Quantum-Si Inc (QSI) 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.
Overview
Quantum-Si Incorporated (including its subsidiaries, the “Company” or “Quantum-Si”) was incorporated in Delaware on June 10, 2020 as HighCape Capital Acquisition Corp. (“HighCape”). The Company’s legal name became Quantum-Si Incorporated following a business combination on June 10, 2021 between the Company and Q-SI Operations Inc. (formerly Quantum-Si Incorporated) (the “Business Combination”), which was founded in 2013.
We are a life sciences company focused on proteomics research, with the mission of transforming single-molecule analysis and democratizing its use by providing researchers and clinicians access to the proteome, the set of proteins expressed within a cell. We have developed a proprietary universal single-molecule detection platform that we are applying to proteomics to enable Next-Generation Protein SequencingTM (“NGPS”), to sequence proteins in a massively parallel fashion (rather than sequentially, one at a time), which can also be used for the study of nucleic acids. We believe that the ability to sequence proteins in a massively parallel fashion and offer a fast analysis time provides NGPS with the potential to unlock significant biological information through improved resolution and unbiased access to the proteome at a speed and scale that is not available today. Traditionally, proteomic workflows to sequence proteins required days or weeks to complete. Our platform includes our Platinum NGPS instrument, Platinum Analysis Software, and consumable kits for use with our Platinum instrument. In 2021, we introduced our Platinum early access program to sites with participation from leading academic centers and key industry partners. The early access program introduced the Platinum single-molecule sequencing system to key opinion leaders across the globe for both expansion and development of applications and workflows. We began a controlled launch of the Platinum instrument and started to take orders in December 2022, and subsequently began a controlled commercial launch of Platinum in January 2023, and then moved to a full commercial launch of Platinum beginning the second quarter of 2024.
Going forward, we intend to follow a systematic, phased approach to continue to successfully launch updates and enhancements to our platform which can include improvements to our hardware, software and chemistry that works together to produce the overall platform.
We believe that our platform offers a differentiated solution in a rapidly evolving proteomics tools market. Within our initial focus market of proteomics, our platform is designed to provide users a seamless opportunity to gain key insights into the immediate state of biological pathways and cell state. Our platform aims to address many of the key challenges and bottlenecks with legacy proteomic solutions, such as mass spectrometry (“MS”), which include high instrument costs both in terms of acquisition and ownership, and complexity with data analysis, which together limit broad adoption. We believe our platform, which is designed to streamline sequencing and data analysis at a lower instrument cost and with greater automation than legacy proteomic solutions, could allow our product to have wide utility across the study of the proteome. For example, our platform could be used for biomarker discovery and disease detection, pathway analysis, immune response, vaccine development, quality assurance and quality control, among other applications.
Global Developments
The macroeconomic climate has experienced, and is continuing to experience, pressure from global developments such as high levels of inflation, global supply chain disruptions and international geopolitical conflicts. We continue to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic
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environment. Although we do not expect to be significantly impacted by geopolitical conflicts, we have experienced some constraints in product and material availability and increasing costs required to obtain some materials and supplies as a result of these conflicts on the global economy. As geopolitical conflicts continue or worsen, it may impact our business, financial condition or results of operations. We have taken and will continue to take actions to help mitigate the impact of these economic challenges, but there can be no assurance as to the effectiveness of our efforts going forward.
Restructuring
On November 21, 2024, we announced that we committed to an organizational restructuring program designed to streamline and focus our overall corporate resources, as well as align required resources to focus on future product development objectives, including its recently announced Proteus™ platform. As a result, we terminated approximately 23% of our 187 employee workforce. In connection with the restructuring, we recognized one-time cash charges related to severance and other benefits of approximately $2.3 million in 2024 and expect to recognize $0.7 million in the first six months of 2025. In addition, we recognized non-cash expense of approximately $0.1 million in the fourth quarter of 2024 related to stock option modifications. The severance and other benefits related charge, as well as the expense related to stock option modifications are subject to a number of assumptions, and actual results may differ materially. We may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the restructuring. We substantially completed the restructuring in the fourth quarter of 2024. For further information regarding our restructuring activities, please refer to Note 14. Restructuring.
