UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2023
or
For the transition period from to
_____________________________________________
Commission file number: 001-34180
(Exact name of registrant as specified in its charter)
| State or other jurisdiction of incorporation or organization | I.R.S. Employer Identification No. | |||||||||||||
| Address of principal executive offices | Zip Code | |||||||||||||
Registrant’s telephone number, including area code: (650 ) 266-6000
_____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated fiing ler,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 8, 2023, there were 78,384,944 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
STANDARD BIOTOOLS INC.
TABLE OF CONTENTS
| Page | ||||||||
| PART I. | FINANCIAL INFORMATION | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. | OTHER INFORMATION | |||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STANDARD BIOTOOLS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
| March 31, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Short-term investments | ||||||||||||||
Accounts receivable (net of allowances of $ | ||||||||||||||
| Inventories, net | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Operating lease right-of-use asset, net | ||||||||||||||
| Other non-current assets | ||||||||||||||
| Developed technology, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued compensation and related benefits | ||||||||||||||
| Operating lease liabilities, current | ||||||||||||||
| Deferred revenue, current | ||||||||||||||
| Deferred grant income, current | ||||||||||||||
| Other accrued liabilities | ||||||||||||||
| Term loan, current | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Convertible notes, net | ||||||||||||||
| Term loan, non-current | ||||||||||||||
| Deferred tax liability | ||||||||||||||
| Operating lease liabilities, non-current | ||||||||||||||
| Deferred revenue, non-current | ||||||||||||||
| Deferred grant income, non-current | ||||||||||||||
| Other non-current liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Mezzanine equity: | ||||||||||||||
Redeemable preferred stock: $ | ||||||||||||||
| Stockholders’ deficit: | ||||||||||||||
1
Preferred stock: $ | ||||||||||||||
Common stock: $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
Treasury stock at cost: | ( | ( | ||||||||||||
| Total stockholders’ deficit | ( | ( | ||||||||||||
| Total liabilities, mezzanine equity and stockholders’ deficit | $ | $ | ||||||||||||
See accompanying notes
2
STANDARD BIOTOOLS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue: | |||||||||||
| Product revenue | $ | $ | |||||||||
| Service revenue | |||||||||||
| Other revenue | |||||||||||
| Total revenue | |||||||||||
| Costs and expenses: | |||||||||||
| Cost of product revenue | |||||||||||
| Cost of service revenue | |||||||||||
| Research and development | |||||||||||
| Selling, general and administrative | |||||||||||
| Total costs and expenses | |||||||||||
| Loss from operations | ( | ( | |||||||||
| Interest expense | ( | ( | |||||||||
| Loss on forward sale of Series B Preferred Stock | ( | ||||||||||
| Loss on Bridge Loans | ( | ||||||||||
| Other income, net | |||||||||||
| Loss before income taxes | ( | ( | |||||||||
| Income tax benefit (expense) | ( | ||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Net loss per share, basic and diluted | $ | ( | $ | ( | |||||||
| Shares used in computing net loss per share, basic and diluted | |||||||||||
See accompanying notes
3
STANDARD BIOTOOLS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||
| Foreign currency translation adjustment | ( | |||||||||||||
| Net change in unrealized gain on investments | ||||||||||||||
| Other comprehensive income (loss), net of tax | ( | |||||||||||||
| Comprehensive loss | $ | ( | $ | ( | ||||||||||
See accompanying notes
4
STANDARD BIOTOOLS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Accum. Other Comp. Loss | Treasury Stock | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Accum. Deficit | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | $ | ( | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of shares withheld for taxes, and other | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | $ | ( | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accum. Other Comp. Loss | Treasury Stock | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Accum. Deficit | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of shares withheld for taxes, and other | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying notes
5
STANDARD BIOTOOLS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Operating activities | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
