ACCELERATE DIAGNOSTICS, INC. Introductory Note
Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q (this "Form 10-Q") to the "Company," "Accelerate," "we," "us" or "our" are references to the combined business ofAccelerate Diagnostics, Inc. The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") summarizes the significant factors affecting our results of operations, liquidity, capital resources and contractual obligations. The following discussion and analysis should be read in conjunction with the Company's unaudited condensed consolidated financial statements and related notes included elsewhere herein.
All amounts in the MD&A have been rounded to the nearest thousand unless otherwise indicated.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements, which can be identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "estimate," or "continue," or variations thereon or comparable terminology, include but are not limited to, statements about our future development plans and growth strategy, including plans and objectives relating to our future operations, products and performance; projections as to when certain key business milestones may be achieved; our liquidity and capital requirements; expectations regarding the potential or benefits of our products and technologies; projections of future demand for our products; our continued investment in new product development to both enhance our existing products and bring new ones to market; the anticipated impacts from the COVID-19 pandemic on the Company, including to our business, results of operations, cash flows and financial position, as well as our future responses to the COVID-19 pandemic; our expectations relating to current supply chain impacts and inflationary pressures, including our belief that we currently have sufficient inventory of Accelerate Pheno system instruments to limit the impact of cost increases on such devices; our expectations regarding our commercial partnership withBecton , Dickinson and Company ("BD"), including anticipated benefits from such collaboration; and our belief that we will obtain approval from theU.S. Food and Drug Administration ("FDA") to market our Accelerate Arc product. In addition, all statements other than statements of historical facts that address activities, events, or developments the Company expects, believes, or anticipates will or may occur in the future, and other such matters, are forward-looking statements. Future events and actual results could differ materially from those set forth in, contemplated or suggested by, or underlying the forward-looking statements. There can be no assurances that results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties, including the duration and severity of the ongoing COVID-19 pandemic, including any new variants that may become predominant; government and other third-party responses to it and the consequences for the global economy and the businesses of our suppliers and customers, such as the possibility of customer demand fluctuations, supply chain constraints and inflationary pressures; and its ultimate effect on our business, results of operations, cash flows and financial position, as well as our ability (or inability) to execute on our plans to respond to the COVID-19 pandemic. Other important factors that could cause our actual results to differ materially from those in our forward-looking statements include those discussed herein, and in other reports filed with theU.S. Securities and Exchange Commission (the "SEC") including but not limited to the risks in the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 10-K"), the section entitled "Risk Factors" in this Form 10-Q and in the Company's subsequent filings with theSEC . These forward-looking statements are also based on certain additional assumptions, including, but not limited to, that the Company will retain key management personnel, the Company will be successful in the commercialization of the Accelerate Pheno® system and the Accelerate Arc™ system, the Company will obtain sufficient capital to commercialize the Accelerate Pheno system and the Accelerate Arc system and continue development of complementary products, the Company will be successful in obtaining marketing authorization for its products from the FDA and other regulatory agencies and governing bodies, the Company will be able to protect its intellectual property, the Company's ability to respond effectively to technological change, the Company will 39 -------------------------------------------------------------------------------- accurately anticipate market demand for the Company's products and there will be no material adverse change in the Company's operations or business and general market and industry conditions. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. Any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
