Fluidigm Corporation (now Standard BioTools Inc.) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing is issued under the name Fluidigm Corporation and reports unaudited U.S. GAAP results.
Business context and financial results
Fluidigm develops and sells life-sciences research instruments, consumables and related services, including genomics and mass cytometry products. Total revenue was $25.2 million, down 1% from $25.5 million in Q1 2017.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Product revenue | $20.5 million | $21.3 million |
| Service revenue | $4.8 million | $4.2 million |
| Operating loss | $12.6 million | $17.5 million |
| Net loss | $13.2 million | $17.2 million |
| Net loss per share, diluted | $0.34 | $0.59 |
| Operating cash flow | $(16.2) million | $(8.5) million |
Product margin improved to 50% from 49%; service margin declined to 67% from 73%. Operating loss was 50% of revenue and net loss was 52% of revenue. Operating expenses (R&D and SG&A) fell 16% to $26.1 million, primarily reflecting cost-saving initiatives begun in 2017.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $42.0 million and short-term investments were $5.3 million, totaling $47.3 million. Cash declined $16.1 million during the quarter.
- Current assets were $81.0 million and current liabilities were $33.7 million. Management reported working capital excluding deferred revenue of $57.9 million.
- Convertible notes had $201.3 million aggregate principal outstanding: $150.0 million of 2018 Notes and $51.3 million of 2014 Notes. Their combined net carrying value was $164.2 million.
- Operating cash outflow increased year over year, with the filing attributing the 2018 outflow in part to decreases in other current and non-current liabilities. Investing cash flow was $(0.3) million; financing cash flow was $(0.1) million.
Material changes and unusual items
- Revenue mix shifted: instrument revenue fell 30% to $7.5 million, chiefly on lower mass cytometry instrument sales; consumables rose 23% to $13.0 million. Service revenue grew 14% to $4.8 million, supported by a larger installed base.
- Revenue increased in Europe (11%) and Asia-Pacific (19%), but declined 14% in the United States. China represented 13% of revenue, versus 10% a year earlier.
- In March, the company exchanged about $150 million principal of 2014 Notes for 2018 Notes. The first holder put date moved from February 2021 to February 2023, but the 2018 Notes may be repurchased for up to 120% of original principal plus accrued interest. Their initial conversion price is about $7.88 per share, creating potential dilution. The company may elect to settle conversions in cash, shares or a combination.
- Interest expense rose 30% to $1.9 million due to discount and issuance-cost amortization and premium accretion on the 2018 Notes. Management expected approximately $2.5 million of additional interest expense in Q2, primarily for these items; the 2018 Notes’ effective interest rate was reported as 12.3%.
- Fluidigm adopted ASC 606 using the modified retrospective method. The opening adjustment increased assets and equity by $0.4 million; adoption reduced reported Q1 net loss by $33,000 compared with the prior revenue standard.
Outlook, commentary and risks
Management said existing cash, cash equivalents and investments were expected to fund working capital and capital expenditures for at least 18 months. It gave no specific revenue or earnings guidance and cautioned that future revenue growth could not be assured. The company continued to expect cost savings from its efficiency initiatives, while noting that further financing might be needed if operating cash generation or expenses differed from expectations.
Key risks include continuing losses and negative operating cash flow; volatile demand and product mix; competition, particularly in single-cell genomics; manufacturing, yield and sole-source supplier dependence; international and currency exposure; and possible impairment of goodwill or intangibles. The company reported $104.1 million of goodwill and $71.1 million of net intangible assets. It also identified noteholder put and fundamental-change repurchase obligations as potential liquidity demands. Management stated that pending legal matters were not expected to have a material adverse effect; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether operating cash burn and the $47.3 million liquidity balance support the stated 18-month funding horizon.
- The 2018 Notes’ conversion, settlement and put terms, including potential dilution and possible repurchase amounts of up to 120% of principal.
- Whether instrument sales stabilize and consumables and service growth can offset weakness in mass cytometry instruments.
- Whether cost reductions are sustainable without impairing product development, sales execution or customer support.
- Whether goodwill and intangible assets remain recoverable amid revenue weakness and competitive pressure.