Standard BioTools Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Formerly Fluidigm Corporation, the company changed its name to Standard BioTools Inc. in April 2022; its Nasdaq ticker is LAB. It sells life-science tools based on mass cytometry and microfluidics technologies.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $25.6m | $28.5m | $70.9m | $92.3m |
| Operating loss | $29.0m | $19.6m | $95.1m | $56.2m |
| Net loss | $29.4m | $13.8m | $169.3m | $49.8m |
| Net loss per share | $0.37 | $0.18 | $2.17 | $0.66 |
| Product and service gross margin | 34.7% | 46.9% | 35.0% | 51.0% |
| Cash used in operations | Not separately stated for Q3 | $70.2m | $37.1m |
- Revenue mix: Q3 product revenue was $19.3m, service revenue $5.9m and other revenue $0.5m. Nine-month product and service revenue totaled $69.3m.
- Segments: Q3 revenue was $14.6m from mass cytometry and $11.1m from microfluidics; each segment reported an operating loss ($4.9m and $8.6m, respectively). The company plans to call these segments proteomics and genomics, respectively, beginning in Q4.
- Cash and liquidity: At September 30, cash and cash equivalents were $60.2m and short-term investments were $125.0m; restricted cash was $1.0m. Management said these resources and $12.5m of revolver availability should fund operations for at least 12 months.
- Debt and capital structure: Carrying value of debt was $64.7m, including $54.5m of convertible notes and $10.2m of term debt. No revolver borrowings were outstanding. Separately, $311.3m of Series B preferred stock was recorded as mezzanine equity; it has a $255.6m aggregate liquidation preference and is initially convertible into about 75.2m common shares.
- Balance sheet: Total assets were $414.9m, total liabilities $166.4m and stockholders’ equity was a deficit of $62.7m. Accumulated deficit was $905.3m.
Material changes versus prior comparable periods
- Revenue fell 10% in Q3 and 23% for the nine-month period. Nine-month instrument revenue declined 35%, consumables 19%, and service revenue 6%. The company attributed declines mainly to fewer instrument sales, lower COVID-19-related revenue and foreign-exchange effects.
- Q3 product and service gross margin fell 12.2 percentage points; the nine-month margin fell 16.0 points. Excess and obsolete inventory provisions were $2.6m in Q3 and $7.2m year to date, versus $0.3m and $1.5m, respectively, in 2021. Lower revenue, product mix and manufacturing utilization also weighed on margins.
- Nine-month net loss included $60.1m of fair-value loss on the preferred stock forward sale and $13.7m of fair-value loss on bridge loans, both associated with the April financing. These non-operating charges substantially increased reported net loss but were added back in the operating cash-flow reconciliation.
- Nine-month operating cash use increased to $70.2m from $37.1m. Financing activities included $225m of preferred-stock proceeds; the company also invested in $125.0m of short-term Treasury securities at period end.
Outlook, management commentary and risks
- Management’s stated priorities are revenue growth, improved operating discipline through its Standard BioTools Business Systems, and strategic capital allocation. It aims to accelerate mass cytometry growth while steering microfluidics toward profitability.
- The August 2022 restructuring includes workforce reductions, reduced office space, manufacturing-footprint optimization and lower microfluidics R&D and marketing investment. Management estimated $3m–$5m of cash costs, approximately $8m of annualized operating-expense reductions based on actions to date, and a longer-term goal of positive free cash flow by year-end 2024. These are targets, not guarantees.
- The company subleased about 25% of its South San Francisco headquarters for 39 months, expecting $4.7m of sublease income. It expects to transition microfluidics instrument assembly back to its production lines by Q1 2023.
- No formal revenue or earnings guidance is provided in the supplied filing text. Management cautions that restructuring savings and strategic initiatives may not meet expectations. It cites demand and customer-budget uncertainty, COVID-19 effects, supply-chain constraints, inflation, foreign exchange, competition and execution risks.
- One microfluidics customer contributed 15% of Q3 revenue and 10% of nine-month revenue. A securities class action dismissed with prejudice is on appeal. The company reported no goodwill or long-lived-asset impairment after testing, but noted future impairment could occur.
- Series B holders have senior liquidation and change-of-control rights, voting and consent rights, and rights to designate directors. Potential conversion could materially dilute common shareholders. The company also has $55m principal amount of 5.25% convertible notes due in 2024 and secured credit-facility covenants.
Investor verification points
- Verify whether revenue trends, instrument sales and segment losses improve, and whether lower microfluidics investment affects future demand.
- Track product and service margins, inventory reserves and cash burn, including progress toward the stated cost savings and 2024 free-cash-flow objective.
- Assess liquidity against ongoing operating cash use, debt maturities and covenants, and the timing or availability of revolver capacity.
- Review the Series B conversion, voting, liquidation and change-of-control provisions for dilution, governance influence and potential cash obligations.
- Monitor customer concentration, supply-chain and foreign-exchange exposure, restructuring execution, and the pending securities-litigation appeal.