Standard BioTools Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The company, formerly Fluidigm Corporation, changed its name to Standard BioTools Inc. in April 2022; its Nasdaq symbol is LAB. Figures below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $18.8 million | $31.0 million | $45.3 million | $63.8 million |
| Operating loss | $38.6 million | $17.3 million | $66.1 million | $36.6 million |
| Net loss | $63.5 million | $17.1 million | $139.8 million | $36.0 million |
| Basic and diluted loss per share | $0.82 | $0.23 | $1.81 | $0.48 |
| Product and service margin | 20.4% | 50.1% | 35.2% | 53.0% |
- Q2 revenue fell 39% year over year; first-half revenue fell 29%. Product revenue was down 46% in Q2 and 32% for the first half. Q2 instrument revenue declined 74% and consumables revenue declined 23%.
- Management attributed the revenue decline to lower instrument sales and reduced demand for COVID-19 testing products, alongside lower consumables sales. A stronger U.S. dollar reduced revenue by approximately 4% in Q2 and 3% for the first half.
- Q2 product and service margin contracted 29.7 percentage points. Excess and obsolete inventory provisions were $3.7 million for the quarter and $4.6 million for the first half, reflecting portfolio rationalization; lower production utilization and product mix also weighed on margin.
- Operating expenses increased 28% in Q2 to $43.0 million and 15% in the first half to $82.7 million. Drivers included retention and severance costs, new management compensation, rebranding and financing-related fees, and a $3.5 million impairment of developed technology after the company discontinued related product development.
- Net loss included fair-value losses on the Series B preferred-stock forward sale and bridge loans of $25.4 million in Q2 and $73.8 million in the first half. These were non-cash charges associated primarily with the increase in the common share price before the financing closed.
Cash flow, liquidity and debt
- At June 30, 2022, cash and cash equivalents were $74.4 million and short-term investments were $136.9 million; restricted cash was $1.0 million. Total current assets were $250.9 million and current liabilities were $42.8 million.
- First-half operating cash use was $45.6 million, compared with $27.6 million a year earlier. Investing cash use was $139.1 million, primarily reflecting $137.3 million of purchases of short-term investments and $1.8 million of capital expenditures. Financing provided $231.0 million, including the preferred financing, offset in part by issuance costs and repayment of revolving-credit advances.
- The company reported $8.1 million of availability under its revolving facility and no revolving borrowings outstanding. Term-loan carrying value was $10.2 million. Convertible notes had a $54.4 million carrying value, including $55.0 million principal of 2019 notes due December 2024 and approximately $0.6 million principal of 2014 notes. Total debt carrying value was $64.5 million.
- Management stated that cash, cash equivalents, short-term investments and available revolving credit were expected to cover working capital and capital expenditure needs for at least the next 12 months. The company said the $225 million Series B financing eliminated the going-concern doubt identified in its prior annual report.
Material developments, outlook and risks
- In April 2022, the company issued $225 million of Series B convertible preferred stock; $25 million of bridge loans converted into additional preferred stock. The preferred stock is classified as mezzanine equity, with a reported carrying value of $311.3 million and aggregate liquidation preference of approximately $255.6 million. It ranks senior to common stock and includes conversion, dividend, change-of-control and governance rights.
- The preferred stock is initially convertible into approximately 75.2 million common shares, about 48.8% of common shares outstanding at June 30 on an as-converted basis, before applicable limitations. Investors should consider potential dilution and the purchasers’ voting, director-designation and consent rights.
- On August 8, 2022, after quarter-end, the company announced a phased restructuring and reduction in force intended to improve efficiency and reduce operating cash use beginning in the second half of 2022. Planned actions include reducing headcount and office space, narrowing microfluidics investment and commercial focus, and discontinuing certain offerings. Estimated cash costs for workforce reductions were $3 million to $5 million; office-space-related charges were not yet estimable. Management expected to recognize restructuring costs over the next four quarters.
- No quantified revenue or earnings guidance is provided in the supplied filing text. Management described potential growth opportunities and possible future acquisitions but gave no specific financial targets.
- Key risks include continued operating losses and revenue variability; weak demand and lower instrument utilization; COVID-19-related demand, supply-chain and China disruptions; inflation and foreign-exchange exposure; reliance on specialized suppliers and manufacturing sites in Singapore and Canada; competition; and the ability to deliver restructuring savings. The company also cited potential future financing needs and debt-covenant risks.
- A securities class-action case was dismissed with prejudice in February 2022; the plaintiff’s appeal remained pending. The filing states the company intends to defend the case and believes the claims lack merit.
Important facts for investors to verify
- Whether revenue, instrument demand and consumables pull-through stabilize, and how much of the decline reflects COVID-19 testing products versus core markets.
- Whether the announced restructuring produces the expected cash savings, and the eventual total costs, including office-space reductions.
- Liquidity and cash-burn trends relative to management’s at-least-12-month funding statement, including the impact of operating losses and capital needs.
- The preferred stock’s conversion, liquidation, change-of-control and governance terms, potential dilution, and any effect on future financing or strategic transactions.
- Progress on inventory rationalization, gross-margin recovery, and the discontinued-product impairment and related reserves.
- The status of the securities-litigation appeal, the 2019 notes due in 2024, and compliance with the credit facility’s financial covenant.