Business context and reporting period
Entity note: The supplied filing is Fluidigm Corporation’s unaudited Form 10-Q for the quarter ended September 30, 2015, not a filing under the name Standard BioTools Inc. The company develops and sells life-science instruments, consumables and services, with products focused on single-cell analysis and genomics.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $28.6 | $29.6 | $84.0 | $83.0 |
| Operating loss | $(7.8) | $(13.0) | $(36.5) | $(42.0) |
| Net loss | $(9.3) | $(13.8) | $(40.4) | $(41.9) |
| Net loss per share, diluted | $(0.32) | $(0.49) | $(1.41) | $(1.52) |
- Revenue mix: Q3 product revenue was $25.1 million, down 8%; service revenue was $3.5 million, up 53%. For the nine months, product revenue was $74.7 million, down 2%, while service revenue rose 47% to $9.0 million.
- Margins: Reported product margin was 58% in Q3 versus 61% a year earlier and 58% for the nine months versus 64%. Service margin improved to 72% from 62% in both comparisons. Product margins were pressured by manufacturing costs, lower production volumes, selling prices and sales mix; acquired-technology amortization was included in product costs.
- Cash flow: Operating cash use was $30.3 million for the first nine months, compared with $19.1 million in 2014. Capital expenditures were $2.5 million. Cash and cash equivalents decreased $4.9 million to $28.8 million.
- Liquidity: At September 30, cash and cash equivalents were $28.8 million and investments were $85.3 million, totaling approximately $114.1 million. Working capital excluding deferred revenue was $126.1 million. Management said these resources were expected to cover working capital and capital expenditure needs for at least 18 months.
- Debt: Convertible notes had a carrying value of $195.6 million and $201.3 million principal outstanding. The notes bear 2.75% interest and mature in 2034; estimated fair value was $144.0 million at quarter-end. Nine-month interest expense was $4.4 million.
- Other balance-sheet items: Total assets were $378.5 million, total liabilities $254.4 million, and accumulated deficit $350.6 million. Goodwill was $104.1 million; developed technology, net, was $93.9 million.
Changes versus the prior comparable period
- Q3 revenue fell 3% year over year, reflecting lower product revenue, partially offset by stronger service revenue. Nine-month revenue increased 1%, as higher service revenue and instrument sales largely offset weaker consumables sales.
- Operating and net losses narrowed in both comparisons. Q3 results included a $4.0 million gain from settling DVS acquisition escrow claims, when 170,107 shares were canceled and returned to authorized status. The nine-month 2014 comparison included $10.7 million in acquisition-related expenses; 2015 did not.
- Product margin weakened while service margin improved. For the nine months, the product-cost ratio also reflected $8.4 million of acquired-technology amortization, versus $7.0 million in 2014.
- Operating cash use increased by $11.2 million year over year. The filing attributes the 2015 cash use in part to working-capital changes, including increased inventory and receivables.
Outlook, commentary and risks
- Fluidigm expected 2015 revenue to be lower than 2014. Management expected instrument and consumables unit sales to increase over time, while noting that average selling prices may vary. It also anticipated potential increases in R&D and selling, general and administrative expenses.
- Management cited reduced annualized IFC pull-through for genomics analytical systems: $25,000–$35,000 per system, versus $40,000–$50,000 in 2014. Preparatory-system and proteomics pull-through remained within stated expected or historical ranges.
- Key risks include emerging markets developing more slowly than anticipated; volatile demand and customer capital spending; competition and pricing pressure; reliance on specialized or sole-source suppliers and concentrated manufacturing sites; product development, yield and quality challenges; and foreign-currency exposure. The company reported $1.2 million of foreign-currency losses for the nine months.
- Products were marketed for research use only. The company planned FDA registration/listing for certain products and intended to seek selected 510(k) clearances; regulatory requirements, timing and outcomes were uncertain.
- Substantial losses and negative operating cash flow could continue. Management warned additional funding might be required if cash generation, expenses or capital needs differ from expectations. It also identified impairment risk associated with its goodwill and intangible assets.
- On November 4, 2015, after quarter-end, the company purchased mass-cytometry patents from PerkinElmer for $6.5 million. The filing says this ended its financial obligations under the prior license agreement. Future minimum lease payments disclosed for specified expanded or new facilities included $7.1 million, $2.1 million, $1.4 million, $4.1 million and $4.5 million, respectively.
- The company reported no material legal proceedings and stated that disclosure controls were effective at the reasonable-assurance level as of September 30, 2015.
Important facts for investors to verify
- Confirm the issuer identity and reporting period: the supplied 10-Q is for Fluidigm Corporation, quarter ended September 30, 2015.
- Assess whether subsequent revenue trends support management’s expectation that 2015 revenue would be below 2014, particularly given declining product sales and lower genomics analytical-system pull-through.
- Track operating cash burn, working-capital needs, investment balances and capital expenditures against management’s stated 18-month liquidity expectation.
- Review product-margin recovery, service-revenue growth and the impact of acquired-technology amortization and the one-time escrow-settlement gain.
- Evaluate the $201.3 million convertible-note obligation, its conversion and repurchase provisions, and the company’s capacity to meet future cash requirements.
- Monitor regulatory progress, manufacturing and supplier concentration, foreign-exchange effects, and the $6.5 million patent purchase and associated rights.