Maxcyte, Inc.: Form 10-Q for the period ended Sep 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our audited consolidated financial statements and related notes for the year ended December 31, 2023 included in the 2023 Form 10-K, as well as the information contained under Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, the “Risk Factors” section contained in the 2023 Form 10-K and other information provided from time to time in our other filings with the SEC.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements about us and our industry involve substantial risks, uncertainties, and assumptions, including those described elsewhere in this report. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

• our expected future growth and the success of our business model;
• the potential payments we may receive pursuant to our Strategic Platform Licenses (“SPLs”);
• the size and growth potential of the markets for our products, and our ability to serve those markets, increase our market share and achieve and maintain industry leadership;
• the market acceptance and demand for our technology and products, including in the cell therapeutics and bioprocessing application markets;
• the expected future growth of our manufacturing capabilities and sales, support and marketing capabilities;
• our ability to expand our customer base and enter into additional SPL partnerships;
• our ability to accurately forecast and manufacture appropriate quantities of our products to meet clinical or commercial demand;
• our expectations regarding development of the cell therapy market, including projected growth in adoption of non-viral delivery approaches and gene editing manipulation technologies;
• our expectation that our partners will have access to capital markets to develop and commercialize their cell therapy programs;
• our ability to maintain our Master File with the U.S. Food and Drug Administration (the “FDA”) and Master and Technical Files in other countries and expand Master and Technical Files into additional countries;
• our research and development for any future products, including our intention to introduce new instruments and processing assemblies and move into new applications;
• the development, regulatory approval and commercialization of competing products and our ability to compete with the companies that develop and sell such products;
• risks associated with our management transition and our ability to retain and hire senior management and key personnel;
• regulatory developments in the U.S. and foreign countries;
• our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”);
• our expectations and plans regarding a potential cancellation of the admission of our common stock from the AIM exchange;
• our ability to develop and maintain our corporate infrastructure, including our internal controls;
• our financial performance and capital requirements;
• the adequacy of our cash resources and availability of financing on commercially reasonable terms;
• our expectations regarding our ability to obtain and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing the intellectual property rights of others;
• general market and economic conditions that may impact investor confidence in the biopharmaceutical industry and affect the amount of capital such investors provide to our current and potential partners; and
• our use of available capital resources.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and the 2023 Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions or joint ventures.

You should read this Quarterly Report on Form 10-Q and the documents that we file from time to time with the SEC with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

In this Quarterly Report on Form 10-Q, unless the context requires otherwise, all references to “we,” “our,” “us,” “MaxCyte” and the “Company” refer to MaxCyte, Inc.

Trademarks

We have applied for various trademarks that we use in connection with the operation of our business. This Quarterly Report on Form 10-Q includes trademarks, service marks, and trade names owned by us or other companies. All trademarks, service marks, and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® or TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Overview

We are a leading commercial cell engineering company focused on providing enabling platform technologies to advance the discovery, development, and commercialization of next-generation cell therapeutics including cell and gene therapies and to support innovative cell-based research and development. Over more than two decades, we have developed and commercialized our proprietary Flow Electroporation® technology, which is used by biopharmaceutical companies to facilitate complex engineering of a wide variety of cells. Electroporation is a method of transfection, or the process of deliberately introducing molecules into cells, that involves applying an electric field in order to temporarily increase the permeability of the cell membrane. This precisely controlled increase in permeability allows the intracellular delivery of molecules, such as genetic material and proteins, that would not normally be able to cross the cell membrane as easily.

Our ExPERT platform, which is based on our Flow Electroporation technology, has been designed to address this rapidly expanding cell therapy market and can be utilized across the continuum of the high-growth cell therapy sector, from discovery and development through commercialization of next-generation, cell-based medicines. The ExPERT™ family of products includes four instruments, which we call the ATx™, STx™, GTx™ and VLx™, as well as a portfolio of proprietary related disposables and consumables. Our disposables and consumables include processing assemblies (“PAs”) designed for use with our instruments, as well as accessories supporting PAs such as electroporation buffer solution and software protocols. We have garnered meaningful expertise in cell engineering via our internal research and development efforts as well as our customer-focused commercial approach, which includes a growing application scientist team. Our platform is also supported by a robust intellectual property portfolio with more than 200 granted U.S. and foreign patents and more than 100 pending patent applications worldwide.