| Loss on forward sale of Series B Preferred Stock | ||||||||||||||
| Loss on bridge loans | ||||||||||||||
| Stock-based compensation expense | ||||||||||||||
| Amortization of developed technology | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Provision for excess and obsolete inventory | ||||||||||||||
| Amortization of debt discounts, premiums and issuance costs | ||||||||||||||
| Other non-cash items | ( | |||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Accounts receivable, net | ||||||||||||||
| Inventories, net | ( | ( | ||||||||||||
| Prepaid expenses and other assets | ( | |||||||||||||
| Accounts payable | ( | |||||||||||||
| Accrued compensation and related benefits | ( | |||||||||||||
| Deferred revenue | ||||||||||||||
| Other liabilities | ( | |||||||||||||
| Net cash used in operating activities | ( | ( | ||||||||||||
| Investing activities | ||||||||||||||
| Purchases of short-term investments | ( | |||||||||||||
| Proceeds from sales and maturities of investments | ||||||||||||||
| Purchases of property and equipment | ( | ( | ||||||||||||
| Net cash provided by (used in) investing activities | ( | |||||||||||||
| Financing activities | ||||||||||||||
| Proceeds from bridge loans | ||||||||||||||
| Repayment of advances under revolving credit facility | ( | |||||||||||||
| Repurchase of common stock | ( | |||||||||||||
| Payments for taxes related to net share settlement of equity awards and other | ( | ( | ||||||||||||
| Net cash provided by (used in) financing activities | ( | |||||||||||||
| Effect of foreign exchange rate fluctuations on cash and cash equivalents | ( | |||||||||||||
| Net increase in cash, cash equivalents and restricted cash | ||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||||||||
| Supplemental disclosures of cash flow information | ||||||||||||||
| Cash paid for interest | $ | $ | ||||||||||||
| Cash paid for income taxes, net of refunds | $ | $ | ||||||||||||
| Non-cash right-of-use assets and lease liabilities | $ | $ | ( | |||||||||||
| Asset retirement obligations | $ | $ | ||||||||||||
See accompanying notes
6
STANDARD BIOTOOLS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
1. Basis of Presentation and Organization
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of Standard Biotools Inc. (together with its wholly owned subsidiaries, Standard Biotools, the Company, we, our, or us) have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). As of March 31, 2023, we had wholly owned subsidiaries in Singapore, Canada, the Netherlands, Japan, France, Italy, the United Kingdom, China, Germany and Norway. All subsidiaries, except for Singapore, use their local currency as their functional currency. The Singapore subsidiary uses the U.S. dollar as its functional currency. All intercompany transactions and balances have been eliminated in consolidation.
These interim condensed consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented.
The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The condensed consolidated results of operations for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the full year or for any other year or interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes for the year ended December 31, 2022 included in our Annual Report on Form 10-K, filed with the Security Exchange Commission (SEC) on March 14, 2023.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience, the current economic environment and on various other assumptions believed to be reasonable, which together form the basis for making judgments about the carrying values of assets and liabilities. We assessed certain accounting matters that generally require consideration of forecasted financial information, including the impact of geopolitical factors, including the war in Ukraine; inflation; and the possibility of a global economic recession. These accounting matters included but were not limited to inventory and related reserves; the carrying value of goodwill and other long-lived assets; and the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns. We also use significant judgment in determining the fair value of financial instruments, including debt and equity instruments. Actual results could differ materially from these estimates and could have a material adverse effect on our condensed consolidated financial statements.
Recent Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements
None.
7
2. Net Loss Per Share
Our basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Restricted share units (RSUs), performance stock awards (PSUs), and options to purchase our common stock are considered to be potentially dilutive common shares but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive for all periods presented.