Accelerate is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections. Microbiology laboratories need new tools to address what theU.S. Centers for Disease Control and Prevention (the "CDC") calls one of the most serious healthcare threats of our time, antibiotic resistance. A significant contributing factor to the rise of resistance is the overuse and misuse of antibiotics, which is exacerbated by a lack of timely diagnostic results. The delay of identification and antibiotic susceptibility results is often due to the reliance by microbiology laboratories on traditional culture-based tests that often take two to three days to complete. Our technology platform is intended to address these challenges by delivering significantly faster testing of infectious pathogens in various patient sample types. Our first system to address these challenges is the Accelerate Pheno® system. The Accelerate PhenoTest® BC Kit, which is the first test kit for the system, is indicated as an aid, in conjunction with other clinical and laboratory findings, in the diagnosis of bacteremia and fungemia, both life-threatening conditions with high morbidity and mortality risk. The device provides identification ("ID") results followed by antibiotic susceptibility testing ("AST") for certain pathogenic bacteria commonly associated with or causing bacteremia. This test kit utilizes genotypic technology to identify infectious pathogens and phenotypic technology to conduct AST, which determines whether live bacterial cells are resistant or susceptible to a particular antimicrobial. This information can be used by physicians to rapidly modify antibiotic therapy to lessen adverse events, improve clinical outcomes, and help preserve the useful life of antibiotics. OnJune 30, 2015 , we declared our conformity to the European In Vitro Diagnostic Directive 98/79/EC and applied a CE mark to the Accelerate Pheno system and the Accelerate PhenoTest BC Kit for in vitro diagnostic use. OnFebruary 23, 2017 , theU.S. Food and Drug Administration (the "FDA") granted our de novo classification request to market the first version of our Accelerate Pheno system and Accelerate PhenoTest BC Kit. In 2017, we began selling the Accelerate Pheno system in hospitals inthe United States ,Europe , and theMiddle East . Consistent with our "razor" / "razor-blade" business model, revenues to date have principally been generated from the sale or leasing of the instruments and the sale of single use consumable test kits. InJuly 2021 , we launched our second test for use on the Accelerate Pheno system, the Accelerate PhenoTest BC Kit, AST configuration. This test kit runs antibiotic susceptibility testing following the input of an ID result from another system or methodology. InAugust 2021 , we announced that this new AST only configuration had been CE marked for use inEurope . We believe this new AST only configuration may be attractive to prospective customerswho already have a rapid ID system but still need fast susceptibility results to support getting patients on an optimal antibiotic therapy as soon as possible. In March andMay 2022 , we announced the launch and commercialization of the Accelerate ArcTM system and BC Kit ("Accelerate Arc Products"). This instrument and associated one-time-use test kit automates the clean-up and concentration of microbial cells from positive blood culture samples. InMay 2022 , we announced IVD registration of the Accelerate Arc system and BC Kit with the FDA as a Class I device exempt from FDA clearance requirements, and inJune 2022 we received CE IVDR registration for use inEurope . OnOctober 21, 2022 , the "Company announced it has been in recent discussions with the FDA regarding its Accelerate Arc Products. Pursuant to such discussions, the FDA has challenged the Company's commercialization of this product inthe United States as a Class I device exempt from 510(k) clearance requirements. The Company is in active dialogue with the FDA to determine the appropriate regulatory pathway. 40 -------------------------------------------------------------------------------- While these discussions are ongoing the Company has put on hold inthe United States its sales and marketing efforts of Accelerate Arc Products. The Company will continue marketing and distributing the Accelerate Arc Products inEurope pursuant to its existing CE In Vitro Diagnostic Regulation (IVDR) registration. InAugust 2022 , we entered into a sales and marketing agreement (the "Sales and Marketing Agreement") with BD pursuant to which BD will perform certain sales, tactical marketing, technical service call forwarding, order preparation, research and development support and/or regulatory activities on our behalf as our exclusive sales agent for certain of our products, including the Accelerate Pheno system, Accelerate Arc Products. The Sales and Marketing Agreement also grants to BD certain other rights to certain of our future products. We entered into the Sales and Marketing Agreement in order to leverage BD's expansive global sales team, benefit from natural synergies between BD's existing products and those from us, and reduce our sales and marketing expenses. We continue to invest in new product development to both enhance our existing products and bring new ones to market. Current research and development areas of focus include the potential addition, if authorized by the FDA, of new AST content to our Accelerate Pheno system, additional applications for the Accelerate Arc Products, and a next generation AST platform, which is being developed with the goal to have lower costs, higher throughput, and capability to test a broader set of sample types compared to the current Accelerate Pheno system.
