QUANTERIX CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10K. In addition to historical consolidated financial information, the following discussion contains forwardlooking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forwardlooking statements. See "Special Note Regarding ForwardLooking Statements." Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10K, particularly in "Risk Factors."
Overview
We are a life sciences company that has developed next generation, ultra-sensitive digital immunoassay platforms that advance precision health for life sciences research and diagnostics. Our platforms are based on our proprietary digital "Simoa" detection technology. Our Simoa bead-based and planar array platforms enable customers to
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reliably detect protein biomarkers in extremely low concentrations in blood, serum and other fluids that, in many cases, are undetectable using conventional, analog immunoassay technologies, and also allow researchers to define and validate the function of novel protein biomarkers that are only present in very low concentrations and have been discovered using technologies such as mass spectrometry. These capabilities provide our customers with insight into the role of protein biomarkers in human health that has not been possible with other existing technologies and enable researchers to unlock unique insights into the continuum between health and disease. We believe this greater insight will enable the development of novel therapies and diagnostics and facilitate a paradigm shift in healthcare from an emphasis on treatment to a focus on earlier detection, monitoring, prognosis and, ultimately, prevention. We are currently focusing on protein detection, which we believe is an area of significant unmet need and where we have significant competitive advantages. However, in addition to enabling new applications and insights in protein analysis, we are also developing our Simoa bead-based technology to detect nucleic acids in biological samples. We currently sell all of our products for life science research, primarily to laboratories associated with academic and governmental research institutions, as well as pharmaceutical, biotechnology and contract research companies, through a direct sales force and support organizations inNorth America andEurope , and through distributors or sales agents in other select markets, includingAustralia ,Brazil ,China ,Czech Republic ,India ,Israel ,Japan ,Lebanon ,Mexico ,Qatar ,Saudi Arabia ,Singapore ,South Korea andTaiwan . Our instruments are designed to be used either with assays fully developed by us, including all antibodies and supplies required to run the tests, or with "homebrew" kits where we supply some of the components required for testing, and the customer supplies the remaining required elements. Accordingly, our installed instruments generate a recurring revenue stream. We believe that our recurring consumable revenue is driven by our customers' ability to extract more valuable data using our platform and to process a large number of samples quickly with little hands-on preparation. We commercially launched our first immunoassay platform, the Simoa HD-1, inJanuary 2014 . The HD-1 is based on our bead-based technology, and assays run on the HD-1 are fully automated. We initiated commercial launch of the SR-X instrument inDecember 2017 . The SR-X utilizes the same Simoa bead-based technology and assay kits as the HD-1 in a compact benchtop form with a lower price point, more flexible assay preparation, and a wider range of applications. InJuly 2019 , we launched the Simoa HD-X, an upgraded version of the Simoa HD-1, which replaces the HD-1. The HD-X has been designed to deliver significant productivity and operational efficiency improvements, as well as greater user flexibility. We began shipping and installing HD-X instruments at customer locations in the third quarter of 2019, ahead of our original fourth quarter expectation. As the installed base of the Simoa instruments increases, total consumables revenue overall is expected to increase. We believe that consumables revenue should be subject to less period-to-period fluctuation than our instrument sales revenue, and will become an increasingly important contributor to our overall revenue. OnJanuary 30, 2018 , we acquired Aushon for$3.2 million in cash, with an additional payment of$0.8 million made inJuly 2018 , six months after the acquisition date. With the acquisition of Aushon, we acquired a CLIA certified laboratory, as well as Aushon's proprietary sensitive planar array detection technology. Leveraging our proprietary sophisticated Simoa image analysis and data analysis algorithms, we further refined this planar array technology to develop the SP-X instrument to provide the same Simoa sensitivity found in our Simoa bead-based platform. We initiated an early-access program for the SP-X instrument inJanuary 2019 , with the full commercial launch commenced inApril 2019 . OnAugust 1, 2019 , we completed our acquisition ofUman for an aggregate purchase price of$21.2 million , comprised of (i)$15.7 million in cash plus (ii) 191,152 shares of our common stock (representing$5.5 million based on the closing prices of our common stock on the Nasdaq Global Market onJuly 1, 2019 andAugust 1, 2019 , the dates of issuance). The acquisition closed with respect to 95% of the outstanding shares of capital stock ofUman onJuly 1, 2019 and with respect to the remaining 5% of the outstanding shares of capital stock ofUman onAugust 1, 2019 .Uman supplies neurofilament light (Nf-L) antibodies and ELISA kits, which are widely recognized by researchers and biopharmaceutical and diagnostics companies world-wide as the premier solution for the detection of Nf-L to advance the development of therapeutics and diagnostics for neurodegenerative conditions. 72 Table of Contents As ofDecember 31, 2019 , we had cash and cash equivalents of$109.2 million . Since inception, we have incurred net losses. Our net loss was$40.8 million ,$31.5 million , and$27.0 million for the years endedDecember 31, 2019 , 2018, and 2017, respectively. As ofDecember 31, 2019 , we had an accumulated deficit of$216.2 million and stockholders' equity of$128.7 million . We expect to continue to incur significant expenses and operating losses at least through the next 24 months. We expect our expenses will increase substantially as we:
· expand our sales and marketing efforts to further commercialize our products;
· strategically acquire companies or technologies that may be complementary to
our business;
· expand our research and development efforts to improve our existing products
and develop and launch new products, particularly if any of our products are
deemed by the
devices or otherwise subject to additional regulation by the FDA;
· seek premarket approval, or PMA, or 510(k) clearance from the FDA for our
existing products or new products if or when we decide to market products for
use in the prevention, diagnosis or treatment of a disease or other condition;
· hire additional personnel and continue to grow our employee headcount;
· enter into collaboration arrangements, if any, or in-license other products and
technologies;
· add operational, financial and management information systems; and
· incur increased costs as a result of operating as a public company.
