Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 6, 2023 (the “Annual Report on Form 10-K”). In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results, performance, or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks, and uncertainties, including, but not limited to, those set forth under the section titled “Part II, Item 1A. Risk Factors” and “Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q or under the section titled “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K, as may be updated by Part II, Item 1A. Risk Factors in our subsequently filed Quarterly Reports on Form 10-Q. Unless the context otherwise requires, the terms “Quanterix,” the “Company,” “we,” “it,” “us, “and “our” in this Quarterly Report on Form 10-Q refer to Quanterix Corporation and its consolidated subsidiaries.
Overview
We are a life sciences company that has developed next generation, ultra-sensitive digital immunoassay platforms that advance precision health for life sciences research and diagnostics. Our platforms are based on our proprietary digital “Simoa” detection technology. Our Simoa bead-based and planar array platforms enable customers to reliably detect protein biomarkers in extremely low concentrations in blood, serum, and other fluids that, in many cases, are undetectable using conventional, analog immunoassay technologies, and also allow researchers to define and validate the function of novel protein biomarkers that are only present in very low concentrations. These capabilities provide our customers with insight into the role of protein biomarkers in human health that has not been possible with other existing technologies and enable researchers to unlock unique insights into the continuum between health and disease. We believe this greater insight will enable the development of novel therapies and diagnostics and facilitate a paradigm shift in healthcare from an emphasis on treatment to a focus on earlier detection, monitoring, prognosis and, ultimately, prevention.
Our instruments are designed to be used either with assays fully developed by us, including all antibodies and supplies required to run the tests, or with “homebrew” kits where we supply some of the components required for testing and the customer supplies the remaining required elements. Accordingly, our installed instruments generate a recurring revenue stream. As the installed base of the Simoa instruments increases, we expect total consumables revenue to increase.
We commercially launched our first immunoassay platform, the Simoa HD-1, in 2014. The HD-1 is based on our bead-based technology and assays run on the HD-1 are fully automated. We initiated commercial launch of the SR-X instrument in 2017. The SR-X utilizes the same Simoa bead-based technology and assay kits as the HD-1 in a compact benchtop form with a lower price point, more flexible assay preparation, and a wider range of applications. In 2019, we launched the Simoa HD-X, an upgraded version of the Simoa HD-1, which replaces the HD-1. The HD-X has been designed to deliver significant productivity and operational efficiency improvements, as well as greater user flexibility. By September 30, 2023, approximately 81% of the HD instrument installed base was HD-X instruments.
With our acquisition of Aushon BioSystems, Inc. in 2018, we acquired a CLIA-certified laboratory, as well as their proprietary sensitive planar array detection technology. Leveraging our proprietary sophisticated Simoa image analysis and data analysis algorithms, we further refined the planar array technology to develop the SP-X instrument to provide sensitivity similar to that found in our Simoa bead-based platform. We commercially launched the SP-X instrument in 2019.
Our wholly-owned subsidiary UmanDiagnostics AB (“Uman”), a company located in Umeå, Sweden, supplies neurofilament light (“Nf-L”), antibodies, and enzyme-linked immunoassay (“ELISA”) kits, which are used by
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researchers and biopharmaceutical and diagnostics companies world-wide in the detection of Nf-L to advance the development of therapeutics and diagnostics for neurodegenerative conditions.
We also provide contract research services for customers and Laboratory Developed Test (“LDT”) services through our CLIA-certified Accelerator Laboratory (the “Acceleratory Laboratory”). The Accelerator Laboratory provides customers with access to Simoa technology, and supports multiple projects and services, including sample testing, homebrew assay development, custom assay development, and blood-based biomarker testing. To date, we have completed over 2,200 projects for more than 470 customers from all over the world using our Simoa platforms.
We sell our instruments, consumables, and services to the life science, pharmaceutical, and diagnostics industries through a direct sales force and support organizations in North America and Europe, and through distributors and sales agents in other select markets, including Australia, Brazil, China, Czech Republic, India, Hong Kong, Israel, Japan, New Zealand, Qatar, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, and the United Arab Emirates. In addition, Uman sells Nf-L antibodies and Nf-L ELISA kits directly, and in conjunction with us and another distributor, worldwide. We have an extensive base of customers in academic and governmental research institutions, as well as pharmaceutical, biotechnology, and contract research companies.
As of September 30, 2023, we had cash, cash equivalents, and marketable securities of $327.7 million. Since our inception, we have incurred annual net losses. Our net losses were $7.8 million and $19.9 million for the three and nine months ended September 30, 2023, respectively, and $35.1 million and $78.1 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $422.1 million and stockholders’ equity of $353.4 million.
