Fluidigm Corporation (now Standard BioTools) — Q2 2018 Form 10-Q
Period: Quarter and six months ended June 30, 2018. The filing identifies the registrant as Fluidigm Corporation; “Standard BioTools Inc.” is not the name shown on this 2018 filing.
Business context
Fluidigm developed, manufactured, and sold life-sciences research instruments, consumables, assays, reagents, and related services for genomics and mass cytometry applications. It reported one operating segment.
Financial results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $26.4 million | $23.9 million | $51.7 million | $49.4 million |
| Operating loss | $12.8 million | $16.5 million | $25.4 million | $34.0 million |
| Net loss | $16.2 million | $16.9 million | $29.5 million | $34.1 million |
| Net loss per share | $0.42 | $0.58 | $0.76 | $1.17 |
| Operating cash flow | Not separately reported for the quarter | $(20.5) million | $(16.8) million |
Q2 revenue rose 11% year over year; first-half revenue increased 5%. In Q2, product revenue grew 12% and service revenue 8%. First-half consumables revenue rose 21%, while instrument revenue fell 13%, primarily reflecting lower mass-cytometry instrument sales. Europe and Asia-Pacific grew; first-half U.S. revenue declined 6%.
Reported product margin was 49% in Q2 (up 4 percentage points) and 49% for the first half (up 2 points). Service margin fell to 64% in Q2 and 65% for the first half, from 73% in both comparable 2017 periods, as labor and material costs increased. Operating expenses declined 7% in Q2 and 12% for the first half, reflecting lower legal, personnel, and facilities costs. Higher non-cash debt discount and issuance-cost amortization and premium accretion contributed to increased interest expense: $3.9 million in Q2 and $5.8 million in the first half.
Financial position and liquidity
- At June 30, cash and cash equivalents were $39.4 million and short-term investments were $1.0 million, compared with $58.1 million and $5.1 million, respectively, at December 31, 2017. Cash declined $18.6 million during the first half.
- Current assets were $75.2 million and current liabilities $36.7 million; reported working capital excluding deferred revenue was $49.4 million.
- Convertible notes had a $166.8 million carrying value at June 30. Principal outstanding totaled $201.3 million: $150.0 million of 2018 Notes and approximately $51.3 million of 2014 Notes. The notes carry a 2.75% coupon and mature in 2034, subject to earlier conversion, redemption, or holder repurchase rights.
- First-half investing cash flow was positive $3.9 million, mainly from investment maturities and sales; financing cash flow was negative $2.2 million, largely due to 2018 Notes issuance costs.
Changes, outlook, and risks
In March 2018, Fluidigm exchanged $150.0 million principal amount of 2014 Notes for 2018 Notes. The exchange extended the first holder put date on that portion from February 2021 to February 2023, but the 2018 Notes’ repurchase amount can reach 120% of original principal plus accrued interest. Their initial conversion price was approximately $7.88 per share, creating potential dilution. The remaining 2014 Notes have a first holder put date in February 2021.
Management said existing cash, cash equivalents, and investments were expected to fund working capital and capital expenditure needs for at least 18 months. It cautioned that lower-than-expected sales or higher expenses or capital needs could require additional financing. No specific revenue or earnings guidance was provided; management said future product volumes and average selling prices may fluctuate and offered no assurance of revenue growth. The company continued to incur losses and negative operating cash flow.
On August 2, 2018, after quarter-end, Fluidigm entered a Silicon Valley Bank revolving facility of up to the lesser of $15.0 million or a borrowing base tied to eligible receivables and inventory. It matures August 2, 2020, is secured by substantially all company property other than intellectual property, and had no borrowings at the filing date. Management cited competition, variable demand and product mix, manufacturing and supplier constraints, foreign-currency exposure, and possible impairment of goodwill or intangible assets as risks. Goodwill and net intangible assets totaled approximately $172.1 million. Management reported disclosure controls effective as of June 30, 2018; no material change in internal control was reported.
The company adopted the new revenue standard in 2018 using the modified retrospective method. Adoption increased opening equity by $0.4 million; its effect on first-half net loss was a $0.05 million reduction. Prior-year comparative periods were not restated.
Important facts for investors to verify
- Whether revenue growth continues and instrument sales recover, given first-half instrument revenue declined while consumables expanded.
- Whether service-cost increases persist and reverse the decline in service margins.
- Cash runway and financing needs in light of $20.5 million first-half operating cash use and management’s 18-month liquidity estimate.
- Convertible-note put dates, repayment formulas, effective interest costs, and potential dilution from conversion—especially the 2018 Notes’ low initial conversion price.
- Borrowing-base availability, collateral, covenants, and other terms of the post-quarter revolving facility.
- Impairment sensitivity of the $104.1 million goodwill balance and finite-lived intangible assets, as well as revenue-standard adoption effects and their comparability with 2017.