Bionano Genomics, Inc. quarterly report, Q3 FY2018

Bionano Genomics, Inc. — Q3 2018 Form 10-Q

Reporting period: Three and nine months ended September 30, 2018; financial statements are unaudited. Bionano develops and markets the Saphyr genome-analysis system, including instruments, consumables, reagents and data-analysis tools.

Financial performance and liquidity

At September 30, cash and cash equivalents were $20.66 million, current assets $28.62 million and current liabilities $5.51 million. Total assets were $30.67 million and total liabilities $15.43 million. Long-term debt had a carrying value of $9.01 million; its $10 million face amount bears interest at one-month LIBOR plus 7.5% (subject to a 1.5% floor), with principal amortization after an 18-month interest-only period. The $15 million facility includes two additional tranches, subject to revenue thresholds.

Changes versus prior comparable periods

• Q3 revenue increased 3.1% year over year; nine-month revenue increased 19.9%. Nine-month product revenue rose 22.6%, while other revenue declined 17.4%.
• Q3 operating loss widened 18.6%, despite a 5.8% reduction in operating expenses, because cost of product revenue rose 86.5%. Nine-month operating loss improved 20.4% as operating expenses fell 17.5%.
• Q3 and nine-month gross profit included a $1.3 million write-down of first-generation Irys instruments to zero. Management cited a strategic shift toward minimal Irys selling efforts.
• Nine-month operating cash use declined by $2.2 million from 2017. Financing provided $35.81 million, including $19.39 million net IPO proceeds, $14.33 million net convertible-note proceeds and net debt proceeds after repayments.

Outlook, risks and notable items

• Management expected cash and cash equivalents, commercial receipts and recent financing proceeds to fund anticipated operating cash requirements for at least the next 15 months. This estimate depends on materially higher revenue, improved gross margins and moderated expense growth; actual results could differ.
• The company expects continued losses and significant expenses, including commercialization, research and development, hiring and public-company costs. It may need additional financing; future equity financing could dilute shareholders, and debt could impose restrictive covenants.
• The August 2018 IPO raised $19.4 million net. Preferred stock and $14.9 million of convertible notes and accrued interest converted into common stock. The IPO units included warrants; potential common-stock equivalents excluded from diluted loss per share totaled 4.43 million at quarter-end.
• MidCap debt is secured by substantially all company assets, including intellectual property. A prior Western Alliance loan default was waived before that loan was repaid in June 2018. MidCap prepayment fees and a 4% end-of-term charge apply under stated terms.
• The company reported no pending legal actions, no accrued litigation loss, and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective at a reasonable-assurance level.
• Effective November 5, 2018, Han Cao, Ph.D. ceased serving as Chief Scientific Officer.

Key facts for investors to verify

• Whether consumables growth and instrument placements can sustain revenue growth, especially given bulk discounts and the quarter’s sharp consumables price decline.
• Whether gross margins recover after the Irys inventory write-down and as the revenue mix shifts toward consumables.
• Cash runway against operating cash use, management’s 15-month estimate and the timing and revenue conditions for drawing remaining MidCap tranches.
• Debt service, collateral, prepayment and end-of-term costs, as well as potential dilution from outstanding warrants, IPO warrants and equity-plan reserves.
• Customer concentration and receivables exposure: Ultravision Technology Ltd. represented 16% of accounts receivable at September 30, 2018.