STANDARD BIOTOOLS INC. (LAB) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. This MD&A is provided as a supplement to, and should be read together with, our consolidated financial statements and the notes to those statements included elsewhere in this Annual Report. We have omitted discussion of 2022 results where it would be redundant to the discussion previously included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 1, 2024. This Annual Report 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. 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, the effects of competition and public health crises on our business, the global supply chain, and our customers, suppliers and other business partners, and our expectations with respect to the anticipated financial impact and potential benefits to us related to our M&A activity, and integration of the businesses. 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 I, Item 1A, “Risk Factors” in this Annual Report. 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 Annual Report.
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. Unless otherwise stated, our forward-looking statements do not reflect the potential impact of the Merger or any other future acquisitions, mergers, dispositions, joint ventures or investments we may make. You should read this Annual Report completely and with the understanding that our actual future results may be materially different from what we expect.
Overview
At Standard BioTools, Inc., we are committed to setting the new standard in the life science tools industry through strategic consolidation, best-in-class operations and a world class management team. Our established portfolio includes essential, standardized next-generation solutions designed to help biomedical researchers develop better therapeutics faster. We offer a diverse range of instrumentation, consumables, and services that generate high-quality data across early discovery, translational and clinical research. With advanced technologies in proteomics and genomics, we empower scientists to gain deeper biological insights, accelerate discoveries, and drive improved health outcomes across diverse therapeutic areas including immunology, oncology, neuroscience, cardiometabolic diseases and more.
We have built a solid foundation supporting a differentiated portfolio of life science tools, offering broad multi-omic capabilities that drive innovation and accelerate the pace of drug development. Our solutions are designed to unlock complex biological information across plasma, single-cell and spatial proteomics, as well as genomic analyses, enabling researchers to explore disease mechanisms with unprecedented depth and precision. By integrating our advanced platforms – SomaScan™, CyTOF™, Hyperion™, and Biomark™ – we empower scientists to generate high-content data across therapeutic areas, from immuno-oncology to neurology and infectious diseases. Each system is engineered to extract meaningful molecular signatures, providing researchers with the tools they need to decode intricate biological networks. Together, these technologies accelerate discovery, offering a comprehensive approach to understanding the complexities of health and disease.
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Recent Developments
Merger
On January 5, 2024, we completed the Merger with SomaLogic. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of SomaLogic Common Stock converted into the right to receive 1.11 shares of our common stock.
In addition, as of the Effective Time, we assumed each SomaLogic stock incentive plan, outstanding option to purchase shares of SomaLogic Common Stock and outstanding restricted stock units, whether vested or unvested. Further, as of the Effective Time, each SomaLogic warrant was treated in accordance with its terms.
Reductions in Headcount
Following the Merger, we performed a strategic review of the combined business and carried out a workforce reduction plan (the "Strategic Reorganization") to reduce operating costs and focus on long-term growth opportunities. Under the Strategic Reorganization, we reduced our workforce by over 10% of our total workforce, with the majority of these employees separating by July 2024. Additionally, we reduced the real estate footprint of the combined company by exiting a lease that was assumed in the Merger. We continue to realize cost savings and positive cash flow impacts from previous strategic initiatives to improve operating discipline.
Acquisition of Sengenics Corporation
On November 21, 2024, we completed the acquisition of Sengenics, a functional proteomics company focused on the detection of autoantibody biomarkers and protein interactions. The acquisition of Sengenics enabled us to add the KREX™ precision antibody profiling services and kits to our SomaScan™ suite of solutions. This expanded offering strengthens Standard BioTools' proteomics portfolio, particularly in biopharma and translational research, by combining the proprietary immunoproteomic technology with our market-leading SomaScan™ platform. Available as an end-to-end lab service or kit, the KREX™ technology empowers pharmaceutical companies and leading research institutions to enhance disease understanding and accelerate biomarker discovery.