We expect to continue to incur significant expenses and operating losses at least through the next 24 months. We expect our expenses will increase as we:
● expand our sales and marketing efforts to further commercialize our products;
● expand our research and development efforts to improve our existing products and develop and launch new products, particularly if any of our products are deemed by the U.S. Food and Drug Administration (the “FDA”) to be medical devices or otherwise subject to additional regulation by the FDA;
● seek Premarket Approval (“PMA”) or 510(k) clearance from the FDA for our existing products or new products if or when we decide to market products for use in the prevention, diagnosis, or treatment of a disease or other condition;
● hire additional personnel to support our growth and research and development;
● strategically acquire and integrate companies or technologies that may be complementary to our business;
● intend to invest in our diagnostics business in support of the launch of Lucent Diagnostics, LDTs and other diagnostics initiatives;
● enter into collaboration arrangements, or in-license other products and technologies; and
● add operational, financial, and management information systems.
Recent Business Developments
In October 2023, we entered into a license agreement with Janssen Sciences Ireland UC, a Johnson & Johnson Company (“J&J”). The agreement grants us worldwide, non-exclusive rights to J&J’s p-Tau 217 antibodies and assay designs for use in clinical research and diagnostic products, including in the production of Simoa p-Tau 217 research-use only assay kits for global distribution. Under this license, we are required to pay royalties on net sales of the licensed products and service activities.
In July 2023, we launched Lucent Diagnostics, a new healthcare provider-facing portal to meet the future needs of patients at the same time a therapy for disease becomes more widely available. In the second half of 2023, we have launched initial blood-based biomarker LDTs, LucentAD and LucentAD p-Tau 217, to assist in the evaluation of patients experiencing cognitive symptoms consistent with the early signs of Alzheimer’s disease. These tests have not been cleared or approved by the FDA. We do not expect material revenues from these tests until 2024 or later.
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On September 21, 2022, we entered into a contract with the National Institutes of Health (the “NIH”) with a total award value of $1.7 million (the “NIH Grant”). The NIH is an agency of the U.S. Department of Health and Human Services and under the NIH Grant granted us funding in support of the development of certain point-of-care diagnostic technologies through collaborative efforts. Grant funding is to be used solely for activities related to the point-of-care diagnostic device development project and the contract period runs through August 2025. Receipt of the award value occurs throughout the term of the contract period and after we submit for reimbursement of activities related to the grant. As of September 30, 2023, we had received $0.5 million of the award value.
During the three months ended September 30, 2023, grant revenue recognized and research and development expense incurred under the NIH Grant were not material. During the nine months ended September 30, 2023, grant revenue recognized and research and development expense incurred under the NIH Grant were $0.5 million and $0.4 million, respectively.
On March 24, 2022, we entered into a contract with the Alzheimer’s Drug Discovery Foundation (the “ADDF”) with a total funding value of $2.3 million (the “ADDF Grant”). The ADDF is a charitable venture philanthropy entity that granted us funding in support of certain activities for the development of an in vitro diagnostic test for early detection of Alzheimer's disease. The ADDF Grant restricts our use of the granted funds solely for activities related to our Alzheimer’s diagnostic test development project and the contract period runs through June 2024. Receipt of the contract funding was subject to achievement of predefined milestones and as of September 30, 2023, we had received the total funding value of $2.3 million.
During the three and nine months ended September 30, 2023, grant revenue recognized and research and development expenses incurred under the ADDF Grant were $0.3 million and $0.4 million, respectively.
On February 25, 2022, we entered into a Master Collaboration Agreement with Eli Lilly and Company (“Lilly”) establishing a framework for future projects focused on the development of Simoa immunoassays (the “Lilly Collaboration Agreement”). We also entered into a statement of work under the Lilly Collaboration Agreement to perform assay research and development services within the field of Alzheimer’s disease. In connection with the Lilly Collaboration Agreement, we received a non-refundable up-front payment of $5.0 million during the first quarter of 2022, which was recognized over a one-year period. In addition, under the statement of work, we receive $1.5 million per calendar quarter, which began in the first quarter of 2022. The statement of work automatically renews on a quarterly basis until Lilly provides a termination notice in accordance with the terms of the Lilly Collaboration Agreement. As of September 30, 2023, the Lilly Collaboration Agreement and the statement of work were still in effect.
