Business context and reporting period
This is Fluidigm Corporation’s unaudited Form 10-Q for the quarter ended September 30, 2017. The filing describes a life-sciences tools business selling genomics and mass-cytometry instruments, consumables, and services. The issuer named in the filing is Fluidigm Corporation; it does not identify the registrant as Standard BioTools Inc.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $24.7 | $22.2 | $74.2 | $79.4 |
| Operating loss | $(15.6) | $(18.5) | $(49.6) | $(55.5) |
| Net loss | $(15.9) | $(19.8) | $(50.1) | $(58.3) |
| Net loss per share, diluted | $(0.46) | $(0.68) | $(1.61) | $(2.01) |
| Product margin | 45% | 50% | 46% | 54% |
| Service margin | 72% | 70% | 73% | 67% |
- Q3 revenue increased 12% year over year, driven by product revenue growth, particularly mass cytometry. Product revenue rose 14%; service revenue was essentially flat.
- Nine-month revenue declined 7%: product revenue fell 10%, partly offset by service revenue growth of 14%. Instruments were down 14% and consumables down 5% year to date.
- Q3 product margin fell five percentage points; the nine-month margin fell eight points. Management cited lower genomics production volumes, lower selling prices and, year to date, higher excess and obsolete inventory expense. Service margin improved.
- Operating expenses declined 9% in Q3 and 13% year to date, reflecting cost-saving initiatives and lower spending. Interest expense was approximately $1.5 million for Q3 and $4.4 million year to date.
Cash flow, liquidity and debt
- Cash and cash equivalents were $60.9 million and short-term investments $1.4 million at September 30, 2017, or $62.4 million combined. Current assets were $96.2 million and current liabilities $31.9 million; reported working capital excluding deferred revenue was $74.2 million.
- For the first nine months, operating cash use was $24.8 million, versus $28.4 million in 2016. Investing activities provided $21.5 million, mainly from investment maturities and sales; financing provided $28.8 million, principally from the August equity offering. Cash increased $25.9 million to $60.9 million.
- Convertible notes had $201.3 million principal and a $195.2 million net carrying value. They bear 2.75% interest and mature in 2034, but holders can require repurchase on specified dates beginning February 2021 or upon a qualifying fundamental change.
- Management stated existing cash and investments were expected to fund working-capital and capital-expenditure needs for at least 18 months, while noting that weaker operating cash generation or higher costs could require additional financing.
Material changes, outlook and risks
- Q3 growth contrasted with the nine-month decline. Europe and Asia-Pacific grew in Q3, while U.S. revenue declined; year-to-date U.S. revenue was down 12%. Management attributed weakness mainly to lower genomics sales, partially offset by mass cytometry.
- Fluidigm sold 9.1 million shares in an at-the-market offering for $30.0 million gross and approximately $28.8 million net proceeds. The offering exhausted the shares available under that sales agreement and materially increased shares outstanding.
- Management expected research and development and selling, general and administrative expenses to decrease in 2017 as efficiency measures continued. It provided no specific revenue or earnings forecast and cautioned that future revenue growth could not be assured. Cost reductions, including workforce and facility measures, could constrain investment in product development and commercialization.
- Key risks include persistent losses and operating cash outflows, intense competition, variable product demand, manufacturing and supplier concentration, and potential impairment of goodwill and intangibles. Goodwill and net intangible assets totaled about $181.4 million; the filing noted that continued weakness or further share-price declines could increase impairment risk.
- Thermo Fisher litigation was settled: Fluidigm paid $3.0 million in August and received a $1.0 million insurance recovery. The filing says other ordinary-course legal matters were not then expected to have a material adverse effect, while acknowledging litigation uncertainty.
- Revenue recognition guidance was scheduled for adoption in 2018; management expected no material financial-statement impact but was still assessing details. Disclosure controls were reported effective at the reasonable-assurance level.
Most important facts for investors to verify
- Confirm the issuer identity and whether this 2017 Fluidigm filing is the intended filing for the Standard BioTools request.
- Track whether the Q3 mass-cytometry-led revenue improvement continues and whether genomics instrument and consumables sales stabilize.
- Assess product-margin recovery, manufacturing utilization, inventory charges, and the durability of cost savings.
- Monitor cash burn against management’s stated 18-month liquidity expectation, as well as potential financing needs and dilution.
- Review the 2021 noteholder repurchase dates and the company’s capacity to meet any repayment or refinancing obligations.
- Watch for impairment indicators affecting goodwill and intangible assets, and for material developments in litigation, supply, or regulatory risks.