minimum volume purchase commitment during any applicable year, the supplier is entitled to retain a portion or all of the deposit corresponding to that year.

If we terminate the Supply Agreement before January 15, 2027, Supplier will refund the remaining balance of the Deposit.

If the supplier breaches its minimum volume supply commitment during any applicable year or portions thereof, our remedies include termination, pursuit of damages, or pursuit of specific

If, on or before October 31, 2024, we commit to purchasing a set amount of additional products during the calendar year 2026, Supplier will increase its maximum capacity guarantee to meet the additional demand.

Should we exercise this option, we will be required to make an additional deposit of $5.0 million to Supplier within 30 days of the exercise.

If the supplier breaches its minimum volume supply commitment during any applicable year or portions thereof, our remedies include termination, pursuit of damages, or pursuit of specific performance.

• Our research and development expenditures of $134.9 million in 2024 and $187.2 million in 2023.

While we expect to continue our investment in research and development in 2024, including enhancements of our existing products, and continued development of other new technology and products, we expect research and development expenses to decline slightly in 2024 as compared to the year ended December 31, 2023 due to recent product transitions.

While we expect to continue our investment in research and development in 2025, including enhancements of our existing products, and continued development of other new technology and products, we expect research and development expenses to decline in 2025 as compared to the year ended December 31, 2024 due to recent product transitions.

• Cash outflows for capital expenditures of $6.2 million in 2024 and $8.8 million in 2023.

We expect to continue to invest in capital expenditures in fiscal 2024 to continue to support manufacturing and expansion of our business, and anticipate a slight increase in 2024 as compared to the year ended December 31, 2023.

We expect to continue to invest in capital expenditures in fiscal 2025 to continue to support manufacturing and expansion of our business.

• Amounts related to future lease payments for operating lease obligations at December 31, 2024, totaling $27.4 million, with $11.5 million expected to be paid within the next 12 months.

• Amounts due under the term loan acquired in connection with Omniome at December 31, 2023, totaling $0.5 million, the remainder of which is expected to be paid within the next 12 months.

Please see Note 6.

Balance Sheet Components for additional information.

• Payments made to third party collaborators to help advance our technologies and the capabilities of our products.

We may also choose to drive investments to help create an ecosystem of customers, partners, and collaborators whose expertise and offerings complement and enhance the capabilities and utility of our technology and increase genomic data available on our platforms.

See Note 12 .

Subsequent Events in Part II, Item 8 of this Annual Report on Form 10-K for further details on our lease amendment entered into on March 7, 2025.

• Payments related to licensing and other arrangements, which are cancellable license agreements with third parties for certain patent rights and technology.

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The future license maintenance fees and minimum royalty payments under the license agreements are not deemed to be material.

• Payments related to acquisitions.

See “ — Contingent Consideration ” below for further details on potential payments related to our recent acquisitions.

Our future capital requirements and the adequacy of our available funds will depend on many factors, including:

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• the progress of our research and development programs and our ability to initiate or expand research programs;

Fiscal 2024 Form 10-K

• our ability to manage manufacturing and production costs, including purchase obligations, and litigation costs, including the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights;

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Cash provided by investing activities 124,004 4,604

Cash provided by financing activities 108,891 9,622

Cash (used in) provided by financing activities (42,987) 108,891

Net decrease in cash, cash equivalents and restricted cash $ (125,041) $ (145,678)

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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 year ended December 31, 2024, of $206.1 million was due primarily to a $309.9 million net loss that included non-cash items such as impairment charges of $184.5 million, share-based compensation of $71.0 million, amortization of intangible assets of $27.4 million, depreciation of $13.8 million, and amortization of right-of-use assets of $12.2 million, offset by a gain on debt restructuring of $154.4 million, and accretion of discount and amortization of premium on marketable securities, net of $13.0 million.

Cash flow impact from changes in net operating assets and liabilities of $40.6 million, was primarily driven by an increase of $8.3 million in inventory, net, as well as decreases of $26.3 million in accrued expenses and $11.9 million in operating lease liabilities.

