PACIFIC BIOSCIENCES OF CALIFORNIA, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with (i) our unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and (ii) our 2024 Annual Report filed with the U.S. Securities and Exchange Commission, or the SEC, on March 17, 2025. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and you should not place undue reliance on our forward-looking statements. We do not assume any obligation to update any forward-looking statements. In preparing this Management's Discussion and Analysis ("MD&A"), we presume that readers have access to and have read the MD&A in our 2024 Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. Our MD&A is organized into the following sections: • Overview and Outlook • Results of Operations • Liquidity and Capital Resources • Critical Accounting Policies and Estimates • Recent Accounting Pronouncements • Off Balance Sheet Arrangements OVERVIEW AND OUTLOOK About PacBio 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, which include our HiFi long-read sequencing technology, address solutions across a broad set of applications including human germline sequencing, 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 . We focus on creating some of the world’s most advanced sequencing systems to provide our customers with the most complete and accurate view of genomes, transcriptomes, and epigenomes. Our customers include academic and governmental research institutions, commercial testing and service laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research organizations ("CROs"), pharmaceutical companies, and agricultural companies. Q3 Fiscal 2025 Form 10-Q 27 Table of Contents Strategic Objectives Our 2025 strategic 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. Revio is increasingly being used in laboratory developed tests ("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. Leading institutions have adopted our products to study rare and inherited disease. We believe the market opportunity for clinical sequencing is significant and could drive substantial revenue growth for the Company. We plan to continue to pursue partner collaborations where the technologies being developed or applications being considered extend beyond whole-genome clinical sequencing. Collaborative arrangements add to the awareness of our products and service offerings and may drive new applications for use of our technology. Financial Overview Key highlights of the nine months ended September 30, 2025 consolidated financial results include the following: Revenue of Gross profit of Operating loss of Cash, cash equivalents, and investments of $115.4 M $29.2 M $512.7 M $298.7 M compared to $114.8 M during the same period of 2024 compared to $27.2 M during the same period of 2024 compared to $321.3 M during the same period of 2024 compared to $389.9 M at December 31, 2024 • Revenue was comprised of $36.5 million in instrument revenue, $60.3 million in consumables revenue and $18.6 million in service and other revenue during the nine months ended September 30, 2025. Revenue was comprised of $50.5 million in instrument revenue, $51.6 million in consumables revenue and $12.7 million in service and other revenue during the nine months ended September 30, 2024. The increase was primarily due to higher consumable sales, Vega unit sales, and service and other revenue, partially offset by lower Revio unit sales. • Gross profit increased during the nine months ended September 30, 2025 compared to the same period of 2024. The increase was primarily driven by growth in consumable revenue and lower cost of product revenue, partially offset by restructuring-related charges of $12.4 million during the nine months ended September 30, 2025 compared to $4.4 million for the same period of 2024. See Note 5. Restructuring in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. Gross margins may be affected by product mix, manufacturing efficiencies, changes in warranty costs, average selling price fluctuations, future product launches, changes to inventory reserves, costs of raw materials, and tariffs. Q3 Fiscal 2025 Form 10-Q 28 Table of Contents • Loss from operations increased $191.4 million during the nine months ended September 30, 2025, compared with the same period of 2024, primarily due to a $193.4 million increase in operating expenses. This increase included $382.4 million of restructuring-related costs, comprised primarily of $359.3 million in accelerated amortization of acquired intangibles, $15.0 million of impairment charges, and $4.8 million of employee separation costs. By contrast, restructuring-related charges totaled $20.3 million in the prior-year period. These increases in restructuring-related costs were partially offset by a $78.2 million decrease in impairment charges, a $19.8 million change in fair value of contingent consideration, and reductions in research and development and sales, general and administrative expenses due to headcount and related cost savings from the restructuring. • Cash, cash equivalents, and short-term investments were $298.7 million at September 30, 2025, which represents a 23% decrease compared to the balance at December 31, 2024. The 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 the National Institutes of Health ("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. 