BRUKER CELLULAR ANALYSIS, INC. Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "aim," "anticipate," "assume," "believe," "contemplate," "continue," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "seek," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements about: •estimates of our addressable market, market growth, future revenue, key performance indicators, expenses, capital requirements and our needs for additional financing; •the implementation of our business model and strategic plans for our products, workflows and technologies; •our ability to successfully implement alternative non-direct purchase channels, including subscription and partnership offerings and the design of any such alternatives; •our expectations regarding the rate and degree of market acceptance of our platform; •our ability to manage our supply chain; •competitive companies and technologies and our industry; •our ability to manage and grow our business by expanding our sales to existing customers or introducing our products and workflows to new customers; •our continuing efforts to improve the quality and increase the reliability of our advanced automation systems; •our ability to develop and commercialize new products and workflows; •our ability to perform in our existing joint development and partnership agreements and engage in new arrangements; •our ability to establish and maintain intellectual property protection for our products and workflows or avoid or defend claims of infringement, including with respect to our intellectual property litigation withAbCellera and The University ofBritish Columbia ; •the performance of third party manufacturers and suppliers and the availability of materials, parts and components therefrom; •the potential effects of government regulation; •the potential effects of governmental and agency directives and guidance related to COVID-19; •our ability to hire and retain key personnel and to manage our future growth effectively; •our ability to obtain additional financing in future offerings; •the volatility of the trading price of our common stock; •our ability to attract and retain key scientific and engineering personnel; •our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act; •our expectations regarding the use of proceeds from our initial public offering inJuly 2020 ; and •our expectations about market trends.
Forward-looking statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management's beliefs and assumptions are not
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guarantees of future performance or development and involve known and unknown
risks, uncertainties and other factors that are in some cases beyond our
control. As a result, any or all of our forward-looking statements in this
Quarterly Report on Form 10-Q may turn out to be inaccurate. Furthermore, if the
forward-looking statements prove to be inaccurate, the inaccuracy may be
material. In light of the significant uncertainties in these forward-looking
statements, you should not regard these statements as a representation or
warranty by us or any other person that we will achieve our objectives and plans
in any specified time frame, or at all.
In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this Quarterly Report on Form
10-Q, and while we believe such information forms a reasonable basis for such
statements, such information may be limited or incomplete, and our statements
should not be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all potentially available relevant information. These
statements are inherently uncertain and investors are cautioned not to unduly
rely upon these statements.
You should read the following discussion of our financial condition and results
of operations in conjunction with our unaudited condensed financial statements
and the related notes and other financial information included elsewhere in this
Quarterly Report on Form 10-Q and our audited consolidated financial statements
and notes thereto and management's discussion and analysis of financial
condition and results of operations for the fiscal year ended December 31, 2020
included in Annual Report on Form 10-K and filed with the Securities and
Exchange Commission on March 12, 2021 . Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those discussed in Item 1A. "Risk Factors"
of our Annual Report on Form 10-K for the year ended December 31, 2020 , or
elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed
with the SEC .
Overview
Berkeley Lights is a leading Digital Cell Biology company focused on enabling
and accelerating the rapid development and commercialization of biotherapeutics
and other cell-based products. The Berkeley Lights Platform captures deep
phenotypic, functional and genotypic information for thousands of single cells
in parallel and can also deliver the live biology customers desire in the form
of the best cells. This is a new way to capture and interpret the qualitative
language of biology and translate it into single-cell specific digital
information, referred to as Digital Cell Biology. We currently focus on enabling
the large and rapidly growing markets of antibody therapeutics, cell therapy and
synthetic biology with our platform.
The Berkeley Lights Platform can be used to characterize the performance of
cells relevant to the desired cell-based product early in the discovery process
and then connect this phenotypic data to the genetic code for each cell. In
contrast, current genomic technologies find sequences first and fail to deliver
the functional information early in the process. Performing functional
validation early means letting poorly performing cells fail early while rapidly
advancing the best candidates forward, before incurring significant research and
development expense. Our platform repeats this process of fail and advance many
times throughout the process, delivering the best cells for what we, or our
customers believe will deliver the best product.
Our platform is a fully integrated, end-to-end solution, comprised of
proprietary consumables, including our OptoSelect chips and reagent kits,
advanced automation systems and advanced application and workflow software.
Customers load onto our system their live cell samples, as well as media and
reagents, then the cells are imported onto our OptoSelect chips where integrated
workflows are performed to assess specific cell functions and attributes. Our
platform captures and delivers rich single-cell data to find the best cells. Our
platform leverages proprietary OptoElectro Positioning ("OEP") technology, which
enables deterministic positioning of living single cells and other micro-objects
using light. OEP is a core technology of our platform and allows for a high
level of control over live single cells or other micro-objects throughout the
functional characterization process.
