SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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.|
2 Tower Place, Ste 2000
South San Francisco,
|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|
|Common Stock, $0.001 par value per share||FLDM||The Nasdaq Global Select Market|
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 filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||☒||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 October 30, 2020, there were 74,119,005 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
|September 30,||December 31,|
|Cash and cash equivalents||$||72,345 ||$||21,661 |
|Short-term investments||— ||36,978 |
Accounts receivable (net of allowances of $324 and $6, at September 30, 2020 and December 31, 2019, respectively)
|17,613 ||18,981 |
|Grant receivable||7,456 ||— |
|Inventories||19,560 ||13,884 |
|Prepaid expenses and other current assets||5,689 ||4,592 |
|Total current assets||122,663 ||96,096 |
|Property and equipment, net||7,531 ||8,056 |
|Operating lease right-of-use asset, net||38,469 ||4,860 |
|Other non-current assets||4,904 ||5,492 |
|Developed technology, net||42,955 ||46,200 |
|Goodwill||106,455 ||104,108 |
|Total assets||$||322,977 ||$||264,812 |
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Accounts payable||$||10,971 ||$||6,510 |
|Accrued compensation and related benefits||9,122 ||5,160 |
|Operating lease liabilities, current||2,697 ||1,833 |
|Other accrued liabilities||6,565 ||7,515 |
|Deferred revenue, current||13,436 ||11,803 |
|Total current liabilities||42,791 ||32,821 |
|Convertible notes, net||54,121 ||53,821 |
|Deferred tax liability||9,041 ||11,494 |
|Operating lease liabilities, non-current||38,607 ||4,323 |
|Deferred revenue, non-current||7,684 ||8,168 |
|Deferred grant income, non-current||18,224 ||— |
|Other non-current liabilities||536 ||573 |
|Total liabilities||171,004 ||111,200 |
|Commitments and contingencies|
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding at either September 30, 2020 or December 31, 2019
|— ||— |
Common stock: $0.001 par value, 200,000 shares authorized at September 30, 2020 and December 31, 2019; 74,115 and 69,956 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
|74 ||70 |
|Additional paid-in capital||810,923 ||777,765 |
|Accumulated other comprehensive loss||(289)||(582)|
|Total stockholders’ equity||151,973 ||153,612 |
|Total liabilities and stockholders’ equity||$||322,977 ||$||264,812 |
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| ||Three Months Ended September 30,||Nine Months Ended September 30,|
|Product revenue||$||29,210 ||$||20,666 ||$||65,596 ||$||68,728 |
|Service revenue||6,131 ||5,630 ||16,457 ||15,875 |
| Development revenue||3,180 ||— ||6,180 ||— |
|Other revenue||1,340 ||200 ||5,303 ||200 |
|Total revenue||39,861 ||26,496 ||93,536 ||84,803 |
|Costs and expenses:|
|Cost of product revenue||12,773 ||10,520 ||31,896 ||33,009 |
|Cost of service revenue||1,769 ||1,938 ||4,531 ||5,403 |
|Research and development||8,128 ||7,125 ||25,275 ||23,362 |
|Selling, general and administrative||22,655 ||20,729 ||65,966 ||65,687 |
|Total costs and expenses||45,325 ||40,312 ||127,668 ||127,461 |
|Loss from operations||(5,464)||(13,816)||(34,132)||(42,658)|
|Loss from extinguishment of debt||— ||— ||— ||(9,000)|
|Other income (expense), net||107 ||205 ||(248)||920 |
|Loss before income taxes||(6,242)||(14,055)||(37,062)||(54,374)|
|Income tax benefit||243 ||1,168 ||2,068 ||2,269 |
|Net loss per share, basic and diluted||$||(0.08)||$||(0.19)||$||(0.49)||$||(0.79)|
|Shares used in computing net loss per share, basic and diluted||72,486 ||69,469 ||71,294 ||65,792 |
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| ||Three Months Ended September 30,||Nine Months Ended September 30,|
|Other comprehensive income (loss), net of tax|
|Foreign currency translation adjustment||523 ||(121)||329 ||(122)|
|Net change in unrealized gain (loss) on investments||(3)||(14)||(36)||51 |
|Other comprehensive income (loss), net of tax||520 ||(135)||293 ||(71)|
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| ||Common Stock||Additional|
|Balance as of December 31, 2019||69,956 ||$||70 ||$||777,765 ||$||(582)||$||(623,641)||$||153,612 |
|Issuance of restricted stock, net of shares withheld for taxes, and other||255 ||— ||(146)||— ||— ||(146)|
Cumulative-effect of new accounting standard for
|— ||— ||— ||— ||(100)||(100)|
