# Standard Biotools Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Standard Biotools Inc.](/companies/lab.md) (CIK 1162194)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 17:22 ET
- Period: 2023-06-30
- Accession: 0001628280-23-028287
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1162194/000162828023028287/lab-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1162194/000162828023028287/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $27.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $52.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $14.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $26.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $13.6m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $25.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $6.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $12.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $22.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $43.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$17.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$34.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $1.1m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $2.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $301.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $564.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$17.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$33.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.22 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.43 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.22 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.43 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 78,669,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 78,873,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$17.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $1.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-04-01 to 2023-06-30 | $2.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $4.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $142.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $183.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $355.8m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $46.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $158.0m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $65.2m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | −$113.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,602 characters.

*The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of Standard BioTools Inc. MD&A is provided as a supplement to, and should be read together with, our condensed consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q. This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section titled “Risk Factors” and this MD&A. Forward-looking statements include information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, cost of product revenue and product margin, operating and other income and expenses, unit sales and the selling prices of our products, business strategies and strategic priorities, changes in commercial and strategic focus, restructuring plan, reduction-in-force and real estate footprint reduction plans, microfluidics research and development and marketing investment reduction plans, other cost reduction initiatives, portfolio rationalization initiatives, operating discipline improvement plans, implementation of Standard BioTools Business Systems, expected costs and cost savings associated with such plans and initiatives, future product offerings, financing plans, capital allocation plans, expansion of our business, merger and acquisition opportunities, competitive position, industry environment, potential growth opportunities and drivers, market growth expectations, and the effects of competition and public health crises on our business, the global supply chain, and our customers, suppliers, and other business partners. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.*

*Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 14, 2023. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this quarterly report on Form 10-Q.*

*Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this quarterly report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.*

Standard BioTools, the Standard BioTools logo, Fluidigm®, the Fluidigm logo, 48.Atlas™, Access Array™, Advanta™, Advanta EASE™, Atlas™, Biomark™, “Bringing new insights to life”™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, the CyTOF XT logo, D3™, Delta Gene™, Direct™, Digital Array™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Flow Conductor™, FluiDesign™, Helios™, High-Precision 96.96 Genotyping™, HTI™, Hyperion™, Hyperion+™, HyperionXTi™, IMC™, Imaging Mass Cytometry™, Immune Profiling Assay™, Juno™, Maxpar®, Maxpar® OnDemand™, MCD™, MSL®, Nanoflex™, Open App™, Pathsetter™, Polaris™, qdPCR 37K™, Script Builder™, Script Hub™, Singular™, SNP Trace™, SNP Type™, “Unleashing tools to accelerate breakthroughs in human health”™, X9™ High-Thoughput Genomics System, X9™ Real Time PCR System, and Xgrade™ are trademarks or registered trademarks of Standard BioTools Inc. or its affiliates in the United States and/or other countries. Other service marks, trademarks and trade names referred to in this quarterly report on Form 10-Q are the property of their respective owners.

Unless the context requires otherwise, references in this quarterly report on Form 10-Q to “Standard BioTools” the “Company,” “we,” “us,” and “our” refer to Standard BioTools Inc. and its subsidiaries.

### Overview

Standard BioTools Inc. is driven by a bold purpose – unleashing tools to accelerate breakthroughs in human health. We have an established portfolio of essential, standardized next-generation high resolution technologies that assist biomedical researchers develop medicines faster and better. Our tools are designed to provide reliable and repeatable insights in health and disease using our proprietary mass cytometry and microfluidics technologies, which are useful in proteomics and genomics that help transform scientific discoveries into better patient outcomes. We work with leading academic, government, pharmaceutical, biotechnology, plant and animal research, and clinical laboratories worldwide, focusing on the most pressing needs in translational and clinical research, including oncology, immunology, and immunotherapy.

We distribute our systems through our direct sales force and support organizations located in North America, Europe, and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern, and Asia-Pacific countries. Our manufacturing operations are located in Singapore and Canada.

### Recent Developments

Following the Private Placement, our new leadership team identified three strategic priorities: revenue growth, improving operating discipline and strategic capital allocation, as more fully discussed in Part I Item 1 “Business” in our Annual Report on Form 10-K filed with the SEC on March 14, 2023.