Factors Affecting Our Performance
The following factors have been important to our business and we expect them to impact our results of operations and financial condition in future periods:
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Continued adoption of our services and products:
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We have a well-established base of marquee customer and KOL relationships in place, and as we grow further, we expect to win contracts with new customers and expand the scope of existing contracts with existing customers.
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We continue to focus on growth in instrument placements, including the SomaScan® Authorized Sites program, which we expect to drive future growth in sales of consumables, SomaScan® assay kits, and field services.
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We continue to enhance our proteomics offering through continuous improvements to our proteomics instruments, and the commercial release of the LabThread SLX, which is a fully integrated system optimized for running the SomaScan® assay.
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Total revenue may vary from period to period based on, among other things, the timing and size of new contracts, fluctuations in customer consumption of and adoption trends, ramp time and productivity of our salesforce, the impact of significant transactions, and seasonality. Failure to effectively develop and expand our sales and marketing capabilities or improve the productivity of our sales and marketing organization could harm our ability to expand our potential customer and sales pipeline, increase our customer base, and achieve broader market acceptance of our offering.
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Continued investment in growth:
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We continue to invest significantly in our laboratory process and commercial infrastructure.
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Investments in research and development will include hiring of employees with the necessary scientific and technical backgrounds to enable enhancements to our existing services and products and bring new services and products to market.
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Ability to lower operating costs:
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As we integrate with SomaLogic, we continue to focus on improving operating discipline through implementation of lean SBS principles to build more efficient operations and reduce costs.
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We intend to reduce the cost of manufacturing SOMAmer® reagents by, in part, modifying our assays and laboratory processes to use materials and technologies that provide equal or greater quality at lower cost, improving how we manage our materials and negotiating favorable terms for our materials purchases.
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We intend to reduce the cost of performing the SomaScan® assay as we move to either a less expensive array or NGS system for our DNA readout of the protein concentrations present in a sample.
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Seasonality:
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Our revenue can be seasonal dependent upon the procurement and budgeting cycles of many of our customers, especially government- or grant-funded customers, whose cycles often coincide with government fiscal year ends.
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Expansion of our proteomic content:
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The SomaScan® 11K Platform now includes protein measurements on a broader range of sample types, including cerebrospinal fluid, aqueous humor, tissue homogenates and cell lysates. The SomaScan® Platform provides the largest number of protein measurements and the greatest number of orthogonally confirmed protein reagents in the proteomics industry —11,000 protein measurements simultaneously from sample volumes as low as 55 µl—giving researchers access to half of the human proteome in just one assay.
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We added the KREX™ precision antibody profiling services and kits to its SomaScan™ suite of solutions, enabling the detection of autoantibody biomarkers and protein interactions for basic, translational and clinical research.
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To maintain our competitive advantage in the proteomics market, we plan to increase the number of protein reagents for commercial availability based on allocated funding, resource availability, and the successful validation of new reagents.
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We continue to expand our proteomics database and artificial intelligence and machine learning analytics to drive value and market opportunities.
Financial Operations Overview
Revenue
We generate our revenue from the sale of products and services. We also derive revenue from collaborative arrangements, license agreements, grants, and royalties. Customers include top biopharmaceutical companies and leading academic research universities.
Product revenue
We generate product revenue from the sale 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. Consumables revenue is also driven by the sale of SomaScan® assay kits, which is driven by the number of active SomaScan® Authorized Sites and the number of assays performed at those sites.
Service revenue
We generate service revenue from the sale of lab services and field services. Lab services revenue is primarily generated by performing the SomaScan® assay on customer samples to generate data on protein biomarkers. We expect lab services revenue to increase over the long-term with new and recurring sales opportunities. With the enhancement of our proteomic services, we expect to capture more market opportunities outside of the United States region, as well as winning contracts with new customers and expanding the scope of sales with existing customers.
Field services revenue primarily consists of post-warranty service contracts, preventive maintenance plans, 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.