Equity Transactions
On August 11, 2023, we filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective on August 22, 2023, covering the offering of Class A common stock, preferred stock, debt securities, warrants, rights and units.
On December 11, 2024, we entered into an Equity Distribution Agreement (the “Sales Agreement”) with Canaccord Genuity LLC (“Canaccord”) to sell shares of our Class A common stock, par value $0.0001, having an aggregate offering price of up to $75.0 million, from time to time through an “at-the-market” offering program under which Canaccord will act as sales agent (the “ATM Offering”). We have no obligation to sell any shares under the Sales Agreement and may at any time suspend solicitation and offers under the EDA. The ATM Offering is being made pursuant to our shelf registration and a prospectus supplement related to the ATM Offering dated December 11, 2024. During the year ended December 31, 2024, we sold and issued 23,425,650 shares of our Class A common stock under the ATM Offering, resulting in gross proceeds of $36.2 million. Net proceeds were $34.8 million after commissions and issuance costs of $1.4 million.
Also on December 11, 2024, we exercised its right to terminate the Equity Distribution Agreement (the “Equity Distribution Agreement”), dated August 11, 2023, by and between the Company and Evercore Group L.L.C. (“Evercore”), as sales agent. The Equity Distribution Agreement previously established an “at-the-market” offering program through which we had the right to sell, from time to time, through Evercore, up to an aggregate of $75.0 million of our Class A Common Stock. We sold no shares under the Equity Distribution Agreement.
On January 3, 2025, we entered into a securities purchase agreement with certain institutional investors pursuant to which we agreed to issue and sell, in a registered direct offering (the “Registered Direct Offering”) an aggregate of 15,625,000 shares of our Class A common stock at a price of $3.20 per Share. The gross proceeds from the Registered Direct Offering were $50.0 million. After deducting estimated placement agents’ fees and other offering expenses payable by the Company, net proceeds were approximately $46.9 million.
In connection with the Registered Direct Offering, we entered into a placement agency agreement with A.G.P./Alliance Global Partners (the “Placement Agent”), pursuant to which the Placement Agent agreed to serve as the sole placement agent for the Company, on a reasonable best efforts basis. We agreed to pay the Placement Agent an aggregate cash fee equal to 6.0% of the gross proceeds received in the Registered Direct Offering.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and
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liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, as well as expenses incurred during the reporting periods. Our estimates are based on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about items not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Revenue is derived from sales of products and services. Product revenue is primarily generated from the sales of instruments and consumables used in protein sequencing and analysis. Service revenue is primarily generated from service maintenance contracts including access to analysis software and advanced training for instrument use. We recognize revenue when or as a customer obtains control of the promised goods and services. The amount of revenue recognized reflects the consideration to which we expect to be entitled in exchange for these goods and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue as the performance obligations have been satisfied. We have made the accounting policy election allowed for under ASC 606-10-32-2A to exclude all sales taxes from transaction price. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We allocate transaction price to the performance obligations in a contract with a customer based on the relative standalone selling price of each performance obligation. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information and specific factors such as competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation.
We consider performance obligation for sales of products satisfied upon shipment of the goods to the customer in accordance with the shipping terms (either upon shipment or delivery), which is when control of the product is deemed to be transferred; this includes instruments and consumables. Customers generally do not have a right to return products, except for defective or damaged products during the warranty period or unless prior written consent is provided. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenues for service maintenance contracts, which start after the first year of purchase and are considered as service type warranties that effectively extend the standard first-year service coverage at the customer’s option are recognized ratably over the contract service period as these services are performed evenly over time. Revenues for advanced training is recognized at a point in time upon satisfaction of the underlying performance obligation. We typically provide a standard one-year warranty which covers defects in materials, workmanship and manufacturing or performance conditions under normal use and service. The first year of the warranty of the products is considered an assurance-type warranty and is recorded as Cost of revenue within the Consolidated Statements of Operations and Comprehensive Loss. We have determined this standard first-year warranty is not a distinct performance obligation.
Stock-based Compensation
Stock-based compensation expense for stock option grants with only service conditions is recognized on a straight-line basis over the requisite service period of the individual grants, which is generally the vesting period, based on the estimated grant date fair values. Stock-based compensation expense for stock option grants subject to non-financing event performance conditions on an accelerated basis is recognized as though each vesting portion of the award was, in substance, a separate award.