The following potentially dilutive common shares (in thousands) were excluded from the computations of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| RSUs, PSUs, and stock options | ||||||||||||||
| Bridge Loans | ||||||||||||||
| Series B Preferred Stock | ||||||||||||||
| 2019 Convertible Notes | ||||||||||||||
| 2019 Convertible Notes potential make-whole shares | ||||||||||||||
| 2014 Convertible Notes | ||||||||||||||
| Total | ||||||||||||||
3. Revenue and Geographic Area
Disaggregation of Revenue by Product Type and Geographic Area
The following tables present our revenue based upon product type and the geographic regions of our customers’ facilities (in thousands):
| Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||
| Proteomics | Genomics | Total | Proteomics | Genomics | Total | ||||||||||||||||||||||||||||||
| Instruments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Consumables | |||||||||||||||||||||||||||||||||||
| Product revenue | |||||||||||||||||||||||||||||||||||
| Service revenue | |||||||||||||||||||||||||||||||||||
| Product and service revenue | |||||||||||||||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Americas | $ | $ | ||||||||||||
| Europe, Middle East and Africa (EMEA) | ||||||||||||||
| Asia-Pacific | ||||||||||||||
| Total revenue | $ | $ | ||||||||||||
Revenue from customers in the United States represented $11.2 million and $11.8 million, or 45 3.4 million and $2.8 million, or 14 % and 11 % of total revenue for the three months ended March 31, 2023 and 2022, respectively. Except for China, no foreign country represented more than 10% of our total revenue during the periods presented in this report.
No single customer represented more than 10% of our total revenue for the three months ended March 31, 2023 and 2022. Revenue from our five largest customers represented 22 % and 21 % of total revenue for the three months ended March 31, 2023 and 2022, respectively.
8
Unfulfilled Performance Obligations
The condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 included total deferred revenue of $15.5 million and $14.6 million, respectively. During the three months ended March 31, 2023, $3.6 million of the opening deferred revenue balance was recognized as revenue and $4.5 million of net additional advance payments, primarily for instrument services contracts, were received from customers.
We expect to recognize revenue from unfulfilled performance obligations associated with service contracts that were partially completed as of March 31, 2023 in the following periods (in thousands):
| Fiscal Year | Expected Revenue (1) | |||||||
| 2023 remainder of the year | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
_______
(1) Expected revenue includes both billed amounts included in deferred revenue and unbilled amounts that are not reflected in our condensed consolidated financial statements and are subject to change if our customers decide to cancel or modify their contracts. Purchase orders for instrument service contracts can generally be canceled before the service period begins.
We apply the practical expedient that permits us to not disclose information about unsatisfied performance obligations for service contracts with an expected term of one year or less.
4. Goodwill and Intangible Assets, net
In connection with our acquisition of DVS Sciences, Inc. in February 2014, we recorded $104.1 million of goodwill and $112.0 million of intangible assets associated with the acquired technology. Also, in the first quarter of 2020, we recorded $2.2 million of goodwill and $5.4 million of developed technology intangibles from the InstruNor AS acquisition.
Goodwill and intangible assets with indefinite lives are not subject to amortization but are tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Qualitative assessment includes assessing significant events and circumstances such as our current results, assumptions regarding our future performance, strategic initiatives and overall economic factors, including the impact of rising inflation and the possibility of a global recession, to determine the existence of potential indicators of impairment. If indicators of impairment are identified, a quantitative impairment test is performed. There have been no
Intangible assets with finite lives include developed technology, patents and licenses. In the condensed consolidated balance sheets, developed technology is reported separately while patents and licenses are reported in other non-current assets. Intangible assets, net, were as follows (in thousands):
| March 31, 2023 | ||||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization and Impairment | Net | Weighted-Average Amortization Period | |||||||||||||||||||||||
| Developed technology | $ | $ | ( | $ | ||||||||||||||||||||||
| Patents and licenses | $ | $ | ( | $ | ||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net | Weighted-Average Amortization Period | |||||||||||||||||||||||
| Developed technology | $ | $ | ( | $ | ||||||||||||||||||||||
| Patents and licenses | $ | $ | ( | $ | ||||||||||||||||||||||
9
Total amortization expense of our intangible assets was $3.0 million and $3.1 million for the three months ended March 31, 2023 and 2022, respectively.
