Bionano Genomics, Inc. quarterly report, Q3 FY2020

Bionano Genomics, Inc. — Q3 2020 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2020. Bionano sells the Saphyr genome-analysis system and related consumables and services; following its August 21 acquisition of Lineagen, it also provides genetic diagnostic testing. Financial statements are unaudited.

Financial performance and position

At September 30, 2020, cash and cash equivalents were $18.87m; current assets were $29.24m and current liabilities $24.78m. Debt carrying value was $16.01m, including $14.24m classified as current and $1.78m of PPP debt. Accumulated deficit was $131.95m. Management said existing cash and subsequent warrant-exercise proceeds were expected to fund operations into Q1 2021; the filing nevertheless states there is substantial doubt about the company’s ability to continue as a going concern.

Changes versus the prior comparable periods

• Q3 revenue fell 33.7%; nine-month revenue fell 38.5%. Product revenue declined 50.0% for Q3 and 49.0% year to date, while service and other revenue increased, partly reflecting Lineagen’s contribution of $445,000 from its acquisition date through September 30.
• Management attributed the year-to-date revenue decline largely to COVID-19-related customer laboratory shutdowns and restrictions. Q3 product revenue also reflected a changed mix of instrument sales and the reagent-rental program. Consumable units sold increased 34% in Q3 and 70% year to date.
• SG&A rose 94.6% in Q3 and 51.4% year to date, reflecting added personnel, Lineagen acquisition costs, professional fees and $1.33m of bad-debt expense year to date. R&D increased 10.4% year to date.
• Year-to-date net loss increased $7.46m. Operating cash use rose $6.06m. Financing provided $30.22m, including $16.37m net proceeds from the April offering, $18.55m from warrant and option exercises, and a $1.78m PPP loan; cash increased $1.56m overall.

Outlook, risks and unusual items

• The company suspended its 2020 guidance and outlook because of COVID-19 uncertainty. It expects continued operating losses and negative cash flows, and says further capital will be needed. No specific revenue or earnings guidance is provided.
• The company was not compliant with the Innovatus loan revenue covenant for Q3 and had not secured a waiver as of the filing. The lender could accelerate repayment or require fees or other consideration. The loan is secured by substantially all assets, including intellectual property; the company classified all term-loan principal as current due to its cash-flow and going-concern circumstances.
• In April, Bionano raised approximately $18.0m gross through common shares and warrants. It also filed a shelf registration for up to $125m of securities, including a $40m ATM facility; no ATM shares had been sold by September 30. These financing options may dilute shareholders.
• Lineagen was acquired for estimated consideration of $7.14m, including cash payments, assumed liabilities and approximately 6.17m shares issued or reserved, subject to adjustment. The preliminary allocation included $6.94m goodwill and $1.58m intangible assets. Acquisition-related costs were approximately $1.1m in the notes; MD&A reports $1.5m of transaction-related expenses.
• The $1.78m PPP loan bears 1% interest and may qualify for forgiveness, but forgiveness was uncertain. COVID-19 risks include further customer demand disruption, operational constraints, supply interruptions and financing difficulty.
• Nasdaq’s minimum-bid-price compliance deadline is stated as December 28, 2020; failure to regain compliance could place the listing at risk. The filing’s descriptions of the tolling period differ, so the operative deadline merits verification.
• Disclosure controls were deemed ineffective because a previously reported material weakness in staffing, segregation of duties and timely financial reporting had not been fully remediated. No material misstatements were identified. The filing reports no legal proceedings and no off-balance-sheet arrangements.

Important facts for investors to verify

• Whether Innovatus granted a waiver for the Q3 revenue-covenant breach, and the resulting debt classification, fees or repayment requirements.
• Actual cash runway and subsequent cash use, including proceeds from warrant exercises after September 30; assess the stated Q1 2021 runway against the going-concern warning.
• Lineagen’s final purchase-price adjustment, integration costs, contribution to revenue and losses, and the status of its goodwill and intangible-asset valuation.
• Whether the PPP loan was forgiven and whether the company maintained eligibility and compliance.
• Whether Nasdaq bid-price compliance was regained by the stated deadline, and the status of any subsequent equity or ATM issuance and dilution.
• Progress remediating the material weakness and the impact of COVID-19 on customer demand, product supply and operating cash burn.