Collaboration and other revenue
Collaboration and other revenue consists of fees earned for research and development services, except for grant revenue research and development services that are classified in other revenue. We believe expanding collaborative arrangements with KOLs will allow for
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further enhancements of our integrated platform, lower barriers to adoption and introduce or expand new market channels and customers within geographic regions and markets we do not currently operate in.
Cost of Revenue
Cost of product revenue
Cost of product revenue consists primarily of raw materials, equipment and production costs, salaries and other personnel costs, overhead and other direct costs related to product revenue. In addition, cost of product revenue includes amortization of developed technology, royalty costs for licensed technologies included in our products, warranty costs, provisions for excess and obsolete inventory, and stock-based compensation expense, and shipping and handling costs. Cost of product revenue is recognized in the period the related revenue is recognized. Shipping and handling costs incurred for product shipments are included in cost of product revenue in the consolidated statements of operations. 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
Cost of service revenue consists of raw materials and production costs, personnel-related costs, overhead and other direct costs. It also includes costs for production variances for SOMAmer® reagents, such as yield losses, material usages, spending and capacity variances. Cost of service revenue is recognized in the period the related revenue is recognized.
Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing.
Cost of collaboration and other revenue
Cost of collaboration and other revenue consists primarily of personnel-related costs and other direct costs related to collaboration and other revenue.
Research and Development ("R&D")
R&D expenses consist primarily of personnel-related costs related to enhancing our technologies and supporting development and commercialization of new and existing products and services. R&D expenses also consist of laboratory supply costs, clinical study costs, consulting fees, and other allocated overhead expenses. We plan to continue to invest significantly in our R&D efforts, including hiring additional employees, with an expected focus on advancing our proteomics products and services. As a result, we expect R&D expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue.
Selling, General, and Administrative ("SG&A")
SG&A expenses consist 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 related to our recent reduction-in-force 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.
Transaction and Integration Expenses
Transaction and integration expenses consist of costs incurred in connection with acquisition-related activities, including legal, advisory, accounting and other transaction-related costs including integration costs.
Bargain Purchase Gain
Bargain purchase gain represents the excess of fair value of the assets acquired and liabilities assumed over the fair value of the consideration transferred in connection with the Merger. We determined that the bargain purchase gain was primarily attributable to a rapid decline in our stock price in the days following the announcement of the Merger, which persisted through the closing of the Merger.
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Results of Operations
The following table presents our consolidated statements of operations and as a percentage of total revenue for the years ended December 31, 2024 and 2023 ($ in thousands):
| Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||||||||||||
| Revenue | $ | 174,432 | 100 | % | $ | 106,340 | 100 | % | ||||||||
| Cost of revenue: | ||||||||||||||||
| Cost of product revenue | 47,729 | 27 | % | 44,942 | 42 | % | ||||||||||
| Cost of service and other revenue | 42,265 | 24 | % | 10,948 | 11 | % | ||||||||||
| Cost of collaboration and other revenue | 176 | 0 | % | — | — | % | ||||||||||
| Total cost of revenue | 90,170 | 52 | % | 55,890 | 53 | % | ||||||||||
| Gross profit | 84,262 | 48 | % | 50,450 | 47 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 62,411 | 36 | % | 25,948 | 24 | % | ||||||||||