Based on the carrying value of intangible assets as of March 31, 2023, we expect our estimated future amortization expense to be as follows (in thousands):
| Fiscal Year | Developed Technology Amortization Expense | Patents and Licenses Amortization Expense | Total | ||||||||||||||
| 2023 remainder of the year | $ | $ | $ | ||||||||||||||
| 2024 | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
5. Balance Sheet Details
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||||||||
Restricted cash is included in other non-current assets in the condensed consolidated balance sheets.
Inventories, net
Inventories, net consisted of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Raw materials | $ | $ | ||||||||||||
| Work-in-process | ||||||||||||||
| Finished goods | ||||||||||||||
| Total inventory, gross | ||||||||||||||
| Allowance for excess and obsolete inventory | ( | ( | ||||||||||||
| Total inventories, net | $ | $ | ||||||||||||
10
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Laboratory and manufacturing equipment | $ | $ | ||||||||||||
| Leasehold improvements | ||||||||||||||
| Computer equipment and software | ||||||||||||||
| Office furniture and fixtures | ||||||||||||||
| Property and equipment, gross | ||||||||||||||
| Less accumulated depreciation and amortization | ( | ( | ||||||||||||
| Construction-in-progress | ||||||||||||||
| Property and equipment, net | $ | $ | ||||||||||||
Accrued Compensation and Related Benefits
Accrued compensation and related benefits, which are included in current liabilities on the condensed consolidated balance sheets consisted of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Accrued incentive compensation | $ | $ | ||||||||||||
| Accrued vacation | ||||||||||||||
| Accrued payroll taxes and other | ||||||||||||||
| Accrued severance and retention payments | ||||||||||||||
| Accrued restructuring | ||||||||||||||
| Accrued compensation and related benefits | $ | $ | ||||||||||||
Deferred Grant Income
In September 2020, we executed a contract with the National Institutes of Health (NIH) under their Rapid Acceleration of Diagnostics program to support the expansion of our production capacity and throughput capabilities for COVID-19 test products that use our genomics technology. Under the now-completed contract, we received $34.0 million of funding from the NIH and used $22.2 million for capital expenditures on expansion of production capacity. The amortization of the deferred income, which is offset against depreciation, was $0.9 million and $0.8 million for the three months ended March 31, 2023 and March 31, 2022, respectively. Cumulative amounts applied against depreciation expense for these assets placed in service were $5.1 million and $4.2 million as of March 31, 2023 and December 31, 2022, respectively, and the carrying values of these assets were $17.1 million and $18.0 million, respectively, as of these same dates.
The current portion of deferred grant income on our condensed consolidated balance sheets represents amounts expected to be offset against depreciation expense over the next twelve months. The non-current portion of deferred grant income includes amounts expected to be offset against depreciation expense in later periods.
The current and non-current portions of deferred grant income were as follows (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Deferred grant income, current | $ | $ | ||||||||||||
| Deferred grant income, non-current | ||||||||||||||
| Total deferred grant income | $ | $ | ||||||||||||
11
6. Debt
2014 Senior Convertible Notes (2014 Notes) and 2019 Senior Convertible Notes (2019 Notes)
The carrying values of the components of the 2014 Notes and 2019 Notes were as follows (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Principal amount | $ | $ | ||||||||||||
| Unamortized debt discount | ( | ( | ||||||||||||
| Unamortized debt issuance cost | ( | ( | ||||||||||||
Net carrying value of 2014 Notes | $ | $ | ||||||||||||
| Principal amount | $ | $ | ||||||||||||
| Unamortized debt issuance cost | ( | ( | ||||||||||||
| Net carrying value of 2019 Notes | $ | $ | ||||||||||||
| Net carrying value of all Notes | $ | $ | ||||||||||||
In February 2014, we closed an underwritten public offering of 2014 Notes. In 2019, the outstanding 2014 Notes were largely refinanced with the 2019 Notes, as discussed below. The effective interest rate on the 2014 Notes, reflecting the impact of debt discounts and issuance costs, is approximately 2.9 % per annum. The 2014 Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2014 Notes. Holders may require us to repurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024 and 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.
