Fluidigm Corporation (NASDAQ: FLDM) — Q2 2019 Form 10-Q
Entity note: The supplied filing is for Fluidigm Corporation, not Standard BioTools Inc. It covers the quarter and six months ended June 30, 2019; filed August 7, 2019. Financial statements are unaudited.
Business context and reporting period
Fluidigm develops and sells life-sciences research tools, including mass cytometry, PCR, library-preparation and single-cell genomics instruments, consumables and services. Its customers include academic, clinical research and biopharmaceutical organizations.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $28.2m | $26.4m | $58.3m | $51.7m |
| Gross profit | $15.4m | $13.6m | $32.4m | $27.0m |
| Gross margin | 54.5% | 51.4% | 55.5% | 52.3% |
| Operating expenses | $30.0m | $26.4m | $61.2m | $52.4m |
| Operating loss | $(14.6)m | $(12.8)m | $(28.8)m | $(25.4)m |
| Net loss | $(13.8)m | $(16.2)m | $(39.2)m | $(29.5)m |
| Net loss per share | $(0.20) | $(0.42) | $(0.61) | $(0.76) |
- Q2 revenue rose 7% year over year; first-half revenue rose 13%. Instrument revenue grew 17% in Q2 and 40% in the first half, while consumables revenue declined 3% and 5%, respectively. Service revenue increased 7% and 9%.
- Gross margin improved by 3.1 percentage points in Q2 and 3.2 points in the first half, mainly reflecting higher instrument capacity utilization and fixed-cost absorption; lower instrument pricing and product mix partly offset the improvement.
- Operating expenses increased 14% in Q2 and 17% in the first half. The company attributed increases to compensation, headcount, stock-based compensation, research supplies, legal and business-development costs, and promotion.
- Q2 net loss narrowed despite a higher operating loss, principally because interest expense fell following conversion and retirement of the 2018 Notes. First-half results included a $9.0m debt-extinguishment loss.
- First-half operating cash flow was negative $25.1m, versus negative $20.5m in 2018. Investing cash flow was negative $45.3m, largely due to $44.6m of investment purchases. Cash, cash equivalents and restricted cash ended at $26.1m.
Liquidity, debt and balance sheet
- At June 30, 2019, the company reported $24.0m cash and cash equivalents and $44.8m short-term investments; it also had $12.5m available under its revolving facility and no facility borrowings. Management said existing cash, equivalents and investments were expected to fund working capital and capital expenditure needs for at least 18 months, through December 31, 2020. This expectation is subject to operating and spending risks.
- The $150m principal amount of 2018 convertible notes was converted into approximately 19.5m common shares in Q1 and retired. Remaining 2014 Notes had $51.25m principal outstanding and a $49.8m carrying value. Noteholders may require cash repurchase at specified dates beginning in February 2021, or following a qualifying fundamental change.
- Common shares outstanding increased from 49.3m at December 31, 2018 to 69.4m at June 30, 2019, primarily due to the note conversion. Total stockholders’ equity rose to $172.6m from $72.1m.
- Adoption of lease accounting in January 2019 added lease liabilities and right-of-use assets. At June 30, operating lease liabilities totaled $8.2m. A new headquarters lease expected to commence in late 2019 or early 2020 was expected to add approximately $46.7m in lease assets and liabilities.
Material changes, outlook and risks
- Regional performance varied: Q2 Americas revenue fell 11%, while Europe increased 23% and Asia-Pacific increased 22%. First-half revenue rose 3% in the Americas, 10% in Europe and 38% in Asia-Pacific. Weaker foreign exchange reduced company-wide revenue by about 1% in both periods.
- Management attributed growth primarily to mass cytometry instruments and related consumables, partly offset by lower microfluidics sales. It cautioned that product pricing and volumes fluctuate and gave no specific revenue or earnings guidance in the supplied filing.
- The filing identifies risks including recurring losses and negative operating cash flow, variable customer demand and instrument mix, competition and pricing pressure, dependence on research funding, manufacturing and sole-source supplier constraints, foreign exchange exposure, and potential need for additional capital. Management stated the company had incurred significant losses since inception; accumulated deficit was $598.1m.
- A ransomware attack in March 2019 affected and encrypted certain IT systems. The company reported that it restored operations without significant business-data loss, did not believe confidential data had been disclosed, and estimated remediation costs at approximately $0.6m net of insurance proceeds; monitoring and security work continued.
- Ordinary-course legal matters were disclosed; management did not believe currently pending matters would have a material adverse effect, while noting litigation can entail costs and management distraction. The company reported effective disclosure controls as of June 30, 2019.
Important facts for investors to verify
- Confirm the issuer identity: the provided 10-Q is Fluidigm Corporation’s, notwithstanding the request metadata naming Standard BioTools Inc.
- Track whether revenue growth—particularly instrument-led growth—continues, and whether consumables and Americas sales recover.
- Assess cash burn against management’s stated 18-month liquidity horizon, including the planned headquarters lease and any need for additional financing.
- Review the remaining convertible-note terms and the effect of the 19.5m-share conversion on dilution and per-share results.
- Monitor operating-expense growth, gross-margin sustainability, and follow-up disclosures on the ransomware incident and remediation costs.