COVID-19 and Supply Chain Impacts Update
In late 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced inWuhan, China , and spread globally. InMarch 2020 , theWorld Health Organization declared COVID-19 a global pandemic. The COVID-19 outbreak resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place, stay-at-home or total lock-down (or similar) orders and business limitations and shutdowns. New cases and hospitalizations have risen and fallen throughout the course of this pandemic. More recently, the emergence and spread of new variants of COVID-19 that are significantly more contagious than previous strains initially led many government authorities and businesses to reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants. While most of these restrictions have been lifted, uncertainty remains as to whether additional restrictions may be initiated or again reimplemented in response to surges in COVID-19 cases. The lingering impact of the COVID pandemic continues to create significant volatility throughout the global economy, including supply chain constraints, labor supply issues and higher inflation. Accordingly, it is unclear at this point the full impact COVID-19 and its variants will have on the global economy and on our Company. The COVID-19 pandemic, containment measures, and downstream impacts to hospital staffing and financial stability have caused, and are continuing to cause, business slowdowns in affected areas, both regionally and worldwide, as well as disruptions to global supply chains and workforce participation. These effects have significantly impacted our business and results of operations, starting in the first quarter of 2020 and continuing through the current quarter, albeit to a lesser degree. For example, we have experienced diminished access to our customers, including hospitals, which has severely limited our ability to sell and, to a lesser degree, implement previously contracted Accelerate Pheno systems. Hospital turnover resulting from burnout and vaccine mandates have further diverted the attention of hospital decision makers. In addition, in certain months with high rates of COVID-19 hospitalization, our Accelerate PhenoTest BC Kit orders declined as many hospitals curtailed elective surgeries to respond to COVID-19. The reduced new instrument sales and implementations caused by the COVID-19 pandemic lowered our realized and expected revenue growth for 2020 and 2021. In 2022, we began to see many of the detrimental effects of the pandemic on our business discussed above start to ease. For example, in recent quarters, we have seen bloodstream infection testing regain normalcy, which has in turn lessened the adverse impact of the COVID-19 pandemic on our recurring revenues through the sale of Accelerate PhenoTest BC Kits. However, with the emergence of COVID-19 variants, including the Omicron variant and its sub-variants, vaccine hesitancy and the prevalence of breakthrough cases of infection among fully vaccinated people, there remains uncertainty regarding our access to customers and prospects, demand for our products, and ability to implement our products. As a medical device company, we have not experienced any disruptions to our ability to manufacture our products at ourTucson, Arizona headquarters under the variousState of Arizona executive orders relating to the COVID-19 pandemic because we were classified as an essential service. We continue to expect that, should future orders be issued, we would be able to sustain our essential operations. Our third-party manufacturing supply chain for Accelerate Pheno systems and consumable test kits remains stable despite a high-degree of unpredictability in 41 -------------------------------------------------------------------------------- the broader supply chain environment. However, like many industries experiencing inflationary pressures in raw materials, the direct costs to manufacture our products are increasing and delivery schedules elongating. For example, we are currently experiencing unprecedented cost increases from many of our suppliers primarily as a result of the ongoing COVID-19 pandemic, labor and supply disruptions and increased inflation. The areas of cost increases include raw materials, components, and value-add supplier labor. We believe that we currently have sufficient inventory of Accelerate Pheno system instruments to limit the impact of cost increases on such devices. However, we are being impacted by cost increases to components and raw materials necessary for the production of our Accelerate Pheno kits. Our ability to pass increased material costs to many of our customers is limited because of long-term sales agreements with limits on price increases. Accordingly, we are closely monitoring the ability of all our suppliers to provide us with necessary materials and services at reasonable costs. See "Risk Factors- Risks Related to Our Business and Strategy-Disruptions in the supply of raw materials, consumable goods or other key product components, or issues associated with their quality from our single source suppliers, could result in a significant disruption in sales and profitability" in Part I, Item 1A of 2021 10-K for additional information. We continue to monitor the evolving impacts to our business caused by the COVID-19 pandemic. We may take further actions required by governmental authorities or that we determine are prudent to support the well-being of our employees, customers, suppliers, business partners and others. The degree to which the COVID-19 pandemic ultimately impacts our business, results of operations, cash flows and financial position will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the pandemic and its severity; the emergence and severity of its variants, including the Omicron variant and its subvariants; the actions to contain the virus or treat its impact, such as the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to use them; the financial impact of COVID-19 on hospitals, including to their budget priorities; hospital staffing issues; general economic factors, such as increased inflation; global supply chain constraints and the related increase in costs; labor supply issues; and how quickly and to what extent normal economic and operating conditions can resume. Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. Refer to the section entitled "Risk Factors" in the 2021 10-K for additional risks we face due to the COVID-19 pandemic, including risks relating to our supply chain.
Changes in Results of Operations: Three and nine months ended
The Company has provided enhanced information in a tabular format which presents
some of the captions presented on the statement of operations less non-cash
equity-based compensation expense. These figures are reconciled to the statement
of operations and are intended to add additional clarity on the operating
performance of the business. The Company believes providing such figures less
non-cash equity-based compensation expense provides helpful information for
investors in understanding and evaluating our operating results in the same
manner as our management and our board of directors.
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) (in thousands)
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Net sales $ 2,960 $ 3,122 $ (162) (5) % $ 9,780 $ 8,439 $ 1,341 16 %
For the three months ended September 30, 2022 , total revenues decreased due to
lower sales of Accelerate PhenoTest instruments compared to the three months
ended September 30, 2021 .