These uses of cash were partially offset by a decrease of $9.1 million in accounts receivable, net.

Cash used in operating activities for the year ended December 31, 2023, of $259.2 million was due primarily to a $306.7 million net loss that was partially offset by non-cash items such as share-based compensation of $72.1 million, a change in the estimated fair value of contingent consideration of $15.1 million, depreciation of $11.5 million, inventory provision of $10.6 million, amortization of intangible assets of $8.3 million, and amortization of right-of-use assets of $6.8 million, offset by accretion of discount and amortization of premium on marketable securities, net of $12.8 million, and deferred income taxes of $11.4 million.

Cash flow impact from changes in net operating assets and liabilities of $59.0 million, was primarily attributable to increases of $17.8 million in accounts receivable, net, $13.8 million in inventory, net, $9.0 million in prepaid expenses and other assets, and decreases of $14.9 million in contingent consideration liability, $10.4 million in deferred revenue, and $8.8 million in operating lease liabilities, partially offset by increases of $13.1 million in accrued expenses, and $2.4 million in other liabilities.

Cash used in operating activities for the year ended December 31, 2022, of $263.2 million was due primarily to a $314.2 million net loss that was partially offset by non-cash items such as share-based compensation of $78.6 million, depreciation of $9.5 million, amortization of right-of-use assets of $6.9 million, inventory provision of $6.0 million, and a change in the estimated fair value of contingent consideration of $2.4 million.

Cash flow impact from changes in net operating assets and liabilities of $54.0 million, was primarily attributable to increases of $33.9 million in inventory, net, $12.3 million in prepaid expenses and other assets, and decreases of $7.7 million in operating lease liabilities, $3.7 million in accrued expenses, and $3.7 million in deferred revenue, partially offset by a decrease of $5.5 million in accounts receivable, net, an increase of $1.0 million in accounts payable, and $0.9 million in other liabilities.

Investing Activities

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

Cash provided by investing activities for the year ended December 31, 2023, was due primarily to capital expenditures of $8.8 million and purchases of investments of $756.6 million offset by maturities of investments of $769.5 million.

Cash used in investing activities for the year ended December 31, 2022, was due primarily to capital expenditures of $16.8 million and purchases of investments of $442.8 million offset by maturities of investments of $575.8 million.

Our investing activities consist primarily of purchases, sales and maturities of investments as well as capital expenditures.

Cash provided by investing activities for the year ended December 31, 2024, was due primarily to maturities of investments of $594.0 million partially offset by purchases of investments of $498.6 million and capital expenditures of $6.2 million.

Fiscal 2024 Form 10-K

Cash provided by investing activities for the year ended December 31, 2023, was due primarily to maturities of investments of $769.5 million partially offset by purchases of investments of $756.6 million and capital expenditures of $8.8 million.

Financing Activities

Cash provided by financing activities during the year ended December 31, 2023, resulted from net proceeds from issuance of common stock under equity offerings of $189.2 million, net proceeds of $15.3 million from the issuance of common stock through our equity compensation plans, partially offset by $86.4 million due to the payment of contingent consideration, $7.4 million due to the payment of debt issuance costs, and $1.8 million due to the payment of notes payable.

Cash provided by financing activities during the year ended December 31, 2022, resulted from net proceeds of $11.2 million from the issuance of common stock through our equity compensation plans, partially offset by $1.6 million due to the payment of notes payable.

Cash used in financing activities during the year ended December 31, 2024, was primarily due to payments made in conjunction with the convertible notes exchange of $50.2 million partially offset by proceeds of $7.7 million from the issuance of common stock through our equity compensation plans.

Cash provided by financing activities during the year ended December 31, 2023, resulted from net proceeds from issuance of common stock under equity offerings of $189.2 million, proceeds of $15.3 million from the issuance of common stock through our equity compensation plans, partially offset by $86.4 million due to the payment of contingent consideration, $7.4 million due to the payment of debt issuance costs, and $1.8 million due to the payment of notes payable.

OFF-BALANCE SHEET ARRANGEMENTS

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An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements.