|Stock-based compensation expense||— ||— ||2,364 ||— ||— ||2,364 |
|Acquisition of InstruNor AS||485 ||1 ||2,048 ||— ||— ||2,049 |
|Net loss||— ||— ||— ||— ||(15,980)||(15,980)|
|Other comprehensive loss, net of tax||— ||— ||— ||(303)||— ||(303)|
|Balance as of March 31, 2020||70,696 ||$||71 ||$||782,031 ||$||(885)||$||(639,721)||$||141,496 |
|Issuance of restricted stock, net of shares withheld for taxes, and other||286 ||— ||(116)||— ||— ||(116)|
|Issuance of common stock under ESPP||301 ||— ||645 ||— ||— ||645 |
|Stock-based compensation expense||— ||— ||3,633 ||— ||— ||3,633 |
|Net loss||— ||— ||— ||— ||(13,015)||(13,015)|
|Other comprehensive income, net of tax||— ||— ||— ||76 ||— ||76 |
|Balance as of June 30, 2020||71,283 ||$||71 ||$||786,193 ||$||(809)||$||(652,736)||$||132,719 |
|Issuance of restricted stock, net of shares withheld for taxes, and other||258 ||1 ||(124)||— ||— ||(123)|
|Issuance of common stock from option exercises||94 ||— ||450 ||— ||— ||450 |
|Issuance of common stock from at-the-market offering, net of issuance costs||2,480 ||2 ||20,226 ||— ||— ||20,228 |
|Equity issuance costs||— ||— ||(180)||— ||— ||(180)|
|Stock-based compensation expense||— ||— ||4,358 ||— ||— ||4,358 |
|Net loss||— ||— ||— ||— ||(5,999)||(5,999)|
|Other comprehensive income, net of tax||— ||— ||— ||520 ||— ||520 |
|Balance as of September 30, 2020||74,115 ||$||74 ||$||810,923 ||$||(289)||$||(658,735)||$||151,973 |
|See accompanying notes |
|CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY|
| ||Common Stock||Additional|
|Balance as of December 31, 2018||49,338 ||$||49 ||$||631,605 ||$||(687)||$||(558,851)||$||72,116 |
|Issuance of common stock on bond conversion||19,460 ||19 ||133,279 ||— ||— ||133,298 |
|Issuance of restricted stock, net of shares withheld for taxes, and other||140 ||1 ||(177)||— ||— ||(176)|
|Issuance of common stock from option exercises||53 ||— ||255 ||— ||— ||255 |
|Stock-based compensation expense||— ||— ||2,207 ||— ||— ||2,207 |
|Net loss||— ||— ||— ||— ||(25,465)||(25,465)|
|Other comprehensive income, net of tax||— ||— ||— ||10 ||— ||10 |
|Balance as of March 31, 2019||68,991 ||$||69 ||$||767,169 ||$||(677)||$||(584,316)||$||182,245 |
|Issuance of restricted stock, net of shares withheld for taxes, and other||183 ||— ||(325)||— ||— ||(325)|
|Issuance of common stock from option exercises||130 ||— ||793 ||— ||— ||793 |
|Issuance of common stock under ESPP||96 ||— ||641 ||— ||— ||641 |
|Stock-based compensation expense||— ||— ||2,985 ||— ||— ||2,985 |
|Net loss||— ||— ||— ||— ||(13,753)||(13,753)|
|Other comprehensive income, net of tax||— ||— ||— ||54 ||— ||54 |
|Balance as of June 30, 2019||69,400 ||$||69 ||$||771,263 ||$||(623)||$||(598,069)||$||172,640 |
|Issuance of restricted stock, net of shares withheld for taxes, and other||149 ||1 ||(70)||— ||— ||(69)|
|Issuance of common stock from option exercises||1 ||— ||1 ||— ||— ||1 |
|Stock-based compensation expense||— ||— ||3,055 ||— ||— ||3,055 |
|Net loss||— ||— ||— ||— ||(12,887)||(12,887)|
|Other comprehensive income (loss), net of tax||— ||— ||— ||(135)||— ||(135)|
|Balance as of September 30, 2019||69,550 ||$||70 ||$||774,249 ||$||(758)||$||(610,956)||$||162,605 |
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|Nine Months Ended September 30,|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Depreciation and amortization||2,988 ||3,484 |
|Stock-based compensation expense||10,358 ||8,292 |
|Amortization of developed technology||8,929 ||8,400 |
|Amortization of debt discounts, premiums and issuance costs ||415 ||2,130 |
|Lease amortization||1,863 ||(371)|
|Loss on extinguishment of debt||— ||9,000 |
|Provision for excess and obsolete inventory||680 ||1,356 |
|Loss on disposal of property and equipment||191 ||52 |
|Other non-cash items||13 ||195 |
|Changes in assets and liabilities:|
|Accounts receivable, net||967 ||3,195 |
|Prepaid expenses and other assets||(2,395)||(1,338)|
|Accounts payable||4,996 ||605 |
|Deferred revenue||1,258 ||1,592 |
|Net cash used in operating activities||(11,684)||(29,691)|
|Acquisition, net of cash acquired||(5,154)||— |
|Purchases of investments||— ||(52,719)|
|Proceeds from RADx grant||11,151 ||— |
|Proceeds from sale of investments||5,010 ||— |
|Proceeds from maturities of investments||31,800 ||16,000 |
|Purchases of property and equipment||(2,010)||(2,031)|
|Net cash provided by (used in) investing activities||40,797 ||(38,750)|
|Proceeds from issuance of common stock from at-the-market offering, net of commissions||20,226 ||— |
