Fluidigm Corporation (now Standard BioTools Inc.) — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. The filing was issued under the name Fluidigm Corporation and signed August 7, 2015. Amounts below are in U.S. dollars.
Business context
Fluidigm developed and sold life-science instruments and consumables using microfluidics and mass cytometry technologies, serving research institutions, clinical laboratories, and pharmaceutical, biotechnology, and agricultural biotechnology customers. The DVS Sciences acquisition expanded its single-cell biology and proteomics business.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $28.6 million | $27.6 million | $55.3 million | $53.3 million |
| Product revenue | $28.6 million | $27.5 million | $55.2 million | $52.9 million |
| Operating loss | $14.7 million | $12.4 million | $28.7 million | $29.0 million |
| Net loss | $15.2 million | $12.7 million | $31.2 million | $28.1 million |
| Basic and diluted loss per share | $0.53 | $0.45 | $1.09 | $1.03 |
| Product margin | 58% | 64% | 59% | 65% |
- Q2 revenue rose 4% year over year. Instrument revenue increased, led by CyTOF (including Helios) and newer products; consumables revenue declined. For the first half, instrument revenue increased 9%, while consumables declined 2%.
- Product margin fell six percentage points in both comparisons. Management cited higher instrument manufacturing costs from lower production volume, sales mix, and, to lesser extents, stock compensation, warranty, and royalty costs. Acquired-technology amortization was $2.8 million in Q2 and $5.6 million in the first half.
- First-half operating expenses were $84.0 million, including R&D of $20.1 million and SG&A of $41.3 million. Q2 SG&A increased 14% year over year; first-half SG&A increased 22%.
- Operating cash outflow was $17.6 million in the first half, versus $10.2 million a year earlier. Cash and cash equivalents declined to $23.7 million from $33.7 million at year-end.
- At June 30, cash and cash equivalents were $23.7 million; investments were $103.3 million, including $27.1 million classified as long-term. Working capital excluding deferred revenue was $122.0 million.
- Convertible notes had a $195.6 million carrying value and $201.3 million principal amount. They bear 2.75% interest and mature in 2034; reported interest expense was $2.9 million for the first half.
- Accumulated deficit was $341.3 million. Management said existing cash, cash equivalents, and investments were expected to cover working capital and capital expenditure needs for at least 18 months, while noting that lower cash generation or higher spending could require additional capital.
Changes, outlook, and notable items
- Management expected second-half 2015 revenue to be lower than in the corresponding 2014 period. It also reported genomics analytical IFC pull-through below its historical $40,000–$50,000 annual range and expected $25,000–$35,000 per system per year. No specific full-year revenue or earnings guidance was provided.
- Management attributed instrument growth partly to CyTOF/Helios and Juno and Polaris, while noting lower sales of certain Biomark, C1, and Access Array systems. Currency effects reduced Q2 instrument revenue by $1.3 million and consumables revenue by $0.6 million.
- The DVS escrow dispute was settled in July 2015, after quarter-end: approximately 80% of escrowed shares were to be released to former DVS stockholders and approximately 20% returned to Fluidigm and canceled. The company said the returned shares would be accounted for in Q3.
- Key risks include sustained operating losses and cash burn; emerging and uncertain markets and customer demand; product-margin pressure and low consumables pull-through; foreign-currency exposure; reliance on specialized and sole-source suppliers and concentrated manufacturing facilities; and competition and product-development execution.
- Mass-cytometry intellectual-property licensing remained a risk: Fluidigm disclosed disagreement and negotiations with PerkinElmer over the effect of the DVS acquisition on a license, and negotiations with Nodality over reinstating a license. The filing also noted the Canadian facility lease expired in January 2016 and alternatives were being evaluated.
- Products were marketed for research use only. The company planned FDA registration and listing for certain general-purpose laboratory equipment and selected 510(k) submissions; regulatory clearance, timing, and requirements remained uncertain. Management reported effective disclosure controls; no material legal proceedings were pending.
Important facts for investors to verify
- Whether second-half revenue fell as management expected, and the drivers of any change in instrument sales, consumables, and foreign-exchange effects.
- Whether analytical IFC pull-through recovered from the stated $25,000–$35,000 expectation and whether consumables growth supported the installed base.
- Whether product margins improved and operating cash outflow moderated, given the first-half margin decline and $17.6 million operating cash burn.
- Whether liquidity remained adequate against operating needs, capital spending, and the notes’ future repurchase provisions.
- The completed accounting and share impact of the DVS escrow settlement, and any resolution or deterioration of PerkinElmer and Nodality licensing matters.
- Whether Fluidigm secured suitable Canadian facilities and achieved planned regulatory milestones without disrupting commercialization.