For the nine months ended September 30, 2022 , total revenues increased primarily
due to higher sales of Accelerate PhenoTest BC Kits and service contract
revenue, partially offset by a decrease in sales of Accelerate PhenoTest
instruments compared to the nine months ended September 30, 2021 . Accelerate
PhenoTest BC Kit revenue increased as customers completed their instrument
verifications and began purchasing kits. Service contract revenue increased as a
higher number of customers entered into multi-year service agreements following
the expiration of their warranty periods.
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Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) (in thousands)
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Cost of sales $ 2,190 $ 2,136 $ 54 3 % $ 7,127 $ 5,502 $ 1,625 30 %Non-cash equity-based compensation as a component of cost of sales 167 82 85 104 % 570 257 313 122 % Cost of sales less non-cash equity-based compensation$ 2,023 $ 2,054 $ (31) (2) %$ 6,557 $ 5,245 $ 1,312 25 % For the three months endedSeptember 30, 2022 , cost of sales increased as compared to the three months months endedSeptember 30, 2021 , primarily due to higher non-cash equity-based compensation expense, partially offset by lower sales of Accelerate PhenoTest instruments. For the nine months endedSeptember 30, 2022 , cost of sales increased as compared to the nine months endedSeptember 30, 2021 , primarily due to higher Accelerate Pheno recurring revenues, increases to our cost of manufacturing consumables and higher non-cash equity-based compensation expense. Our cost of manufacturing has increased as we are experiencing cost increases from many of our suppliers primarily as a result of the ongoing COVID-19 pandemic, labor and supply disruptions and increased inflation. The areas of cost increases include raw materials, components, and value-add supplier labor. Cost of sales includes non-cash equity-based compensation expense of$0.2 million and$0.1 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$0.6 million and$0.3 million for the nine months endedSeptember 30, 2022 and 2021, respectively. Non-cash equity-based compensation expense increased for the three and nine months endedSeptember 30, 2022 when compared to the three and nine months endedSeptember 30, 2021 . Non-cash equity-based compensation expense is a component of manufacturing overhead and service cost of sales. Manufacturing overhead is capitalized as inventory and relieved to cost of sales when products are sold to a customers, or when instruments under reagent rentals are amortized to cost of sales. Cost of sales expenses excluding non-cash equity-based compensation expense for the three months endedSeptember 30, 2022 decreased compared to the three months endedSeptember 30, 2021 , primarily due to lower sales of Accelerate PhenoTest instruments. Cost of sales expenses excluding non-cash equity-based compensation expense for the nine months endedSeptember 30, 2022 increased compared to the nine months endedSeptember 30, 2021 , primarily due to higher sales of Accelerate PhenoTest BC Kits and service contract revenue, partially offset by a decrease in sales of Accelerate PhenoTest instruments. Other factors include increases to our cost of manufacturing consumables, as described above. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Gross profit$ 770 $ 986 $ (216) (22) %$ 2,653 $ 2,937 $ (284) (10) % Non-cash equity-based compensation as a component of gross profit 167 82 85 104 % 570 257 313 122 % Gross profit less non-cash equity-based compensation$ 937 $ 1,068 $ (131)
(12) %$ 3,223 $ 3,194 $ 29 1 % 43
-------------------------------------------------------------------------------- The Company's overall gross margin was 26% and 32% for the three months endedSeptember 30, 2022 and 2021, respectively, and 27% and 35% for the nine months endedSeptember 30, 2022 and 2021, respectively.