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Our commercial workflows, each of which are distinct offerings, are made up of
four modules we call Import, Culture, Assay and Export. These modules can be
adapted, interchanged and deployed with a variety of single-cell assays to
address specific applications and a variety of cell types. We believe this
versatility facilitates rapid development of new workflow offerings and
expansive workflow commercialization opportunities. We have developed and will
continue to develop and commercialize proprietary workflows across large markets
by leveraging existing workflows and assays. Over time, our goal is to enable
customers to standardize many of their processes on our platform utilizing our
workflows. We believe we are the only company commercializing a platform that
can do this in a scalable way. From the initial launch of our platform in 2016
through September 30, 2021 , we have commercially launched ten workflows.
Our customer base is comprised of companies from the pharmaceutical industry,
biotechnology companies, agriculture companies and government and academia
institutions who leverage our platforms and workflows across established
industry markets, including antibody therapeutics, cell therapy, gene therapy,
including viral vector manufacturing, agricultural biology and synthetic
biology.
Historically, we have financed our operations primarily from the issuance and
sale of convertible preferred stock, borrowings under our long-term debt
agreement, as well as cash flows from operations. On July 21, 2020 , we closed
our initial public offering (the "IPO"), in which we sold 9,315,000 shares of
common stock (which included 1,215,000 shares that were sold pursuant to the
full exercise of the IPO underwriters' option to purchase additional shares) at
a price to the public of $22.00 per share. We received aggregate net proceeds of
$187.9 million after deducting offering costs, underwriting discounts and
commissions of $17.0 million .
Since our inception in 2011, we have incurred net losses in each year. Our net
losses were $20.4 million and $8.6 million for the three months ended September
30, 2021 and 2020, respectively, and $54.0 and $29.5 million for the nine months
ended September 30, 2021 and 2020, respectively. As of September 30, 2021 , we
had an accumulated deficit of $245.9 million and cash and cash equivalents
totaling $197.0 million . We expect to continue to incur significant expenses and
operating losses for the foreseeable future.
Certain of our financial results and other key operational developments for the
three and nine months ended September 30, 2021 include the following:
•Total revenue for the three months ended September 30, 2021 was $24.3 million
compared to $18.2 million for the same period in 2020. Total revenue for the
nine months ended September 30, 2021 was $62.2 million compared to $42.6 million
for the same period in 2020.
•Gross profit for the three and nine months ended September 30, 2021 increased
to $15.4 million and $40.6 million , respectively from $12.8 million and $29.7
million , respectively, for the three and nine months ended September 30, 2020 .
COVID-19 Update
The COVID-19 pandemic continues to present business challenges in 2021. We have initiated a plan to reintroduce more employees into the workplace as vaccine rates increase and the number of positive COVID-19 cases continue to decrease. Although a certain number of our general and administrative employees continue to work partly, or primarily, from home, as do many of our sales and marketing employees, and we have not returned to pre-pandemic operations, we are starting to experience stabilization of our employee on-site attendance. During the nine months endedSeptember 30, 2021 , our production, shipping and customer service functions have remained operational to maintain a continuous supply of products both to our customers and for our internal research and development activities. We are communicating regularly with our suppliers so that our supply chain remains intact. We are closely monitoring global supply issues around materials, parts and 25 -------------------------------------------------------------------------------- components, including plastics and integrated circuit chips, and we have not experienced any material supply issues to date. We continue to monitor US and applicable State government and agency directives and guidelines, including those issued by the State ofCalifornia's Division of Occupational Safety and Health , better known as Cal/OSHA . Although we believe the COVID-19 pandemic did not have a significant impact on our financial results in the nine months endedSeptember 30, 2021 , the ultimate impact of COVID-19 on our operations and financial performance in future periods remains uncertain and will depend on future pandemic related developments. COVID-19 pandemic developments that may impact our business include, the duration of the pandemic, any potential subsequent waves of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19 vaccines and therapies, and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be predicted. Components of results of operations Revenue Our revenue consists of both product and service revenue, which is generated through the following revenue streams: (i) direct platform sales (advanced automation systems, fully-paid workflow license agreements and platform support), (ii) recurring revenue (annual workflow license agreements, workflow subscription agreements, consumables, service and extended or enhanced warranty contracts), and revenues under our Tech Access subscription model, and (iii) revenue from partnerships related to our joint development agreements, and to a lesser extent feasibility studies. Sales of advanced automation systems, recurring revenue from consumables, workflow subscription agreements, and workflow licenses are defined as product revenue; and revenue from joint development agreements and partnerships, service and extended or enhanced warranty contracts, feasibility studies