|Payment of debt and equity issuance costs||(509)||(128)|
|Proceeds from exercise of stock options||450 ||1,049 |
|Proceeds from stock issuance from ESPP||645 ||641 |
|Payments for taxes related to net share settlement of equity awards and other||(387)||(556)|
|Net cash provided by financing activities||20,425 ||1,006 |
|Effect of foreign exchange rate fluctuations on cash and cash equivalents||86 ||(5)|
|Net increase (decrease) in cash, cash equivalents and restricted cash||49,624 ||(67,440)|
|Cash, cash equivalents and restricted cash at beginning of period||23,736 ||95,401 |
|Cash, cash equivalents and restricted cash at end of period||$||73,360 ||$||27,961 |
|Supplemental disclosures of cash flow information|
|Cash paid for interest||$||86 ||$||3,513 |
|Cash paid for income taxes, net of refunds||$||386 ||$||128 |
|Asset retirement obligations||$||319 ||$||311 |
See accompanying notes
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
1. Description of Business
Fluidigm Corporation (the Company, Fluidigm, we, our or us) creates, manufactures, and markets technologies and tools for life sciences research, including preparatory and analytical instruments for Mass Cytometry, PCR, Library Prep, Single Cell Genomics, and consumables, including integrated fluidic circuits (IFC), assays, and reagents. Our focus is on the most pressing needs in translational and clinical research, including infectious disease, cancer, immunology and immunotherapy. We sell our instruments, consumables and services to academic institutions, clinical laboratories, and contract research organizations, as well as biopharmaceutical, biotechnology, and agricultural biotechnology companies. The Company was formerly known as Mycometrix Corporation and changed its name to Fluidigm Corporation in April 2001. Fluidigm Corporation was founded in 1999 and is headquartered in South San Francisco, California.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) and include the accounts of our wholly owned subsidiaries. As of September 30, 2020, we had wholly owned subsidiaries in Singapore, Canada, the Netherlands, Japan, France, 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.
Certain prior period amounts in the condensed consolidated statements of income and condensed consolidated statements of cash flows were reclassified to conform with the current period presentation. These reclassifications were immaterial and did not affect prior period total assets, total liabilities, stockholders’ equity, total revenue, total costs and expenses, loss from operations or net loss.
Unaudited Interim Financial Information
The accompanying 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 nine months ended September 30, 2020 are not necessarily indicative of the 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, 2019 included in our annual report on Form 10-K, filed with the SEC on February 27, 2020.
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 consolidated financial statements and accompanying notes. We base our estimates on historical experience 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. The full extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on numerous evolving factors including, but not limited to, the magnitude and duration of the pandemic, the extent to which it will impact worldwide macroeconomic conditions, including the speed of recovery, and governmental and business reactions to the pandemic. We assessed certain accounting matters that generally require consideration of forecasted financial information in the context of information available to us and the unknown impact of COVID-19 as of September 30, 2020. These accounting matters included, but were not limited to, our allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets. Actual results could differ materially from these estimates and could have a material adverse effect on our condensed consolidated financial statements.
Assets and liabilities of non-U.S. subsidiaries that use the local currency as their functional currency are translated into U.S. dollars at exchange rates in effect on the balance sheet date. The adjustments resulting from the foreign currency translations are recorded in accumulated other comprehensive loss, a separate component of stockholders’ equity. Income and expense accounts are translated at monthly average exchange rates during the year.