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 highly uncertain and inherently unpredictable. On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of goodwill 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 $15.0 million of impairment charges during the nine months ended September 30, 2025. See additional discussion below in Results of Operations, as well as Note 3. Balance Sheet Components in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Additionally, refer to the Critical Accounting Policies and Estimates section of our 2024 Annual Report for further discussion on the Company's asset impairment assessments. See the Risk Factors section for further discussion. Q3 Fiscal 2025 Form 10-Q 29 Table of Contents RESULTS OF OPERATIONS Comparison of the Three Months Ended September 30, 2025 and 2024 Three Months Ended September 30, (In thousands, except percentages) 2025 2024 $ Change % Change Revenue: Product revenue $ 32,597 $ 35,296 $ (2,699) (8 %) Service and other revenue 5,844 4,671 1,173 25 % Total revenue 38,441 39,967 (1,526) (4 %) Cost of Revenue: Cost of product revenue 19,204 23,278 (4,074) (18 %) Cost of service and other revenue 3,078 3,484 (406) (12 %) Amortization of acquired intangible assets 183 3,201 (3,018) (94 %) Loss on purchase commitment 75 — 75 — Total cost of revenue 22,540 29,963 (7,423) (25 %) Gross profit 15,901 10,004 5,897 59 % Operating Expense: Research and development 22,846 25,516 (2,670) (10) % Sales, general and administrative 31,099 43,746 (12,647) (29) % Amortization of acquired intangible assets 833 3,649 (2,816) (77) % Change in fair value of contingent consideration — 1,170 (1,170) (100) % Total operating expense 54,778 74,081 (19,303) (26 %) Operating loss (38,877) (64,077) 25,200 (39) % Interest expense (1,739) (3,538) 1,799 (51) % Other income, net 2,999 6,890 (3,891) (56 %) Loss before income taxes (37,617) (60,725) 23,108 (38 %) Income tax provision 383 — 383 — Net loss $ (38,000) $ (60,725) $ 22,725 (37 %) Q3 Fiscal 2025 Form 10-Q 30 Table of Contents Revenue Total Revenue Total revenue decreased $1.6 million, or 4%, for the third quarter of 2025 compared with the same quarter of 2024. Product revenue decreased $2.7 million, or 8%, primarily due to a decrease of $5.5 million, or 33%, in instrument revenue, partially offset by an increase of $2.8 million, or 15%, in consumable revenue. Service and other revenue increased $1.1 million, or 25%, primarily driven by an increase in Revio service contracts. Instrument Revenue Instrument revenue decreased for the third quarter of 2025, primarily due to a lower number of Revio systems sold—13 units compared to 22 units in the same quarter of 2024. This decline primarily reflects variability in customer purchasing behavior resulting from uncertainty surrounding the funding for new capital equipment, particularly among academic and research institutions. The decrease was partially offset by sales of the Vega system, with 32 units sold during the third quarter of 2025 following its commercial launch in the fourth quarter of 2024. We expect that instrument revenue may fluctuate quarter-to-quarter based on timing of customer purchasing decisions, sales mix, and funding dynamics. Consumables Revenue The increase in consumables revenue for the third quarter of 2025 was primarily driven by higher Revio consumables sales, reflecting the continued expansion of the Revio instrument installed base. Shipments of Vega consumables also contributed modestly during the period, and we anticipate increased contributions as customers begin ramping usage of the Vega platform and the installed base expands. Looking ahead, we expect continued growth in consumables revenue as adoption of the Revio and Vega platforms expands. This anticipated growth reflects increasing instrument placements, improving consumable utilization, and broadening addressable application for our platforms. Q3 Fiscal 2025 Form 10-Q 31 Table of Contents Cost of Revenue and Gross Profit Total cost of revenue decreased $7.4 million, or 25%, in the third quarter of 2025 compared to the same quarter of 2024 primarily due to a decrease in cost of product revenue and a decrease of $3.0 million in amortization attributable to acquired intangible assets that are related to sales generating activities. Total cost of revenue included share-based compensation expense of $0.9 million and $1.2 million during the third quarter of 2025 and 2024, respectively. Cost of product revenue decreased $4.1 million, or 18%, in the third quarter of 2025 compared to the same quarter of 2024 primarily due to a shift in product mix to lower cost instruments. Gross profit increased $5.9 million, or 59%, in the third quarter of 2025 compared to the same quarter of 2024 driven primarily by lower cost of revenue and