| Selling, general and administrative | 156,608 | 90 | % | 87,541 | 82 | % | ||||||||||
| Restructuring and related charges | 12,500 | 7 | % | 7,076 | 7 | % | ||||||||||
| Transaction and integration expenses | 27,979 | 16 | % | 6,485 | 6 | % | ||||||||||
| Total operating expenses | 259,498 | 149 | % | 127,050 | 119 | % | ||||||||||
| Loss from operations | (175,236 | ) | (100 | )% | (76,600 | ) | (72 | )% | ||||||||
| Bargain purchase gain | 25,213 | 14 | % | — | — | % | ||||||||||
| Interest income, net | 16,883 | 10 | % | 1,005 | 1 | % | ||||||||||
| Other income (expense), net | (5,172 | ) | (3 | )% | 1,391 | 1 | % | |||||||||
| Loss before income taxes | (138,312 | ) | (79 | )% | (74,204 | ) | (70 | )% | ||||||||
| Income tax expense | (573 | ) | (0 | )% | (452 | ) | — | % | ||||||||
| Net loss | $ | (138,885 | ) | (80 | )% | $ | (74,656 | ) | (70 | )% |
Revenue
Revenue by product type and as a percentage of total revenue were as follows ($ in thousands):
| Year Ended December 31, | Year-over- | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Year Change | ||||||||||||||||||
| Product revenue: | ||||||||||||||||||||
| Instruments | $ | 28,504 | 16 | % | $ | 37,459 | 36 | % | (24 | )% | ||||||||||
| Consumables | 60,064 | 34 | % | 41,739 | 39 | % | 44 | % | ||||||||||||
| Total product revenue | 88,568 | 50 | % | 79,198 | 75 | % | 12 | % | ||||||||||||
| Service revenue: | ||||||||||||||||||||
| Lab services | 56,484 | 33 | % | 706 | — | % | NM | |||||||||||||
| Field services | 24,649 | 14 | % | 25,274 | 24 | % | (2 | )% | ||||||||||||
| Total service revenue | 81,133 | 47 | % | 25,980 | 24 | % | 212 | % | ||||||||||||
| Product and service revenue | 169,701 | 97 | % | 105,178 | 99 | % | 61 | % | ||||||||||||
| Collaboration and other revenue | 4,731 | 3 | % | 1,162 | 1 | % | 307 | % | ||||||||||||
| Total revenue | $ | 174,432 | 100 | % | $ | 106,340 | 100 | % | 64 | % |
Total revenue grew 64% to $174.4 million for the year ended December 31, 2024, compared to 2023. Due to the acquisition of SomaLogic, revenue increased by $82.3 million for the year ended December 31, 2024 compared to 2023. The increase was offset by a decrease of $14.2 million in revenues from our legacy business for the year ended December 31, 2024, compared to 2023. The decrease in revenues from our legacy business was primarily driven by industry-wide capital spending constraints.
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Revenue by segment and as a percentage of total revenue were as follows ($ in thousands):
| Year Ended December 31, | Year-over- | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Year Change | ||||||||||||||||||
| Proteomics revenue | $ | 135,789 | 78 | % | $ | 63,883 | 60 | % | 113 | % | ||||||||||
| Genomics revenue | 38,643 | 22 | % | 42,457 | 40 | % | (9 | )% | ||||||||||||
| Total revenue | $ | 174,432 | 100 | % | $ | 106,340 | 100 | % | 64 | % |
Total proteomics revenue grew 113% to $135.8 million for the year ended December 31, 2024, compared to 2023. Our growth in proteomics was primarily driven by the impact of the Merger, which expanded our proteomics capabilities, products and services.
Total genomics revenue decreased 9% to $38.6 million for the year ended December 31, 2024, compared to 2023. The continued decline in the genomics segment was anticipated and is a driver of our continued focus on growing the OEM business and managing this segment to potentially sustainable positive contribution margin in the near-term.
Cost of Revenue
Product and service cost, gross profit, and gross margin were as follows ($ in thousands):
| Year Ended December 31, | Year-over- | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Year Change | ||||||||||
| Cost of product revenue | $ | 47,729 | $ | 44,942 | 6 | % | ||||||
| Cost of service revenue | 42,265 | 10,948 | 286 | % | ||||||||
| Cost of collaboration and other revenue | 176 | — | N/A | |||||||||
| Total cost of revenue | $ | 90,170 | $ | 55,890 | 61 | % | ||||||
| Gross profit | $ | 84,262 | $ | 50,450 | 67 | % | ||||||
| Gross margin | 48.3 | % | 47.4 | % | 0.9 | % |
Gross profit increased by $33.8 million, or 67%, for the year ended December 31, 2024, compared to 2023. The increases in gross profit was primarily attributable to the impact of the Merger, which resulted in increased revenue.