From leading commercial cell therapy drug and biologic developers and top biopharmaceutical companies to top academic and government research institutions, including the U.S. National Institutes of Health, our customers have extensively validated our technology. We believe the features and performance of our platform have led to sustained customer engagement. Our existing customer base, which includes but is not limited to our 29 SPL partners, ranges from large biopharmaceutical companies, including a majority of the top 25 pharmaceutical companies based on 2023 global revenue, to hundreds of biotechnology companies and academic centers focused on translational research. Our Flow Electroporation technology is used by one of our SPL partners to engineer the first ex-vivo cell therapy approved by the FDA in December 2023.

Since our inception, we have incurred significant operating losses. Our ability to generate revenue sufficient to achieve profitability will depend on the successful further development, commercialization adoption, and market acceptance of our products. We generated revenue of $29.9 million and incurred a net loss of $30.5 million for the nine months ended September 30, 2024. As of September 30, 2024, we had an accumulated deficit of $206.3 million. We expect to continue to incur net losses as we focus on growing commercial sales of our products in both the U.S. and international markets, including growing our sales force, scaling our manufacturing operations, and continuing research and development efforts to develop new products and further enhance our existing products.

Recent Developments

We have continued to enter into SPL agreements with our cell therapy customers. These agreements, which are discussed in more detail under the caption “Results of Operations” below, provide us with revenue from instrument sales and leases and disposables sales as well as pre-commercial milestones based on progress of our partners’ programs through the clinic and sales-based payments upon commercialization of our partners’ programs. In the first three quarters of 2024, we signed SPL agreements with six new partners: Lion TCR, Imugene, and Wugen in January, Be Biopharma in March, Legend Biotech in May, and Kamau Therapeutics in September. We continue to grow our SPL pipeline and, while the specific timing of any agreement is uncertain, we look forward to continuing to build on our existing SPL partnerships and develop additional SPL partnerships in the future.

Results of Operations

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

The following table sets forth our results of operations for the periods presented:

(in thousands)

Revenue

We generate revenue principally from the sale of instruments and single-use PAs and buffer, and from the lease of instruments to our customers. Our SPL partnerships also include associated clinical progress milestones and sales-based payments to us, in addition to annual lease payments.

In order to evaluate how our sales are trending across key markets, as well as the contribution of program-related revenue from our SPL partnerships, we separately analyze revenue derived from our cell therapy customers and drug discovery customers, as well as the performance-based milestone revenues we recognize under our SPL partnerships. Cell therapy revenues include primarily revenue from instruments sold, annual license fees for instruments under lease, and sales of our proprietary disposables. Drug discovery revenue includes primarily revenue from instruments sold, sales of our proprietary disposables and, occasionally, instruments leased. Core revenue includes sales and leases of instruments and disposables to cell therapy and drug discovery customers, excluding SPL program-related revenue. Program-related revenues include clinical progress milestone and sales-based revenues derived from SPL agreements. Milestone revenues are recognized when a customer achieves the associated milestone event.

The following table provides details regarding the sources of revenue for the periods presented:

(in thousands, except percentages)

The following table provides details regarding our core revenue for the periods presented:

(in thousands, except percentages)

Total revenue for the three months ended September 30, 2024 was $8.2 million, an increase of $0.2 million, or 2%, compared to $8.0 million during the three months ended September 30, 2023. The increase was primarily driven by an increase in disposables revenue, offset by a decrease in program-related revenue.

Total core revenue for the three months ended September 30, 2024 was $8.1 million, an increase of $1.5 million, or 23%, compared to $6.6 million for the three months ended September 30, 2023. Our overall increase in core revenue was primarily driven by increases in disposable sales of $1.2 million, and an aggregate increase of other components of core revenue of $0.3 million.