higher consumables sales. Gross margins may be affected by product mix, manufacturing efficiencies, changes in warranty costs, average selling price fluctuations, future product launches, changes to inventory reserves, costs of raw materials and tariffs. Research and Development Expense Research and development expense decreased by $2.7 million, or 10%, for the third quarter of 2025, compared to the same quarter of 2024. The decrease was primarily driven by decreases in personnel and related expenses, including share-based compensation. Research and development expense included share-based compensation expense of $3.1 million and $4.7 million during the third quarter of 2025 and 2024, respectively. Sales, General, and Administrative Expense Sales, general and administrative expense decreased by $12.6 million, or 29%, for the third quarter of 2025, compared to the same quarter of 2024. The decrease was primarily due to $6.9 million of restructuring charges recorded in the third quarter of 2024 and a decrease in share-based compensation expense. Sales, general, and administrative expense included share-based compensation expense of $7.0 million and $12.3 million during the third quarter of 2025 and 2024, respectively. Amortization of Acquired Intangible Assets Amortization of acquired intangible assets included in operating expenses for the third quarter of 2025 and 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities. Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration during the third quarter of 2024 represents the remeasurement impact of contingent consideration due upon the achievement of a milestone. Interest Expense Interest expense for the third quarter of 2025 and 2024 was primarily comprised of interest on the convertible senior notes. The decrease was due to lower convertible notes balances as a result of the notes exchange transaction in November 2024. See Note 4. Convertible Senior Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. Other Income, Net Other income, net for the third quarter of 2025 decreased compared to the same quarter of 2024 primarily driven by lower investment income due to lower cash and investment balances. Q3 Fiscal 2025 Form 10-Q 32 Table of Contents Comparison of the Nine Months Ended September 30, 2025 and 2024 Nine Months Ended September 30, (In thousands, except percentages) 2025 2024 $ Change % Change Revenue: Product revenue $ 96,793 $ 102,051 $ (5,258) (5 %) Service and other revenue 18,567 12,739 5,828 46 % Total revenue 115,360 114,790 570 — % Cost of Revenue: Cost of product revenue 65,559 68,808 (3,249) (5 %) Cost of service and other revenue 11,709 10,588 1,121 11 % Amortization of acquired intangible assets 4,711 7,172 (2,461) (34 %) Loss on purchase commitment 4,167 998 3,169 318 % Total cost of revenue 86,146 87,566 (1,420) (2 %) Gross profit 29,214 27,224 1,990 7 % Operating Expense: Research and development 74,428 107,456 (33,028) (31 %) Sales, general and administrative 107,442 133,376 (25,934) (19 %) Impairment charges 15,000 93,200 (78,200) (84 %) Amortization of acquired intangible assets 363,708 13,377 350,331 2619 % Change in fair value of contingent consideration (18,700) 1,100 (19,800) (1800 %) Total operating expense 541,878 348,509 193,369 55 % Operating loss (512,664) (321,285) (191,379) 60 % Interest expense (5,214) (10,655) 5,441 (51 %) Other income, net 11,989 19,718 (7,729) (39 %) Loss before income taxes (505,889) (312,222) (193,667) 62 % Income tax provision 116 — 116 — Net loss $ (506,005) $ (312,222) $ (193,783) 62 % Q3 Fiscal 2025 Form 10-Q 33 Table of Contents Revenue Total Revenue Total revenue increased $0.6 million during the nine months ended September 30, 2025 compared with the same period of 2024. Product revenue decreased $5.3 million, or 5%, primarily due to a decrease of $14.0 million, or 28%, in instrument revenue, partially offset by an increase of $8.7 million, or 17%, in consumable revenue. Service and other revenue increased $5.9 million, or 46%, primarily driven by an increase in Revio service contracts. Instrument Revenue Instrument revenue decreased during the nine months ended September 30, 2025, primarily due a lower number of Revio systems sold—40 units compared to 74 units in the same period of 2024. This decline primarily reflects variability in customer purchasing behavior resulting from uncertainty surrounding the funding for new capital equipment, particularly among academic and research institutions. The decrease was partially offset by sales of the Vega system, with 98 units sold during the nine months ended September 30, 2025 following its commercial launch in the fourth quarter of 2024. We expect that instrument revenue may fluctuate quarter-to-quarter based on timing of customer purchasing decisions, sales mix, and funding dynamics. Consumables Revenue The increase in consumables revenue during the nine months ended September 30, 2025 was primarily driven by higher Revio consumables sales, reflecting the continued expansion of the Revio instrument installed base. Shipments of Vega consumables