We generate revenue primarily from the sale of our products and services. Product revenue is derived from the sale of instruments and consumables, including IFCs, assays and reagents. Service revenue is derived from the sale of instrument service contracts, repairs, installation, training and other specialized product support services. We also generate revenue from development agreements, license and royalty agreements and grants. Revenue is reported net of any sales, use and value-added taxes we collect from customers as required by government authorities. Research and development cost includes costs associated with development and grant revenue.
We recognize revenue based on the amount of consideration we expect to receive in exchange for the goods and services we transfer to the customer. Our commercial arrangements typically include multiple distinct products and services, and we allocate revenue to these performance obligations based on their relative standalone selling prices. 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 a margin approach or by applying a discount to the product’s list price.
We recognize product revenue at the point in time when control of the goods passes to the customer and we have an enforceable right to payment. This generally occurs either when the product is shipped from one of our facilities or when it arrives at the customer’s facility, based on the contractual terms. Customers generally do not have a unilateral right to return products after delivery. Invoices are generally issued at shipment and generally become due in 30 to 60 days.
We sometimes perform shipping and handling activities after control of the product passes to the customer. We have made an accounting policy election to account for these activities as product fulfillment activities rather than as separate performance obligations.
We recognize revenue from repairs, maintenance, installation, training and other specialized product support services at the point in time the work is completed. Installation and training services are generally billed in advance of service. Repairs and other services are generally billed at the point the work is completed.
Revenue associated with instrument service contracts is recognized on a straight-line basis over the life of the agreement, which is generally three years. We believe this time-elapsed approach is appropriate for service contracts because we provide services on demand throughout the term of the agreement. Invoices are generally issued in advance of service on a monthly, quarterly, annual or multi-year basis. Payments made in advance of service are reported on our condensed consolidated balance sheet as deferred revenue. to
The Company has entered and may continue to enter into development agreements with third parties that provide for up-front and periodic milestone payments. Our development agreements may include more than one performance obligation. At the inception of the contract, we assess whether each obligation represents a separate performance obligation or whether such obligations should be combined as a single performance obligation. The transaction price for each development agreement is determined based on the amount of consideration we expect to be entitled to for satisfying all performance obligations within the agreement.
We assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. In arrangements where we satisfy performance obligation(s) over time, we recognize development revenue typically using an input method based on our costs incurred relative to the total expected cost which determines the extent of our progress toward completion. As part of the accounting for these arrangements, we must develop estimates and assumptions that require judgment to determine the transaction price and progress towards completion. We review our estimate of the transaction price and progress toward completion based on the best information available to recognize the cumulative progress toward completion as of the end of each reporting period, and make revisions to such estimates as necessary.
We may also generate revenue from development or collaboration agreements that do not include upfront or milestone-based payments and generally recognize revenue on these types of agreements based on the timing of development activities.
Other revenue consists of license and royalty revenue and grant revenue. We recognize revenue from license agreements when the license is transferred to the customer and the customer is able to use and benefit from the license. For contracts that include sales-based royalties, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied.
In March 2020, we entered into an agreement to settle intellectual property infringement claims, in which we received a $3.5 million payment in exchange for a perpetual license under certain Fluidigm intellectual property. The settlement is considered a multiple-element arrangement with each element accounted for individually. Accordingly, $3.1 million of the proceeds was recognized as license revenue and $0.4 million was offset against legal costs.
We receive grants from various entities to perform research and development activities over contractually defined periods. Revenue is generally recognized provided that the conditions under which the grants were provided have been met and any remaining performance obligations are perfunctory.
Incremental sales commission costs incurred to obtain instrument service contracts are capitalized and amortized to selling, general and administrative expense over the life of the contract, which is generally three years. As a practical expedient, we expense sales commissions associated with product support services that are delivered in less than one year as they are incurred. Sales commissions associated with the sale of products are expensed as they are incurred. To date, capitalized contract costs have been immaterial. to
We generally provide a one-year warranty on our instruments. We accrue for estimated warranty obligations at the time of product shipment. We periodically review our warranty liability and record adjustments based on the terms of warranties provided to customers, and historical and anticipated warranty claim experience. This expense is recorded as a component of cost of product revenue in the condensed consolidated statements of operations.
Applying the revenue recognition practices discussed above often requires significant judgment. Judgment is required when identifying performance obligations, estimating SSP and allocating purchasing consideration in multi-element arrangements, determining the transaction price and progress towards completion on development arrangements and estimating the future amount of our warranty obligations. Moreover, significant judgment is required when interpreting commercial terms and determining when control of goods and services passes to the customer. Any material changes created by errors in judgment could have a material effect on our operating results and overall financial condition.