Financial Operations Overview
Revenue
Under Topic 606, an entity recognizes revenue when its customer obtains control
of promised goods or services, in an amount that reflects the consideration that
the entity expects to receive in exchange for those goods or services. To
determine revenue recognition for arrangements that an entity determines are
within the scope of Topic 606, the entity performs the following five steps: (i)
identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price, including
variable consideration, if any; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize revenue when (or as)
the entity satisfies a performance obligation. We only apply the five-step model
to contracts when it is probable that the entity will collect the consideration
to which it is entitled in exchange for the goods or services it transfers to
the customer.
Once a contract is determined to be within the scope of Topic 606, we assess the
goods or services promised within each contract and determine those that are
performance obligations. Arrangements that include rights to additional goods or
services that are exercisable at a customer's discretion are generally
considered options. We assess if these options provide a material right to the
customer and if so, they are considered performance obligations. The
identification of material rights requires judgments related to the
determination of the value of the underlying license relative to the option
exercise price, including assumptions about technical feasibility and the
probability of developing a candidate that would be subject to the option
rights. The exercise of a material right is accounted for as a contract
modification for accounting purposes.
The transaction price is then determined and allocated to the identified
performance obligations in proportion to their standalone selling prices ("SSP")
on a relative SSP basis. SSP is determined at contract inception and is not
updated to reflect changes between contract inception and when the performance
obligations are satisfied. Determining the SSP for performance obligations
requires significant judgment. In developing the SSP for a performance
obligation, we consider applicable market conditions and relevant
entity-specific factors, including factors that were contemplated in negotiating
the agreement with the customer and estimated costs. We validate the SSP for
performance obligations by evaluating whether changes in the key assumptions
used to determine the SSP will have a significant effect on the allocation of
arrangement consideration between multiple performance obligations.
We generate product revenue primarily from sales of our HD-X, HD1, SRX, and
SPX instruments and related reagents and other consumables. We currently sell
our products for research use only applications and our
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customers are primarily laboratories associated with academic and governmental research institutions, as well as pharmaceutical, biotechnology and contract research companies. Sales of our consumables have consistently increased due to an increasing number of instruments being installed in the field, all of which require certain of our consumables to run customers' specific tests. Consumable revenue consists of sales of complete assays which are developed internally by us, plus sales of "homebrew" kits which contain all the elements necessary to run tests with the exception of the specific antibodies utilized which are separately provided by the customer. Service and other revenue consists of testing services provided by us in ourAccelerator Laboratory on behalf of certain research customers, in addition to warranty and other servicebased revenue. Services provided in ourAccelerator Laboratory include sample testing, homebrew assay development and custom assay development.
Collaboration and license revenue consists of revenue associated with licensing our technology to third parties and for related services.
Cost of Products, Services and Collaboration Revenue
Cost of goods sold for products consists of HD-X, HD1, and SRX instrument costs from the manufacturer. Cost of goods sold for SPX consists of costs based on the internal assembly of this item. Raw material part costs, associated freight, shipping and handling costs, contract manufacturer costs, salaries,
personnel costs, royalties, stockbased compensation, overhead and other direct costs related to those sales are classified as cost of goods sold for products.
Cost of goods sold for services consists of salaries and other personnel costs, royalties, stockbased compensation and facility costs associated with operating theAccelerator Laboratory on behalf of customers, in addition to costs related to warranties and other costs of servicing equipment at customer sites.
Cost of collaboration revenue consists of royalty expense due to third parties from revenue generated by collaboration or license deals.
Research and Development Expenses
Research and development expenses consist of salaries and other personnel costs, stockbased compensation, research supplies, thirdparty development costs for new products, materials for prototypes, and allocated overhead costs that include facility and other overhead costs. We have made substantial investments in research and development since our inception, and plan to continue to make substantial investments in the future. Our research and development efforts have focused primarily on the tasks required to support development and commercialization of new and existing products. We believe that our continued investment in research and development is essential to our longterm competitive position and expect these expenses to increase in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and other personnel costs, and stockbased compensation for our sales and marketing, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services. We expect selling, general and administrative expenses to increase in future periods as the number of sales, technical support and marketing and administrative personnel grows and we continue to introduce new products, broaden our customer base and grow our business. We also expect to incur additional expenses as a public company, including expenses related to compliance with the rules and regulations of theSecurities and Exchange Commission and theNasdaq Stock Market , additional insurance expenses, and expenses related to investor relations activities and other administrative and professional services.
Critical Accounting Policies, Significant Judgments and Estimates
Our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10K are prepared in accordance with accounting principles generally accepted inthe United States . The 74
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preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates may occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other significant accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations. Our significant accounting policies are more fully described in "Significant Accounting Policies" (Note 2) in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10K.
Revenue Recognition
We recognize revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects consideration that we expect to be entitled to receive in exchange for these goods and services, incentives and taxes collected from customers, that are subsequently remitted to governmental authorities. We adoptedFinancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, or ASC 606, onJanuary 1, 2019 , using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for 2019 reflect the application of ASC 606 guidance, while the reported results for 2018 were prepared under ASC 605, Revenue Recognition
Product Revenue
Our products are composed of analyzer instruments, assay kits and other consumables such as reagents. Products are sold directly to biopharmaceutical and academic research organizations or are sold through distributors in EMEA andAsia Pacific regions. The sales of instruments are generally accompanied by an initial year of implied service-type warranties and may be bundled with assays and other consumables and may also include other items such as training and installation of the instrument and/or an extended service warranty. Revenues from the sale of products are recognized at a point in time when we transfer control of the product to the customer, which is upon installation for instruments sold to direct customers, and based upon shipping terms for assay kits and other consumables. Revenue for instruments sold to distributors is generally recognized based upon shipping terms (either upon shipment or delivery).