The $1.4 million decrease in program-related revenues for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 resulted from the variability in achievement of contractually specified clinical and regulatory milestones during the three months ended September 30, 2023 and reflects the expected variability from period to period in the level of program-related revenue given the small number of individual triggering events which currently generate this portion of revenue. We expect program-related revenue to continue to experience variability for some time, although we anticipate that variability may moderate as the volume of SPL partnerships and associated milestones grows and matures.

We expect total revenue to increase over time as our customers’ programs advance and our markets grow, resulting in additional instrument sales and leases and disposable sales and also as the percentage of our installed base that are under cell therapy license agreements increases. We expect revenue from disposable and instrument sales and instrument licenses to cell therapy customers will continue to grow as those customers advance their preclinical pipeline programs into clinical development and move their existing drug development programs into later-stage clinical trials and, potentially, into commercialization. In addition, we believe we are well-positioned to attract new customers who may contribute to these revenues, based on the underlying growth in the cell therapy pipeline among companies in this market, the extent to which capital is available to support such companies, and in particular the switch by some cell therapy companies away from viral to non-viral approaches. We expect, however, that our revenue may fluctuate from period to period due to the timing of securing product sales and licenses, the inherently uncertain nature of the timing of our partners’ achievements of clinical progress, and our dependence on the program decisions of our partners.

Cost of Goods Sold and Gross Profit

Cost of goods sold primarily consists of costs for instrument and processing assembly components, contract manufacturer costs, salaries, overhead, and other direct costs related to sales recognized as revenue in the period. Cost of goods sold associated with instrument lease revenue consists of leased equipment depreciation. Gross profit is calculated as revenue less cost of goods sold. Gross profit margin is gross profit expressed as a percentage of revenue.

Our gross profit in future periods will depend on a variety of factors, including sales mix among instruments, disposables and milestones, the specific mix among types of instruments or disposables, the proportion of revenues associated with instrument leases as opposed to sales, changes in the costs to produce our various products, the launch of new products or changes in existing products, our cost structure for manufacturing including changes in production volumes, and the pricing of our products which may be impacted by market conditions.

During the three months ended September 30, 2024, gross margin was 76% compared to 90% for the three months ended September 30, 2023. The decrease in gross margin was primarily due to an increase in cost of goods sold, described below, and a decrease in program-related revenue. We price our instruments at a premium given what we believe to be the broad benefits of our platform, and the limited availability of alternative clinically-validated non-viral delivery approaches. Instrument pricing also depends upon the customer’s specific market. However, the market for non-viral delivery is highly competitive, and introduction of a Good Manufacturing Practices (“GMP”) grade platform by a competitor that delivers similar performance across a similar diversity of cell types could negatively impact our business and lead to increased price pressure that negatively impacts our gross margins.

(in thousands, except percentages)

Cost of goods sold increased by $1.1 million, or 143%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by increases in disposable sales, an increase in inventory reserves, and lower absorption of manufacturing overhead costs.

Gross profit decreased by $1.0 million, or 14%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily driven by the increase in cost of goods sold described above, and a decrease in program-related revenue.

We expect that our cost of goods sold will generally increase or decrease modestly as our instrument and disposables revenue increases or decreases. We expect our gross margin to benefit from realization of program-related revenue from our SPL agreements, to the extent that such revenue grows to be a significant proportion of overall revenues, as there is no cost of goods sold associated with such revenue. However, realization and timing of these potential milestone revenues is uncertain.

Operating Expenses

Research and Development

(in thousands, except percentages)

Research and development expenses consist primarily of costs incurred for our research activities related to advancing our technology and development of applications for our technology, including research into specific applications and associated data development, process development, product development (e.g., development of instruments and disposables, including hardware and software engineering) and design and other costs not directly charged to inventory or cost of goods sold.

These expenses principally include employee-related costs, such as salaries, benefits, incentive compensation, stock-based compensation, and travel, as well as consultant services, facilities, and laboratory supplies, and materials. These expenses are exclusive of depreciation and amortization. We expense research and development costs as incurred in the period in which the underlying activity is undertaken.