Concurrent with the execution of the Lilly Collaboration Agreement, we entered into a Technology License Agreement (the “Lilly License”) under which Lilly granted us a non-exclusive license to Lilly’s proprietary pTau217 antibody technology for use in research use only products and services and future in vitro diagnostics applications within the field of Alzheimer’s disease. In consideration of the Lilly License, we paid an upfront fee, are required to make milestone payments based on the achievement of predetermined regulatory and commercial events, and will pay royalties on net sales of licensed products.
We recognized revenue from the Lilly Collaboration Agreement of $1.5 million and $4.5 million during the three and nine months ended September 30, 2023, respectively.
Restructuring and Strategic Re-Alignment
Following a strategic review and assessment of our operations and cost structure, on August 8, 2022, we announced a restructuring and strategic re-alignment plan (the “Restructuring Plan”). As part of the Restructuring Plan, we began an assay redevelopment program with the ultimate objective of improving our ability to manufacture and deliver high-quality assays at scale. The Restructuring Plan aligns our investments to best serve the needs of our customers, focuses our innovation efforts on key platforms, and provides a foundation for our entry into translational pharma and clinical markets, which we believe will be required to access new growth categories. In accordance with the Restructuring Plan, we implemented a workforce reduction, which was substantially completed by the end of the third quarter of 2022. The Restructuring Plan included the elimination of 119 positions and other cost-saving measures.
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During the nine months ended September 30, 2022, we incurred approximately $3.4 million of expenses related to the Restructuring Plan. These expenses were substantially for cash payments of severance and employee benefits, $3.1 million of which was paid as of September 30, 2022. Total restructuring expenses incurred in 2022 under the Restructuring Plan were $3.8 million.
As a result of the Restructuring Plan, we performed an impairment assessment of our goodwill, long-lived assets, including operating lease right-of-use assets, and intangibles. The assessments resulted in us recording an impairment charge of $16.9 million during the three and nine months ended September 30, 2022. The impairment charge included (1) $8.2 million of goodwill (refer to Note 12 − Goodwill in the Notes to Consolidated Financial Statements), (2) $7.7 million associated with the right-of-use asset and property and equipment at leased facilities no longer being utilized, and (3) $1.0 million for software costs related to projects that were rationalized as part of the Restructuring Plan. During the nine months ended September 30, 2023, there were no material changes to the Restructuring Plan or the related exit and disposal costs.
Overall, as a result of the Restructuring Plan, we expect to realize estimated annualized operating expense savings in 2023 of approximately $25.0 million.
Comparison of Results of Operations for Three Months Ended September 30, 2023 and 2022:
The following table sets forth select Consolidated Statements of Operations data, and such data as a percentage of total revenues (in thousands, except percentages):
Three Months Ended September 30,
Increase (Decrease)
2023
% of revenue
2022
% of revenue
Amount
%
Revenues:
Product revenue
$
19,660
63
%
$
17,693
66
%
$
1,967
11
%
Service revenue
10,938
35
%
8,370
31
%
2,568
31
%
Collaboration and license revenue
237
1
%
301
1
%
(64)
(21)
%
Grant revenue
499
2
%
282
1
%
217
77
%
Total revenues
31,334
100
%
26,646
100
%
4,688
18
%
Costs of goods sold and services:
Cost of product revenue
8,342
27
%
10,511
39
%
(2,169)
(21)
%
Cost of service and other revenue
5,209
17
%
5,191
19
%
18
0
%
Total costs of goods sold and services
13,551
43
%
15,702
59
%
(2,151)
(14)
%
Gross profit
17,783
57
%
10,944
41
%
6,839
62
%
Operating expenses:
Research and development
7,200
23
%
6,631
25
%
569
9
%
Selling, general, and administrative
23,595
75
%
19,966
75
%
3,629
18
%
Other lease costs
758
2
%
609
2
%
149
24
%
Impairment and restructuring
—
—
%
20,341
76
%
(20,341)
(100)
%
Total operating expenses
31,553
101
%
47,547
178
%
(15,994)
(34)
%
Loss from operations
(13,770)
(44)
%
(36,603)
(137)
%
(22,833)
(62)
%
Interest income, net
4,185
13
%
1,712
6
%
2,473
144
%
Other income (expense), net
2,030
6
%
(101)
—
%
2,131
2,110
%
Loss before income taxes
(7,555)
(24)
%
(34,992)
(131)
%
(27,437)
(78)
%
Income tax expense
(203)
(1)
%
(72)
—
%
131
182
%
Net loss
$
(7,758)
(25)
%
$
(35,064)
(131)
%
$
(27,306)
(78)
%
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Revenues
Total revenues increased $4.7 million, or 18%, to $31.3 million for the three months ended September 30, 2023, compared to $26.6 million for the three months ended September 30, 2022.