Service and Other Revenue
Service revenues are composed of contract research services, initial implied one-year service-type warranties, extended services contracts and other services such as training. Contract research services are provided through ourAccelerator Laboratory and generally consist of fixed fee contracts. Revenues from contract research services are recognized at a point in time when we complete and deliver our research report on each individually completed study, or over time if the contractual provisions allow for the collection of transaction consideration for costs incurred plus a reasonable margin through the period of performance of the services. Revenues from service-type warranties are recognized ratably over the contract service period. Revenues from other services are immaterial.
Collaboration and License Revenue
We may enter into agreements to license the intellectual property and know-how
associated with its instruments in exchange for license fees and future
royalties (as described below). The license agreements provide the licensee
with a right to use the intellectual property with the license fee revenues
recognized at a point in time as the underlying license is considered functional
intellectual property. We have recognized revenues from a sales- or usage based
royalties related to our licensing technology and intellectual property..
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Payment Terms
Our payment terms vary by the type and location of customer and the products or
services offered. Payment from customers is generally required in a term ranging
from 30 to 45 days from date of shipment or satisfaction of the performance
obligation with no discounts for early payment. Occasionally we do provide
extended payment terms or financing arrangements to customers.
Disaggregated Revenue
When disaggregating revenue, we considered all of the economic factors that may
affect revenues. The following tables disaggregate our revenue from contracts
with customers by revenue type:
Year Ended
December 31, 2019
(in thousands) NA EMEA Asia Pacific Total
Product revenues
Instruments $ 6,250 $ 5,243 $ 3,393 $ 14,886
Consumable and other products 14,148 9,674 1,783 25,605
Totals $ 20,398 $ 14,917 $ 5,176 $ 40,491
Service and other revenues
Service-type warranties $ 3,139 $ 1,323 $ 171 $ 4,633
Research services 8,845 704 456 10,005
Other services 825 565 31 1,421
Totals $ 12,809 $ 2,592 $ 658 $ 16,059
Collaboration and license revenue
Collaboration and license revenue $ 167 $ 17 $ - $ 184
Totals $ 167 $ 17 $ - $ 184
Our contracts with customers may include promises to transfer multiple products
and services to a customer. In accordance with ASC 606, we combine any
performance obligations that are immaterial with one or more other performance
obligations that are material to the contract. For arrangements with multiple
performance obligations, we allocate the contract transaction price, including
discounts, to each performance obligation based on its relative standalone
selling price. Judgment is required to determine the standalone selling price
for each distinct performance obligation. We determine standalone selling prices
based on prices charged to customers in observable transactions, and use a range
of amounts to estimate standalone selling prices for each performance
obligation. We may have more than one range of standalone selling price for
certain products and services based on the pricing for different customer
classes.
Variable consideration in our contracts primarily relates to (i) sales- and
usage-based royalties related to the license of intellectual property in
collaboration and license contracts and (ii) certain non-fixed fee research
services contracts. ASC 606 provides for an exception to estimating the variable
consideration for sales- and usage-based royalties related to the license of
intellectual property, such that the sales- or usage-based royalty will be
recognized in the period the underlying transaction occurs. We have recorded
sales- or usage-based royalty revenue for the year ended December 31, 2019
related to the intellectual property licensed by Uman . We recognize revenues
from sales- or usage based royalty revenue at the later of when the sales or
usage occurs; and the satisfaction or partial satisfaction of the performance
obligation to which the royalty has been allocated.
The aggregate amount of transaction price that is allocated to performance
obligations that have not yet been satisfied or are partially satisfied as of
December 31, 2019 is $5.2 million . Of the performance obligations not yet
satisfied or are partially satisfied, $4.7 million is expected to be recognized
as revenue in the next 12 months, with the remainder to be recognized within the
24 months thereafter. The $5.2 million principally consists of $3.0 million
billed
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for undelivered services related to initial and extended service-type warranties
and research services, as well as $1.7 million related to undelivered licenses
of intellectual property for a diagnostics company (see Note 2).
We have classified the balance of capitalized costs to obtain a contract as a
component of prepaid expenses and other current assets as of December 31, 2019
and classified the expense as a component of cost of goods sold and selling,
general and administrative expense over the estimated life of the contract. We
consider potential impairment in these amounts each period.
ASC 606 provides entities with certain practical expedients and accounting policy elections to minimize the cost and burden of adoption.
We exclude from the transaction price any amounts collected from customers related to sales and other similar taxes.
When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. We do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less. None of our contracts contained a significant financing component as ofDecember 31, 2019 .
We have elected to account for the shipping and handling as an activity to fulfill the promise to transfer the product, and therefore will not evaluate whether shipping and handling activities are promised services to its customers.
StockBased Compensation We account for stockbased compensation awards in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires all stockbased payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Stockbased compensation awards have historically consisted of stock options and restricted stock. Prior to adoption of Accounting Standards Update (ASU) No. 2016-09 Compensation-Stock Compensation (ASU 201609) onJanuary 1, 2017 , we recognized compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. EffectiveJanuary 1, 2017 , we ceased utilizing an estimated forfeiture rate and began recognizing forfeitures as they occur. We estimate the grant date fair value, and the resulting stockbased compensation expense, using the BlackScholes optionpricing model. The grant date fair value of the stockbased awards is generally recognized on a straightline basis over the requisite service period, which is generally the vesting period of the respective awards. We recognize compensation costs related to sharebased payments granted to nonemployees, which consist of directors for their services on our board of directors, based on the estimated fair value of the awards on the date of grant in the same manner as options for employees; however, the fair value of the stock options granted to nonemployees is remeasured each reporting period until the service is complete, and the resulting increase or decrease in value, if any, is recognized as expense or income, respectively, during the period the related services are rendered to the same financial statement line item as any cash consideration would be recognized. There were no material nonemployee awards outstanding during the years endedDecember 31, 2019 , 2018, and 2017. 77 Table of Contents
The fair value of stock options granted to employees and non-employees is estimated on the grant date using the BlackScholes optionpricing model, based on the assumptions noted in the following table:
Year Ended December 31,
2019 2018 2017
Risk-free interest rate 1.4% - 2.6% 2.6% - 3.0% 1.8% - 2.1%
Expected dividend yield None None None
Expected term (in years) 6.0 5.9 6.0
Expected volatility 33.5% - 39.7% 32.4% - 36.8% 46.0% - 52.0%
Using the BlackScholes optionpricing model, the weightedaverage grant date
fair value of options granted for the years ended December 31, 2019 , 2018, and
2017 was $9.09 , $7.19 , and $4.52 per share, respectively. Expected volatility
was calculated based on reported volatility data for a representative group of
guideline publicly traded companies for which historical information was
available. The riskfree interest rate is based on the U.S. Treasury yield curve
in effect at the time of grant, commensurate with the expected life assumption.