and platform support are defined as service revenue in our consolidated results of operations. We launched our Tech Access subscription model inJune 2021 . Direct platform sales: Direct platform sales are comprised of our customers, distributors and dealers directly purchasing our advanced automation systems, which include the Beacon and Lightning systems andCulture Station instrument. Direct platform sales can also include fixed-term sales-type lease arrangements with certain qualified customers. These direct purchases included, during our early customer engagements, a fully-paid workflow license to practice the desired workflow(s) in a specific field of use. In addition, we also offer platform support to the extent customers require further system and workflow optimization following platform implementation. Direct platform sales were as follows for the periods presented: Three months ended September 30, Three month change Nine months ended September 30, Nine month change (in thousands, except percentages) 2021 2020 Amount % 2021 2020 Amount % Direct platform sales $ 14,128$ 12,394 $ 1,734 14 % $ 36,633$ 29,361 $ 7,272 25 % Total revenue $ 24,324$ 18,208 $ 6,116 34 % $ 62,202$ 42,555 $ 19,647 46 % Direct platform sales as % of total revenue 58 % 68 % 59 % 69 % Recurring revenue: Each platform placement, depending on the chosen access model, drives various streams of recurring revenue. With each workflow, our customers require certain consumables such as our OptoSelect chips and reagent kits to run their workflows. The OptoSelect chips can only be used with our platform and we believe there are no alternative after-market options that can be used as a substitute. Each OptoSelect chip is considered, and labeled for, single-use and only used for one workflow. Consumables are sold without the right of return and 26 -------------------------------------------------------------------------------- revenue is recognized upon transfer of control. We also offer our customers extended warranty and service programs for regular system maintenance and system optimization. These services are provided primarily on a fixed fee basis. We recognize revenue from the sale of an extended warranty contract over the respective coverage period. Extended and enhanced warranty, as well as service contracts, are typically short-term in nature, generally covering a one-year period.
Recurring revenue may also include annually renewable workflow licenses as well as quarterly workflow subscription revenue from annual or multi-year subscription agreements.
Recurring revenue was as follows for the periods presented:
Three months ended September 30, Three month change Nine months ended September 30, Nine month change
(in thousands, except
percentages) 2021 2020 Amount % 2021 2020 Amount %
Recurring revenue $ 4,733 $ 3,671 $ 1,062 29 % $ 13,073 $ 9,072 $ 4,001 44 %
Total revenue $ 24,324 $ 18,208 $ 6,116 34 % $ 62,202 $ 42,555 $ 19,647 46 %
Recurring revenue as % of
total revenue 19 % 20 % 21 % 21 %
Revenue from joint development agreements and partnerships: Joint development
agreements and partnerships, including collaboration agreements, are
arrangements whereby we provide services for the development of new workflows,
cell, or organism types, or deliver specific biological assets to meet specific
customers' needs. Such contracts can be executed on a time-and-materials basis
or include defined milestones associated with these development activities over
extended periods of time, some in excess of twenty-four months. Our joint
development agreements that include formal milestones may include formal
customer acceptance clauses as each milestone is completed as well as an
approval to proceed with the next milestone. Some development agreements may
also include a prerequisite feasibility study to determine proof of concept
before any work is initiated. We generally recognize revenue over time using an
input measure of progress based on costs incurred to date as compared to the
total estimated costs (i.e. percentage of completion), or in certain instances
on a time-and-materials basis, depending on the terms of the development
agreement. We periodically review and update our estimates which may adjust
revenue recognized for the period. Revenue from joint development and
partnership agreements can vary over time as different projects start, progress,
and complete. On occasion, we also perform feasibility studies prior to a direct
platform sale in the event customers require specific platform validation prior
to purchase.
Joint development agreement and partnership related revenue was as follows for the periods presented:
Three months ended September 30, Three month change Nine months ended September 30, Nine month change
(in thousands, except
percentages) 2021 2020 Amount % 2021 2020 Amount %
Joint development agreement
and partnership revenue $ 5,463 $ 2,143 $ 3,320 155 % $ 12,496 $ 4,122 $ 8,374 203 %
Total revenue $ 24,324 $ 18,208 $ 6,116 34 % $ 62,202 $ 42,555 $ 19,647 46 %
Joint development agreement
and partnership revenue as
% of total revenue 23 % 12 % 20 % 10 %
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Costs of sales, gross profit and gross margin
Product cost of sales. Cost of sales associated with our products primarily
consists of manufacturing related costs incurred in the production process,
including personnel and related costs, costs of component materials, labor and
overhead, packaging and delivery costs and allocated costs, including facilities
and information technology. These costs also include the costs associated with
the standard assurance-type product warranty provided on our platforms, which
are recorded at the time of sale.
Service cost of sales. Cost of sales associated with our services primarily
consists of personnel and related costs, expenses related to the development of
customized platforms and workflows, feasibility studies on our platforms and
service and warranty costs to support our customers. We maintain continuous
efforts to increase reliability of our advanced automation systems.