Research and development expenses decreased by $0.9 million, or 15%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily driven by a $0.5 million decrease in stock-based compensation, a $0.4 million decrease in lab expense, and a $0.2 decrease in engineering expenses, offset by an increase of $0.2 million increase in occupancy expense.

We believe that our continued investment in research and development is essential to our long-term competitive position. We expect to continue to incur substantial research and development expenses as we invest in research and development to support our customers, develop new uses for our existing technology, and develop improved and/or new offerings for our customers and partners. As a result, we expect that our research and development expenses will continue to fluctuate in absolute dollars in future periods and vary from period to period as a percentage of revenue.

Sales and Marketing

(in thousands, except percentages)

Our sales and marketing expenses consist primarily of salaries, commissions and other variable compensation, benefits, stock-based compensation and travel costs for employees within our commercial sales and marketing functions, as well as third-party costs associated with our marketing activities. These expenses are exclusive of depreciation and amortization.

Sales and marketing expenses decreased by $0.8 million, or 12%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily driven by a $0.3 million decrease in occupancy expense, a $0.3 million decrease in marketing expense, a $0.1 million decrease in travel expense, and a $0.1 million decrease in compensation expense.

We expect our recurring sales and marketing expenses to increase in absolute dollars in future periods as we expand our commercial sales, marketing and business development teams, expand our product offerings, expand our collaboration efforts, increase our presence globally, and increase marketing activities to drive awareness and adoption of our products. We expect that in the near term, sales and marketing expenses could increase as a percentage of revenue, and thereafter vary from period to period as a percentage of revenue. The effects of such sales and marketing investments could take a few quarters to materialize into revenue growth or it may not materialize into revenue growth as expected or at all.

General and Administrative

(in thousands, except percentages)

General and administrative expenses primarily consist of salaries, benefits, stock-based compensation and travel costs for employees in our executive, accounting and finance, legal, corporate development, human resources, information systems, and office administration functions as well as professional services fees, such as consulting, audit, tax and legal fees, general corporate costs, facilities and allocated overhead expenses, and public company fees associated with being a Nasdaq and AIM-listed public company such as director fees, U.K. Nominated Adviser and broker fees, investor relations consultants fees and insurance costs. These expenses are exclusive of depreciation and amortization.

General and administrative increased $0.9 million, or 14% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by a $0.6 million increase in legal expense, a $0.2 million increase in stock-based compensation, a $0.1 million increase in public company expenses, and a $0.1 million increase in occupancy expenses, offset by a $0.1 million decrease in compensation expense.

We expect that our general and administrative expenses will continue to increase in absolute dollars in future periods, primarily due to increased headcount to support anticipated growth in the business. We expect these expenses to vary from period to period as a percentage of revenue.

Depreciation and Amortization

Depreciation expense consists of the depreciation of property and equipment used actively in the business, primarily by research and development activities. Amortization expense includes the amortization of intangible assets over their respective useful lives.

(in thousands, except percentages)

Depreciation and amortization expense decreased by $12,000 or 1%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Interest Income

(in thousands, except percentages)

Interest income represents interest on our cash balances and investments, Interest income decreased $0.2 million, 8% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was driven by decreases in interest rates and average cash and investment balances during the three months ended September 30, 2024.

Comparison of the Nine Months Ended September 30, 2024 and 2023

The following table sets forth our results of operations for the periods presented:

(in thousands)

The following table provides details regarding the sources of revenue for the periods presented:

(in thousands, except percentages)

The following table provides details regarding our core revenue for the periods presented:

(in thousands, except percentages)

Total revenue for the nine months ended September 30, 2024 was $29.9 million, an increase of $4.3 million, or 17%, compared to revenue of $25.6 million during the nine months ended September 30, 2023. The increase was primarily driven by an increase in disposables revenue and program-related revenue.