We took additional actions in the six months ended June 30, 2023 under our strategic initiative to improve operating discipline, including reductions to our headcount in Europe and additional reductions to our real estate footprint in the U.S. On February 28, 2023, we signed an agreement to sublease an additional 25% of our corporate headquarters for a period of 77 months. As a result, 50% of the space at our headquarters was subleased as of March 31, 2023. We expect to recognize $9.1 million of sublease income over the term of this new agreement, with payments expected to commence on December 1, 2023.

### Financial Operations Overview

### Revenue

We generate revenue primarily from sales of our products and services. Other revenue consists of revenue from product development and license agreements.

Our product revenue consists of sales of instruments and consumables. Consumables revenue is largely driven by the size of our active installed base of instruments and the level of usage per instrument. Service revenue is linked to the sales and active installed base of our instruments as our service revenue primarily consists of post-warranty service contracts, preventive maintenance plans, instrument parts, installation and training for our instruments. We expect the average selling prices of our products and services to fluctuate over time based on market conditions, product mix, and currency fluctuations.

### Cost of Revenue

Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty costs, provisions for slow-moving excess and obsolete inventory, and stock-based compensation expense. Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities in response to market conditions and the demand for our products.

Cost of service revenue includes direct labor hours, overhead and instrument parts. Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing.

### Research and Development (R&D)

R&D expense consists primarily of compensation-related costs, product development and material expenses, and other allocated facilities and information technology expenses. Our R&D efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services. R&D expense also includes costs incurred in conjunction with research grants and product development arrangements.

### Selling, General, and Administrative (SG&A)

SG&A expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources, information technology and general management teams, as well as professional services, including legal and accounting services.

### Restructuring and Related Charges

Restructuring and related charges primarily consist of severance costs and facilities costs for floors we have subleased or have the intent to sublease (net of sublease income) under our facility lease in South San Francisco. These costs, including a reduction in force, are incurred to improve operational efficiency, achieve cost savings, and align our workforce to the future needs of the business. In addition to the reduction in force, we are reducing leased office space, optimizing our manufacturing footprint, and streamlining support functions.

### Results of Operations

The following table presents our condensed consolidated statements of operations and as a percentage of total revenue for the three and six months ended June 30, 2023 and 2022 ($ in thousands):

|  | Three Months Ended June 30, 2023 |  | 2022 |  | Six Months Ended June 30, 2023 |  | 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $27,666 | 100% | $18,777 | 100% | $52,785 | 100% | $45,281 | 100% |
| Cost of revenue: |  |  |  |  |  |  |  |  |
| Cost of product revenue | 11,883 | 43% | 12,738 | 68% | 21,873 | 41% | 25,077 | 55% |
| Cost of service revenue | 2,181 | 8% | 1,612 | 9% | 4,973 | 9% | 3,540 | 8% |
| Total cost of revenue | 14,064 | 51% | 14,350 | 77% | 26,846 | 50% | 28,617 | 63% |
| Gross profit | 13,602 | 49% | 4,427 | 23% | 25,939 | 50% | 16,664 | 37% |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Research and development | 6,184 | 22% | 12,606 | 67% | 12,669 | 24% | 21,471 | 47% |
| Selling, general and administrative | 22,600 | 82% | 30,084 | 160% | 43,895 | 83% | 59,569 | 132% |
| Restructuring and related charges | 2,267 | 8% | 300 | 2% | 3,417 | 6% | 1,690 | 4% |
| Total operating expenses | 31,051 | 112% | 42,990 | 229% | 59,981 | 113% | 82,730 | 183% |
| Loss from operations | (17,449) | (63)% | (38,563) | (206)% | (34,042) | (63)% | (66,066) | (146)% |
| Interest expense | (1,129) | (4)% | (1,062) | (6)% | (2,246) | (4)% | (2,092) | (5)% |
| Loss on forward sale of Series B Preferred Stock | — | —% | (22,289) | (119)% | — | (1)% | (60,081) | (133)% |
| Loss on Bridge Loans | — | —% | (3,064) | (16)% | — | (1)% | (13,719) | (30)% |
| Other income (expense), net | 1,839 | 7% | (174) | (1)% | 2,969 | 6% | (56) | —% |
| Loss before income taxes | (16,739) | (60)% | (65,152) | (348)% | (33,319) | (63)% | (142,014) | (314)% |
| Income tax benefit (expense) | (301) | (1)% | 1,613 | 9% | (564) | (1)% | 2,187 | 5% |
| Net loss | $(17,040) | (61)% | $(63,539) | (339)% | $(33,883) | (64)% | $(139,827) | (309)% |