Product revenue of $19.7 million for the three months ended September 30, 2023 consisted of instrument sales of $3.7 million and sales of consumables and other products of $16.0 million. This represented an increase of $2.0 million, or 11%, compared to product revenue of $17.7 million for the three months ended September 30, 2022, which consisted of $7.8 million in instrument sales and $9.9 million in sales of consumables and other products. The increase in product revenue was primarily due to a $6.1 million increase in sales of consumables and increased average selling prices. This increase was partially offset by a $4.1 million decrease in instrument sales due to reduced demand, which is a trend we expect to continue for the remainder of 2023.
Service revenue was $10.9 million for the three months ended September 30, 2023, compared to $8.4 million for the three months ended September 30, 2022, an increase of $2.6 million, or 31%. This increase was primarily due to a $3.3 million increase in Accelerator Laboratory revenue due to higher volumes of sample testing and assay development services, which was partially offset by a $1.2 million decrease in revenue recognized from the Lilly Collaboration Agreement.
Collaboration and license revenue was $0.2 million for the three months ended September 30, 2023, compared to $0.3 million for the three months ended September 30, 2022, a decrease of $0.1 million, or 21%.
Grant revenue was $0.5 million for the three months ended September 30, 2023, compared to $0.3 million for the three months ended September 30, 2022, an increase of $0.2 million, or 77%.
Cost of Goods Sold and Services
Cost of goods sold and services decreased $2.2 million, or 14%, to $13.6 million for the three months ended September 30, 2023, compared to $15.7 million for the three months ended September 30, 2022.
Cost of product revenue decreased $2.2 million, or 21%, to $8.3 million for the three months ended September 30, 2023, compared to $10.5 million for the three months ended September 30, 2022. The decrease was primarily due to improvement in inventory management and manufacturing processes and lower instrument sales. These decreases were partially offset by product revenue related increases, including compensation and benefit costs from increased headcount and an increase in royalty fees.
Cost of service revenue was consistent with the prior period at $5.2 million for each of the three months ended September 30, 2023 and September 30, 2022, primarily due to the increase in Accelerator Laboratory revenue at higher margins.
Research and Development
Research and development expense increased $0.6 million, or 9%, to $7.2 million for the three months ended September 30, 2023, compared to $6.6 million for the three months ended September 30, 2022. The increase was primarily due to professional services fees to enable product development.
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Selling, General, and Administrative
Selling, general and administrative expense increased $3.6 million, or 18%, to $23.6 million for the three months ended September 30, 2023, compared to $20.0 million for the three months ended September 30, 2022. The increase was primarily due to (1) a $1.5 million increase in professional services and consulting fees related to our efforts to remediate the previously disclosed material weaknesses identified in 2022 and other services, (2) a $1.3 million increase in stock-based compensation expense, which was lower in the three months ended September 30, 2022 due to equity award forfeitures recorded from eliminating positions as part of the Restructuring Plan, and (3) a $0.6 million increase in shipping and handling costs for consumables and other products due to increased volume. Included within selling, general, and administrative expense are $2.6 million and $1.6 million of shipping and handling costs for product sales for the three months ended September 30, 2023 and 2022, respectively.
Other Lease Costs
Other lease costs increased $0.1 million, or 24% to $0.8 million for the three months ended September 30, 2023, compared to $0.6 million for the three months ended September 30, 2022. As part of the Restructuring Plan, we are not utilizing the leased office and laboratory facilities in Bedford, Massachusetts and are evaluating alternatives, including sub-leasing the facilities . Other lease costs include amortization of the related operating lease right-of-use assets and other leased facility operating expenses from periods after the impairment and the determination that the facilities would not be utilized. The increase is primarily due to the expenses incurred while not utilizing the space for the full third quarter of 2023, compared to the expenses incurred while not utilizing the space for one and a half months in the third quarter of 2022 after the Restructuring Plan was implemented. Expenses incurred prior to the Restructuring Plan were recorded in selling, general, and administrative on the Consolidated Statements of Operations.