Gross profit and gross margin. Gross profit is calculated as revenue less cost
of sales. Gross margin is gross profit expressed as a percentage of revenue. Our
gross profit in future periods will depend on a variety of factors, including:
market conditions that may impact our pricing; sales mix among platform access
options, including the regional mix of sales; sales mix changes among
consumables, advanced automation systems and services; product mix changes
between established products and new products; excess and obsolete inventories;
our cost structure for manufacturing operations relative to volume; and product
warranty obligations. We expect cost of sales to increase in absolute dollars in
future periods as our revenue grows, and as we plan to hire additional employees
to support our manufacturing, operations, service and support organizations.
Operating expenses
Research and development. Research and development costs primarily consist of
salaries, benefits, incentive compensation, stock-based compensation, laboratory
supplies, materials expenses and allocated facilities and IT costs for employees
and contractors engaged in research and product development. We expense all
research and development costs in the period in which they are incurred.
We plan to continue to invest in our research and development efforts, including
hiring additional employees, to enhance existing products and develop new
products. As a result, we expect that our research and development expenses will
continue to increase in absolute dollars in future periods. We expect these
expenses to vary from period to period as a percentage of revenue.
General and administrative. Our general and administrative expenses primarily
consist of salaries, benefits and stock-based compensation costs for employees
in our executive, accounting and finance, legal and human resource functions, as
well as professional services fees, such as consulting, audit, tax and legal
fees, general corporate costs and allocated overhead expenses. We expect that
our general and administrative expenses will continue to increase in absolute
dollars, primarily due to increased headcount to support anticipated growth in
the business and due to incremental costs associated with operating as a public
company. We expect these expenses to vary from period to period as a percentage
of revenue.
Sales and marketing. Our sales and marketing expenses consist primarily of
salaries, benefits, sales commissions and stock-based compensation costs for
employees within our commercial sales functions, as well as marketing, travel
expenses and allocated facilities and IT costs. We expect our sales and
marketing expenses to increase in absolute dollars as we expand our commercial
sales, marketing and business development teams, increase our presence globally
and increase marketing activities to drive awareness and adoption of our
platform. While these expenses may vary from period to period as a percentage of
revenue, we expect these expenses to increase as a percent of sales in the
short-term as we continue to grow our commercial organization to support
anticipated growth in the business.
We expect our aggregate stock-based compensation to continue to increase in
absolute dollar terms.
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Other income (expense)
Interest expense. Interest expense consists primarily of interest related to
borrowings under our debt obligations.
Interest income. Interest income primarily consists of interest earned on our
cash and cash equivalents which are invested in cash deposits and in money
market funds.
Other income (expense), net. Other income (expense), net consists primarily of
foreign currency exchange gains and losses. Foreign currency exchange gains and
losses relate to transactions and asset and liability balances denominated in
currencies other than the U.S. dollar, primarily related to our operations in
the United Kingdom . We expect our foreign currency gains and losses to continue
to fluctuate in the future due to changes in foreign currency exchange rates.
Provision for income taxes
Our provision for income taxes consists primarily of foreign taxes and state
minimum taxes in the United States . As we expand the scale and scope of our
international business activities, any changes in the United States and foreign
taxation of such activities may increase our overall provision for income taxes
in the future.
Results of operations
The following tables set forth our results of operations for the periods
presented:
Three months ended September 30, Nine months ended September 30,
(in thousands) 2021 2020 2021 2020
Revenue:
Product revenue $ 16,704 $ 14,103 $ 43,258 $ 33,893
Service revenue 7,620 4,105 18,944 8,662
Total revenue 24,324 18,208 62,202 42,555
Cost of sales:
Product cost of sales 4,797 3,463 11,832 8,467
Service cost of sales 4,114 1,937 9,778 4,339
Total cost of sales (1) 8,911 5,400 21,610 12,806
Gross profit 15,413 12,808 40,592 29,749
Operating expenses:
Research and development (1) 16,195 10,421 42,757 33,240
General and administrative (1) 12,258 7,229 32,950 15,419
Sales and marketing (1) 6,940 3,341 17,863 9,651
Total operating expenses 35,393 20,991 93,570 58,310
Loss from operations (19,980) (8,183) (52,978) (28,561)
Other income (expense):
Interest expense (232) (361) (942) (1,074)
Interest income 33 51 142 249
Other income (expense), net (170) 10 (117) 72
Loss before income taxes (20,349) (8,483) (53,895) (29,314)
Provision for income taxes 54 118 97 142
Net loss and net comprehensive loss
$ (53,992) $ (29,456) 29
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(1)Amounts include stock-based compensation as follows:
Three months ended September 30, Nine months ended September 30,
(in thousands) 2021 2020 2021 2020
Cost of sales $ 85 $ 116 $ 190 $ 176
Research and development 1,508 820 4,168 1,884
General and administrative 2,562 1,406 6,431 2,521