also contributed modestly during the period, and we anticipate increased contributions as customers begin ramping usage of the Vega platform and the installed base expands. Looking ahead, we expect continued growth in consumables revenue as adoption of the Revio and Vega platforms expands. This anticipated growth reflects increasing instrument placements, improving consumable utilization, and broadening addressable application for our platforms. Q3 Fiscal 2025 Form 10-Q 34 Table of Contents Cost of Revenue and Gross Profit Total cost of revenue decreased $1.4 million, or 2%, during the nine months ended September 30, 2025, compared to the same period of 2024 primarily due to decreases in cost of product revenue, amortization of acquired intangible assets, and share-based compensation expense. These decreases were partially offset by an increase in restructuring-related charges. We recorded $12.4 million during the nine months ended September 30, 2025, which included $3.9 million relating to loss on purchase commitments which is based on an estimate of future excess inventory related to supply agreements for which we do not expect to have related sales. Restructuring-related charges were $4.4 million for the same period of 2024. Total cost of revenue included share-based compensation expense of $3.0 million and $4.5 million during the nine months ended September 30, 2025 and 2024, respectively. Cost of product revenue decreased $3.2 million, or 5%, during the nine months ended September 30, 2025, compared to the same period of 2024 primarily due to a shift in product mix to lower cost instruments. Gross profit increased $2.0 million, or 7%, during the nine months ended September 30, 2025, compared to the same period of 2024 driven primarily by growth in consumable revenue which was partially offset by an increase in restructuring-related charges. See Note 5. Restructuring in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information about restructuring activities. Gross margins may be affected by product mix, manufacturing efficiencies, changes in warranty costs, average selling price fluctuations, future product launches, changes to inventory reserves, costs of raw materials and tariffs. Research and Development Expense Research and development expense decreased by $33.0 million, or 31%, during the nine months ended September 30, 2025, compared to the same period of 2024. The decrease was primarily driven by a decrease in personnel and related expenses, including share-based compensation expense, lower product development costs due to the transition of launched products from development to commercialization, and lower restructuring-related charges. We recorded $2.7 million of restructuring-related charges during the nine months ended September 30, 2025 compared to $5.9 million for the same period of 2024. Research and development expense included share-based compensation expense of $9.0 million and $15.1 million during the nine months ended September 30, 2025 and 2024, respectively. Sales, General, and Administrative Expense Sales, general and administrative expense decreased by $25.9 million, or 19%, during the nine months ended September 30, 2025, compared to the same period of 2024. The decrease was primarily due to a decrease in personnel and related expenses, including share-based compensation expense, and lower restructuring-related charges. We recorded $5.5 million of restructuring-related charges during the nine months ended September 30, 2025 compared to $14.4 million for the same period of 2024. Sales, general, and administrative expense included share-based compensation expense of $20.1 million and $35.4 million during the nine months ended September 30, 2025 and 2024, respectively. Impairment Charges We recorded impairment charges of $15.0 million during the nine months ended September 30, 2025, related to in-process research and development (“IPR&D”). These charges resulted from an interim impairment assessment performed in response to identified indicators of impairment during the period. The impairment test concluded that the carrying amount of our IPR&D assets exceeded their estimated fair value. See Note 3. Balance Sheet Components in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. We recognized a goodwill impairment charge of $93.2 million during the nine months ended September 30, 2024. This charge was primarily driven by a sustained decrease in our stock price and changes in the timing of expected future cash flows under our long-term plan, reflecting the ongoing impact of longer-than-anticipated median sales cycles and other contributing factors. These conditions indicated that the fair value of the reporting unit may have been less than its carrying amount, prompting the performance of an interim goodwill impairment test. The results of the test confirmed that the reporting unit’s carrying amount exceeded its estimated fair value. Q3 Fiscal 2025 Form 10-Q 35 Table of Contents Amortization of Acquired Intangible Assets Amortization of acquired intangible assets during the nine months ended September 30, 2025 included $359.3 million of accelerated amortization related to developed technology from the 2021 Omniome acquisition, reflecting our revised estimate that the asset will no longer generate economic benefit beyond March 31, 2025. We expect significantly lower amortization expense in future periods. Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration during the nine months ended September 30, 2024 represents the remeasurement impact of contingent consideration due upon the achievement of a milestone. We recognized a change in fair value of contingent consideration of $18.7 million during the nine months ended September 30, 2025, resulting in a contingent consideration liability of $0. This was primarily due to management's decision to cease development of the high-throughput short-read system, the associated changes in expected future revenues, and the requirement that the milestone event occur prior to the five-year anniversary of the acquisition closing date. Interest Expense Interest expense during the nine months ended September 30, 2025 and 2024 was primarily comprised of interest on the convertible senior notes. The decrease was due to lower convertible notes balances as a result of the notes exchange transaction in November 2024. See Note 4. Convertible Senior Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. Other Income, Net Other income, net during the nine months ended September 30, 2025 decreased compared to the same period of 2024 primarily driven by lower investment income due to lower cash and investment balances. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2025, we had cash, cash equivalents and investments of $298.7 million compared to $389.9 million as of December 31, 2024. We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements beyond the next 12 months from the date of filing of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2025. Our primary sources of liquidity, other than our holdings of cash, cash equivalents, and investments, have primarily been through the issuance of debt or equity securities, together with cash flow from operating activities. We have historically incurred, and expect to continue to incur, operating losses and generate negative cash flows from operations on an annual basis, and as a result, we may require additional capital resources to execute our strategic initiatives to grow our business. We began implementing expense reduction initiatives in the second quarter of 2024, including workforce reductions, facility downsizing, and a streamlined development pipeline, with the goal of lowering annualized run-rate operating expenses by year-end. In the first quarter of 2025, we implemented additional actions, including further workforce reductions, to support continued cost savings. Factors that may affect our capital needs include, but are not limited to, the pace of adoption of our products, which affects the sales of our products and services; our ability to efficiently manage our operations; the effectiveness of our expense reduction initiatives; our ability to attract and retain customers and collaborators; the progress of our research and development programs; initiation, expansion, or funding of research programs and collaborations; the purchase of patent licenses; the impact of product quality; litigation costs, including the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; costs of developing new and enhanced products; acquisitions of complementary businesses, technologies or assets; achievement of milestones in connection with acquisitions; and other factors. There can be no assurance that funds will be available on favorable terms, or at all. Q3 Fiscal 2025 Form 10-Q 36 Table of Contents Contingent Consideration Under the terms of our 2023 acquisition of Apton, we agreed to pay $25.0 million to former Apton equity holders if a high-throughput sequencer incorporating Apton’s technology generates $50.0 million in revenue within five years of the closing. Payment may be made in cash, stock, or a combination of cash and stock. As of September 30, 2025, due primarily to the decision to discontinue development of the system and revised revenue expectations, the fair value of the contingent consideration liability was estimated at $0. Cash Flow Summary Nine Months Ended September 30, (In thousands) 2025 2024 Net cash used in operating activities $ (92,140) $ (175,408) Net cash provided by investing activities 89,419 65,766 Net cash provided by financing activities 3,428 7,213 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 707 $ (102,429) Operating Activities Our primary uses of cash in operating activities include the development of future products and product enhancements, manufacturing, and support functions related to our sales, general and administrative activities. Cash used in operating activities during the nine months ended September 30, 2025 of $92.1 million was due primarily to a $506.0 million net loss that included non-cash items such as amortization of acquired