Trade accounts receivable are recorded at net invoice value. We review our exposure to accounts receivable and provide allowances of specific amounts if collectability is no longer reasonably assured based on historical experience and specific customer collection issues. We evaluate such allowances on a regular basis and adjust them as needed.
Concentrations of Business and Credit Risk
Financial instruments that potentially subject us to credit risk consist of cash, cash equivalents, investments, and accounts receivable. Our cash, cash equivalents, and investments may consist of deposits held with banks, money market funds, and other highly liquid investments that may at times exceed federally insured limits. Cash equivalents and investments are financial instruments that potentially subject us to concentrations of risk. Under our investment policy, we invest primarily in securities issued by the U.S. government. The goals of our investment policy, in order of priority, are as follows: preserve capital, meet liquidity needs, and optimize returns.
We generally do not require collateral to support credit sales. To reduce credit risk, we perform credit evaluations of our customers. One customer from whom we derived development revenue exceeded 10% of revenue for the three and nine months ended September 30, 2020. No other customer represented more than 10% of total revenue for the three and nine months ended September 30, 2020 or 2019. Including the development revenue, revenues from our five largest customers were 31% and 25%
of total revenue for the three months ended September 30, 2020 and 2019, respectively. Revenues from our five largest customers were 23% and 20% of total revenue for the nine months ended September 30, 2020 and 2019, respectively. There was no single customer that represented more than 10% of total accounts receivable at September 30, 2020, or December 31, 2019.
Our products include components that are currently procured from a single source or a limited number of sources. We believe that other vendors would be able to provide similar components; however, the qualification of such vendors may require start-up time. In order to mitigate any adverse impacts from a disruption of supply, we attempt to maintain an adequate supply of critical limited-source components.
We determine if an arrangement is a lease, or contains a lease, at inception. Operating leases are included in operating lease right-of-use (ROU) assets and current and non-current operating lease liabilities in our condensed consolidated balance sheets. ROU assets represent our right-to-use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Significant judgment is required in determining the incremental collateralized borrowing rate. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We elected the short-term lease recognition exemption for all leases that qualify. For those leases that qualify, we will not recognize ROU assets or lease liabilities for leases with an initial lease term of one year or less. We also elected not to separate lease and nonlease components for our building leases. The nonlease components are generally variable in nature and are expected to represent most of our variable lease costs. Variable costs are expensed as incurred. We have taken a portfolio approach for our vehicle leases by country.
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Our intangible assets include developed technology, patents and licenses. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives.
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. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge include, but are not limited to, declines in our stock price or market capitalization, economic downturns and other macroeconomic events, including the current COVID-19 pandemic, declines in our market share or revenues, and an increase in our losses, rapid changes in technology, failure to achieve the benefits of capacity increases and utilization, significant litigation arising out of an acquisition, or other matters. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge.
In evaluating our goodwill and intangible assets with indefinite lives for indications of impairment, we first conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we compare the fair value of our reporting unit to its carrying value. If the fair value of our reporting unit exceeds its carrying value, goodwill is not considered impaired and no further analysis is required. If the carrying value of the reporting unit exceeds its fair value, then an impairment loss equal to the difference would be recorded to goodwill. We did not recognize any impairment of goodwill for any of the periods presented herein.
We evaluate our long-lived assets, including finite-lived intangibles, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If any indicator of impairment exists, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of the asset can be recovered through undiscounted future operating cash flows. If impairment is indicated, we estimate the asset’s fair value using future discounted cash flows associated with the use of the asset and adjust the carrying value of the asset accordingly. We did not recognize any impairment of intangibles for any of the periods presented herein.
Deferred Grant Income
In September 2020, we executed a definitive contract with the National Institutes of Health (NIH) for a project under the NIH Rapid Acceleration of Diagnostics (RADx) program. The definitive contract, which amended the letter contract we entered
into with the NIH in July 2020 (collectively, the NIH Contract), has a total value of up to $34.0 million upon the achievement of certain conditional milestones. Proceeds from the NIH Contract will be used primarily to expand production capacity and product throughput capabilities.
Accounting for the NIH Contract does not fall under ASC 606, Revenue from Contracts with Customers, as the NIH will not benefit directly from our expansion or product development. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we applied International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy when accounting for the NIH Contract payments to Fluidigm.
The NIH Contract proceeds meet the definition of grants related to assets as the primary condition for the payments is to fund the purchase and construction of longer-term assets to scale up production capacity. Under IAS 20, government grants related to assets are presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. Either of these two methods of presentation of grants related to assets in financial statements are regarded as acceptable alternatives under IAS 20. We have elected to record the grants received as deferred income using the first method.