Fiscal 2024 Form 10-K

Revenue Recognition

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Revenues are recognized when control of the promised goods are transferred to our customers, or services are performed, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We may enter into contracts with customers that include a combination of promised products and services, resulting in arrangements containing multiple performance obligations.

Invoicing typically occurs upon shipment, or delivery in the case of an instrument, and payment is typically due within 30 days from invoice.

In instances where the right to payment or transfer of title is contingent upon customer acceptance of the product, revenue is deferred until the acceptance criteria has been met.

Revenue from instrument service contracts is recognized as the services are rendered, typically evenly over the contract term.

Revenue from development agreements generally includes upfront and milestone payments.

Revenue for these agreements is recognized when each distinct performance obligation is satisfied.

We may enter into, or periodically modify, contracts with customers that include a combination of promised products and services, resulting in arrangements containing multiple performance obligations.

We determine whether each product or service is distinct, in order to identify the performance obligations in the contract and allocate the contract transaction price among the distinct performance obligations.

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The consideration for contracts with multiple performance obligations is allocated between separate performance obligations based on their individual standalone selling price.

We determine the best estimate of standalone selling price using average selling prices over a 12-month period combined with an assessment of current market conditions.

We determine the best estimate of standalone selling price using historical average selling prices combined with an assessment of current market conditions.

If the standalone selling price is not directly observable, we rely on estimates by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, internal costs, profit objectives, pricing practices, and other observable inputs.

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Our revenue arrangements generally do not provide a right of return.

Revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities.

We update the transaction price for expected consideration, subject to constraint.

Where we expect, at contract inception, the timing of payments to be consistent with the transfer of goods or services or the contract duration to be one year or less, we do not adjust the transaction price for the effects of a significant financing component.

We periodically modify existing contracts with customers, which could change the scope or the price of the contract, or both.

When a contract modification occurs, we exercise judgment to determine if the modification should be accounted for as:

(i) a separate contract, (ii) the termination of the original contract and creation of a new contract, (iii) a cumulative catch-up adjustment to the original contract, or a combination thereof.

Further, contract modifications require the identification and evaluation of the performance obligations of the modified contract, allocation of revenue to the remaining performance obligations and determination of the period of recognition for each identified performance obligation.

Fiscal 2024 Form 10-K

Certain of our agreements provide options to customers which can be exercised at a future date, such as the option to purchase our product at discounted prices, among others.

In accounting for customer options, we determine whether an option is a material right and this requires us to exercise significant judgment.

If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right.

In accounting for customer options, we determine whether an option is a material right and this may require us to exercise judgment.

If the contract gives the customer the option to acquire additional goods or services at their normal standalone selling prices, we would likely determine that the option is not a material right and, therefore, account for it when the customer exercises the option.

If the standalone selling price of the option is not directly observable, an estimated standalone selling price is utilized which considers adjustments for discounts that the customer could receive without exercising the option and the likelihood that the option will be exercised.

We may also utilize the alternative approach to estimate the standalone selling price, available pursuant to the applicable accounting guidance, to the extent we conclude the applicable criteria for using the alternative approach has been met.

We update the transaction price for expected consideration, subject to constraint, each reporting period if our estimate of future goods to be ordered by customers change.

Additionally, we generally provide a one-year warranty on instruments.

We accrue the cost of the assurance warranty when revenue of the instrument is recognized.

Employee sales commissions are generally recorded as selling, general, and administrative expense when incurred as the amortization period for such costs, if capitalized, would have been one year or less.

Inventories are stated at the lower of cost or net realizable value.

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In these cases, a liability is recorded on the acquisition date for an estimate of the acquisition date fair value of the contingent consideration.

Changes in the fair value of contingent consideration subsequent to the acquisition date are recognized in operating expenses in our consolidated statements of operations and comprehensive loss.

Changes in the fair value of contingent consideration subsequent to the acquisition date are recognized in operating expenses on our consolidated statements of operations and comprehensive loss.

Fiscal 2024 Form 10-K

We typically use the discounted cash flow method to value our acquired intangible assets.

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We record these adjustments to the provisional amounts with a corresponding offset to goodwill.