For the three months ended
For the nine months endedSeptember 30, 2022 , gross profit decreased as compared to the nine months endedSeptember 30, 2021 , primarily due to higher non-cash equity-based compensation expense, a decrease in our average unit sales price of test kits, and increases to our cost of manufacturing consumables, as described above. Gross profit excluding non-cash equity-based compensation expense for the three months endedSeptember 30, 2022 decreased compared to the three months endedSeptember 30, 2021 , as a result of lower sales of Accelerate PhenoTest instruments. Gross profit excluding non-cash equity-based compensation expense for the nine months endedSeptember 30, 2022 remained flat compared to the nine months endedSeptember 30, 2021 , primarily due to higher Accelerate Pheno recurring revenues, offset by a decrease in our average unit sales price, and increases to our cost of manufacturing consumables, as described above. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Research and development$ 7,285 $ 4,712 $ 2,573 55 %$ 20,885 $ 17,341 $ 3,544 20 % Non-cash equity-based compensation as a component of research and development 151 266 (115) (43) % 1,052 4,340 (3,288) (76) % Research and development less non-cash equity-based compensation$ 7,134 $ 4,446 $ 2,688 60 %$ 19,833 $ 13,001 $ 6,832 53 %
Research and development expenses for the three and nine months ended
Research and development expenses include non-cash equity-based compensation expense of$0.2 million and$0.3 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$1.1 million and$4.3 million for the nine months endedSeptember 30, 2022 and 2021, respectively. Non-cash equity-based compensation expense decreased for the three and nine months endedSeptember 30, 2022 when compared to the three and nine months endedSeptember 30, 2021 , due to the reversal of non-cash equity-based compensation epense as a result of employees separating from the Company and a decrease in the fair value of new awards being granted. Research and development expenses excluding non-cash equity-based compensation expense for the three and nine months endedSeptember 30, 2022 increased compared to the three and nine months endedSeptember 30, 2021 , primarily due to increases in contracted service costs for the development of our next generation AST platform. 44 -------------------------------------------------------------------------------- Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Sales, general and administrative$ 8,255 $ 10,806 $ (2,551) (24) %$ 30,422 $ 37,744 $ (7,322) (19) % Non-cash equity-based compensation as a component of sales, general and administrative 911 3,281 (2,370) (72) % 6,557 14,461 (7,904) (55) % Sales, general and administrative less non-cash equity-based compensation$ 7,344 $ 7,525 $ (181) (2) %$ 23,865 $ 23,283 $ 582 2 %
Sales, general and administrative expenses for the three and nine months ended
Sales, general and administrative expenses include non-cash equity-based compensation expense of$0.9 million and$3.3 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$6.6 million and$14.5 million for the nine months endedSeptember 30, 2022 and 2021, respectively. Non-cash equity-based compensation expense decreased for the three and nine months endedSeptember 30, 2022 when compared to the three and nine months endedSeptember 30, 2021 , primarily due to the reversal of non-cash equity-based compensation expense as a result of employees separating from the Company and a decrease in the fair value of new awards being granted. Sales, general and administrative expenses excluding non-cash equity-based compensation expense for the three months endedSeptember 30, 2022 decreased compared to the three months endedSeptember 30, 2021 , primarily due to decreases in employee related expenses, including ordinary salaries and commissions, partially offset by one-time severance expenses. During the three months endedSeptember 30, 2022 , the Company restructured its commercial sales team by reducing the number of employees in consideration of the Company's new commercial partnership with BD. Sales, general and administrative expenses excluding non-cash equity-based compensation expense for the nine months endedSeptember 30, 2022 increased compared to the nine months endedSeptember 30, 2021 , primarily due to increases in costs related to marketing, promotional activities and one-time severance expenses discussed above. These costs were partially offset by decreases in employee related expenses, including ordinary salaries and commissions. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Loss from operations$ (14,770) $ (14,532) $ (238)
2 %$ (48,654) $ (52,148) $ 3,494 (7)
% Non-cash equity-based compensation as a component of loss from operations 1,229 3,629$ (2,400) (66) % 8,179 19,058$ (10,879) (57) % Loss from operations less non-cash equity-based compensation$ (13,541) $ (10,903) $ (2,638) 24 %$ (40,475) $ (33,090) $ (7,385) 22 %
For the three months ended
45
--------------------------------------------------------------------------------development expenses to develop our next generation AST platform, partially offset by decreases in non-cash equity-based compensation expense.
For the nine months ended
Loss from operations excluding non-cash equity-based compensation expense for the three and nine months endedSeptember 30, 2022 increased compared to the three and nine months endedSeptember 30, 2021 , primarily due to increases in product development costs related to the Accelerate Arc and the next generation AST platform, as discussed above. This loss and further losses are anticipated and was the result of our continued investments in sales and marketing, key research and development personnel, related costs associated with product development, and commercialization of the Company's products. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Total other (expense) income, net$ (935) $ 5,546 $ (6,481) (117) %$ 961 $ (2,751) $ 3,712 (135) %
For the three months ended
For the three months endedSeptember 30, 2021 , the Company entered into a privately negotiated exchange agreements with a holders of the Company's 2.50% Senior Convertible Notes due 2023 (the "Notes") pursuant to which such holders exchanged$46.0 million in aggregate principal amount of Notes held by them for 5,945,718 shares of the Company's common stock. The gain on extinguishment of exchanged Notes was$5.0 million for the three months endedSeptember 30, 2022 . For the three months endedSeptember 30, 2021 , theSmall Business Administration informed the Company of its full forgiveness for the entire Paycheck Protection Program loan amount plus accrued interest, which was$4.8 million . With approval of the Company's application for forgiveness the Company recorded a gain on extinguishment of$4.8 million during the three months endedSeptember 30, 2021 .