Under IAS 20, grant proceeds are recognized when there is reasonable assurance the conditions of the grant will be met and the grant will be received. With the NIH Contract, this occurs when either each milestone has been accepted by NIH or management concludes the conditions of the grant have been substantially met. We record the NIH Contract proceeds as deferred income. Proceeds used for capital expenditures will be amortized over the period of depreciation for the assets as a reduction of depreciation expense. Any portion of the proceeds used to reimburse research and development expense are recorded as a reduction of those expenses incurred to date.
In February 2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034 (2014 Notes). In March 2018, we entered into separate privately negotiated transactions with certain holders of our 2014 Notes to exchange $150.0 million in aggregate principal amount of the 2014 Notes for our 2.75% Exchange Convertible Senior Notes due 2034 (2018 Notes). As the 2018 Notes were convertible, at our election, into cash, shares of our common stock, or a combination of cash and shares of our common stock, we accounted for the 2018 Notes under the cash conversion guidance in ASC 470, whereby the embedded conversion option in the 2018 Notes was separated and accounted for in equity. In the first quarter of 2019, the 2018 Notes were converted into 19.5 million shares of our common stock and the 2018 Notes were retired. We recorded a loss of $9.0 million on the retirement of the 2018 Notes. We determined the fair value of the 2018 Notes using valuation techniques that required us to make assumptions related to the implied discount rate.
In November 2019, we closed a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of $55.0 million aggregate principal amount of our 5.25% Senior Convertible Notes due 2024 (2019 Notes). Most of the issuance proceeds were used to retire approximately $50.2 million of aggregate principal amount of our 2014 Notes, leaving approximately $1.1 million of aggregate principal amount of our 2014 Notes outstanding.
As the 2019 Notes do not provide for a cash conversion feature, the 2019 Notes are recorded as debt in their entirety in accordance with ASC 470. For the 2014, 2018 and 2019 Notes, offering-related costs, including underwriting costs, were capitalized as debt issuance costs, recorded as an offset to the carrying value of the related Notes, and are amortized over the expected term of the related Notes using the effective interest method.
See Note 8 for a detailed discussion of the accounting treatment of the transactions and additional information.
Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on our investments and foreign currency translation adjustments. Total comprehensive loss for all periods presented has been disclosed in the condensed consolidated statements of comprehensive loss.
The components of accumulated other comprehensive loss, net of tax, for the three and nine months ended September 30, 2020 are as follows (in thousands):
|Foreign Currency Translation Adjustment||Unrealized Gain (Loss) on Investments||Accumulated Other Comprehensive Income (Loss)|
|Ending balance at December 31, 2019||$||(618)||$||36 ||$||(582)|
|Other comprehensive income (loss)||(303)||— ||(303)|
|Ending balance at March 31, 2020||$||(921)||$||36 ||$||(885)|
|Other comprehensive income (loss)||109 ||(33)||76 |
|Ending balance at June 30, 2020||$||(812)||$||3 ||$||(809)|
|Other comprehensive income (loss)||523 ||(3)||520 |
|Ending balance at September 30, 2020||$||(289)||$||— ||$||(289)|
Immaterial amounts of unrealized gains and losses have been reclassified into the condensed consolidated statement of operations for the three and nine months ended September 30, 2020 and 2019.
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 stock units, performance share units, and stock 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 were excluded from the computations of diluted net loss per share for the periods presented because including them would have been anti-dilutive (in thousands):
| ||Nine Months Ended September 30,|
|Stock options, restricted stock units and performance awards||7,652 ||5,342 |
|2019 Convertible Notes||18,966 ||— |
|2019 Convertible Notes potential make-whole shares||826 ||— |
|2014 Convertible Notes||19 ||916 |
|Total||27,463 ||6,258 |
Recent Accounting Changes and Accounting Pronouncements
Adoption of New Accounting Guidance
In August 2018, the U.S.-based Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15-Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), which establishes new guidance on the accounting for costs incurred to implement a cloud computing arrangement that is considered a service arrangement. The new guidance requires the capitalization of such costs, aligning it with the accounting for costs associated with developing or obtaining internal-use software. The new guidance is effective for fiscal years beginning after December 15, 2019. The adoption of the new guidance did not have a significant impact on our financial results.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity performs its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. The ASU is effective for annual and interim goodwill impairment testing performed for our fiscal year beginning January 1, 2020. The adoption of the new guidance did not have a significant impact on our financial results.