Total core revenue for the nine months ended September 30, 2024 was $23.9 million, an increase of $1.2 million, or 5%, compared to core revenue of $22.7 million for the nine months ended September 30, 2023. Our overall increase in core revenue was primarily driven by increases in disposable sales and other revenue of $1.7 million and $0.2 million, respectively, offset by decreases in instrument sales and lease revenue of $0.5 million and $0.2 million, respectively.

Cost of Goods Sold and Gross Profit

(in thousands, except percentages)

During the nine months ended September 30, 2024, gross margin was 84%, compared to 88% compared to the nine months ended September 30, 2023.

Cost of goods sold increased by $1.7 million, or 52%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by increases in disposable sales, an increase in inventory reserves, and lower absorption of manufacturing overhead costs.

Gross profit increased by $2.7 million, or 12%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by an increase in program-related revenue for the nine months ended September 30, 2024 offset by increases to cost of goods sold described above.

Operating Expenses

Research and Development

(in thousands, except percentages)

Research and development expenses decreased by $0.4 million, or 2%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily driven by a $1.1 million decrease in stock-based compensation, and a $0.4 million decrease in engineering expenses, offset by a $0.8 million increase in compensation expenses, and a $0.5 million increase in occupancy expense.

Sales and Marketing

(in thousands, except percentages)

Sales and marketing expenses increased by $0.4 million, or 2%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by a $1.1 million increase in compensation expenses, a $0.6 million increase in professional fees, offset by a $0.2 million decrease in stock-based compensation, a $0.6 million decrease in occupancy expenses and a $0.5 million decrease in marketing expenses.

General and Administrative

(in thousands, except percentages)

General and administrative expenses increased by $0.5 million, or 2%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by an increase in stock-based compensation of $0.8 million, and an increase in legal fees of $0.6 million, and an increase in travel and occupancy expenses of $0.3 million, offset by a $0.9 million decrease in professional services and a $0.3 million decrease in compensation expenses.

Depreciation and Amortization

(in thousands, except percentages)

Depreciation and amortization expense increased by $0.2 million, or 7%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was primarily driven by increases in leasehold improvements and purchases in laboratory equipment.

Interest Income

(in thousands, except percentages)

Interest income represents interest on our cash balances and investments, which increased by $0.3 million, or 4%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was driven by increases in interest rates during the nine months ended September 30, 2024.

Liquidity and Capital Resources

Since our inception, we have experienced losses and negative cash flows from operations. For the nine months ended September 30, 2024, we incurred a net loss of $30.5 million. As of September 30, 2024, we had an accumulated deficit of $206.3 million. To date, we have funded our operations primarily with proceeds from sales of common stock, borrowings under loan agreements and cash flows associated with sales and licenses of our products to customers. On August 3, 2021, we completed our U.S. IPO, generating gross proceeds of $201.8 million. We received net proceeds of $184.3 million after deducting aggregate underwriting commissions and offering expenses of $17.6 million.

We expect to incur near-term operating losses as we continue to invest in expanding our business through growing our sales and marketing efforts, continued research and development, product development and expanding our product offerings. Based on our current business plan, we believe that our existing cash, cash equivalents, short-term investments and internally generated cash flows will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the date these financial statements have been issued.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Our future funding requirements will depend on many factors, including:

• costs and expenses related to strategic activities and transactions;
• market acceptance of our products;
• the cost and timing of establishing additional sales, marketing and distribution capabilities;
• the cost of our research and development activities and successful development of data supporting use of our products for new applications, and timely launch of new features and products;
• sales to existing and new customers and the progress of our SPL partners in developing their pipelines of product candidates;
• our ability to enter into additional SPL partnerships and licenses for clinical use of our platform in the future;
• changes in the amount of capital available to existing and emerging customers in our target markets;
• the effect of competing technological and market developments; and
• the level of our selling, general and administrative expenses.