### Revenue

Revenue by product type and as a percentage of total revenue were as follows ($ in thousands):

| Product revenue: | Three Months Ended June 30, 2023 |  | 2022 |  | Year-over-Year Change | Six Months Ended June 30, 2023 |  | 2022 |  | Year-over-Year Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Instruments | $11,587 | 42% | $2,661 | 14% | 335% | $17,510 | 33% | $10,184 | 22% | 72% |
| Consumables | 10,078 | 36% | 9,558 | 52% | 5% | 21,593 | 41% | 22,039 | 50% | (2)% |
| Total product revenue | 21,665 | 78% | 12,219 | 66% | 77% | 39,103 | 74% | 32,223 | 72% | 21% |
| Service revenue | 5,821 | 21% | 5,806 | 31% | —% | 12,702 | 24% | 11,950 | 26% | 6% |
| Other revenue | 180 | 1% | 752 | 3% | (76)% | 980 | 2% | 1,108 | 2% | (12)% |
| Total revenue | $27,666 | 100% | $18,777 | 100% | 47% | $52,785 | 100% | $45,281 | 100% | 17% |

Total revenue grew 47% to $27.7 million for the three months ended June 30, 2023, compared to the three months June 30, 2022, and 17% to $52.8 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The growth was primarily attributable to increased instrument placements, primarily in our proteomics end user markets. Revenue reported for the three and six months ended June 30, 2022 includes a $1.6 million instrument revenue reduction for a one-time reserve recorded for our discontinued LCM product line in the Genomics segment.

Instrument revenue grew 335% to $11.6 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and 72% to $17.5 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. Combined consumables and services revenue has experienced flat to moderate growth in 2023; however, the increase in instrument revenue is expected to drive increased consumables and services pull-through based on an expanded installed base, particularly in our proteomics end user markets. Recurring consumables and service revenue comprised about 65% of our total revenue for the six months ended June 30, 2023.

Revenue by segment and as a percentage of total revenue were as follows ($ in thousands):

|  | Three Months Ended June 30, 2023 |  | 2022 |  | Year-over-Year Change | Six Months Ended June 30, 2023 |  | 2022 |  | Year-over-Year Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Proteomics revenue | $18,088 | 65% | $10,418 | 55% | 74% | $33,288 | 63% | $24,198 | 53% | 38% |
| Genomics revenue | 9,578 | 35% | 8,359 | 45% | 15% | 19,497 | 37% | 21,083 | 47% | (8)% |
| Total revenue | $27,666 | 100% | $18,777 | 100% | 47% | $52,785 | 100% | $45,281 | 100% | 17% |

Total Proteomics revenue grew 74% for the three months ended June 30, 2023, compared to the three months ended June 30, 2022 and 38% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. Our growth in proteomics was driven by expanded adoption of our flow symmetry solution, the CYTOF XT, and early traction from the April 2023 release of Hyperion XTi, our next-generation imaging solution.

Total Genomics revenue grew 15% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and was down 8% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 with instrument growth offsetting declines in consumables, service, and development revenues in the second quarter. The anticipated decline in the genomics segment was a primary driver of our decision to reorganize, simplify and reposition this business over the past year. We have implemented our strategy to focus on growing the OEM business and manage this segment to sustainable positive contribution margin in the near-term.

