Fluidigm Corporation Form 10-Q Summary
Entity and period: The supplied filing is Fluidigm Corporation’s unaudited Form 10-Q for the quarter ended June 30, 2014, not a filing under the name Standard BioTools Inc. It reports second-quarter and six-month results. Fluidigm develops and sells life-science analytical and preparatory systems, including genomics products and, following its February 2014 acquisition of DVS Sciences, single-cell protein analysis systems.
Financial results and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $27.6 million | $17.5 million | $53.3 million | $32.0 million |
| Product revenue | $27.5 million | $17.3 million | $52.9 million | $31.5 million |
| Product margin | 64% | 72% | 65% | 71% |
| Operating loss | $(12.4) million | $(4.0) million | $(29.0) million | $(9.1) million |
| Net loss | $(12.7) million | $(4.0) million | $(28.1) million | $(7.6) million |
| Basic and diluted loss per share | $(0.45) | $(0.16) | $(1.03) | $(0.30) |
- Q2 revenue rose 58% year over year; six-month revenue increased 67%. Product revenue growth reflected higher instrument and consumables sales, including DVS-derived CyTOF products, and increased sales to production genomics customers.
- Q2 product margin fell to 64%, primarily because of about $2.8 million of acquired-technology amortization. Excluding that charge, management reported an approximate 74% non-GAAP product margin. For the first half, acquisition-related non-cash charges increased product costs by about $5.2 million.
- Operating expenses increased substantially: Q2 R&D was $11.4 million and SG&A was $18.7 million. First-half acquisition-related expenses were $10.7 million. Fluidigm remained loss-making, with an accumulated deficit of $285.4 million at June 30.
- First-half operating cash use was $10.2 million, versus $3.5 million a year earlier. Investing cash use was $180.1 million, including the DVS acquisition and investment purchases; financing provided $198.7 million, primarily from the convertible-note offering.
- At June 30, cash and cash equivalents were $43.7 million and investments were $113.4 million. Current assets were $127.4 million and current liabilities $27.3 million. The company reported working capital excluding deferred revenue of $106.0 million and said existing cash, equivalents and investments should cover working-capital and capital-expenditure needs for at least 18 months.
- Debt included $201.3 million principal amount of 2.75% senior convertible notes due 2034, recorded net at $195.3 million. The initial conversion price was approximately $55.94 per share. The $10 million bank line of credit had no borrowings outstanding at quarter end.
Material changes and outlook
- Fluidigm acquired DVS on February 13, 2014 for an aggregate purchase price of approximately $199.9 million, funded with cash and shares. The preliminary purchase accounting recorded $104.2 million of goodwill and $112.0 million of developed technology, with a 10-year useful life. DVS results are included from the acquisition date.
- Management expected instrument and consumable unit sales to increase over time, while noting average selling prices may fluctuate with market conditions, product mix and currencies. It expected R&D investment and SG&A to increase. No company-wide numerical revenue or earnings guidance is provided in the supplied filing text.
- Management specifically said 2014 proteomics revenue was expected to be below DVS’s 2013 proteomics revenue and cautioned that growth may not match prior rates. The California Institute for Regenerative Medicine grant, which had totaled $1.9 million over three years, ended in April 2014.
- The Singapore manufacturing operations had moved into a new facility in July 2014; site qualification was expected in August. Delays could disrupt production. Management also estimated 2014 capital expenditures would be higher, primarily for Singapore facility improvements.
- The July 31, 2014 bank-line amendment waived the tangible-net-worth covenant effective June 30. The filing says the company was compliant with applicable covenants at quarter end.
Risks, contingencies and unusual items
- Fluidigm warned of continuing losses and possible negative operating cash flow, quarterly revenue variability, uncertain adoption of emerging markets, competitive and pricing pressures, and dependence on research and development spending by customers.
- Integration and realization of DVS benefits are uncertain; the acquisition accounting remained preliminary, including analysis of acquired technology, royalty obligations and tax liabilities. Goodwill and acquired intangible assets could be impaired if expectations are not met.
- Material licensing uncertainty affects the acquired proteomics business: PerkinElmer asserted that its license required consent to negotiate a commercially reasonable license following the acquisition; Fluidigm expected negotiations. The Nodality license had expired, and Fluidigm could not assure reinstatement or a replacement on acceptable terms.
- Manufacturing risks include qualification of the new Singapore site, yield and quality issues, and reliance on single- or limited-source suppliers. The company also disclosed potential regulatory changes affecting research-use-only products and laboratory-developed tests.
- Fluidigm paid Life Technologies $1.0 million under protest while reserving its rights regarding a disputed license payment, to avoid potential disruption to its patent license. The filing says there were no current material legal proceedings.
- Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2014. DVS financial reporting processes and controls were still being integrated.
Important facts for investors to verify
- Confirm the issuer: this source is a 2014 Fluidigm Corporation filing, despite the request metadata naming Standard BioTools Inc.
- Track whether DVS proteomics revenue, customer demand and integration performance met management’s reduced 2014 expectations.
- Review developments in the PerkinElmer and Nodality licenses, including any effect on Fluidigm Sciences products, royalties or commercialization.
- Verify successful Singapore site qualification and whether manufacturing capacity, product margins and capital spending developed as expected.
- Monitor cash burn, available liquidity, additional financing needs, and the terms and potential dilution associated with the convertible notes.
- Check for final purchase-accounting adjustments, impairment indicators, and changes to acquired-technology amortization or tax liabilities.