If we are unable to execute our business plan and adequately fund operations, or if the business plan requires a level of spending in excess of cash resources, we may have to seek additional equity or debt financing. If additional financings are required from outside sources, we may not be able to raise such capital on terms acceptable to us or at all. To the extent that we raise additional capital through the sale of equity or debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making product acquisitions, making capital expenditures or declaring dividends. 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 are unable to raise additional capital when desired, we may have to delay development or commercialization of future products. We also may have to reduce marketing, customer support or other resources devoted to our existing products.

Cash Flows

The following table summarizes our uses and sources of cash for the periods presented:

(in thousands)

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2024 was $19.8 million, and consisted primarily of our net loss of $30.5 million, which was offset in part by net non-cash expenses of $9.7 million. Net non-cash expenses include stock-based compensation of $9.9 million, depreciation and amortization expenses of $3.3 million, an increase to our excess and obsolete inventory reserve of $0.8 million, and an aggregate $0.7 million in other non-cash charges offset by amortization of discounts on investments of $5.1 million. We also had net cash inflows of $1.0 million due to changes in our operating assets and liabilities. Net changes in our operating assets and liabilities consisted primarily of an increase in deferred revenue of $1.6 million, a decrease in accounts receivable of $1.3 million, and a decrease in inventory of $0.8 million, offset by a decrease in accounts payable and accrued expenses of $1.4 million due to timing considerations, an increase in other assets of $0.7 million, a decrease in operating lease liabilities of $0.4 million and an increase in prepaid expenses and other current assets of $0.2 million.

Net cash used in operating activities for the nine months ended September 30, 2023 was $22.7 million, and consisted primarily of our net loss of $32.6 million, offset in part by net non-cash expenses of $8.9 million, including stock-based compensation of $10.4 million, depreciation and amortization expenses of $3.1 million, and other non-cash charges of $0.6 million, offset by amortization of discounts on investments of $5.1 million. We also had net cash inflows of $1.0 million due to changes in our operating assets and liabilities. Net changes in our operating assets and liabilities consisted primarily of a decrease in accounts receivable of $3.6 million due to increased cash collections, a decrease in tenant improvements allowance (“TIA”) receivable of $1.9 million, an increase in accounts payable and accrued expenses of $1.5 million, and a decrease in other assets of $0.2 million, offset by a $4.1 million increase in inventory, a decrease in deferred revenue of $1.1 million, and a $0.9 million increase in prepaid expenses and other current assets.

Investing Activities

Net cash provided by investing activities during the nine months ended September 30, 2024 was $8.6 million, which was primarily attributable to maturities of investments of $128.4 million, offset by purchases of investments of $118.3 million and purchases of property and equipment of $1.5 million.

Net cash provided by investing activities during the nine months ended September 30, 2023 was $59.1 million, which was primarily attributable to maturities of investments of $247.5 million, partially offset by purchases of investments of $185.6 million and purchases of property and equipment of $2.8 million.

Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2024 was $1.6 million, which was attributable to proceeds from the exercise of stock options and employee purchases from our employee stock purchase plan.

Net cash provided by financing activities during the nine months ended September 30, 2023 was $1.7 million, which was attributable to proceeds from the exercise of stock options.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of September 30, 2024 consisted exclusively of operating lease obligations. In May 2021, we entered into the Headquarters Lease for new office, lab and warehouse/manufacturing space. The Headquarters Lease term expires on August 31, 2035. The total incremental remaining non-cancellable lease payments under the lease agreement are $26.7 million through the lease term. We expect to be able to fund our obligations under this lease, both in the short-term and in the long-term, from cash on hand, investments and operating cash flows.

We had no debt obligations as of September 30, 2024 and December 31, 2023.

Purchase orders or contracts for the purchase of supplies and other goods and services are based on our current procurement or development needs and are generally fulfilled by our vendors within short time horizons.

Critical Accounting Estimates

We have prepared our condensed consolidated financial statements in accordance with U.S. GAAP. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results could therefore differ materially from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates from those disclosed in our consolidated financial statements and the related notes and other financial information included in the 2023 Form 10-K.