### Cost of Revenue

Product and service cost, product and service gross profit, and product and service margin were as follows ($ in thousands):

|  | Three Months Ended June 30, 2023 | 2022 | Year-over-Year Change | Six Months Ended June 30, 2023 2022 |  | Year-over-Year Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of product revenue | $11,883 | $12,738 | (7)% | $21,873 | $25,077 | (13)% |
| Cost of service revenue | 2,181 | 1,612 | 35% | 4,973 | 3,540 | 40% |
| Cost of product and service revenue | $14,064 | $14,350 | (2)% | $26,846 | $28,617 | (6)% |
| Product and service gross profit | $13,422 | $3,675 | 265% | $24,959 | $15,556 | 60% |
| Product and service margin | 48.8% | 20.4% | 28.4% | 48.2% | 35.2% | 13.0% |

Product and service gross profit increased by $9.7 million, or 265%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. Product and service gross profit increased by $9.4 million, or 60%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increases in gross profit were primarily attributable to certain one-time reductions to gross profit recognized during the second quarter of 2022, including a $1.6 million revenue reserve related to the discontinuation of our laser capture microdissection products, a $3.1 million provision for excess and obsolete inventory, and cost reductions driven by the relocation of operations to lower cost regions completed at the end of 2022.

### Operating Expenses

Operating expenses were as follows ($ in thousands):

|  | Three Months Ended June 30, 2023 | 2022 | Year-over-Year Change 2023 | Six Months Ended June 30, 2022 |  | Year-over-Year Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $6,184 | $12,606 | (51)% | $12,669 | $21,471 | (41)% |
| Selling, general and administrative | 22,600 | 30,084 | (25)% | 43,895 | 59,569 | (26)% |
| Restructuring and related charges | 2,267 | 300 | N/A | 3,417 | 1,690 | N/A |
| Total operating expenses | $31,051 | $42,990 | (28)% | $59,981 | $82,730 | (27)% |

### Research and Development

R&D expense decreased by $6.4 million, or 51%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. R&D expense decreased by $8.8 million, or 41%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The decreases were primarily due to a $3.5 million impairment charge related to InstruNor recognized during the three months ended June 30, 2022, as well as lower compensation and consulting costs and reduced spending on laboratory supplies. These reductions were related to our strategic initiatives to reduce headcount and improve operating efficiencies by engaging in lower-cost and more focused R&D projects and activities.

### Selling, General and Administrative

SG&A expense decreased by $7.5 million, or 25%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. SG&A expense decreased by $15.7 million, or 26%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease was primarily attributable to decreased salaries and benefits expense and stock based compensation expense as a result of the restructuring plan that downsized our global workforce, as well as non-recurring legal expenses and professional fees incurred in the three and six months ended June 30, 2022 related to the Private Placement.

### Restructuring and Related Charges

Restructuring and related charges consisted of the following (in thousands):

|  | Three Months Ended June 30, 2023 | 2022 | Year-over-Year Change 2023 | Six Months Ended June 30, 2022 |  | Year-over-Year Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Severance payments | $1,054 | $300 | 251% | $1,346 | $1,690 | (20)% |
| Facilities and other | 1,213 | — | N/A | 2,071 | — | N/A |
| Total restructuring and related charges | $2,267 | $300 | 656% | $3,417 | $1,690 | 102% |

Restructuring and related charges increased by $2.0 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, due to increased severance costs and increased facilities expenses related to the reduction in leased office space, which commenced in the third quarter of 2022.

Restructuring and related charges increased by $1.7 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, due to increased facilities expenses offset by deceased severance costs, primarily resulting from higher severance costs for our former CEO during the first quarter of 2022.

### Interest Expense and Other Non-Operating Income (Expense)

The improvement in non-operating income (expense) in the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily reflects losses related to the Private Placement. The Purchase Agreements for the Series B Preferred Stock were accounted for as forward sales contracts and recorded at fair value. The Bridge Loans were also recorded at fair value. In the three months ended June 30, 2022, the $22.3 million loss on the forward sales of Series B Preferred Stock and the loss on the Bridge Loans of $3.1 million reflected the increase in the price of our common stock from April 1, 2022 to the Closing Date.

The increase in other income (expense), net of $2.0 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, was primarily due to the interest earned on money market funds and short-term investments. We previously had no such investments until after the Closing Date.