We estimate the expected life of options granted to employees utilizing the
simplified method which calculates the expected life of an option as the average
of the time to vesting and contractual life of the options. The expected life is
applied to the stock option grant group as a whole, as we do not expect
substantially different exercise or postvesting termination behavior among our
employee population. We use the simplified method due to the lack of historical
exercise data and the plain nature of the stock options. We use the remaining
contractual term for the expected life of nonemployee awards. The expected
dividend yield is assumed to be zero as we have never paid dividends and have no
current plans to pay any dividends on common stock.
For the years ended
The table below summarizes the stockbased compensation expense recognized in our statements of operations by classification (in thousands):
Year Ended December 31,
2019 2018 2017
Cost of product revenue $ 86 $ 55 $ 24
Cost of service and other revenue 238 173 52
Research and development 718 513 180
General and administrative 5,346 4,143 1,912
Total $ 6,388 $ 4,884 $ 2,168
As of December 31, 2019 , we had $15.6 million of total unrecognized stockbased
compensation costs which we expect to recognize over a weightedaverage period
of 2.77 years.
Prior to our initial public offering (IPO), the fair value of our common stock
underlying our stock options was estimated on each grant date by our board of
directors. In order to determine the fair value of our common stock underlying
granted stock options, our board of directors considered, among other things,
the most recent valuations of our common stock prepared by an unrelated
thirdparty valuation firm in accordance with the guidance provided by the
American Institute of Certified Public Accountants Practice Guide , Valuation of
PrivatelyHeldCompany Equity Securities Issued as Compensation.
Given the absence of a public trading market for our common stock, our board of
directors exercised reasonable judgment and considered a number of objective and
subjective factors to determine the best estimate of the fair value of our
common stock, including (1) our business, financial condition and results of
operations, including related industry trends affecting our operations; (2) our
forecasted operating performance and projected future cash flows discounted to
present value using our estimated weighted average cost of capital; (3) the
illiquid nature of our common stock; (4) liquidation preferences and other
rights and privileges of our preferred stock over our common stock;
(5) likeliness and estimated timing of the potential option to have our stock
become publicly traded; (6) market multiples of our most
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comparable public peers; (7) recently completed equity financing transactions; and (8) market conditions affecting our industry.
Since the completion of our IPO, we have determined the fair value of each common share underlying sharebased awards based on the closing price of our common shares as reported by Nasdaq on the date of grant.
Results of Operations
Comparison of the Years EndedDecember 31, 2019 andDecember 31, 2018 (dollars in thousands): Year Ended Year Ended December 31, % of December 31, % of $ % 2019 revenue 2018 revenue change change Product revenue $ 40,491 72 % $ 23,365 62 %$ 17,126 73 % Service and other revenue 16,059 28 %
12,117 32 % 3,942 33 % Collaboration and license revenue
184 - % 2,150 6 % (1,966) (91) %
Total revenue 56,734 100 % 37,632 100 % 19,102 51 %
Cost of goods sold:
Cost of product revenue 20,900 37 % 12,729 34 % 8,171 64 %
Cost of service revenue 8,998 16 % 6,955 18 % 2,043 29 % Total costs of goods sold and services
29,898 53 % 19,684 52 % 10,214 52 %
Gross profit 26,836 47 % 17,948 48 % 8,888 50 %
Operating expenses:
Research and development 16,190 29 % 15,805 42 % 385 2 %
Selling, general and administrative 52,246 92 % 33,693 90 % 18,553 55 %
Total operating expense 68,436 121 % 49,498 132 % 18,938 38 %
Loss from operations (41,600) (73) % (31,550) (84) % (10,050) (32) % Interest income (expense), net
627 1 % 46 - % ` 581 1,263 %
Other income (expense), net (10) - % (7) - % (3) (43) %
Loss before income taxes (40,983) (72) % (31,511) (84) % (9,472) (30) % Income tax benefit (provision)
187 - % (25) - % 212 848 %
Net loss $ (40,796) (72) % $ (31,536) (84) % $ (9,260) (29) %
Revenue
Revenue increased by $19.1 million , or 51%, to $56.7 million for the year ended
December 31, 2019 as compared to $37.6 million for the year ended December 31,
2018 . Product revenue consisted of sales of instruments totaling $14.9 million
and sales of consumables and other products of $25.6 million for the year ended
December 31, 2019 . Product revenue consisted of sales of instruments totaling
$9.6 million and sales of consumables and other products totaling $13.8 million
for the year ended December 31, 2018 . Average sales prices of instruments and
consumables did not change materially for the year ended December 31, 2019 as
compared with the year ended December 31, 2018 . The increase in product revenue
of $17.1 million was primarily due to the sale of more instruments for the year
ended December 31, 2019 and increased sales of consumables. The installed base
of instruments increased from December 31, 2018 to December 31, 2019 , and as
these additional instruments were used by customers, the consumables sales
increased. The increase in service and other revenue of $3.9 million was
primarily due to increased services performed in our Accelerator Laboratory ;
more customers use these services, and existing customers use these services
more frequently. In addition, an increase in purchased warranties contributed to
the service and other revenue increase. Collaboration and license revenue for
the year ended December 31, 2019 of $0.2 million was related to licensing
technology and intellectual property. Collaboration and license revenue for the
year ended December 31, 2018 of $2.2 million was related to the termination of
the collaboration arrangement with bioMérieux.