Impairment and Restructuring Expense
There were no impairment and restructuring costs for the three months ended September 30, 2023 compared to $20.3 million incurred in the three months ended September 30, 2022. This decrease was due to the implementation of the Restructuring Plan in August 2022 which did not repeat in 2023. The costs incurred included (1) $8.2 million of goodwill impairment charges, (2) $7.7 million of long-lived asset impairment charges associated with the Bedford, Massachusetts facilities that we are no longer utilizing, (3) $1.0 million of software costs related to projects that were rationalized as part of the Restructuring Plan, and (4) $3.4 million of restructuring expenses primarily for severance and one-time termination benefits in connection with the elimination of 119 positions across the Company.
Interest Income, Net
Interest income, net increased $2.5 million, or 144%, to $4.2 million for the three months ended September 30, 2023, as compared to $1.7 million for the three months ended September 30, 2022, primarily due to (1) higher interest rates earned on cash and cash equivalents, and (2) higher interest rates and accretion of discounts from the purchase of marketable securities.
Other Income (Expense), Net
Other income (expense), net was $2.0 million for the three months ended September 30, 2023, as compared to ($0.1) million for the three months ended September 30, 2022. The $2.1 million increase was primarily due to the recognition of $2.4 million receivable under the Employee Retention Credit established by the Coronavirus Aid, Relief, and Economic Security Act in 2021.
Income Tax (Expense) Benefit, Net
Income tax (expense) benefit, net was consistent with the prior period with a $0.1 million increase, or 182%, to ($0.2) million for the three months ended September 30, 2023, as compared to ($0.1) million for the three months ended September 30, 2022.
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Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and 2022:
The following table sets forth select Consolidated Statements of Operations data, and such data as a percentage of total revenues (in thousands, except percentages):
Nine Months Ended September 30,
Increase (Decrease)
2023
% of revenue
2022
% of revenue
Amount
%
Revenues:
Product revenue
$
58,639
65
%
$
53,134
67
%
$
5,505
10
%
Service revenue
30,069
33
%
25,728
32
%
4,341
17
%
Collaboration and license revenue
1,234
1
%
479
1
%
755
158
%
Grant revenue
877
1
%
357
—
%
520
146
%
Total revenues
90,819
100
%
79,698
100
%
11,121
14
%
Costs of goods sold and services:
Cost of product revenue
22,611
25
%
31,178
39
%
(8,567)
(27)
%
Cost of service and other revenue
14,361
16
%
14,306
18
%
55
0
%
Total costs of goods sold and services
36,972
41
%
45,484
57
%
(8,512)
(19)
%
Gross profit
53,847
59
%
34,214
43
%
19,633
57
%
Operating expenses:
Research and development
17,866
20
%
20,290
25
%
(2,424)
(12)
%
Selling, general, and administrative
66,069
73
%
72,723
91
%
(6,654)
(9)
%
Other lease costs
2,696
3
%
609
1
%
2,087
343
%
Impairment and restructuring
(33)
—
%
20,341
26
%
(20,374)
(100)
%
Total operating expenses
86,598
95
%
113,963
143
%
(27,365)
(24)
%
Loss from operations
(32,751)
(36)
%
(79,749)
(100)
%
(46,998)
(59)
%
Interest income, net
11,520
13
%
2,316
3
%
9,204
397
%
Other income (expense), net
1,884
2
%
(676)
(1)
%
2,560
379
%
Loss before income taxes
(19,347)
(21)
%
(78,109)
(98)
%
(58,762)
(75)
%
Income tax expense
(578)
(1)
%
(10)
—
%
568
5,680
%
Net loss
$
(19,925)
(22)
%
$
(78,119)
(98)
%
$
(58,194)
(74)
%
Revenues
Total revenues increased $11.1 million, or 14%, to $90.8 million for the nine months ended September 30, 2023, compared to $79.7 million for the nine months ended September 30, 2022.
Product revenue of $58.6 million for the nine months ended September 30, 2023 consisted of instrument sales of $12.4 million and sales of consumables and other products of $46.2 million. This represented an increase of $5.5 million, or 10%, compared to product revenue of $53.1 million for the nine months ended September 30, 2022, which consisted of $19.6 million in instrument sales and $33.5 million in sales of consumables and other products. The increase in product revenue was primarily due to a $12.7 million increase in sales of consumables and increased average selling prices. These increases were partially offset by a $7.2 million decrease in instrument sales due to reduced demand, which is a trend we expect to continue for the remainder of 2023. Included in consumables and other product revenue for the nine months ended September 30, 2023 is $0.8 million of one-time revenue, which includes the immaterial fair value adjustment recorded during the third quarter, from the receipt of ordinary shares from UltraDx Limited (“UltraDx”) that was accounted as variable consideration under the UltraDx Agreement (as a Level 3 financial asset with minimal market activity or other data available, the fair value of the ordinary shares was determined primarily using the third-party purchase price of similar instruments issued by UltraDx).