Gross profit by segment was as follows ($ in thousands):
| Year Ended December 31, | Year-over- | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Year Change | ||||||||||
| Proteomics gross profit | $ | 61,797 | $ | 26,239 | 136 | % | ||||||
| Genomics gross profit | 22,465 | 24,211 | (7 | )% | ||||||||
| Total gross profit | $ | 84,262 | $ | 50,450 | 67 | % |
Gross profit in the proteomics business increased by 136% to $61.8 million for the year ended December 31, 2024, compared to 2023. The increase was primarily driven by the impact of the Merger, which expanded our proteomics capabilities, products and services. Genomics gross profit decreased by 7% to $22.5 million for the year ended December 31, 2024, compared to 2023. The year over year decrease was primarily attributable to decreased revenues in the genomics segment.
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Operating Expenses
Operating expenses were as follows ($ in thousands):
| Year Ended December 31, | Year-over- | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Year Change | ||||||||||
| Research and development | $ | 62,411 | $ | 25,948 | 141 | % | ||||||
| Selling, general and administrative | 156,608 | 87,541 | 79 | % | ||||||||
| Restructuring and related charges | 12,500 | 7,076 | 77 | % | ||||||||
| Transaction and integration expenses | 27,979 | 6,485 | 331 | % | ||||||||
| Total operating expenses | $ | 259,498 | $ | 127,050 | 104 | % |
Research and Development
R&D expense increased by $36.5 million, or 141%, for the year ended December 31, 2024, compared to 2023. The increase was primarily due to the impact of the Merger in the first quarter of 2024, which included increased salaries and benefits expense and stock-based compensation expense due to the expanded global workforce headcount.
Selling, General and Administrative
SG&A expense increased by $69.1 million, or 79%, for the year ended December 31, 2024, compared to 2023. The increase was primarily attributable to the impact of the Merger in the first quarter of 2024, which included increased salaries and benefits expense and stock-based compensation expense due to the expanded global workforce headcount.
Restructuring and Related Charges
Restructuring and related charges consisted of the following (in thousands):
| Year Ended December 31, | Year-over- | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Year Change | ||||||||||
| Severance and other termination benefits | $ | 8,988 | $ | 2,379 | 278 | % | ||||||
| Facilities and other | 3,512 | 4,697 | (25 | )% | ||||||||
| Total restructuring and related charges | $ | 12,500 | $ | 7,076 | 77 | % |
Restructuring and related charges increased by $5.4 million for the year ended December 31, 2024, compared to 2023, due to increased severance costs resulting from the Strategic Reorganization following the Merger.
Transaction and Integration Expenses
Transaction and integration expenses increased by $21.5 million for the year ended December 31, 2024, compared to 2023. The increase was primarily due to legal, advisory, accounting costs, and integration expenses incurred in connection with the Merger in the first quarter of 2024, and the acquisition of Sengenics in the fourth quarter of 2024. We expect to incur additional integration costs in the future.
Bargain Purchase Gain
Bargain purchase gain increased by $25.2 million for the year ended December 31, 2024, compared to 2023. The increase was due to the consummation of the Merger in January 2024, which resulted in the fair value of assets acquired and liabilities assumed from the Merger exceeding the fair value of the consideration transferred due to a decline in our stock price following the announcement of the Merger Agreement.
Interest Income, net
The increase in interest income, net of $15.9 million for the year ended December 31, 2024, compared to the same period in 2023, was primarily due to the interest earned on increased balances of money market funds and short-term investments, as well as a decrease in
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interest expense due to repayment of our term loan in March 2024. Money market funds balances and short-term investments increased as a result of the Merger.