intangible assets of $368.4 million, an impairment charge of $15.0 million, share-based compensation of $32.1 million, $9.8 million of inventory adjustments, and depreciation expense of $10.3 million, partially offset by an $18.7 million decrease in the change in the fair value of the contingent consideration and $3.1 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by increases in accounts receivable and inventory, as well as decreases in accrued expenses and other liabilities. These uses of cash were partially offset by a decrease in prepaid expenses and other assets. Cash used in operating activities for the nine months ended September 30, 2024 of $175.4 million was due primarily to a $312.2 million net loss that included non-cash items such as a goodwill impairment charge of $93.2 million, share-based compensation of $55.0 million, amortization of acquired intangible assets of $20.6 million, depreciation expense of $10.9 million and amortization of right-of-use assets of $10.9 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $10.7 million and $48.9 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by an increase in inventory, as well as decreases in accrued expenses and operating lease liabilities. These uses of cash were partially offset by a decrease in accounts receivable. Investing Activities Our investing activities consist primarily of capital expenditures and investment purchases, sales, and maturities. Cash provided by investing activities during the nine months ended September 30, 2025, was primarily from $280.1 million of maturities of investments partially offset by $183.8 million of purchases of investments and $5.0 million in purchases of intangible assets. Cash provided by investing activities for the nine months ended September 30, 2024, was primarily from $488.5 million of maturities and sales of investments partially offset by $418.2 million in purchases of investments and $4.6 million in purchases of property and equipment. Financing Activities Cash provided by financing activities during the nine months ended September 30, 2025 resulted from $3.4 million of proceeds from the issuance of common stock through our equity compensation plans. Q3 Fiscal 2025 Form 10-Q 37 Table of Contents Cash provided by financing activities during the nine months ended September 30, 2024 resulted primarily from $7.7 million of proceeds from the issuance of common stock through our equity compensation plans. Contractual Obligations We presented our contractual obligations at December 31, 2024 in our 2024 Annual Report. There were no material changes outside the ordinary course of business to our contractual obligations during the nine months ended September 30, 2025. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with the rules and regulations of the SEC. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our critical accounting policies and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes to our significant accounting policies as disclosed in our 2024 Annual Report. RECENT ACCOUNTING PRONOUNCEMENTS Please see Note 1. Organization and Significant Accounting Policies , subsection titled “Recent Accounting Pronouncements”, in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding applicable recent accounting pronouncements. OFF-BALANCE SHEET ARRANGEMENTS As of September 30, 2025, we did not have any off-balance sheet arrangements. In the ordinary course of business, we enter into standard indemnification arrangements. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology, or from claims relating to our performance or non-performance under a contract, any defective products supplied by us, or any acts or omissions, or willful misconduct, committed by us or any of our employees, agents or representatives. The term of these indemnification agreements is generally perpetual after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these agreements is not determinable because it involves claims that may be made against us in future periods but have not yet been made. To date, we have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. We also enter and have entered into indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law. In addition, we may have obligations to hold harmless and indemnify third parties involved with our fundraising efforts and their respective affiliates, directors, officers, employees, agents or other representatives against any and all losses, claims, damages and liabilities related to claims arising against such parties pursuant to the terms of agreements entered into between us and such third parties in connection with such fundraising efforts. To the extent that such indemnification obligations apply to the lawsuits described in Note 6. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q, any associated expenses incurred are included within the related accrued litigation expense amounts. No additional liability associated with such indemnification agreements has been recorded as of September 30, 2025. Q3 Fiscal 2025 Form 10-Q 38 Table of Contents