Prior to the Business Combination, the fair value of the shares of common stock underlying stock options had been determined by the Board, with input from management and contemporaneous third-party valuations, as there was no public market for the common stock. Given the absence of a public trading market for our common stock, the Board exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each option grant date.
After the completion of the Business Combination, we measure compensation expense for stock-based awards to employees, non-employees and directors based upon the awards’ initial grant-date fair values. Stock-based compensation
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expense for stock options, restricted stock units and performance awards is recorded over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with a market condition, we expense the grant date fair value at the target over the vesting period regardless of the value the award recipients ultimately receive. The fair value of restricted stock without a market condition is estimated using the current market price of our common stock on the date of grant. The fair value of stock option grants with a market condition is estimated at the date of grant using the Monte Carlo simulation model (“Monte Carlo”). The fair values of stock option grants with only a service condition are estimated as of the date of grant by applying the Black-Scholes option valuation model (“Black-Scholes model”). The Black-Scholes model and Monte Carlo models incorporate assumptions as to stock price volatility, the expected life of options or restricted stock, a risk-free interest rate and dividend yield. The effect of forfeiture in compensation costs is recognized based on actual forfeitures when they occur.
The Black-Scholes model is affected by the stock price on the date of the grant as well as assumptions regarding a number of variables. These variables include the expected term of the option, expected risk-free interest rate, the expected volatility of common stock, and expected dividend yield; each of which is described below. The assumptions for expected term of the option and expected volatility of common stock are the two assumptions that significantly affect the grant date fair value.
•Expected Term: The expected term is calculated using the weighted-average period that the stock options are expected to be outstanding prior to being exercised. We determine expected term based on historical exercise patterns and our expectation of the time that it will take for employees to exercise options still outstanding. We estimate non-employees’ options based on the contractual term.
•Risk-free Interest Rate: The risk-free interest rate for periods within the expected term of the awards is based on the U.S. Treasury yield curve in effect at the time of the grant.
•Expected Stock Price Volatility: We determined expected annual equity volatility based on the combination of the historical volatility of our common stock and the historical volatility of the common stock comparable to our common stock.
•Dividend Yield: Because we have never paid a dividend and do not expect to begin doing so in the foreseeable future, we assume no dividend yield in valuing the stock-based awards.
•Exercise Price: The exercise price is taken directly from the grant notice issued to employees and non-employees.
Stock options granted to non-employees are accounted for based on their fair value on the measurement date using the Black-Scholes model. For further information regarding our stock-based compensation and equity incentive plans, please refer to Note 2. Summary of Significant Accounting Policies, and Note 11. Stock-based Compensation, in the accompanying notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Inventory
Inventory is stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method. Materials that may be utilized for either commercial or, alternatively, for research and development purposes, are classified as inventory. Amounts in inventory used for research and development purposes are charged to research and development expense when the product enters the research and development process and can no longer be used for commercial purposes and, therefore, does not have an “alternative future use” as defined in authoritative guidance. During the years ended December 31, 2024 and 2023 we identified $3.2 million and $3.4 million, respectively, of product that no longer had an alternative future use and therefore was included as part of research and development expense. There was no such expense identified for the year ended December 31, 2022.
An assessment of the recoverability of capitalized inventory is performed during each reporting period and, if needed, we record a reserve for any excess and obsolete inventory to record inventory at its estimated net realizable value in the period it is identified. Inventory excess and obsolescence reserves related to cost of revenue were immaterial for the years ended December 31, 2024 and 2023.
For further information regarding our significant accounting policies and estimates, please refer to Note 2. Summary of Significant Accounting Policies, in the accompanying notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Warrant Liability
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Outstanding warrants include Public Warrants which were issued as one-third of one redeemable warrant per unit during HighCape’s initial public offering on September 9, 2020, and Private Warrants sold to the Sponsor. The Public Warrants and Private Warrants meet the definition of a derivative and we recorded these warrants as long-term liabilities in the Consolidated Balance Sheets at fair value upon the closing of the Business Combination, with subsequent changes in their respective fair values recognized in the Consolidated Statements of Operations and Comprehensive Loss at each reporting date. For further information regarding our warrants, please refer to Note 12. Warrant Liabilities.
