Fluidigm Corporation (issuer named in filing) — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016; comparisons are with the corresponding 2015 periods. The request metadata names Standard BioTools Inc., but this 10-Q is filed by Fluidigm Corporation.
Business context
Fluidigm develops and sells life-science instruments and consumables using microfluidics and mass cytometry, focused on single-cell genomics and proteomics. Products include instruments, integrated fluidic circuits (IFCs), assays, and reagents; customers span research and applied markets.
Key financial results
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $22.2m | $28.6m | $79.4m | $84.0m |
| Product revenue | $18.0m | $25.1m | $68.1m | $74.7m |
| Service revenue | $4.2m | $3.5m | $11.1m | $9.0m |
| Operating loss | $(18.5)m | $(7.8)m | $(55.5)m | $(36.5)m |
| Net loss | $(19.8)m | $(9.3)m | $(58.3)m | $(40.4)m |
| Net loss per share | $(0.68) | $(0.32) | $(2.01) | $(1.41) |
| Product margin | 50% | 58% | 54% | 58% |
| Service margin | 70% | 72% | 67% | 72% |
Cash flow: Operating activities used $28.4m in the first nine months of 2016, versus $30.3m in 2015. Investing activities provided $31.3m, primarily reflecting investment maturities and sales, while financing activities provided $0.1m. Cash and cash equivalents rose $3.2m during the period to $32.3m.
Liquidity and debt: At September 30, cash and cash equivalents were $32.3m and short-term investments were $38.9m, totaling $71.2m. Working capital excluding deferred revenue was $89.9m. Convertible notes were carried at $194.9m net, against $201.3m principal; they bear 2.75% interest and mature in 2034. Management stated existing cash and investments should fund working capital and capital expenditure needs for at least 18 months.
Balance sheet: Total assets were $320.4m, down from $370.1m at December 31, 2015; stockholders’ equity was $68.0m, down from $114.9m. Accumulated deficit was $421.8m. Goodwill was $104.1m and net developed technology was $82.6m.
Material changes and management commentary
- Q3 revenue fell 23%; nine-month revenue declined 6%. Product revenue decreased 28% in Q3 and 9% year to date, chiefly due to lower instrument sales. Q3 instrument revenue fell 39%, reflecting lower unit sales and average selling prices; nine-month instrument revenue fell 15%.
- Service revenue grew 19% in Q3 and 23% year to date as the installed base generated more post-warranty contracts and replacement-parts sales. Consumables were nearly flat year to date but declined 12% in Q3.
- Management attributed weaker instrument sales in Europe particularly to increased competition. Product-margin declines reflected acquisition-related amortization, higher depreciation and amortization, lower selling prices, and unfavorable instrument mix. Service margins also declined on higher labor and material costs.
- SG&A rose 8% in Q3 and 16% year to date, primarily due to higher headcount and compensation; nine-month legal and outside-services costs also increased. The 2015 comparison included a $4.0m gain from an escrow settlement, absent in 2016.
- Management expects efficiency and cost-reduction initiatives through the remainder of 2016 and into 2017, potentially including lower or deferred capital spending and development activity and organizational optimization. It cautioned these actions may impair investment in products; unsuccessful reductions could pressure liquidity and require additional financing. No specific revenue or earnings guidance was provided.
Risks, contingencies, and unusual items
- Annualized consumables pull-through was below historical ranges for genomics preparatory systems and somewhat below range for other systems, a potential indicator of weaker utilization or demand.
- The company disclosed an IFC performance issue affecting certain C1 systems, involving more than one cell in an IFC chamber. It expected additional redesigned IFCs in December 2016 but warned of possible delays or development challenges.
- A former employer’s claims against a company employee included alleged misappropriation of proprietary information and breach of obligations. The plaintiff sought leave in October 2016 to add Fluidigm as a defendant; the company could not estimate potential losses and intended to defend the case vigorously if named.
- Goodwill and intangible assets are substantial, and the filing identifies declining stock price, revenue, or market share and increased losses as potential impairment indicators. No impairment was reported for the period.
- Other principal risks include intensifying competition, reliance on sole- or single-source suppliers and concentrated manufacturing facilities, sustained losses and operating cash use, foreign-currency exposure, and regulatory and intellectual-property uncertainty. The company reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether instrument demand, average selling prices, and IFC/consumables pull-through stabilize or continue to weaken.
- Whether cost reductions improve cash burn without materially undermining product development, sales, or customer support; assess the assumptions behind management’s stated 18-month liquidity runway.
- Whether redesigned C1 IFCs were delivered on the stated timeline and resolved the performance issue.
- Whether Fluidigm is added as a defendant in the employee-related litigation and whether exposure becomes estimable.
- Whether weaker results or market conditions lead to impairment of goodwill or acquired intangible assets.