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Cost of Goods Sold and Services
Cost of product revenue increased by$8.2 million , or 64%, to$20.9 million for the year endedDecember 31, 2019 as compared to$12.7 million for the year endedDecember 31, 2018 . The increase was primarily due to an increase in sales of consumables and instruments, along with costs incurred from the amortization of theUman acquisition-related inventory valuation adjustment and acquired intangibles. Cost of service revenue increased to$9.0 million for the year endedDecember 31, 2019 from$7.0 million for the year endedDecember 31, 2018 . The increase was primarily due to higher utilization of theAccelerator Laboratory , plus increased personnel costs from the build out of our field service and Accelerator organization. Overall cost of goods sold and services as a percentage of revenue increased slightly to 53% of total revenue for the year endedDecember 31, 2019 as compared to 52% for the year endedDecember 31, 2018 , primarily as a result of the impact of the collaboration arrangement with bioMérieux during the year endedDecember 31, 2018 and the impact of theUman acquisition-related charges during the year endedDecember 31, 2019 .
Research and Development Expense
Research and development expense increased slightly by$0.4 million , or 2%, to$16.2 million for the year endedDecember 31, 2019 as compared to$15.8 million for the year endedDecember 31, 2018 . The increase was primarily due to the development of the SP-X and HD-X and increased headcount in research and development.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by$18.6 million , or 55%, to$52.2 million for the year endedDecember 31, 2019 as compared to$33.7 million for the year endedDecember 31, 2018 . The increase was primarily due to headcount additions in various departments as we build out our organization to support future growth, public company costs, the lease for the new headquarters, and stock-based compensation expense. In addition, we incurred approximately$1.9 million in costs associated with the acquisition ofUman during the year endedDecember 31, 2019 .
Interest Income (Expense), Net and Other Income (Expense), Net
Interest income (expense), net and other income (expense), net increased by$0.6 million for the year endedDecember 31, 2019 as compared to the same period in 2018, primarily due to the interest income earned on cash equivalents, which increased due to our "at-the-market" and underwritten public offerings completed during 2019.
Income Tax Benefit (Provision)
Income tax benefit was$0.2 million for the year endedDecember 31, 2019 as compared to a provision of less than$0.1 million for the same period in 2018. The increase is primarily due to certain state and international taxes in 2019, which we did not have in the prior year. 80
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Comparison of the Years EndedDecember 31, 2018 andDecember 31, 2017 (dollars in thousands): Year Ended Year Ended December 31, % of December 31, % of $ % 2018 revenue 2017 revenue change change Product revenue $ 23,365 62 % $ 14,124 62 %$ 9,241 65 % Service and other revenue 12,117 32 % 7,676 34 % 4,441 58 % Collaboration and license revenue 2,150 6 % 1,074 5 % 1,076 100 % Total revenue 37,632 100 % 22,874 100 % 14,758 65 % Costs of goods sold: Cost of product revenue 12,729 34 % 7,742 34 % 4,987 64 % Cost of services revenue 6,955 18 % 5,145 22 % 1,810 35 % Total costs of goods sold and services 19,684 52 % 12,887 56 % 6,797 53 % Gross profit 17,948 48 % 9,987 44 % 7,961 80 % Operating expenses: Research and development 15,805 42 % 16,304 71 % (499) (3) % Selling, general and administrative 33,693 90 % 19,688 86 % 14,005 71 % Total operating expenses 49,498 132 % 35,992 157 % 13,506 38 % Loss from operations (31,550) (84) % (26,005) (114) % (5,545) (21) % Interest income (expense), net 46 - % (951) (4) % 997 105 % Other income (expense), net (7) - % (63) - % 56 89 % Loss before income taxes (31,511) (84) % (27,019) (118) % (4,492) (17) % Income tax benefit (provision) (25) - % - - % (25) (100) % Net loss$ (31,536) (84) %$ (27,019) (118) %$ (4,517) (17) % Revenue Revenue increased by$14.8 million , or 65%, to$37.6 million for the year endedDecember 31, 2018 as compared to$22.9 million for the year endedDecember 31, 2017 . Product revenue consisted of sales of instruments totaling$9.6 million and sales of consumables and other products of$13.8 million for the year endedDecember 31, 2018 . Product revenue consisted of sales of instruments totaling$6.5 million and sales of consumables and other products totaling$7.6 million for the year endedDecember 31, 2017 . Average sales prices of instruments and consumables did not change materially in the year endedDecember 31, 2018 as compared with the year endedDecember 31, 2017 . The increase in product revenue of$9.2 million was primarily due to the sale of more instruments in the year endedDecember 31, 2018 and increased sales of consumables. The installed base of Simoa instruments increased fromDecember 31, 2017 toDecember 31, 2018 , and as these additional instruments were used by customers, the consumables sales increased. The increase in service and other revenue of$4.4 million was due to increased services performed in ourAccelerator Laboratory ; more customers are using these services, and existing customers are using theAccelerator Laboratory more frequently. In addition, an increase in purchased warranties contributed to the service and other revenue increase. Collaboration and license revenue in the year endedDecember 31, 2018 included$2.1 million in revenue related to the termination of the collaboration arrangement with bioMérieux in the third quarter of 2018.
