Fluidigm Corporation (now associated with Standard BioTools Inc.) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. The filing registrant is Fluidigm Corporation. Financial amounts below are in U.S. dollars; millions are rounded.
Business context
Fluidigm develops, manufactures and sells microfluidic systems, instruments and consumables for life-science and agricultural-biotechnology applications. It reported one operating segment and had sold more than 525 systems in over 25 countries. Instruments and chips for commercial sale were manufactured primarily in Singapore.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $10.9 million | $8.7 million |
| Product revenue | $10.8 million | $8.4 million |
| Product margin | 67% | 65% |
| Operating loss | $(6.3) million | $(4.9) million |
| Net loss | $(6.7) million | $(7.3) million |
| Operating cash flow | $(6.6) million | $(1.2) million |
- Product revenue rose 28%: consumables increased 41% to $4.9 million, primarily with a larger installed base and higher assay sales; instrument revenue rose 19% to $5.9 million. Instrument unit sales declined 7%, primarily due to lower Access Array sales.
- Gross margin improved by 2 percentage points. Management attributed this to lower chip-replacement and instrument-component costs and a richer consumables mix, partly offset by higher warranty and freight costs.
- Operating expenses increased 28% to $13.7 million: R&D was $4.3 million, up 33%, and SG&A was $9.4 million, up 26%, largely reflecting higher compensation, headcount and other development costs.
- Cash and cash equivalents were $8.5 million and investments were $36.4 million at quarter-end, totaling $44.9 million. Working capital was $38.9 million. Cash and cash equivalents declined $5.1 million during the quarter.
- Debt outstanding was $6.3 million, all classified as current; the loan matured in February 2013 and carried a 13.5% fixed rate. The $7.0 million receivables-backed credit line was undrawn. The company reported compliance with loan covenants.
Changes, outlook and commentary
- Revenue increased 26% year over year, while operating loss widened as operating expenses grew faster than revenue. Net loss was lower than the prior-year figure, which included a $9.9 million deemed dividend and unusual warrant-related items; these were not recurring Q1 2012 operating results.
- Interest expense fell to $0.3 million from $1.8 million, partly because the prior-year period included non-cash note-discount expense and because debt had been reduced. Q1 2012 included a $2.3 million additional debt payment.
- Management expected instrument and consumables unit sales to increase over time, while noting that selling prices could fluctuate. It expected R&D and SG&A spending to rise as the business expanded and planned higher 2012 capital expenditures. No specific revenue or earnings guidance was provided.
- Management believed available cash, cash equivalents and investments would fund working-capital and capital needs for at least 18 months. It cautioned that lower cash generation or higher spending could require additional capital, which might not be available on acceptable terms.
- The Novartis collaboration’s performance obligations had been completed by year-end 2011. Its exclusive licensing option expired unexercised on April 30, 2012, and the agreement terminated effective May 1, 2012, after the reporting date. Related prenatal-diagnostics and digital-PCR intellectual-property rights reverted to Fluidigm; management said entry into diagnostics could be delayed or may not occur.
- Key risks included continued losses and negative operating cash flow; uncertain adoption of new products and emerging markets; competition and pricing pressure; reliance on Singapore manufacturing and certain single-source suppliers; regulatory uncertainty for research-use products and customer-developed diagnostic tests; and foreign-exchange exposure. No material legal proceedings or accrued legal contingencies were reported. Management judged disclosure controls effective; a new ERP system began operating during the quarter.
Important facts for investors to verify
- Whether consumables growth and improved product margin can continue, and whether instrument unit sales recover despite the Q1 decline.
- Whether operating-expense growth and operating cash burn can be supported by the stated liquidity runway; monitor cash, investments, debt repayments and capital spending.
- Whether product development, including the planned second-half 2012 system launch, achieves customer adoption and commercial returns.
- The post-quarter consequences of the Novartis agreement termination, including the timing and economics of any diagnostics-market activity.
- Manufacturing capacity, supplier continuity, regulatory developments and the risks associated with the ERP implementation and international operations.