Sales and marketing 1,807 193 5,296 485
Total stock-based compensation expense
Comparison of the three and nine months endedSeptember 30, 2021 and 2020 Revenue Three months ended September Nine months ended September 30, Three month change 30, Nine month change (in thousands, except percentages) 2021 2020 Amount % 2021 2020 Amount % Product revenue$ 16,704 $ 14,103 $ 2,601 18 %$ 43,258 $ 33,893 $ 9,365 28 % Service revenue 7,620 4,105 3,515 86 % 18,944 8,662$ 10,282 119 % Total revenue$ 24,324 $ 18,208 $ 6,116 34 %$ 62,202 $ 42,555 $ 19,647 46 % Product revenue increased by$2.6 million , or 18%, for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . The increase was primarily driven by strong demand across our markets, especially from the Antibody Therapeutics market resulting in an increase of$2.0 million from platform and system sales, including sales-type lease arrangements and license arrangements related to our workflows, and service revenue, an increase of$0.4 million in consumables sales driven by additional demand from our customers due to the increase in our installed base, and an increase of$0.2 million in subscription arrangement and related revenue. During the three months endedSeptember 30, 2021 , we placed thirteen platforms, inclusive of three TechAccess subscriptions booked and announced in the second quarter of 2021. During the three months endedSeptember 30, 2020 we placed in total eight platforms. Service revenue increased by$3.5 million , or 86%, for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . The increase was primarily driven by higher revenue associated with joint development agreement and partnership revenue of$3.3 million from significant new contracts signed during 2021, as well as an increase from sales in service warranty and application support arrangements of$0.2 million . Product revenue increased by$9.4 million , or 28%, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . The increase was primarily driven by higher revenue in all markets. Revenue from platform and system sales increased by$6.8 million , including sales-type lease arrangements and license arrangements related to our workflows and revenue from the sale of consumables increased by$1.7 million driven by additional demand due to the increase in our installed base. Revenue from subscription arrangements increased by$0.9 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. During the nine months endedSeptember 30, 2021 we placed thirty platforms. During the nine months endedSeptember 30, 2020 we placed eighteen platforms. 30 -------------------------------------------------------------------------------- Service revenue increased by$10.3 million , or 119 % for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . The increase was primarily driven by increased revenue associated with joint development and partnership revenue of$8.4 million , as well as an increase from sales in service warranty and application support arrangements of$1.9 million . Cost of sales, gross profit and gross margin Three months ended September 30, Three month change Nine months ended September 30, Nine month change (in thousands, except percentages) 2021 2020 Amount % 2021 2020 Amount % Product cost of sales$ 4,797 $ 3,463 $ 1,334 39 %$ 11,832 $ 8,467 $ 3,365 40 % Service cost of sales 4,114 1,937 2,177 112 % 9,778 4,339 5,439 125 % Total cost of sales$ 8,911 $ 5,400 $ 3,511 65 %$ 21,610 $ 12,806 $ 8,804 69 % Gross profit$ 15,413 $ 12,808 $ 2,605 20 %$ 40,592 $ 29,749 $ 10,843 36 % Gross margin 63 % 70 % 65 % 70 % Product cost of sales increased by$1.3 million , or 39% and$3.4 million or 40% for the three and nine months endedSeptember 30, 2021 , respectively, compared to the three and nine months endedSeptember 30, 2020 and was in line with product revenue growth. Service cost of sales increased by$2.2 million , or 112% and$5.4 million or 125% for the three and nine months endedSeptember 30, 2021 , respectively, compared to the three and nine months endedSeptember 30, 2020 . The increase was primarily due to costs incurred for joint development agreements, as well as increased costs for extended warranty services as a result of the nature and timing of work performed under such arrangements. Gross profit increased by$2.6 million , or 20%, for the three months endedSeptember 30, 2021 and increased by$10.8 million , or 36 % for the nine months endedSeptember 30, 2021 , respectively, compared.to the same periods in 2020. The increase in gross profit for the three and nine months endedSeptember 30, 2021 was primarily driven by higher revenues. Gross margin was 63% and 70% for the three months endedSeptember 30, 2021 and 2020, respectively and was 65% and 70% for the nine months endedSeptember 30, 2021 and 2020, respectively. Gross margin for the three and nine months endedSeptember 30, 2021 , was negatively impacted by the buy-down of two workflow programs in prior periods that are being developed in collaboration with Ginkgo Bioworks to use the workflows in relation to certain joint development and partnership agreements. While this buy-down does not impact our costs incurred, it reduces revenue and gross margin related to these specific programs upon execution on a go-forward basis. Operating Expenses Research and development Three months ended September 30, Three month change Nine months ended September 30, Nine month change (in thousands, except percentages) 2021 2020 Amount % 2021 2020 Amount % Research and development$ 16,195 $ 10,421 $ 5,774 55 %$ 42,757 $ 33,240 $ 9,517 29 %
Research and development expense increased by
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to increased headcount as a result of our continued growth and also partially
due to an increase in other costs, including testing and qualification materials
and costs related to various projects to develop and improve systems, workflows,
consumables and assays.