Cost of Goods Sold and Services
Cost of product revenue increased by$5.0 million , or 64%, to$12.7 million for the year endedDecember 31, 2018 as compared to$7.7 million for the year endedDecember 31, 2017 . The increase was primarily due to increased sales of consumables and instruments. Cost of service revenue increased to$7.0 million for the year endedDecember 31, 2018 from$5.1 million for the year endedDecember 31, 2017 . The increase was primarily due to higher utilization of theAccelerator Laboratory , plus increased personnel costs from the build out of our field service organization. Overall cost of goods sold and services as a percentage of revenue decreased to 52% of total revenue for the year endedDecember 31, 2018 as compared to 56% for the year endedDecember 31, 2017 , primarily as a result of the change in revenue mix to more consumables revenue and collaboration revenue in 2018. 81
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Research and Development Expense
Research and development expense decreased slightly by$0.5 million , or 3%, to$15.8 million for the year endedDecember 31, 2018 as compared to$16.3 million for the year endedDecember 31, 2017 . The decrease was primarily due to a reduction in outside development costs related to our SRX instrument for which development was completed and product launched commercially in the fourth quarter of 2017. The reduction in project costs for the SRX instrument offset an increase in research and development costs due to increased headcount in research and development and the increased use of outside development firms as we increased our new product development efforts.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by$14.0 million , or 71%, to$33.7 million for the year endedDecember 31, 2018 as compared to$19.7 million for the same period in 2017. The increase was primarily due to headcount additions in various departments as we build out our organization to support future growth, public company costs, transaction fees, and amortization of intangibles associated with the Aushon acquisition, and stock compensation expense.
Interest Income (Expense), Net and Other Income (Expense), Net
Interest income (expense), net and other income (expense), net increased by$1.1 million , to a net income position of less than$0.1 million for the year endedDecember 31, 2018 as compared to$1.0 million of net expense for the same period in 2017, primarily due to an increase in the interest income as a result of the higher cash balance in 2018.
Income Tax Benefit (Provision)
Tax provision increased by less than$0.1 million to an amount less$0.1 million for the year endedDecember 31, 2018 . The increase is primarily due to certain state taxes in 2018, which we did not have in the prior year.
Liquidity and Capital Resources
Since our inception, we have incurred net losses and negative cash flows from operations. We incurred net losses of$40.8 million ,$31.5 million and$27.0 million and used$26.2 million ,$28.7 million and$22.1 million of cash from our operating activities for the years endedDecember 31, 2019 , 2018, and 2017, respectively. As ofDecember 31, 2019 , we had an accumulated deficit of$216.2 million .
As of
Sources of Liquidity
To date, we have financed our operations principally through equity offerings, borrowings from credit facilities and revenue from our commercial operations.
Equity Offerings
InDecember 2017 , we completed our IPO in which we sold 4,916,480 shares of common stock at an initial public offering price of$15.00 per share. The aggregate net proceeds received by us from the offering, net of underwriting discounts and commissions and offering expenses, were$65.6 million . Prior to the IPO, we had raised capital through the sale of redeemable convertible preferred stock in private placement transactions. OnMarch 19, 2019 , we entered into a Sales Agreement for an "at-the-market offering" arrangement with Cowen, which allows us to issue and sell shares of common stock pursuant to a shelf registration statement for total gross sales proceeds of up to$50.0 million from time to time through Cowen, acting as our agent. During the nine 82 Table of Contents
months ended
OnAugust 8, 2019 , we entered into an underwriting agreement withJ.P. Morgan Securities LLC andSVB Leerink LLC , as representatives of the several underwriters, relating to an underwritten public offering of 2,732,673 shares of common stock at a public offering price of$25.25 per share. We received$69.0 million in gross proceeds and$64.5 million in net proceeds. Loan Facility with Hercules OnApril 14, 2014 , we executed a Loan Agreement with Hercules Capital, Inc. (formerly known asHercules Technology Growth Capital, Inc. ), as subsequently amended, most recently inApril 2019 . The Loan Agreement provided a total debt facility of$10.0 million , which is secured by substantially all of our assets. At closing, we borrowed$5.0 million in principal and had the ability to draw the additional$5.0 million over the period fromNovember 1, 2014 toMarch 31, 2015 . The interest rate on this term loan was variable based on a calculation of 8% plus the prime rate less 5.25%, with a minimum interest rate of 8%. Interest was to be paid monthly beginning the month following the borrowing date. Principal payments were scheduled to begin onSeptember 1, 2015 , unless we achieved certain milestones which would have extended this date toDecember 1, 2015 orMarch 1, 2016 . In connection with the execution of the Loan Agreement, we issued Hercules a warrant to purchase up to 173,428 shares of our Series C Preferred Stock at an exercise price of$3.3299 per share. Upon closing of the IPO, this warrant was automatically converted into a warrant to purchase up to 53,960 shares of our common stock at an exercise price of$10.70 per share. InAugust 2018 , we signed Amendment 5 to the Loan Agreement, which extends the interest only payment period throughMarch 1, 2020 and also extends the loan maturity date toMarch 1, 2020 . We accounted for theAugust 2018 amendment as a modification pursuant to ASC 47050 and determined that no material change occurred as a result of the modification. In addition, the amendment deferred the payment of principal until the maturity date.$0.1 million of end of term payments are dueMarch 2020 . InOctober 2018 , we signed Amendment 6 to the Loan Agreement, which amends the Loan Agreement's collateral clause to exclude the$1 million certificate of deposit associated with the lease on our new headquarters inBillerica, Massachusetts . The Loan Agreement and amendments contain end of term payments and are recorded in the debt accounts.$0.5 million of end of term payments were paid during the year endedDecember 31, 2018 . OnApril 15, 2019 , we entered into Amendment No. 7 to the Loan Agreement, which extends the interest only payment period throughJuly 1, 2021 and also extends the loan maturity date toOctober 1, 2021 . We are required to pay the loan principal in five equal installments startingJuly 1, 2021 with the final principal payment to be made onOctober 1, 2021 . OnJuly 2, 2019 , 66,041 warrants were exercised by Hercules on a net, non-cash, basis. Per the terms of the warrant agreement, we issued 45,690 shares of common stock as a result of the net exercise. The Loan Agreement and amendments contain end of term payments and are recorded in the debt accounts. No end of term payments were paid in the year endedDecember 31, 2019 . The Loan Agreement contains negative covenants restricting our activities, including limitations on dispositions, mergers or acquisitions, incurring indebtedness or liens, paying dividends or making investments and certain other business transactions. There are no financial covenants associated with the Loan Agreement. The obligations under the Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition, which is subjective in nature. We have determined that the risk of subjective acceleration under the material adverse events clause is not probable and therefore have classified the outstanding principal in current and longterm liabilities based on scheduled principal payments. 83
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Debt principal repayments, including the end of term fees, due as of
Years ending December 31,
2020 $ 75
2021 7,738
$ 7,813
Uman Acquisition
In August 2019 , we completed the acquisition of Uman , in which we paid $15.7
million in cash to the shareholders of Uman . We funded this payment through our
existing cash balances. In addition, we issued $5.5 million in stock in
connection with the purchase of Uman . The acquisition closed with respect to 95%
of the outstanding shares of capital stock of Uman on July 1, 2019 and with
respect to the remaining 5% of the outstanding shares of capital stock of Uman
on August 1, 2019 .