Any adjustments identified after the measurement period are recorded in the consolidated statements of operations and comprehensive loss.

Any adjustments identified after the measurement period are recorded on our consolidated statements of operations and comprehensive loss.

We acquired $55.0 million of IPR&D, and $52.3 million of goodwill in connection with the acquisition of Apton Biosystems, Inc.

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Goodwill and Intangible Assets with Indefinite Lives — Impairment Assessment

Goodwill and other intangible assets with indefinite useful lives (i.e., IPR&D) are not amortized, however they are tested annually for impairment, in the second and fourth quarter of our fiscal year, respectively, and whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than the carrying value.

Events that would indicate impairment and trigger an interim impairment test include, but are not limited to, unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments or courts.

Goodwill and other intangible assets with indefinite useful lives (i.e., IPR&D) are not amortized, however they are tested annually for impairment, as of the first day of the second and third quarter of our fiscal year, respectively, and whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than the carrying value.

Events that would indicate impairment and trigger an interim impairment test include, but are not limited to, unexpected adverse business conditions, weak demand for a specific product line or business, economic factors, shifting focus to certain lines of business, unanticipated technological changes or competitive activities, loss of key personnel, changes in business strategy and acts by governments or courts.

We perform our goodwill impairment analysis at the reporting unit level.

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If the carrying amount of the reporting unit exceeds the fair value, we record an impairment loss based on the difference.

If a quantitative assessment is performed, the evaluation includes management estimates of cash flow projections based on internal future projections and/or use of a market approach by looking at market values of comparable companies.

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

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

Key assumptions include, but are not limited to, revenue and operating income growth rates, discount rates and other factors.

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We may elect to bypass the qualitative assessment in a period and proceed to perform the quantitative goodwill impairment test.

Fiscal 2024 Form 10-K

Significant estimates and assumptions used in the income approach during the fourth quarter of 2024, included revenue growth expectations and a discount rate of 12.0 %.

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

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 $ 95 million.

The assessed fair value was deemed reasonable based on a market capitalization reconciliation.

Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information.

During the IPR&D impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair value of the IPR&D is less than the carrying amount.

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Otherwise, we proceed to compare the estimated fair value of the IPR&D with the carrying value.

If the carrying

amount of the IPR&D exceeds the fair value, we record an impairment loss based on the difference.

If the carrying amount of the IPR&D exceeds the fair value, we record an impairment loss based on the difference.

We generally perform our impairment test using an income approach to determine the fair value of IPR&D.

The income approach utilizes estimated discounted cash flows.

If a quantitative assessment is performed, the evaluation includes management estimates of cash flow projections based on internal future projections.

Key assumptions include, but are not limited to, revenue projections, revenue growth rates, discount rates and other factors.

We consider peer revenues and earnings trading multiples from companies that have operational and financial characteristics that are similar to the asset under measurement and estimated weighted-average costs of capital.

Different assumptions from those made in our analysis could materially affect projected cash flows and the evaluation of assets for impairment.

We may elect to bypass the qualitative assessment in a period and proceed to perform the quantitative impairment test.

Intangible Assets and Other Long-Lived Assets — Impairment Assessment

We perform regular reviews to determine if any event has occurred that may indicate that the carrying values of our intangible assets with finite lives and other long-lived assets are impaired.

If indicators of impairment exist, we assess the recoverability of the affected assets by determining whether their carrying amounts exceed their undiscounted expected future cash flows.

If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value exceeds the fair value.

Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to net book value, significant changes in the ability of an asset to generate positive cash flows and the pattern of utilization of a particular asset.

In order to estimate the fair values of identifiable intangible assets with finite lives and other long-lived assets, we estimate the present value of future cash flows from those assets.

The key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider.

Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows.

There is substantial risk inherent in forecasting revenues and spend associated with research and development, including assumptions around the timing and level of resources and investment to be made.

Significant estimates and assumptions used in the income approach during the fourth quarter of 2024, included revenue growth assumptions, a discount rate of 14.0 %, and an obsolescence factor of 13 years.