The FASB issued two ASUs related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, : Measurement of Credit Losses on Financial Instruments, and (2) in November 2018, ASU 2018-19-Codification Improvements to Topic 326, Financial Instruments-Credit Losses. ASU 2016-13 is intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial
instruments held by financial institutions and other organizations. ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the lease standard. These ASUs are effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. The modified retrospective method is required upon adoption. The adoption of the new guidance resulted in an adjustment of approximately $0.1 million to reduce the accumulated deficit component of stockholders’ equity and decrease current assets by the same amount in our condensed consolidated balance sheet.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendment to this ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification, which is expected to result in more convertible instruments being accounted for as a single unit, rather than being bifurcated between debt and equity. The new guidance is effective for fiscal years beginning after December 15, 2021. We are currently evaluating the impact of adoption on our condensed consolidated financial statements.
In November 2019, the FASB issued ASU 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update improve consistent application of and simplify U.S. GAAP for Topic 740 by clarifying and amending existing guidance for, among other items, intra-period allocation, reporting tax law changes and losses in interim periods, state and local taxes not fully based on income and recognition of deferred tax liability related to certain transactions. There is also new guidance related to consolidated group reporting and tax impacts resulting from business combinations. The new guidance is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact of adoption on our condensed consolidated financial statements.
3. Business Combination
On January 17, 2020, we completed the acquisition of all of the outstanding shares of InstruNor AS, a privately held Norwegian company (InstruNor).
InstruNor is a provider of the only fully integrated sample preparation system for flow and mass cytometry. The acquisition of InstruNor supports our entry into the sample preparation market for cytometry analysis and expands our capabilities to include fully automated sample preparation for flow and mass cytometry. The value of this technology is reflected in the intangible asset for developed technology. The developed technology was valued using a discounted cash flow model for which the most sensitive assumption was revenue growth rate.
The purchase price of $7.2 million included approximately $5.2 million in cash and 485,451 shares of our common stock valued at the closing price on the effective date of $4.22.
A summary of the net cash flows is summarized below (in thousands):
|January 17, 2020|
|Cash consideration paid to former equity holders||$||5,165 |
|Less: cash and cash equivalents acquired||(11)|
|Acquisition of InstruNor, net of cash acquired||$||5,154 |
The acquisition was accounted for in accordance with ASC 805, Business Combinations. The assets acquired and liabilities assumed were recorded at their estimated fair values at the InstruNor acquisition date. Goodwill of $2.2 million was calculated as the purchase price less the fair value of the net assets acquired as follows (in thousands):
|January 17, 2020|
|Cash consideration paid on closing to former equity holders||$||5,165 |
|Non-cash consideration common shares ||2,049 |
|Total purchase price||$||7,214 |
|Cash and cash equivalents||$||11 |
|Accounts receivable||32 |
|Other receivables||13 |
|Inventories, net||153 |
|Developed technology||5,380 |
|Accounts payable||14 |
|Other current liabilities||15 |
|Deferred tax liability, net||566 |
|Fair value of identifiable net assets acquired||$||4,994 |
|Goodwill acquired on acquisition||$||2,220 |
4. RADx Program
In July 2020, we entered into a letter contract with the National Institutes of Health (NIH) for a project under the NIH Rapid Acceleration of Diagnostics (RADx) program. The RADx program provides grants to support a range of new lab-based and point-of-care tests that could significantly increase the number, type and availability of COVID-19 tests. On September 28, 2020, we executed a definitive contract with the NIH as an amendment to the letter contract (collectively, the NIH Contract). The NIH Contract has a total value of up to $34.0 million upon the achievement of certain conditional milestones. Proceeds from the NIH Contract will be used primarily to expand production capacity and product throughput capabilities for COVID-19 testing with Fluidigm microfluidics technology. We expect to complete the NIH Contract by the end of 2021.
The NIH has the right to terminate the NIH Contract for convenience. In the event of termination for convenience, Fluidigm will be paid a percentage of the NIH Contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges. In the event of termination for cause due to our default, NIH is not liable for supplies or services not accepted.
If we fail to deliver within the time specified in the NIH Contract and the delay is due to Fluidigm’s fault or negligence, we are required to pay liquidated damages in the amount of 33% of the amount(s) already disbursed to date under the NIH Contract within six months from the date of termination.