Recently Issued Accounting Pronouncements
For a discussion of recently adopted accounting pronouncements and accounting pronouncements pending adoption, please refer to Note 2. Summary of Significant Accounting Policies, in the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Results of Operations for the Year Ended December 31, 2024 as Compared to the Year Ended December 31, 2023
The following table summarizes the results of our operations for the years ended December 31, 2024 and 2023 (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | ||||||||||||||
| Product | $ | 2,925 | $ | 1,031 | $ | 1,894 | 183.7 | % | ||||||
| Service | 133 | 51 | 82 | 160.8 | % | |||||||||
| Total revenue | 3,058 | 1,082 | 1,976 | 182.6 | % | |||||||||
| Cost of revenue | 1,458 | 594 | 864 | 145.5 | % | |||||||||
| Gross profit | 1,600 | 488 | 1,112 | 227.9 | % | |||||||||
| Operating expenses: | ||||||||||||||
| Research and development | 59,641 | 67,025 | (7,384) | (11.0) | % | |||||||||
| Selling, general and administrative | 50,535 | 44,634 | 5,901 | 13.2 | % | |||||||||
| Total operating expenses | 110,176 | 111,659 | (1,483) | (1.3) | % | |||||||||
| Loss from operations | (108,576) | (111,171) | 2,595 | (2.3) | % | |||||||||
| Dividend and interest income | 11,366 | 9,536 | 1,830 | 19.2 | % | |||||||||
| Unrealized gain on trading securities | — | 10,690 | (10,690) | (100.0) | % | |||||||||
| Realized loss on trading securities | — | (5,103) | 5,103 | 100.0 | % | |||||||||
| Change in fair value of warrant liabilities | (3,722) | (278) | (3,444) | 1238.8 | % | |||||||||
| Other (expense) income, net | (19) | 366 | (385) | (105.2) | % | |||||||||
| Loss before provision for income taxes | (100,951) | (95,960) | (4,991) | 5.2 | % | |||||||||
| Provision for income taxes | (56) | - | (56) | nm(1) | ||||||||||
| Net loss | $ | (101,007) | $ | (95,960) | $ | (5,047) | 5.3 | % |
(1)“nm” indicates amount is not meaningful.
Revenue, Cost of Revenue and Gross Profit
Revenue is derived from sales of products and services. Product revenue is generated from the following sources: (i) sales of our Platinum® instrument, (ii) consumables, which consist of sales of our library preparation kits, sequencing kit (which includes sequencing reagents and semiconductor chips), and (iii) freight revenue, which is recognized upon shipment. Service revenue is generated from service maintenance contracts including Platinum Analysis Software access, and advanced training for instrument use.
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Cost of revenue primarily consists of product and service costs including material costs, personnel costs and benefits, inbound and outbound freight, packaging, warranty replacement costs, royalty costs, facilities costs, depreciation and amortization expense, and inventory write-offs.
Revenue, Cost of revenue and Gross profit for the years ended December 31, 2024 and 2023 are as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total revenue | $ | 3,058 | $ | 1,082 | $ | 1,976 | 182.6 | % | ||||||
| Cost of revenue | 1,458 | 594 | 864 | 145.5 | % | |||||||||
| Gross profit | $ | 1,600 | $ | 488 | $ | 1,112 | 227.9 | % | ||||||
| Gross profit margin | 52.3 | % | 45.1 | % |
Total revenue for the sale of Platinum instruments, related reagent kits and service maintenance contracts increased $2.0 million, or 182.6% as compared to the same period in 2023.
Cost of revenue increased $0.9 million, or 145.5% as compared to the same period in 2023.
Gross profit increased $1.1 million, or 227.9% as compared to the same period in 2023.
We began a controlled launch of the Platinum instrument and started to take orders in December 2022, and subsequently began a controlled commercial launch of Platinum in January 2023, and then moved to a full commercial launch of Platinum beginning in the second quarter of 2024.