For the nine months ended
The Company adopted ASU 2020-06 onJanuary 1, 2022 . This change in accounting principle resulted in a decrease in interest expense for the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 . Other factors include a decrease in aggregate principal amount of the Company's Notes outstanding. Interest expense was$0.2 million and$4.2 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$1.8 million and$12.5 million for the nine months endedSeptember 30, 2022 and 2021, respectively. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Provision for income taxes $ - $ - $ - NM $ - $ - $ - NM
NM indicates percentage is not meaningful
46
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For the three and nine months ended September 30, 2022 and 2021, the Company did
not carry an income tax provision amount as the Company does not recognize tax
benefits from current year tax losses in the U.S. and other foreign
jurisdictions.
Capital Resources and Liquidity
Our primary sources of liquidity have been from sales of shares of our equity securities, the issuance of our convertible notes and cash from operations. As ofSeptember 30, 2022 , the Company had$55.4 million in cash and cash equivalents and investments, a decrease of$8.2 million from$63.6 million atDecember 31, 2021 . The primary reason for the decrease was due to cash used in operations during the period. As ofSeptember 30, 2022 , management believes current cash balances and probable future cash proceeds will be sufficient to fund our capital and liquidity needs for the next twelve months. Future cash proceeds include a contracted insider equity purchase, collection of accounts receivables and future lease payments from already contracted customers and other probable events that will be realized into cash. Management also maintains plans to continue to fund the operations of the Company and to achieve self-sustaining operations upon the realization of its sales generation and cost containment strategies beyond the next twelve months. Our primary use of capital has been for the development and commercialization of the Accelerate Pheno system and development of complementary and next generation products. We believe our capital requirements will continue to be met with our existing cash balance and those provided by revenue, grants, partnership fees, and/or additional issuance of equity or debt securities. However, if capital requirements vary materially from those currently planned, or if our business is negatively impacted by the COVID-19 pandemic more seriously or for longer than we currently expect, we may require additional capital sooner than expected. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us, if at all. Additional issuances of equity or convertible debt securities will result in dilution to our current common stockholders.
The Company is subject to lease agreements. The future minimum lease payments under these lease agreements are included in Part I, Item 1, Note 16, Leases.
For more information on the Company's liquidity please see Part I, Item 1, Note
1, Organization and Nature of Business; Basis of Presentation; Principles of
Consolidation; Significant Accounting Policies.
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As of September 30, 2022 , our contractual material cash requirements were as
follows:
Payments due by Period
(in thousands)
Material Cash Requirements Total 2022 2023 2024 2025 2026 Thereafter
Operating lease obligations $ 2,826 $ 227 $ 968 $ 1,047 $ 584 $ - $ -
Purchase obligation 1) 11,900 - - - - - 11,900
Finance lease obligations 1,795 180 721 721 173 - -
Long term debt 80 80 - - - - -
Deferred compensation 808 - - - 406 402 -
Convertible notes 2) 56,595 - 56,595 - - - -
Convertible notes interest 2) 707 - 707 - - - -
Secured Notes with
related-party 3) 34,934 - - - - - 34,934
Secured Notes accrued interest
with related-party 3) 220 - - - - - 220
Total $ 109,865 $ 487 $ 58,991 $ 1,768 $ 1,163 $ 402 $ 47,054
1) The Company entered into a non-cancellable purchase obligation with a
supplier to acquire raw materials for a total commitment of $11.9 million . Under
the terms of this agreement the Company has until March 15, 2027 to take
delivery of purchased items. As of September 30, 2022 the commitment remains
$11.9 million as the Company has not taken delivery of any inventory.
2) Our capital requirements include the maturity of convertible notes due March
2023 , which can be settled in shares, cash, or a combination thereof, as
negotiated with the note holders. The Company has sufficient shares to settle
all outstanding convertible notes in shares and will also consider options to
refinance the debt or settle in cash.
3) The Company may, at its option, repay the note and accrued interest in (i) cash or (ii) in the form of common stock of the Company.
Until such time as we can generate substantial product revenue, we expect to finance our cash requirements, beyond what is currently available or on hand, through a combination of equity offerings and debt financings, or contributed partnership fees.
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