In November 2019, we issued $55.0 million aggregate principal amount of 2019 Notes. Net proceeds from the 2019 Notes issuance of $52.7 million, after deductions for commissions and other debt issuance costs were used to retire all but $1.1 million of the aggregate principal value of the 2014 Notes then outstanding. In February 2021, holders of $0.5 million of the 2014 Notes required us to repurchase their notes at 100 % of the principal amount plus accrued and unpaid interest, leaving $0.6 million aggregate principal outstanding at March 31, 2023.
The 2019 Notes bear interest at 5.25 % per annum, payable semiannually on June 1 and December 1 of each year, beginning on June 1, 2020. The 2019 Notes will mature on December 1, 2024, unless earlier repurchased or converted pursuant to their terms. The 2019 Notes will be convertible at the option of the holder at any point prior to the close of business on the second scheduled trading day preceding the maturity date. The initial conversion rate of the 2019 Notes is 344.8276 shares of our common stock per $1,000 principal amount of 2019 Notes (which is equivalent to an initial conversion price of approximately $2.90 per share). The conversion rate is subject to adjustment upon the occurrence of certain specified events. Those certain specified events include voluntary conversion of the 2019 Notes prior to our exercise of the Issuer’s Conversion Option or in connection with a make-whole fundamental change, entitling the holders, under certain circumstances, to a make-whole premium in the form of an increase in the conversion rate determined by reference to a make-whole table set forth in the indenture governing the 2019 Notes. The conversion rate will not be adjusted for any accrued and unpaid interest.
The 2019 Notes will also be convertible at our option upon certain conditions in accordance with the terms of the indenture governing the 2019 Notes. On or after December 1, 2022, if the volume-weighted average price of the Company’s common stock has equaled or exceeded 130 % of the Conversion Price then in effect for a specified number of days, we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company’s common stock, determined in accordance with the terms of the indenture governing the 2019 Notes.
12
Offering-related costs for the 2019 Notes were capitalized as debt issuance costs and are recorded as an offset to the carrying value of the 2019 Notes. The effective rate on the 2019 Notes is 6.2 % per annum.
Revolving Credit Facility and Term Loan Facility, net
Revolving Credit Facility
On August 2, 2018, we entered into a revolving credit facility with Silicon Valley Bank (SVB) (as amended, the Revolving Credit Facility) in an aggregate principal amount of up to the lesser of (i) $15.0 million or (ii) the sum of (a) 85 % of our eligible receivables and (b) 50 % of our eligible inventory, in each case, subject to certain limitations (Borrowing Base), provided that the amount of eligible inventory that may be counted towards the Borrowing Base shall be subject to a cap as set forth in the Revolving Credit Facility.
On August 2, 2021, we amended our Revolving Credit Facility to extend the maturity date to August 2, 2023 and to provide for a new $10.0 million Term Loan Facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facility). The Credit Facility is collateralized by substantially all our property, other than intellectual property. The Credit Facility also includes a financial covenant that requires us to maintain a minimum Adjusted Quick Ratio of at least 1.25 to 1.00 and a liquidity requirement of greater than $20 million, which are both defined in the Credit Facility.
The interest rate on advances made under the Revolving Credit Facility is the greater of (i) prime rate plus 0.50 % or (ii) 5.25 % per annum. Interest on any outstanding advances is due and payable monthly and the principal balance is due at maturity, though loans can be prepaid at any time without penalty. Fees for the Revolving Credit Facility include an annual commitment fee of $112,500 and a quarterly unused line fee based on the Borrowing Base. As of March 31, 2023, there were no borrowings under the Revolving Credit Facility and the total amount available was $7.1 million.
On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation was appointed as receiver. On March 27, 2023, First Citizens Bank & Trust Company (First Citizens Bank) assumed all of SVB’s deposits and loans. SVB now operates as a division of First Citizens Bank.