The carrying value of the IPR&D exceeded its estimated fair value, and we recorded an impairment of $ 40.0 million in the fourth quarter of 2024, primarily due to a decrease in projected cash flows.

An increase of 100 basis points to the discount rate used in our analysis would have resulted in additional IPR&D impairment of approximately $ 5 million.

A decrease of one year to the obsolescence factor used in our analysis would have resulted in additional IPR&D impairment of approximately $ 5 million.

Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Assumptions and estimates about future values are complex and often subjective.

They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit, or if there is a delay in development of the IPR&D or lower projected sales, we may be required to record future impairment charges for goodwill and intangible assets with indefinite lives.

Impairment charges could materially decrease our future results of operations and result in lower asset values on our balance sheet.

Intangible Assets and Other Finite-Lived Assets — Impairment Assessment

We capitalize finite-lived intangibles assets and generally amortize them on a straight-line basis over the estimated useful lives.

We review intangible assets with finite lives and other finite-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

We assess the recoverability of assets based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset.

If the undiscounted future cash flows are less than the carrying amount, we estimate the fair value of the assets and record an impairment loss if the carrying value exceeds the fair value.

In light of the changes in circumstances that led to the recoverability assessment, we also assess the remaining estimated useful life of the assets.

Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to net book value, significant changes in the ability of an asset to generate positive cash flows for our strategic business objectives, and the pattern of utilization of a particular asset.

In order to estimate the fair values of identifiable intangible assets with finite lives and other finite-lived assets, we estimate the present value of future cash flows from those assets.

The key assumptions that we use in our

Fiscal 2024 Form 10-K

cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider.

Management judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows.

Assumptions and estimates about future values and remaining useful lives are complex and often subjective.

Impairment charges could materially decrease our future results of operations and result in lower asset values on our balance sheet.

Contingent Consideration

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The milestone payment associated with PacBio’s acquisition of Omniome was triggered in September 2023 once both the Onso instrument and related consumables had been shipped to one customer.

Consequently, we paid the former Omniome security holders milestone consideration of an aggregate of approximately $100.9 million in cash and approximately 9.0 million shares of our common stock in October 2023.

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.

Business Acquisitions for further information.

The contingent consideration liability was measured at fair value as of the acquisition date and is remeasured periodically at each reporting date, with changes in fair value recorded as change in fair value of contingent consideration in the consolidated statements of operations and comprehensive loss.

Consequently, we paid the former Omniome securityholders milestone consideration of an aggregate of approximately $100.9 million in cash and approximately 9.0 million shares of our common stock in October 2023.

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 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 II, Item 8 of this Annual Report on Form 10-K for further information.

The contingent consideration liability was measured at fair value as of the acquisition date and is remeasured periodically at each reporting date, with changes in fair value recorded as change in fair value of contingent consideration on our consolidated statements of operations and comprehensive loss.

For the Apton contingent consideration, the initial measurement and post-acquisition remeasurement required estimates and assumptions 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 to determine the total fair value of the contingent consideration payment as of each reporting period.

This method requires significant management judgment, including risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an estimated credit spread.

Assumptions and estimates about future values are complex and often subjective.

Future changes in our estimates could result in expenses or gains.

For the Omniome contingent consideration, the initial measurement and post-acquisition remeasurement required estimates and assumptions using a scenario-based method that considers a range of potential outcomes of milestone achievement dates and assigned probabilities of occurrence for each outcome.

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This method requires significant management judgment, including the probability of achieving certain future milestones and discount rates.

For the Apton contingent consideration, the initial measurement and post-acquisition remeasurement required estimates and assumptions 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 to determine the total fair value of the contingent consideration payment as of each reporting period.

This method requires significant management judgment, including risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an estimated credit spread.

Future changes in our estimates could result in expenses or gains.

Refer to Note 3 .

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Organization and Significant Accounting Policies , subsection titled “Recent Accounting Pronouncements”, in Part II, Item 8 of this Annual Report on Form 10-K for information regarding applicable recent accounting pronouncements.

Fiscal 2024 Form 10-K

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-K

Item 7. Management’s Discussion and Analysis