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Service revenue was $30.1 million for the nine months ended September 30, 2023, compared to $25.7 million for the nine months ended September 30, 2022, an increase of $4.3 million, or 17%. This increase was primarily due to a $6.7 million increase in Accelerator Laboratory revenue due to higher volumes of sample testing and assay development services and a $1.0 million increase in extended service-type warranties, which were partially offset by a $3.7 million decrease in revenue recognized from the Lilly Collaboration Agreement.
Collaboration and license revenue was $1.2 million for the nine months ended September 30, 2023, compared to $0.5 million for the nine months ended September 30, 2022, an increase of $0.8 million, or 158%. The increase was primarily due to a $0.5 million one-time increase from the expiration of a previously paid for option to expand the scope of the Abbott License Agreement.
Grant revenue was $0.9 million for the nine months ended September 30, 2023, compared to $0.4 million for the nine months ended September 30, 2022, an increase of $0.5 million or 146%. This increase was due to the receipt of a portion of the NIH Grant.
Cost of Goods Sold and Services
Cost of goods sold and services decreased $8.5 million, or 19%, to $37.0 million for the nine months ended September 30, 2023 compared to $45.5 million for the nine months ended September 30, 2022.
Cost of product revenue decreased $8.6 million, or 27%, to $22.6 million for the nine months ended September 30, 2023, compared to $31.2 million for the nine months ended September 30, 2022. The decrease was primarily due to improvement in inventory management and manufacturing processes and lower instrument sales.
Cost of service revenue was consistent with the prior period with an increase of $0.1 million, or less than 1%, to $14.4 million for the nine months ended September 30, 2023, compared to $14.3 million for the nine months ended September 30, 2022, primarily due to the increase in Accelerator Laboratory revenue at higher margins.
Research and Development
Research and development expense decreased $2.4 million, or 12%, to $17.9 million for the nine months ended September 30, 2023, compared to $20.3 million for the nine months ended September 30, 2022. This decrease was primarily due to a decrease in compensation and benefit costs related to the reduction in headcount from the Restructuring Plan, which was partially offset by an increase in license fees and professional services to enable product development.
Selling, General, and Administrative
Selling, general and administrative expense decreased $6.7 million, or 9%, to $66.1 million for the nine months ended September 30, 2023, compared to $72.7 million for the nine months ended September 30, 2022. The decrease was primarily due to a decrease in compensation and benefit costs related to the reduction in headcount in from the Restructuring Plan and a full nine months of facilities costs from the leased office and laboratory facilities we are no longer utilizing being recorded in other lease costs instead of selling, general, and administrative expenses on the Consolidated Statements of Operations. These decreases were partially offset by an increase in professional services and consulting fees related to our efforts to remediate the previously disclosed material weaknesses identified in 2022 and other services, and a increase in shipping and handling costs for consumables and other products due to higher volume. Included within selling, general and administrative expense are $6.0 million and $5.3 million of shipping and handling costs for product sales for the nine months ended September 30, 2023 and 2022, respectively.
Other Lease Costs
Other lease costs increased $2.1 million, or 343%, to $2.7 million for the nine months ended September 30, 2023, compared to $0.6 million for the nine months ended September 30, 2022. As part of the Restructuring Plan, we are not utilizing the leased office and laboratory facilities in Bedford, Massachusetts and are
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evaluating alternatives, including sub-leasing the facilities . Other lease costs include the amortization of the related operating lease right-of-use assets and other leased facility operating expenses from periods after the impairment and the determination that the facilities would not be utilized. The increase is primarily due to the expenses incurred while not utilizing the space for the full nine months of 2023, compared to the expenses incurred while not utilizing the space for one and a half months in the third quarter of 2022 after the Restructuring Plan was implemented. Expenses incurred prior to the Restructuring Plan were recorded in selling, general, and administrative on the Consolidated Statements of Operations.
Impairment and Restructuring Expense
There were no impairment and restructuring costs for the nine months ended September 30, 2023, compared to $20.3 million for the nine months ended September 30, 2022. This decrease was due to the implementation of the Restructuring Plan in August 2022 which did not repeat in 2023. The costs incurred included (1) $8.2 million of goodwill impairment charges, (2) $7.7 million of long-lived asset impairment charges associated with the Bedford, Massachusetts facilities that we are no longer utilizing, (3) $1.0 million of software costs related to projects that were rationalized as part of the Restructuring Plan, and (4) $3.4 million of restructuring expenses primarily for severance and one-time termination benefits in connection with the elimination of 119 positions across the Company.