Cash Flows
The following table presents our cash flows for each period presented (in
thousands):
Year Ended December 31,
2019 2018 2017
Net cash used in operating activities $ (26,187) $ (28,721) $ (22,106)
Net cash used in investing activities (25,376) (5,454) (1,132)
Net cash provided by (used in) financing activities 116,197 (78) 73,249
Net increase (decrease) in cash and cash equivalents $ 64,634 $ (34,253) $ 50,011 We derive cash flows from operations primarily from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business. We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure and this may continue in the future. Net cash used in operating activities was$26.2 million during the year endedDecember 31, 2019 . Net cash used in operating activities primarily consisted of net loss of$40.8 million offset by non-cash charges of$6.4 million of stock-based compensation expense,$3.0 million of depreciation and amortization expense, and$0.6 of inventory valuation adjustment amortization. Cash provided as a result of changes in operating assets and liabilities of$4.4 million was primarily due to a$9.8 million increase in other non-current liabilities related to our new lease, offset by an increase in accounts receivable of$3.4 million , and an increase in inventory of$3.4 million . Net cash used in operating activities was$28.7 million during the year endedDecember 31, 2018 . Net cash used in operating activities primarily consisted of net loss of$31.5 million , a decrease of$1.9 million in deferred revenue and an increase of$1.6 million in inventory, primarily offset by noncash stock compensation expense of$4.9 million and an increase of$1.3 million in accounts payable. Net cash used in operating activities was$22.1 million during the year endedDecember 31, 2017 . Net cash used in operating activities primarily consisted of net loss of$27.0 million and an increase of$2.0 million in inventory and an increase in accounts receivable of$1.7 million , primarily offset by non-cash stock compensation expense of$2.2 million , an increase of$2.9 million in deferred revenue, an increase of$2.0 million in accrued expenses and an increase of$1.0 million in accounts payable. 84
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Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure and work force. We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods.
We used
We used
We used
Net Cash Provided by (Used in) Financing Activities
Historically, we have financed our operations principally through private placements of our convertible preferred stock and borrowings from credit facilities, the sale of shares of our common stock in our IPO or other offerings and revenues from our commercial operations.
Financing activities provided
We used
We generated$73.2 million of cash in financing activities during the year endedDecember 31, 2017 , which primarily was from the sale of 4,916,480 shares of common stock in our IPO inDecember 2017 for net proceeds of$65.6 million , and the sale of 2,113,902 shares of our Series D-1 Preferred Stock inJune 2017 for net proceeds of$8.4 million , which was partially offset by payments of outstanding debt.
Capital Resources
We have not achieved profitability on a quarterly or annual basis since our
inception, and we expect to continue to incur net losses in the future. We also
expect that our operating expenses will increase as we continue to increase our
marketing efforts to drive adoption of our commercial products. Additionally, as
a public company, we have incurred and will continue to incur significant audit,
legal and other expenses that we did not incur as a private company. Our
liquidity requirements have historically consisted, and we expect that they will
continue to consist, of sales and marketing expenses, research and development
expenses, working capital, debt service and general corporate expenses.
We believe cash generated from commercial sales, our current cash and cash
equivalents, and interest income we earn on these balances will be sufficient to
meet our anticipated operating cash requirements for the next 12 months. In the
future, we expect our operating and capital expenditures to increase as we
increase headcount, expand our sales and marketing activities and grow our
customer base. Our estimates of the period of time through which our financial
resources will be adequate to support our operations and the costs to support
research and development and our sales and marketing activities are
forwardlooking statements and involve risks and uncertainties and actual
results could vary materially and negatively as a result of a number of factors,
including the factors discussed in Item 1A, "Risk Factors" of this Annual Report
on Form 10K. We have based our estimates on assumptions that may prove to be
wrong and we
85
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could utilize our available capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including:
· market acceptance of our products, including our SPX, SR-X and HD-X
instruments;
· the cost and timing of establishing additional sales, marketing and
distribution capabilities;
· the cost of our research and development activities;
· our ability to enter into collaborations in the future, and the success of any
such collaborations;
· the cost and timing of potential regulatory clearances or approvals that may be
required in the future for our products; and
· the effect of competing technological and market developments.