Term Loan Facility, net
As of March 31, 2023, the Term Loan Facility was fully drawn and the carrying value of the loan was $10.3 million. The interest rate on the Term Loan Facility is the greater of 4.0 % per annum or a floating per annum rate equal to the prime rate plus 0.75 %. Interest on any outstanding term loan advances is due and payable monthly. In addition to the monthly interest payments, a final payment equal to 6.5 % of the original principal amount of each advance is due the earlier of the maturity date or the date the advance is repaid. Principal balances are required to be repaid in 24 equal installments beginning on August 1, 2023. The effective interest rate on the Term Loan Facility, reflecting the impact of debt issuance costs, the end-of-term fee and expected timing of principal repayment, was 8.4 % per annum as of March 31, 2023.
The stated maturity of the Term Loan Facility is July 1, 2025. However, if the principal amount of our convertible debt exceeds $0.6 million as of June 1, 2024 or if the maturity date of our 2019 Notes has not been extended beyond January 1, 2026 by June 1, 2024, then the maturity date of the Term Loan Facility will be June 1, 2024.
The carrying value of our term loan was as follows (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Term Loan Facility | ||||||||||||||
| Principal amount | $ | $ | ||||||||||||
| End-of-term fee accretion | ||||||||||||||
| Unamortized debt issuance cost | ( | ( | ||||||||||||
| Net carrying value of term loan | ||||||||||||||
| Less: term loan, current | ||||||||||||||
| Term loan, non-current | $ | $ | ||||||||||||
Bridge Loans
On January 23, 2022, we entered into separate loan agreements (the Bridge Loan Agreements) with Casdin Private Growth Equity Fund II, L.P. and Casdin Partners Master Fund, L.P. (collectively, Casdin) and Viking Global Opportunities Illiquid Investments Sub-Master LP and Viking Global Opportunities Drawdown (Aggregator) LP (collectively, Viking). Under the Bridge Loan Agreements, Casdin and Viking (collectively the Lenders) each provided to the Company a $12.5 million term
13
loan (collectively, the Bridge Loans). The Bridge Loans were fully drawn on January 24, 2022, and automatically converted into Series B Preferred Stock upon the subsequent closing of the Private Placement, as more fully discussed below in Note 9.
Prior to their conversion, the Bridge Loans bore interest at (i) a rate of 10 % per annum from the effective date of the Bridge Loan Agreements to February 28, 2022, and (ii) a rate of 12 % per annum from March 1, 2022 to the closing of the Private Placement on April 4, 2022.
14
7. Leases
We have operating leases for buildings, equipment and vehicles. Existing leases have remaining terms ranging from less than one year to seven years . Some leases contain options to extend the lease, usually for up to five years , along with termination options.
In August 2022, we entered into an agreement to sublease approximately 25 % of our corporate headquarters space in South San Francisco, California for a period of 39 months. We expect to recognize $4.7 million of sublease income over the lease term that commenced in October 2022.
On February 28, 2023, we signed a second agreement to sublease an additional 25 % of our corporate headquarters for a period of 77 months. We expect to recognize additional sublease income of $9.1 million over the lease term, commencing on December 1, 2023.
Sublease income is reported in the condensed consolidated statements of operations as a reduction in selling, general and administrative expenses.
Supplemental balance sheet information related to our leases was as follows (dollars in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Operating lease right-of-use buildings | $ | $ | |||||||||
| Operating lease right-of-use equipment | |||||||||||
| Operating lease right-of-use vehicles | |||||||||||
| Total operating lease right-of-use assets, gross | |||||||||||
| Accumulated amortization | ( | ( | |||||||||
| Total operating lease right-of-use assets, net | $ | $ | |||||||||
| Operating lease liabilities, current | $ | $ | |||||||||
| Operating lease liabilities, non-current | |||||||||||
| Total operating lease liabilities | $ | $ | |||||||||
| Weighted-average remaining lease term (in years) | |||||||||||
| Weighted-average discount rate per annum | % | % | |||||||||
15
8. Fair Value of Financial Instruments
Cash, Cash Equivalents, and Short-Term Investments
The following tables summarize our cash, cash equivalents, restricted cash, and available-for-sale securities by significant investment category within the fair value hierarchy (in thousands):