Interest Income, Net
Interest income, net increased $9.2 million, or 397%, to $11.5 million for the nine months ended September 30, 2023, compared to $2.3 million for the nine months ended September 30, 2022. This increase was primarily due to higher interest rates earned on cash, cash equivalents and marketable securities, and the accretion of discounts from the purchase of marketable securities.
Other Income (Expense), Net
Other income (expense), net increased $2.6 million or 379%, to $1.9 million for the nine months ended September 30, 2023, as compared to ($0.7) million for the nine months ended September 30, 2022. The increase was primarily due to recognizing $2.4 million receivable under the Employee Retention Credit established by the Coronavirus Aid, Relief, and Economic Security Act in 2021.
Income Tax Expense, Net
Income tax expense, net was ($0.6) million for the nine months ended September 30, 2023 , as compared to less than ($0.1) million for the nine months ended September 30, 2022.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents, marketable securities, and funds generated from sales of our products and services. As of September 30, 2023, we had cash and cash equivalents of $201.3 million and marketable securities of $126.4 million. Historically we have also financed our operations through equity offerings and borrowings from credit facilities.
As discussed in Note 2 − Significant Accounting Policies and Note 5 − Marketable Securities in the Notes to Consolidated Financial Statements, during the third quarter of 2023 we invested available cash and cash equivalents in a portfolio of marketable securities. These securities are currently classified as available-for-sale and recorded in current assets on the Consolidated Balance Sheets based on their highly liquid nature and because we may use them in our current operations. Our marketable securities are required to be recorded at fair value each reporting period. The fair value is determined utilizing quoted prices in active markets in cases that such information exists (i.e. Level 1 fair value inputs), or third party pricing services and other market observable data (i.e. Level 2 fair value inputs).
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Cash Flows
The following table summarizes our cash flows (in thousands):
Nine Months Ended September 30,
2023
2022
Net cash used in operating activities
$
(12,918)
$
(44,182)
Net cash used in investing activities
(126,772)
(9,611)
Net cash provided by financing activities
2,490
1,597
Net decrease in cash, cash equivalents, and restricted cash
$
(137,200)
$
(52,196)
Net Cash Used in Operating Activities
We derive cash flows from operations primarily from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to develop new products and services, invest in process and product improvements, and increase our sales and marketing efforts. We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business, and built our infrastructure. We expect negative cash flows from operating activities may continue in the future.
Net cash used in operating activities was $12.9 million during the nine months ended September 30, 2023. The $31.3 million reduction in net cash used in operating activities from $44.2 million during the nine months ended September 30, 2022 was primarily driven by an overall reduction in our net loss, adjusted for non-cash items, consisting of revenue growth, a full nine months of reduced expenses resulting from the Restructuring Plan implemented in the third quarter of 2022, continued improvements in our inventory management and manufacturing processes leading to improved gross margin, and increased interest income from investing in marketable securities and rising interest rates.
Net Cash Used in Investing Activities
Our primary investing activities consist of purchases of marketable securities and capital expenditures for the purchase of equipment to support our expanding infrastructure and work force. We expect to continue to incur additional capital expenditures related to these efforts in future periods. Cash used towards capital expenditures can be partially offset by proceeds from grants with third parties to purchase assets (refer to the section titled “Grant Revenue” in Note 3 − Revenue and Related Matters in the Notes to Consolidated Financial Statements for more information).
Net cash used in investing activities was $126.8 million during the nine months ended September 30, 2023, which consisted of the purchase of $125.2 million of marketable securities and $1.6 million of purchases of property and equipment.
Net cash used in investing activities was $9.6 million during the nine months ended September 30, 2022, which consisted of $10.1 million of purchases of property and equipment which were partially offset by $0.5 million in grant proceeds under the RADx Grant.
Net Cash Provided by Financing Activities
Our primary financing activities are proceeds from sales of our common stock.
Financing activities provided $2.5 million and $1.6 million of cash during the nine months ended September 30, 2023 and 2022, respectively.
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Capital Resources
We have not achieved profitability on an annual basis since our inception, and we expect to continue to incur net losses in the future. We also expect that our operating expenses will increase as we continue to increase our marketing efforts to drive adoption of our commercial products, as well as our investment in improving the quality of, and expanding, our products and services. Our liquidity requirements have consisted, and we expect that they will continue to consist, of sales and marketing expenses, research and development expenses, working capital, and general corporate expenses.