We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equitylinked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations. If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity or debt offerings or other financings. OnMarch 19, 2019 , we filed a universal shelf registration statement on Form S-3, which was declared effective by theSEC onMay 10, 2019 , and pursuant to which we registered for sale up to$200 million of any combination of our common stock, preferred stock, debt securities, warrants, rights, and/or units from time to time and at prices and on terms that we may determine. After the sales of shares of common stock in our "at-the-market" offering duringJune 2019 , and the sale of 2,732,673 shares of common stock in our underwritten public offering inAugust 2019 , approximately$81.3 million of securities remained available for issuance under this shelf registration statement. This registration statement will remain in effect up toMay 10, 2022 .
OffBalance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any
offbalance sheet arrangements, as defined under applicable
Contractual Obligations, Commitments and Contingencies
Loan Facility with Hercules
On
Technology Growth Capital, Inc. ), as subsequently amended, most recently inApril 2019 . The Loan Agreement provided a total debt facility of$10.0 million , which is secured by substantially all of our assets. At closing, we borrowed$5.0 million in principal and had the ability to draw the additional$5.0 million over the period fromNovember 1, 2014 toMarch 31, 2015 . The interest rate on this term loan was variable based on a calculation of 8% plus the prime rate less 5.25%, with a minimum interest rate of 8%. Interest was to be paid monthly beginning the month following the borrowing date. Principal payments were scheduled to begin onSeptember 1, 2015 , unless we achieved certain milestones which would have extended this date toDecember 1, 2015 orMarch 1, 2016 . In connection with the execution of the Loan Agreement, we issued Hercules a warrant to purchase up to 173,428 shares of our Series C Preferred Stock at an exercise price of$3.3299 per share. Upon closing of the IPO, this warrant was automatically converted into a warrant to purchase up to 53,960 shares of our common stock at an exercise price of$10.70 per share. 86 Table of Contents The following table summarizes our contractual obligations as ofDecember 31, 2019 (in thousands): Payments due by period Less than 1 to 3 3 to 5 More than (in thousands) 1 Year years years 5 years Total Contractual Obligations:(1) Operating lease obligations$ 2,081 $ 6,718 $ 7,037 $ 22,203 $ 38,039 Principal payments and end of term fees on the term loan 75 7,738 - - 7,813 Total$ 2,156 $ 14,456 $ 7,037 $ 22,203 $ 45,852
--------------------------------------------------------------------------------
(1) See "Development and Supply Agreement" for additional contractual
obligations.
We currently lease approximately 91,600 square feet of office, laboratory, and manufacturing space at our headquarters inBillerica, Massachusetts . The premises covered by this new lease serves as our principal office and laboratory space effective the second quarter of 2019. The initial term of the lease is 11 years and five months beginning onApril 1, 2019 , and we have the option to extend the lease for two additional fiveyear periods. We previously leased approximately 30,655 square feet of office, laboratory, and manufacturing space as our headquarters inLexington, Massachusetts , which was to expire onJune 30, 2020 ; however inNovember 2018 , we agreed to terminate the lease with the lessor effectiveMay 2019 . The termination of the lease was connected to us signing the new lease inOctober 2018 for our new headquarters inBillerica . In addition, pursuant to our acquisition of Aushon inJanuary 2018 , we assumed a lease of approximately 21,500 square feet of office, laboratory, and manufacturing space inBillerica, Massachusetts , under a lease that was to expire onFebruary 28, 2021 ; however, inAugust 2018 , we exercised an option to terminate the lease effective as ofSeptember 1, 2019 . We paid a termination fee of$75,000 inFebruary 2019 in consideration for the early termination.
In addition, our subsidiary, Uman, leases a total of approximately 6,500 square
feet of office, laboratory, manufacturing and storage space in Umeå,
These leases expire at various dates between
We also have ongoing obligations related to license agreements which contain immaterial minimum annual payments that are credited against the actual royalty expense. Purchase orders or contracts for the purchase of supplies and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current procurement or development needs and are fulfilled by our vendors within short time horizons.
Development and Supply Agreement
We do not have significant agreements, with the exception of the supply agreement with STRATEC, for the purchase of supplies or other goods specifying minimum quantities or set prices that exceed our expected requirements for the next three to six months. STRATEC manufactured our HD1 instrument and manufactures the HDX that we commercialized in the second half of 2019. In 2013, we entered into the Supply Agreement with STRATEC which requires us to purchase a minimum number of commercial units over a sevenyear period ending inMay 2021 . We could be obligated to pay a fee based on the shortfall of commercial units purchased compared to the required number. Based on the commercial units purchased as ofDecember 31, 2019 , assuming no additional commercial units were purchased thereafter but prior toMay 2021 , this fee would equal$9.6 million . The amount we could be obligated to pay under the minimum purchase commitment is reduced as each commercial unit is purchased. We believe that we will purchase sufficient units to meet the requirements of the minimum purchase commitment and, therefore, have not accrued for any of the minimum purchase commitment. 87 Table of Contents Also, if we terminate the Supply Agreement under certain circumstances and do not purchase up to a required number of commercial units, we would be required to issue warrants to purchase 93,341 shares of common stock at$0.003214 per share. We believe that we will not issue such warrants and therefore have not recorded any amounts related to the potential equity consideration. InAugust 2011 , we entered into the Development Agreement with STRATEC, pursuant to which STRATEC undertook the development of the HD1 for manufacture and sale to us or a partner whom we designate. During the year endedDecember 31, 2016 , the Development Agreement was amended to modify the deliverables related to the final milestone, to agree on instrument design changes to be implemented, and to reduce the minimum purchase commitment in the Supply Agreement. Additionally, the parties agreed on additional development services for a total fee of$1.5 million , which is payable when development is completed and of which$0.9 million was paid in 2018 and$0.6 million was paid in 2019. The total amount included the final milestone payment that was due under the terms of the original agreement. Backlog
We generally expect to ship all instrument and consumable orders received in a given period with the exception of orders received near the end of a fiscal quarter; and as a result, our backlog at the end of any period is typically insignificant.
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