Income Tax Benefit (Expense)
We recorded income tax expense of $0.6 million for the year ended December 31, 2024, and an income tax expense of $0.5 million for the year ended December 31, 2023. The increase in our tax provision reflects the effect of our foreign operations, which reported higher pre-tax income in the year ended December 31, 2024 compared to 2023.
Our 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 United States and foreign countries.
Liquidity and Capital Resources
We have experienced operating losses since inception and have an accumulated deficit of $1.2 billion as of December 31, 2024. To date, we have funded our operating losses primarily through equity offerings, term loans, convertible notes and issuance of 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; 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 Annual Report.
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 $292.9 million at December 31, 2024 and $114.9 million at December 31, 2023. Our working capital was $310.0 million at December 31, 2024.
Capital Resources and Commitments
We have entered into arrangements that serve as sources of capital and the associated contractual agreements may result in firm or contingent obligations of us. In addition to our common stockholders’ equity, our sources of capital primarily include debt and operating leases. Our operating lease arrangements require cash repayment and our convertible debt contains rights that may result in their conversion to our common stock prior to maturity. On March 4, 2024, we fully repaid all outstanding indebtedness owed pursuant to the $10.0 million term loan facility (the "Term Loan Facility") and terminated the agreement. On December 1, 2024, we fully repaid all outstanding indebtedness owed pursuant to the 2019 Senior Convertible Notes in the aggregate principal amount of $55.0 million (the "2019 Notes").
A summary of our significant future capital requirements include:
Purchase Obligations and Commitments
Purchase obligations consist of contractual and legally binding commitments to purchase goods and services. Our purchase obligations with suppliers specify all significant terms, including fixed, minimum or variable price provisions, and the approximate timing of the transaction. The majority of our 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 connection with the Merger, we assumed a purchase commitment of $6.9 million to a contract manufacturer. Under the contract manufacturing agreement, we are required to spend $2.3 million per year for three years. We entered into a similar agreement with a separate contract manufacturing organization in 2024, under which we are required to make annual purchases of $1.0 million for two years, resulting in a purchase obligation of $2.0 million.
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We have additional obligations beyond the purchase of goods and services, including the following:
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Convertible Notes. The aggregate net carrying value of the 2014 Senior Convertible Notes (the "2014 Notes") was $0.3 million at December 31, 2024, of which none is due and payable in 2025. In addition, holders may require the Company to repurchase all or a portion of their outstanding 2014 Notes on February 6, 2029, at a repurchase price in cash equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. On February 6, 2024, one holder of the 2014 Notes exercised their repurchase right available at such time, and we repurchased an immaterial amount of principal and accrued interest. Refer to Note 7 of the consolidated financial statements for additional information. The 2019 Notes matured on December 1, 2024 and all outstanding principal and accrued interest was fully repaid.
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Leases. Future payments for operating lease obligations (net of sublease income) at December 31, 2024 totaled $34.2 million, of which $6.8 million is expected to be paid in 2025. Refer to Note 8 of the consolidated financial statements for additional information.
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Additional information on our obligations under license and patent agreements, and indemnification agreements entered into in the ordinary course of business is provided in Note 9 to the consolidated financial statements .
The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In addition, some of our future purchasing needs are not current contractual obligations and are therefore not included in the commitment amounts above as they are not handled through binding contracts or are not fulfilled by vendors on a purchase order basis within short time horizons.
Cash Flow Activity
Our cash flow summary was as follows ($ in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||||
| Cash flow summary: | ||||||||
| Net cash used in operating activities | $ | (143,454 | ) | $ | (43,287 | ) | ||
| Net cash provided by investing activities | 363,174 | 20,237 | ||||||
| Net cash used in financing activities | (102,616 | ) | (6,809 | ) | ||||
| Effect of foreign exchange rate fluctuations on cash and cash equivalents | (785 | ) | 34 | |||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 116,319 | $ | (29,825 | ) |
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, both domestically and internationally.