We believe cash generated from product and services sales, along with our current cash, cash equivalents, and marketable securities, will be sufficient to meet our anticipated operating cash requirements for at least 12 months from the date of this Quarterly Report on Form 10-Q. In the future, we expect our operating and capital expenditures to increase as we increase headcount, expand our sales, marketing, and research and development activities, and grow our customer base. Our estimates of the period of time through which our financial resources will be adequate to support our operations and the costs to expand our business are forward-looking statements and involve risks and uncertainties. Actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the section titled “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K.
We have based our estimates on assumptions that may change or not materialize and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including but not limited to:
● continued market acceptance of our products and services and the ability of our products to meet our customers’ expectations;
● the cost and timing of establishing additional sales, marketing, and distribution capabilities;
● the extent to which we achieve revenue improvement and related benefits from our Restructuring Plan;
● the extent to which we are able to successfully complete our assay improvement program to enhance product quality;
● the cost of our research and development activities;
● our ability to enter into collaborations in the future, and the success of any such collaborations;
● potential opportunities to strategically acquire and integrate companies or technologies that may be complementary to our business;
● the cost and timing of potential regulatory clearances or approvals that may be required in the future for our products; and
● the effect of competing technological and market developments.
We cannot guarantee that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products or grant licenses on terms that are not favorable to us. If we do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products and services. We also may have to reduce marketing, customer support or other resources devoted to our products, or cease operations.
If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity, debt offerings, or other financings.
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Contractual Obligations and Commitments
As of September 30, 2023, there have been no material changes to our contractual obligations and commitments from those described in the section titled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K.
In addition to these cash commitments disclosed in our Annual Report on Form 10-K, we may have other payables and liabilities that may be legally enforceable but are not considered contractual commitments.
Critical Accounting Policies and Estimates
Our critical accounting policies and significant estimates that involve a higher degree of judgment and complexity are described in the section titled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, Significant Judgments and Estimates” included in our Annual Report on Form 10-K.
There have been no material changes to our critical accounting policies and estimates as previously disclosed in that report.
Related Party Transactions
Refer to Note 14 − Related Party Transactions in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a full description of related party transactions.
Non-GAAP Financial Measures
To supplement our financial statements presented on a U.S. GAAP basis, we present non-GAAP gross profit, non-GAAP gross margin, non-GAAP total operating expenses, and non-GAAP loss from operations, which are calculated by including shipping and handling costs for product sales within cost of goods sold instead of within selling, general, and administrative expenses. Management uses these non-GAAP measures to evaluate our operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in our business and our competitors. Management believes that presentation of these non-GAAP measures provides useful information to investors in assessing our operating performance within our industry and in order to allow comparability to the presentation of other companies in our industry where shipping and handling costs are included in cost of goods sold for products. Management also uses these non-GAAP measures as a factor in assessing our progress against the Restructuring Plan. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for, the financial information presented in accordance with U.S. GAAP.
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Set forth below is a reconciliation of non-GAAP gross profit, non-GAAP gross margin, non-GAAP total operating expenses, and non-GAAP loss from operations to their most directly comparable GAAP financial measures.
Reconciliation of U.S. GAAP Financial Measures to Non-GAAP Financial Measures:
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
GAAP gross profit
$
17,783
$
10,944
$
53,847
$
34,214
Shipping and handling costs
(2,553)
(1,639)
(6,004)
(5,288)
Non-GAAP gross profit
$
15,230
$
9,305
$
47,843
$
28,926
GAAP revenue
$
31,334
$
26,646
$
90,819
$
79,698
GAAP gross margin (gross profit as % of revenue)
56.8%
41.1%
59.3%
42.9%
Non-GAAP gross margin (non-GAAP gross profit as % of revenue)
48.6%
34.9%
52.7%
36.3%
GAAP total operating expenses
$
31,553
$
47,547
$
86,598
$
113,963
Shipping and handling costs
(2,553)
(1,639)
(6,004)
(5,288)
Non-GAAP total operating expenses
$
29,000
$
45,908
$
80,594
$
108,675
GAAP loss from operations
$
(13,770)
$
(36,603)
$
(32,751)
$
(79,749)
Non-GAAP loss from operations
$
(13,770)
$
(36,603)
$
(32,751)
$
(79,749)
Recent Accounting Pronouncements
Refer to Note 2 − Significant Accounting Policies in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the expected dates of adoption and effects on our Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2023, there have been no material changes to the market risk information from those described in the section titled “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.