The improvement in non-operating income (expense) in the six months ended June 30, 2023, compared to the six months ended June 30 2022, primarily reflects losses related to the Private Placement. The Purchase Agreements for the Series B Preferred Stock were accounted for as forward sales contracts and recorded at fair value. The Bridge Loans were also recorded at fair value. In the six months ended June 30, 2022, the $60.1 million loss on the forward sales of Series B Preferred Stock and the loss on the Bridge Loans of $13.7 million reflected the increase in the price of our common stock from January 23, 2022 (the date of the Purchase Agreements and the Bridge Loan agreements) to the Closing Date.

The increase in other income, net of $2.0 million for the six months ended June 30, 2023 compared to June 30, 2022, was primarily due to the interest earned on money market funds and short-term investments because we had no such investments until after the Closing Date.

### Income Tax Benefit (Expense)

We recorded an income tax expense of $0.3 million in the three months ended June 30, 2023 and an income tax benefit of $1.6 million for the three months ended June 30, 2022. The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the three months ended June 30, 2023 and pre-tax loss in the three months ended June 30, 2022.

We recorded an income tax expense of $0.6 million in the six months ended June 30, 2023 and an income tax benefit of $2.2 million for the six months ended June 30, 2022. The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the six months ended June 30, 2023 and pre-tax loss in the six months ended June 30, 2022.

The Company’s effective tax rates for both periods differ from the 21% U.S. Federal statutory tax rate primarily due to valuation allowances recorded against deferred tax assets on domestic losses and the tax rate differences between the U.S. and foreign countries.

### Liquidity and Capital Resources

We have experienced operating losses since inception and have an accumulated deficit of $960.0 million as of June 30, 2023. To date, we have funded our operating losses primarily through equity offerings, term loans, convertible notes, and redeemable preferred stock. Our ability to fund future operations and meet debt covenant requirements will depend upon our level of future revenue and operating cash flow and our ability to access additional funding through either equity offerings, issuances of debt instruments or both.

Our liquidity and capital requirements depend upon many factors, including market acceptance of our products and services; effectiveness of our business improvement initiatives and restructuring programs; costs of supporting sales growth, product quality, R&D, and capital expenditures, including our ERP upgrade; and costs and timing of acquiring other businesses, assets or technologies.

We continually evaluate our liquidity requirements considering our operating needs, growth initiatives, and capital resources. We expect that our existing liquidity and sources of capital will be sufficient to support our operations for at least the next 12 months from the filing date of this quarterly report on Form 10-Q.

### Sources of Liquidity

Our principal sources of liquidity are cash, cash equivalents and short-term investments. Our collective balances of cash, cash equivalents and short-term investments were $142.3 million at June 30, 2023 and $165.8 million at December 31, 2022.

Under our Revolving Credit Facility, borrowings of up to $15.0 million are limited to the amount of our eligible accounts receivable and inventory collateral. As of June 30, 2023, we had no borrowings outstanding under the Revolving Credit Facility and the total availability was $7.1 million. The facility expired on August 2, 2023.

### Capital Resources and Commitments

We enter into arrangements that serve as sources of capital and the associated contractual agreements may result in firm or contingent obligations of the Company. In addition to our common stockholders’ equity, our sources of capital primarily include debt, mezzanine equity, and operating leases. Our Series B Preferred Stock, which is classified as mezzanine equity, contains rights that may result in their conversion to our common stock or their redemption in cash. Our term loan and operating lease arrangements require cash repayment and our convertible debt that matures on December 1, 2024 contains rights that may result in their conversion to our common stock prior to maturity.

We also enter into contractual and legally binding commitments to purchase goods. Most of these contracts are cancellable with little or no notice or penalty. However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation.

In the six months ended June 30, 2023, there have been no material changes to the cash commitments and contingent obligations associated with the arrangements described above, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The terms and provisions of our debt, leases and mezzanine equity are more fully discussed in Notes 6, 7 and 9, respectively, in the unaudited condensed consolidated financial statements.