In the year ended December 31, 2024, we used $92.9 million of net proceeds from the sales and maturities of short-term investments to help fund $143.5 million of net cash used in operating activities, $63.2 million of repayments of the Term Loan Facility and 2014 Notes and $40.5 million of common stock repurchases.
In the year ended December 31, 2023, we used $23.1 million of net proceeds from the sales and maturities of short-term investments to help fund $43.3 million of net cash used in operating activities, $5.4 million of common stock repurchases and $2.1 million of Term Loan Facility repayments.
Operating Activities
Net cash used in operating activities for the year ended December 31, 2024 increased by $100.2 million, compared to the same period in 2023. The increase is driven by the Merger, which resulted in increased global operating costs and operating losses.
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Investing Activities
Net cash provided by investing activities for the year ended December 31, 2024 was $363.2 million, compared to $20.2 million for the year ended December 31, 2023. The year ended December 31, 2024 primarily reflects $280.0 million of cash and restricted cash acquired in the Merger and $92.9 million of proceeds from sales and maturities of short-term investments, net of purchases, offset by $8.4 million cash used for purchases of property and equipment. The year ended December 31, 2023 primarily reflects $23.1 million of proceeds from sales and maturities of short-term investments, net of purchases.
Financing Activities
Financing activities used cash of $102.6 million for the year ended December 31, 2024, and used cash of $6.8 million in the same period of 2023. These changes in cash from financing activities are primarily driven by the repayments of our Term Loan Facility and 2014 Notes totaling $63.2 million, and repurchases of common stock totaling $40.5 million, during the year ended December 31, 2024. During the year ended December 31, 2023, we repurchased $5.4 million of common stock and repaid $2.1 of our Term Loan Facility.
Critical Accounting Policies and Estimates
The consolidated financial statements and related notes included in this Annual Report are prepared in accordance with U.S. GAAP. Preparing U.S. GAAP financial statements requires the use of estimates and assumptions to determine the value of the assets, liabilities, revenues and expenses reported on the 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, and preferred equity. Refer to Note 2 to our consolidated financial statements for further information on our most significant accounting policies. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in estimates that are reasonably likely to occur could materially impact the financial statements.
Revenue
We recognize revenue when control of promised goods or services is transferred to customers, based on the amount of consideration we expect to receive in exchange for the goods and services transferred. Our commercial arrangements typically include multiple, distinct products and services, and we allocate purchase consideration to the products and services based on each item’s relative standalone selling price. Standalone selling prices ("SSP") are generally determined using observable data from recent transactions. In cases where sufficient data is not available, we estimate a product’s SSP using a cost plus margin approach or by applying a discount to the product’s list price.
We have entered and may continue to enter into development agreements with customers that require us to recognize revenue using an input method that determines the extent of our progress toward completion by comparing the actual costs incurred to the total expected cost. As part of the accounting for these arrangements, we develop estimates and assumptions that require judgment to determine the transaction price and progress towards completion. We review these estimates at the end of each reporting period using the best available information, revise the estimates as necessary, and recognize revenue commensurate with our progress toward completion.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Inventory costs include direct materials, direct labor, and normal manufacturing overhead. We regularly review inventory for excess and obsolete products and components. Significant judgment is required in determining provisions for slow-moving, excess, and obsolete inventories which are recorded when required to reduce inventory values to their estimated net realizable values based on product life cycle, development plans, product expiration, and quality issues.
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Business Combinations
The Company accounts for business combinations in accordance with ASC 805, which requires the allocation of the purchase price to the fair values of identifiable assets acquired and liabilities assumed. The determination of fair values involves significant judgment and estimates, particularly in valuing acquired intangible assets and contingent consideration arising from the merger. The fair values of acquired intangibles are estimated using various valuation methodologies, including the multi-period excess earnings method for developed technology and customer relationships, and the relief-from-royalty method for trade names. The fair value of contingent consideration is estimated using a Monte Carlo simulation. These approaches require management to make significant assumptions, including projected cash flows, revenue growth rates, discount rates, etc. These estimates are inherently subjective and based on information available at the acquisition date. Refer to Note 3 to the consolidated financial statements for further information.