Research and Development Expenses
Research and development expenses primarily consist of personnel costs and benefits, stock-based compensation, lab supplies, consulting and professional services, fabrication services, charges related to product without an alternative future use, facilities costs, software, and other outsourced expenses. Research and development expenses are recognized as incurred. Our research and development expenses are primarily related to developing new products and services.
Research and development expenses for the years ended December 31, 2024 and 2023 are as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Research and development | $ | 59,641 | $ | 67,025 | $ | (7,384) | (11.0) | % |
Research and development expenses decreased by $7.4 million, or 11.0%, for the year ended December 31, 2024 as compared to the same period in 2023. This decrease was primarily due to a $7.3 million decrease in payroll and payroll-related costs, which includes a $0.3 million decrease in stock-based compensation, a $2.2 million decrease in fabrication and outsourced services and a $0.8 million net decrease of other research and development expenses. The decrease in payroll and payroll-related costs were primarily driven by restructuring activities and an increase in personnel costs that were capitalized during the year ended December 31, 2024. These decreases were partially offset by a $2.9 million increase in laboratory supplies expense.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consist of personnel costs and benefits, stock-based compensation, patent and filing fees, consulting and professional services, legal and accounting services, facilities costs, depreciation and amortization expense, insurance and office expenses, product advertising and marketing.
Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 are as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Selling, general and administrative | $ | 50,535 | $ | 44,634 | $ | 5,901 | 13.2 | % |
Selling, general and administrative expenses increased by $5.9 million, or 13.2%, for the year ended December 31, 2024 as compared to the same period in 2023. The increase was primarily due to a $4.1 million increase in payroll and payroll-related costs, which includes a $0.7 million increase in stock-based compensation, a $2.1 million increase in legal fees, a $1.0 million increase in outsourced services, a $0.7 million increase in trade show and other marketing-related expenses, a $0.6 million increase in non-income tax expenses and a $0.9 million net increase in other selling, general and administrative expenses. The increase in payroll and payroll-related costs are primarily related to on-going investments made in commercial operations. These increases were partially offset by a decrease of $2.8 million in professional services and consulting fees and a $0.7 million decrease in insurance costs from lower market premiums.
Dividend and Interest Income
For the year ended December 31, 2024, dividend and interest income is derived primarily from fixed income securities and money market mutual funds. For the year ended December 31, 2023, dividend and interest income was derived from mutual funds.
Dividend and interest income for the years ended December 31, 2024 and 2023 is as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dividend and interest income | $ | 11,366 | $ | 9,536 | $ | 1,830 | 19.2 | % |
Dividend and interest income increased by $1.8 million, or 19.2% for the year ended December 31, 2024 as compared to the same period in 2023. This increase was a result of higher dividends earned on invested balances in marketable securities resulting from higher market interest rates.
Unrealized Gain on Trading Securities
Unrealized gain on trading securities for the years ended December 31, 2024 and 2023 is as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unrealized gain on trading securities | $ | — | $ | 10,690 | $ | (10,690) | (100.0) | % |
There was no Unrealized gain on trading securities for the year ended December 31, 2024 as compared to a gain of $10.7 million for the same period in 2023. The prior year gain was primarily related to market adjustments of investments in trading securities, which consisted of fixed income mutual funds.
Realized loss on Trading Securities
Realized loss on trading securities for the years ended December 31, 2024 and 2023 is as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Realized loss on trading securities | $ | — | $ | (5,103) | $ | 5,103 | 100.0 | % |
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There was no Realized loss on trading securities for the year ended December 31, 2024 as compared to a loss of $5.1 million for the same period in 2023. The prior year losses were primarily related to market adjustments of investments in trading securities, which consisted of fixed income mutual funds.
Change in Fair Value of Warrant Liabilities
The warrant liabilities were recorded at fair value as part of the Business Combination. Change in fair value of warrant liabilities primarily consists of the change in the fair value of our Public Warrants and Private Warrants.
Change in warrant liabilities for the years ended December 31, 2024 and 2023 is as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in fair value of warrant liabilities | $ | (3,722) | $ | (278) | $ | (3,444) | 1238.8 | % |
The change in fair value of warrant liabilities increased by $3.4 million, or 1238.8% for the year ended December 31, 2024 as compared to the same period in 2023. Change in fair value of warrant liabilities increased $3.7 million for the year ended December 31, 2024 as compared to an increase of $0.3 million for the same period in 2023. This increase was primarily driven by the change in the underlying trading price of our Class A common stock during the periods reported.