JOBS Act Accounting Election

We are an emerging growth company, (“EGC”), under the JOBS Act. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the delayed adoption of new and revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities. We also intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

We will remain an EGC until the earliest of: (i) December 31, 2026, which is the last day of the fiscal year following the fifth anniversary of our IPO in the U.S.; (ii) the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (iv) the last day of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of June 30 of such fiscal year.

We are also a “smaller reporting company,” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million as of the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of the last business day of our second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Interest Rate Risk

We are exposed to market risk for changes in interest rates related primarily to balances of our financial instruments including cash and cash equivalents and investments. The primary objective of our investment approach is to preserve principal and provide liquidity. As a result, a 10% change in the level of market interest rates would not be expected to have a material effect on our business, financial condition or results of operations.

As we do not currently have indebtedness, we are not exposed to interest rate risk from increases in interest rates.

Foreign Currency Risk

We are exposed to financial risks as a result of exchange rate fluctuations between the U.S. Dollar and certain foreign currencies and the volatility of these rates. In the normal course of business, we earn revenue primarily denominated in U.S. Dollars as well as in Euros and British Pounds. We incur expenses primarily in U.S. Dollars as well as in Euros, British Pounds, and other currencies. Our reporting currency is the U.S. Dollar. We hold our cash primarily in U.S. Dollars as well as in Euros and British Pounds. We do not expect that foreign currency gains or losses will have a material effect on our financial position or results of operations in the foreseeable future. We have not entered into any hedging arrangements with respect to foreign currency risk. As our international operations grow, we will continue to assess our approach to managing risks relating to fluctuations in currency exchange rates.

Inflation Risk

During the last two years, inflation and changing prices have not had a material effect on our business. We are unable to predict whether inflation or changing prices will materially affect our business in the foreseeable future.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2024 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1A. “Risk Factors” and elsewhere in the 2023 Form 10-K. Other than set forth below, there have been no material changes to the risk factors set forth in that report.

We are currently evaluating the benefits and challenges of maintaining dual listings of our stock on both AIM and the Nasdaq Global Select Market (“Nasdaq”) and may consider concentrating our trading on Nasdaq. If the Company decides to cancel the admission of our common stock from AIM, and such cancellation is approved by our shareholders, the associated transition could affect the liquidity of our shares and may create volatility during the transition period. Furthermore, if sufficient demand does not exist to absorb shares held by investors who are unable or unwilling to hold Nasdaq-listed securities, our share price could decline.

Our shares of common stock are traded on both AIM, a market operated by the London Stock Exchange plc, and the Nasdaq Global Select Market.

We are currently considering, and may elect to cancel the admission of our common stock from AIM, as we believe that concentrating our trading on a single exchange may improve liquidity and reduce administrative costs associated with maintaining dual listings. At present, the vast majority of our trading volume occurs on the Nasdaq Global Select Market. If the Company’s board of directors ultimately decides that cancelling the admission of our common stock from AIM is in the best interests of the Company and its shareholders, we would request shareholder approval to implement this strategy at the 2025 Annual Meeting of Shareholders. While we have not made any final determinations as to whether to cancel the admission of our common stock from AIM, if we do pursue this path, the associated transition could impact the price of our common stock and affect the liquidity of our common stock. During the transition and following the cancellation of admission of our common stock, the Company may not be able to raise capital from certain shareholders that require or otherwise prefer the AIM listing for purposes of holding shares of our common stock. It may also may become more difficult for stockholders to dispose of, transfer, or obtain accurate price quotations for our common stock in the transition period.

Additionally, transferring shares between markets requires the completion of specific procedures with our transfer agent, which could cause delays and incur costs for stockholders. If we choose to cancel the admission of our common stock from AIM, investors currently holding shares on AIM may experience reduced liquidity and some investors may be unable to hold shares solely traded on Nasdaq, which could lead to a selloff by such investors and result in downward pressure on our share price. Investors whose source of funds for the purchase of shares of our common stock is denominated in a currency other than U.S. Dollars may also be adversely affected by fluctuations in the exchange rate between such currency and the U.S. Dollar.