Goodwill and Long-Lived Assets
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net assets acquired and liabilities assumed in a business combination. We assess goodwill at the reporting unit level on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances suggest that goodwill impairment exists. A significant amount of judgment is involved in determining if an indicator of impairment exists.
For those reporting units where events or change in circumstances indicate that potential impairment indicators exist, we perform a quantitative assessment to determine whether the carrying value of goodwill can be recovered. When performing the annual goodwill impairment test, we may start with an optional qualitative assessment. As part of the qualitative assessment, we evaluate all events and circumstances, including both positive and negative events, in their totality, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we bypass the qualitative assessment, or if the qualitative assessment indicates that a quantitative analysis should be performed, we perform a quantitative assessment to estimate the fair value of each reporting unit, and compare the fair value of each reporting unit to its carrying value. We generally estimate a reporting unit's fair value using a discounted cash flow approach which is dependent on several significant estimates and assumptions related to forecasts of future revenues, cost of sales, expenses and the weighted average cost of capital for each reporting unit. If the carrying amount of a reporting unit exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. The impairment of goodwill is limited to the total amount of goodwill allocated to the reporting unit. Any adverse changes in the significant estimates and assumptions used in our goodwill impairment test could have a significant impact on our goodwill impairment analyses, and could have a material impact on our consolidated financial statements.
The Company's most recent assessment in the fourth quarter of 2024 did not indicate existence of impairment. However, in February 2025, the new U.S. administration announced reductions in federal funding for NIH research. These funding cuts are expected to directly impact the availability of financing for lab equipment used by researchers. As a result, the Company anticipates a negative impact on its short- and long-term revenue and cash flow forecasts for both its reporting units. Management will continue to monitor developments related to future potential policy changes under the new U.S. administration that could impact key inputs used in our goodwill impairment analysis. If the developments materially impact these key inputs, additional testing may be required, which could result in the recognition of a non-cash goodwill impairment charge in the near future.
Additionally, over the past few weeks and following the announced reductions in federal funding for NIH research, the Company's share price declined substantially. Management will continue to monitor its market capitalization relative to the Company's net book value, and if the Company's stock price does not increase, the Company may be required to perform additional impairment analyses for both its reporting units, and could be required to recognize a non-cash goodwill impairment charge in the near future. Refer to Note 5 to the consolidated financial statements for additional information on goodwill and long-lived assets.
Stock-Based Compensation
We recognize compensation costs for all stock-based awards, including stock options, restrict stock units ("RSUs"), performance stock units ("PSUs") and shares of common stock purchased under our Employee Share Purchase Plan (“ESPP”), based on the grant date fair value of the award. We recognize stock-based compensation expense on a straight-line basis over the requisite service periods for non-performance-based awards. For RSUs, fair value is measured based on the closing fair market value of our common stock on the date of grant. For PSUs with a market condition, we use a Monte Carlo simulation pricing model to incorporate the market condition effects at the grant date. The Monte Carlo pricing model requires inputs which are subjective and generally requires judgment. For PSUs with performance conditions, stock-based compensation expense is recognized over the requisite service period when the achievement of each individual performance goal becomes probable.
The fair value of options and stock purchases under ESPP on the grant date is estimated using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions, including expected term, volatility, risk-free interest rate and the fair value of
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our common stock. These assumptions generally require judgment. Refer to Note 13 to the consolidated financial statements for additional information.
Recent Accounting Changes and Accounting Pronouncements
Adoption of New Accounting Guidance
None.
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 consolidated financial statements included in this Annual Report.
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