Other income, net
Other income, net, for the years ended December 31, 2024 and 2023 is as follows (dollars in thousands):
| 2024 | 2023 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other (expense) income, net | $ | (19) | $ | 366 | $ | (385) | (105.2) | % |
Other (expense) income, net, decreased by $0.4 million, or 105.2%, for the year ended December 31, 2024 as compared to the same period in 2023. For the year ended December 31, 2023, Other income, net, included a $0.4 million gain for the write off of contingent consideration related to the Majelac acquisition. For further details regarding the acquisition of Majelac, please refer to Note 3. Acquisition, in the accompanying notes to the Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K.
Liquidity and Capital Resources
The following table presents a summary of our consolidated cash flows for operating, investing, and financing activities for the years ended December 31, 2024 and 2023 (in thousands):
| 2024 | 2023 | |||||
|---|---|---|---|---|---|---|
| Net cash (used in) provided by: | ||||||
| Net cash used in operating activities | $ | (87,795) | $ | (94,036) | ||
| Net cash (used in) provided by investing activities | (32,675) | 143,428 | ||||
| Net cash provided by financing activities | 35,876 | 149 | ||||
| Effect of exchange rate changes on cash and cash equivalents | (25) | — | ||||
| Net (decrease) increase in cash and cash equivalents | $ | (84,619) | $ | 49,541 |
Net cash used in operating activities
For the year ended December 31, 2024, net cash used in operating activities of $87.8 million was primarily due to a net loss of $101.0 million resulting from continued spend on research and development and commercialization efforts, accretion on marketable securities of $8.4 million and a $3.2 million write-down of inventory partially offset by stock-based compensation of $8.9 million, a net increase in cash provided by operating assets and liabilities of $4.6 million due to timing of cash receipts and disbursements, depreciation and amortization of $4.6 million, a change in fair value of warrant liabilities of $3.7 million, and non-cash lease expense of $2.4 million.
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For the year ended December 31, 2023, the net cash used in operating activities of $94.0 million was primarily due to a net loss of $96.0 million resulting from the continued ramp-up of research and development and commercialization efforts, unrealized net gains on trading securities of $10.7 million, net cash outflows from changes in operating assets and liabilities of $3.2 million due to timing of cash receipts and disbursements and a $3.4 million write-down of inventory, partially offset by stock-based compensation of $8.5 million, realized net losses on trading securities of $5.1 million, depreciation and amortization of $4.2 million and non-cash lease expense of $1.4 million.
Net cash (used in) provided by investing activities
For the year ended December 31, 2024, net cash used in investing activities was $32.7 million as compared to net cash provided by investing activities in $143.4 million for the same period in 2023. The increase in cash used was due primarily to an increase of purchases of marketable securities of $245.6 million partially offset by a $68.9 million increase in proceeds from the sales and maturities of marketable securities.
Net cash provided by financing activities
For the year ended December 31, 2024, net cash provided by financing activities was $35.9 million as compared to $0.1 million for the same period in 2023. This increase in cash provided was due primarily to $34.8 million of net proceeds from the issuance of common stock under the ATM Offering. Further information regarding the ATM Offering can be found below.
Liquidity Outlook
Since our inception, we have funded our operations primarily with proceeds from the issuance of equity to private investors, as well as with the proceeds received from the closing of the Business Combination. Additionally, we began to generate revenue during 2023 from commercial sales of our Platinum instrument. Our primary uses of liquidity have been operating expenses, capital expenditures and our acquisition of certain assets. Cash flows from operations have been historically negative as we continue to invest in the development of our technology in NGPS. Going forward, we anticipate debt or equity offerings will be the primary source of funds to support our operating needs and capital expenditures until we reach scale of our commercial operations. We expect to incur negative operating cash flows on an annual basis for the foreseeable future until such time that we can scale our revenue growth.
We expect that our existing cash and cash equivalents and investments in marketable securities, together with revenue from the sale of our products and services, will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months. We expect to use our cash and cash equivalents and investments in marketable securities and funds from revenue generated to invest in our continued commercialization efforts, to further invest in research and development, for other operating expenses, business acquisitions and for working capital and general corporate purposes.