Research and development expense increased by $9.5 million , or 29 %, for the
nine months ended September 30, 2021 , compared to the nine months ended
September 30, 2020 . The increase was due to an increase in personnel-related
expenses, including a $2.3 million increase in stock-based compensation expense
resulting primarily from increased headcount, and also due to an increase in
other costs, including testing and qualification materials and other costs
related to various projects to develop and improve systems, workflows and
assays.
General and administrative
Three months ended September
30, Three month change Nine months ended September 30, Nine month change
(in thousands, except
percentages) 2021 2020 Amount % 2021 2020 Amount %
General and administrative
70 % $ 32,950 $ 15,419 $ 17,531 114 %
General and administrative expense increased by $5.0 million , or 70%, for the
three months ended September 30, 2021 , compared to the three months ended
September 30, 2020 . The increase was primarily due to an increase in outside
legal fees, including patent litigation support, as well as an increase in
personnel-related expenses, including a $1.2 million increase in stock-based
compensation expense primarily due to the growth of our operations, and
increased costs to improve our information processes and systems and implement
the financial reporting, compliance and other infrastructure required for a
public company.
General and administrative expense increased by $17.5 million , or 114%, for the
nine months ended September 30, 2021 , compared to the nine months ended
September 30, 2020 . The increase was primarily due to an increase in outside
legal fees, including patent litigation support, as well as an increase in
personnel-related expenses, including a $3.9 million increase in stock-based
compensation expense primarily due to the growth of our operations, and
increased costs to improve our information processes and systems and implement
the financial reporting, compliance and other infrastructure required for a
public company.
Sales and marketing
Three months ended September
30, Three month change Nine months ended September 30, Nine month change
(in thousands, except
percentages) 2021 2020 Amount % 2021 2020 Amount %
Sales and marketing $ 6,940 $ 3,341 $ 3,599 108 %$ 17,863 $ 9,651 $ 8,212 85 % Sales and marketing expense increased by$3.6 million , or 108%, for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . The increase was primarily due to an increase in personnel-related expenses, including a$1.6 million increase in stock-based compensation expense as a result of increased headcount and certain performance awards granted to a non-employee strategic advisor, and also due to an increase in marketing, advertising and other costs. 32 -------------------------------------------------------------------------------- Sales and marketing expense increased by$8.2 million , or 85 %, for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . The increase was primarily due to an increase in personnel-related expenses, including a$4.8 million increase in stock-based compensation and also due to an increase in marketing, advertising and other costs. Interest expense Three months ended Nine months ended September September 30, Three month change 30, Nine month change (in thousands, except percentages) 2021 2020 Amount % 2021 2020 Amount % Interest expense$ 232 $ 361 $ (129) (36 %)$ 942 $ 1,074 $ (132) (12 %) Interest expense decreased by$0.1 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to the three and nine months endedSeptember 30, 2020 , as a result of refinancing our loan fromEast West Bank , which now carries a lower interest rate. Interest income Three months ended Nine months ended September September 30, Three month change 30, Nine month change (in thousands, except percentages) 2021 2020 Amount % 2021 2020 Amount % Interest income$ 33 $ 51 $ (18) (35 %)$ 142 $ 249 $ (107) (43 %) Interest income was flat for the three months endedSeptember 30, 2021 , and decreased$0.1 million for the nine months endedSeptember 30, 2021 , compared to the three and nine months endedSeptember 30, 2020 . The decrease in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily due to lower interest received on our cash and short-term deposits due to a decline in interest rates. Other income (expense), net Three months ended September Nine months ended September 30, Three month change 30, Nine month change (in thousands, except percentages) 2021 2020 Amount % 2021 2020 Amount %
Other income (expense), net
1800 %
Other income for the three and nine months endedSeptember 30, 2021 and 2020 was mainly comprised of foreign exchange gains and losses and other miscellaneous income and expense items. Liquidity and capital resources As ofSeptember 30, 2021 , we had approximately$197.0 million in cash and cash equivalents which were primarily held inU.S. short-term bank deposit accounts and money market funds. Restricted cash of$0.3 million serves as collateral for our corporate credit card program. We have generated negative cumulative cash flows from operations since inception throughSeptember 30, 2021 . We expect to incur additional operating losses in the foreseeable future as we continue to invest in the research and development of our product offerings, commercialize and launch platforms, and expand into new markets. Our future capital requirements will depend on many factors including our revenue growth rate, research and 33 -------------------------------------------------------------------------------- development efforts, the impacts of the COVID-19 pandemic, the timing and extent of additional capital expenditures to invest in existing and new facilities as well as our manufacturing operations, the expansion of sales and marketing and the introduction of new products. We have and may in the future enter into arrangements to acquire or invest in businesses, services and technologies, and any such acquisitions or investments could significantly increase our capital needs. We currently anticipate making aggregate capital expenditures between approximately$12.0 million and$15.0 million during the next 12 months, which is expected to primarily include equipment to be used for manufacturing and research and development, as well as spend associated with the expansion of our facilities to support the growth of our operations. Based on our current business plan, we believe our existing cash and cash equivalents and anticipated cash flows from operations