### Cash Flow Activity

Our cash flow summary was as follows ($ in thousands):

| Cash flow summary: | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(17,814) | $(45,578) |
| Net cash provided by (used in) investing activities | 83,280 | (139,108) |
| Net cash provided by (used in) financing activities | (4,642) | 231,033 |
| Effect of foreign exchange rate fluctuations on cash and cash equivalents | (49) | (437) |
| Net increase in cash, cash equivalents and restricted cash | $60,775 | $45,910 |

We derive cash flows from operations primarily by collecting amounts due from sales of our products and services, and fees earned under our product development and license agreements. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses and working capital to support the business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure, domestically and internationally.

In the six months ended June 30, 2023, we used $85.1 million of net proceeds from the sales and maturities of short-term investments to help fund $17.8 million of net cash used in operating activities, $4.8 million of common stock repurchases, and a $60.8 million increase in cash and cash equivalents.

In the six months ended June 30, 2022, we used $230.6 million of net debt and Series B Preferred Stock proceeds in part to fund $45.6 million used in operating activities, the purchase of short-term investments of $137.3 million and a $45.9 million increase in cash and cash equivalents.

### Operating Activities

Net cash used in operating activities for the six months ended June 30, 2023 declined by $27.8 million compared to the same period in 2022. The improvement reflects a lower net loss and adjustments for non-cash items, which collectively used $19.5 million in the first half of 2023 compared to $40.8 million used in the same period of 2022. This improvement was partially offset by unfavorable changes in net operating assets and liabilities, which provided $1.7 million and $4.8 million in the six months ended June 30, 2023 and 2022, respectively.

### Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2023 was $83.3 million compared to $139.1 million used in the six months ended June 30, 2022. The first half of 2023 primarily reflects $85.1 million of proceeds from sales and maturities of short-term investments, net of purchases. Net proceeds from the Private Placement issuance and the Bridge Loans were used to purchase short-term investments of $137.3 million during the six months ended June 30, 2022.

### Financing Activities

Financing activities used cash of $4.6 million for the six months ended 2023 and provided cash of $231.0 million in the same period of 2022. These changes in cash from financing activities primarily reflect $4.8 million of common stock share repurchases in 2023, and $18.2 million of net debt in 2022, reflecting $25.0 million of borrowings under the Bridge Loans and the repayment of $6.8 million borrowed under our Revolving Credit Facility as well as $225.0 million proceeds received from the issuance of Series B Preferred Sock less payments of $12.5 million in equity issuance costs in 2022.

Repurchases of common stock are expected to be funded by cash on hand. The timing and amount of any future common stock repurchases will depend on several factors, including stock price, market and business conditions, the daily trading volume of our stock and applicable SEC regulations. Repurchases may be suspended or discontinued at any time.

### Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements and related notes, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires the use of estimates and assumptions to determine the value of the assets, liabilities, revenues and expenses reported on the condensed consolidated balance sheets and statements of operations. We develop these estimates after considering historical transactions, the current economic environment and various other assumptions considered reasonable under the circumstances. Actual results may differ materially from these estimates and judgments. Accounts that rely heavily on estimated information to determine their values include revenue, trade receivables, inventories, right-of-use assets, goodwill, long-lived intangible assets, lease liabilities, income tax liabilities (assets), and preferred equity. Refer to Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding our critical accounting policies and estimates.

There have been no significant changes to the Company's significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Recent Accounting Pronouncements

From time to time, new accounting standards are issued by the Financial Accounting Standards Board or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

## Controls and procedures

As filed, 2,652 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. 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, 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 the evaluation of our disclosure controls and procedures as of June 30, 2023, our CEO and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 1,019 characters.

We operate in a rapidly changing environment that involves numerous uncertainties and risks. You should carefully consider the risk factors discussed in Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could materially affect our business, financial condition, or results of operations. The risks in our Annual Report on Form 10-K are not the only ones we face. Our business is also subject to the risks that affect many other companies, such as employee relations, general economic conditions, global geopolitical events and international operations. Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price. If any of these risks occur, our business, results of operations, or financial condition could suffer, the trading price of our securities could decline, and you may lose all or part of your investment.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-028287. Last ingested by Listed: Nov 5, 2026, 21:16 ET. No prices; not investment advice.