As of December 31, 2024, we had cash and cash equivalents and investments in marketable securities totaling $209.6 million. Our future capital requirements may vary from those currently planned and will depend on various factors including the pace and success of product commercialization.
Our ongoing commercialization of Platinum and Platinum Pro as well as our continuing research and development efforts to enhance our instruments may require an accelerated amount of spending to enhance the sales and marketing teams, continue to drive development, and build inventory. Other factors that could accelerate cash needs include: (i) delays in achieving scientific and technical milestones, (ii) unforeseen capital expenditures and fabrication costs related to manufacturing for commercialization, (iii) changes we may make in our business or commercialization strategy, (iv) costs of running a public company, (v) other items affecting our forecasted level of expenditures and use of cash resources, including potential acquisitions, and (vi) increased product and service costs.
On August 11, 2023, we filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective on August 22, 2023, covering the offering of Class A common stock, preferred stock, debt securities, warrants, rights and units.
On December 11, 2024, we entered into an Equity Distribution Agreement (the “Sales Agreement”) with Canaccord Genuity LLC (“Canaccord”) to sell shares of our Class A common stock, par value $0.0001, having an aggregate offering price of up to $75.0 million, from time to time through an “at-the-market” offering program under which Canaccord will
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act as sales agent. We have no obligation to sell any shares under the Sales Agreement and may at any time suspend solicitation and offers under the EDA. The ATM Offering is being made pursuant to our shelf registration and a prospectus supplement related to the ATM Offering dated December 11, 2024. During the year ended December 31, 2024, we sold and issued 23,425,650 shares of our Class A common stock under the ATM Offering, resulting in gross proceeds of $36.2 million. Net proceeds were $34.8 million after commissions and issuance costs of $1.4 million.
Also on December 11, 2024, we exercised its right to terminate the Equity Distribution Agreement (the “Equity Distribution Agreement”), dated August 11, 2023, by and between the Company and Evercore Group L.L.C. (“Evercore”), as sales agent. The Equity Distribution Agreement previously established an “at-the-market” offering program through which we had the right to sell, from time to time, through Evercore, up to an aggregate of $75.0 million of our Class A common stock. We sold no shares under the Equity Distribution Agreement.
On January 3, 2025, we entered into a securities purchase agreement with certain institutional investors pursuant to which we agreed to issue and sell, in a registered direct offering (the “Registered Direct Offering”) an aggregate of 15,625,000 shares of our Class A common stock at a price of $3.20 per Share. The gross proceeds from the Registered Direct Offering were $50.0 million. After deducting estimated placement agents’ fees and other offering expenses payable by the Company, net proceeds were approximately $46.9 million.
In connection with the Registered Direct Offering, we entered into a placement agency agreement with A.G.P./Alliance Global Partners (the “Placement Agent”), pursuant to which the Placement Agent agreed to serve as the sole placement agent for the Company, on a reasonable best efforts basis. We agreed to pay the Placement Agent an aggregate cash fee equal to 6.0% of the gross proceeds received in the Registered Direct Offering.
In the future, we may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available to us on acceptable terms or otherwise, we may be unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition, operating results and cash flows.
Related Party Transactions
For a description of our related party transactions, please refer to Note 17. Related Party Transactions, in the accompanying notes to the Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K.
Capital Expenditures
During the year ended December 31, 2024, capital expenditures were $4.6 million. We forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business. We anticipate our future capital expenditures will be at approximately the same level as compared to the year ended December 31, 2024. We have funded and plan to continue funding these capital expenditures with cash and financing.
Contractual Obligations
We lease certain facilities and equipment under noncancellable lease agreements that expire at various dates through 2032. As of December 31, 2024, the future lease payments, before adjustments for tenant incentives, were approximately $26.7 million.
Licenses related to certain intellectual property
We license certain intellectual property, some of which may be utilized in our current or future product offerings. To preserve the right to use such intellectual property, we are required to make annual minimum fixed payments totaling approximately $0.2 million as well as royalties based on net sales if the royalties exceed annual minimum fixed payments.
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