will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months. Sources of liquidity Since our inception, we have financed our operations primarily from the issuance and sale of equity securities, borrowings under long-term debt agreements, and to a lesser extent, cash flow from operations. InJuly 2020 , we completed our IPO, resulting in the receipt of aggregate proceeds of$187.9 million , net of offering costs, underwriter discounts and commissions of$17.0 million . East West Bank Loan and Security Agreement OnJune 30, 2021 , we entered into an Amended and Restated Loan and Security Agreement (the "EWB Loan Agreement") withEast West Bank ("EWB") providing us with a$20.0 million term loan ("the Term Loan") which has been used to refinance the term loan outstanding under that certain Loan and Security Agreement with EWB datedMay 23, 2018 . The Term Loan matures in 48 months and bears interest at a fixed rate of 4.17%. The Term Loan has an initial interest-only period of 24 months, which can be extended to up to 36 months based on the achievement of certain liquidity measures, and can be pre-paid without penalty at any time. The EWB Loan Agreement grants EWB a security interest in and liens on all assets of the Company, excluding intellectual property, which is subject to a double negative pledge. In addition, certain other terms of the original EWB agreements as previously in effect were amended by the EWB Loan Agreement, including certain financial covenants. We were in compliance with all covenants under the EWB Loan Agreement as ofSeptember 30, 2021 Furthermore, the Amended and Restated Loan and Security Agreement withEast West Bank provides us with a new$10.0 million revolving credit (the "Revolving Line"), which bears interest on the outstanding daily balance thereof of 0.70% above the Prime Rate (as defined in the Agreement). No amounts were outstanding under the Revolving Line as ofSeptember 30, 2021 . Cash flows The following table summarizes our cash flows for the periods presented: 34 -------------------------------------------------------------------------------- Nine months ended September 30, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities$ (38,710) $ (32,993) Investing activities (10,715) (1,821) Financing activities 13,018 191,014
Net decrease in cash and cash equivalents and restricted cash
Operating activities Net cash used in operating activities of$38.7 million for the nine months endedSeptember 30, 2021 was attributable to a net loss of$54.0 million and cash outflows from changes in our net operating assets and liabilities, partially offset by non-cash charges, primarily related to stock-based compensation and depreciation and amortization. Cash outflow from our net operating assets and liabilities was primarily due to an increase in inventories resulting from an increase in raw materials and finished goods to support revenue growth and anticipated demand, an increase in accounts receivable due to an increase in revenue and the timing of invoicing, partially offset by an increase in deferred revenue and accounts payable due to the timing of advanced billings and revenue recognition as well as the timing of vendor invoicing and related payments. Net cash used in operating activities of$33.0 million for the nine months endedSeptember 30, 2020 was attributable to a net loss of$29.5 million and cash outflows from changes in our net operating assets and liabilities, partially offset by non-cash charges, primarily related to stock-based compensation and depreciation and amortization. Cash outflow from our net operating assets and liabilities was primarily due to an increase in inventories due an increase in raw materials and finished goods to support revenue growth and anticipated demand and from an increase in prepaid expenses and deferred revenue as a result of timing of invoicing. Investing activities Net cash used in investing activities was$10.7 million in the nine months endedSeptember 30, 2021 compared to$1.8 million in the nine months endedSeptember 30, 2020 . The increase was primarily driven by the timing of capital expenditures. Capital expenditures for the first nine months of 2021 include the expansion of our research and development and Biofoundry laboratory operations to support current and planned programs. Financing activities Net cash provided by financing activities was$13.0 million for the nine months endedSeptember 30, 2021 compared to$191.0 million for the nine months endedSeptember 30, 2020 . Net cash provided by financing activities during the nine months endedSeptember 30, 2021 related to proceeds received from the issuance of common stock upon the exercise of stock options as well as proceeds received related to the issuance of common stock under our employee stock purchase plan. Net cash provided by financing activities for the nine months endedSeptember 30, 2020 related to net cash proceeds of$187.9 million from our initial public offering and proceeds received from the issuance of common stock upon the exercise of stock options. Concentration of credit risk Most of the Company's customers are located inthe United States andAsia Pacific . For the three months endedSeptember 30, 2021 , four customers accounted for 16%, 15%, 10% and 10% of revenue. For the nine months endedSeptember 30, 2021 , three customers accounted for 21%, 15% and 10% of revenue. For the three months 35 -------------------------------------------------------------------------------- endedSeptember 30, 2020 , five customers accounted for 12%, 11%, 11%, 11% and 10% of revenue. For the nine months endedSeptember 30, 2020 , one customer accounted for 10% of revenue. As ofSeptember 30, 2021 , four customers comprised 17%, 15%, 12% and 10% of accounts receivable. Contractual obligations and commitments There have been no material changes to our contractual obligations as ofSeptember 30, 2021 , as compared to those disclosed in the Annual Report on Form 10-K for the year endedDecember 31, 2020 , with the following exceptions. We purchase raw materials for inventory, services and equipment from a variety of vendors, including our contract manufacturers that manufacture our instruments and certain providers of our components for our consumable manufacturing. Total purchase obligations that are enforceable and legally binding on us and that specify all significant terms were$39.7 million as ofSeptember 30, 2021 , of which$21.0 million are expected to be become due afterDecember 31, 2021 and beyond. During the nine months endedSeptember 30, 2021 , we entered into certain new leases, including the seven year lease agreement for additional space for research and development and Biofoundry operations inLexington, Massachusetts and extensions of existing leases. Details of our future lease obligations as ofSeptember 30, 2021 can be found in Note 8. Off-balance sheet arrangements We did not have any during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical accounting policies and estimates We have prepared our condensed consolidated financial statements in accordance withUnited States generally accepted accounting principles ("U.S. GAAP"). Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates, assumptions and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled "Management's Discussion and Analysis of Financial Condition and Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 12, 2021 , with the following exceptions. We maintain an incentive compensation plan under which incentive stock options, nonqualified stock options and restricted stock units ("RSUs") are granted primarily to employees and non-employee consultants. Stock-based compensation expense for stock-based awards is based on the grant date fair value of the awards. We determine the fair value of RSUs based on the closing value of our stock price listed on Nasdaq at the date of the grant. We estimate the fair value of stock option awards on the grant date using the Black-Scholes option-pricing model. The fair value of stock option awards is recognized as compensation expense on a straight-line basis over the 36 -------------------------------------------------------------------------------- requisite service period in which the awards are expected to vest and forfeitures are recognized as they occur. Stock option awards that include a service condition and a performance condition are considered expected to vest when the performance condition is probable of being met. Compensation expense associated with performance awards that are determined to be probable of achievement is recognized over the requisite service period, provided the grantee remains an employee or consultant of the Company through each applicable vesting date. For performance awards not initially assessed as probable of achievement, we record a cumulative adjustment to compensation expense in the period we change our determination that a performance condition becomes probable of being achieved. We cease recognition of compensation expense in any periods where we determine the attainment of a performance condition is no longer probable. If the performance goals are determined to be improbable, no compensation expense is recognized and any previously recognized compensation expense is reversed. Recent Accounting Pronouncements See Note 2, "Summary of Significant Accounting Policies" in our Notes to the Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements. JOBS Act accounting election We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected not to use this extended transition period. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Based on the most recent measurement date, we will become a large accelerated filer onDecember 31, 2021 and no longer qualify as an emerging growth company. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Interest rate risk Customer financing exposure. We are indirectly exposed to interest rate risk because many of our customers depend on debt financings to purchase our platforms and systems. An increase in interest rates could make it challenging for our customers to obtain the capital necessary to make such purchases on favorable terms, or at all. Such factors could reduce demand or lower the price we can charge for our platforms and systems, thereby reducing our net sales and gross profit. Bank deposit and money market exposure. As ofSeptember 30, 2021 , we had cash and cash equivalents, including restricted cash, of$197.3 million , which consisted primarily of money market funds and bank deposits. The primary objective of our investment is to preserve principal and provide liquidity. These money market funds, and bank deposits generate interest income at variable rates below 1%. A hypothetical 100 basis point decrease in interest rates would have no material effect on our interest income and financial results. Foreign currency risk ThroughSeptember 30, 2021 , we did not generate any revenue denominated in foreign currencies. As we expand our presence in international markets, to the extent we are required to enter into agreements denominated in a currency other than the US dollar, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to 37 -------------------------------------------------------------------------------- foreign currency risk. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Due to the COVID 19 pandemic, a significant portion of our employees are now working from home, and some employees are also under federal, state, local guidelines or other restrictions. We activated business continuity plans in order to mitigate the impact to our control environment, operating procedures, data and internal controls. The design of our processes and controls allow for remote execution with accessibility to secure data. We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our "disclosure controls and procedures" as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as ofSeptember 30, 2021 our disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified inSEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting We also carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of our "internal control over financial reporting" as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) to determine whether any changes in our internal control over financial reporting occurred during the three months endedSeptember 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes in our internal control over financial reporting that occurred during the three months endedSeptember 30, 2021 despite the fact that many of our associates are working remotely due to the COVID-19 pandemic. We continue to monitor and assess the COVID-19 situation on our internal controls to minimize potential impacts on their design and operating effectiveness. Limitations on the Effectiveness of Controls Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems' objectives are being met. Further, the design of any system of controls must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. 38
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