The following table summarizes the activity under the NIH Contract through September 30, 2020 (in thousands):
|Total value of milestones reasonably assured||$||18,607 |
|Amounts applied against research and development expenses||383 |
|Deferred grant income||$||18,224 |
|Total value of milestones reasonably assured ||$||18,607 |
|Funding received||11,151 |
|Grant receivable from RADx||$||7,456 |
Disaggregation of Revenue
The following table presents our revenue for the three and nine months ended September 30, 2020 and 2019, respectively, based on geographic area and by source (in thousands):
|Three Months Ended September 30,||Nine Months Ended September 30,|
|Americas||$||23,653 ||$||11,112 ||$||52,437 ||$||35,203 |
|EMEA||8,837 ||9,092 ||23,490 ||28,465 |
|Asia-Pacific||7,371 ||6,292 ||17,609 ||21,135 |
|Total revenue||$||39,861 ||$||26,496 ||$||93,536 ||$||84,803 |
|Three Months Ended September 30,||Nine Months Ended September 30,|
|Instruments||$||12,624 ||$||9,159 ||$||30,672 ||$||34,200 |
|Consumables||16,586 ||11,507 ||34,924 ||34,528 |
|Product revenue||29,210 ||20,666 ||65,596 ||68,728 |
|Service revenue||6,131 ||5,630 ||16,457 ||15,875 |
|Development revenue||3,180 ||— ||6,180 ||— |
| License and royalty revenue||— ||— ||3,163 ||— |
| Grant revenue||1,340 ||200 ||2,140 ||200 |
| Total other revenue||1,340 ||200 ||5,303 ||200 |
|Total revenue||$||39,861 ||$||26,496 ||$||93,536 ||$||84,803 |
We reported $20.0 million of deferred revenue in our December 31, 2019 consolidated balance sheet. During the nine months ended September 30, 2020, $8.8 million of the opening balance was recognized as revenue and $9.9 million of net additional advance payments were received from customers, primarily associated with instrument service contracts. At September 30, 2020, we reported $21.1 million of deferred revenue.
The following table summarizes the expected timing of revenue recognition for unfulfilled performance obligations associated with instrument service contracts that were partially completed at September 30, 2020 (in thousands):
Expected Revenue (1)
|2020 (remainder of the year)||$||3,873 |
(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 without penalty.
We apply the practical expedient that permits us not to disclose information about unsatisfied performance obligations for service contracts with an expected term of one year or less.
6. Goodwill and Intangible Assets, net
In connection with our acquisition of DVS Sciences, Inc. in February 2014, we recognized goodwill of $104.1 million and $112.0 million of developed technology. In the first quarter of 2020, we recognized $2.2 million (Euro 2.0 million) of goodwill from the InstruNor acquisition and $5.4 million (Euro 4.9 million) of developed technology (see Note 3). As the goodwill and developed technology from the InstruNor acquisition are recorded in the functional currency of our European operations, which is the Euro, these balances are revalued each period and the U.S. dollar value of these assets will fluctuate as foreign exchange rates change. We are amortizing InstruNor developed technology over 8.0 years.
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 future performance, strategic initiatives and overall economic factors, including the ongoing global COVID-19 pandemic and macroeconomic developments to determine the existence of potential indicators of impairment and assess if it is more likely than not that the fair value of our reporting unit or intangible assets is less than their carrying value. If indicators of impairment are identified, a quantitative impairment test is performed.
During the first quarter of fiscal 2020, the Company assessed whether the current and potential future impact of the COVID-19 pandemic represented an event which necessitated an impairment review. This assessment included an update of the qualitative and quantitative factors affecting our business. As a result of this assessment, we determined that a triggering event had occurred and a quantitative impairment test was performed. As a result of this quantitative analysis, we determined that the fair values of our goodwill and developed technology intangibles were not less than their carrying values and no impairment was recognized.
Intangible assets also include other patents and licenses, which are included in other non-current assets. Intangible assets, net, were as follows (in thousands):
|September 30, 2020|
|Gross Amount||Accumulated Amortization and Translation||Net||Weighted-Average Amortization Period|
|Developed technology||$||117,380 ||$||(74,425)||$||42,955 ||9.9 years|
|Patents and licenses||$||11,274 ||$||(9,030)||$||2,244 ||7.8 years|
|December 31, 2019|
|Gross Amount||Accumulated Amortization and Translation||Net||Weighted-Average Amortization Period|
|Developed technology||$||112,000 ||$||(65,800)||$||46,200 ||10.0 years|
|Patents and licenses||$||11,274 ||$||(8,342)||$||2,932 ||7.8 years|
Total amortization expense for the three months ended September 30, 2020 and 2019 was $3.2 million and $3.0 million, respectively. Amortization of intangibles was $9.6 million and $9.2 million for the nine months ended September 30, 2020 and 2019, respectively.