STANDARD BIOTOOLS INC. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, and the related notes thereto, presented in this Quarterly Report on Form 10-Q as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"). The following discussion and analysis contains forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under Cautionary Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references in this section to the "Company," "we," "us" or "our" refer to the business ofSomaLogic prior to the consummation of the Business Combination, and to the Company and its consolidated subsidiaries following the consummation of the Business Combination.
SomaLogic was originally formed as a special purpose acquisition company under the nameCM Life Sciences II Inc. for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. Prior to the Business Combination, it did not have historical financial operating results.SomaLogic Operating, our accounting predecessor, is a leading commercial-stage proteomics company. In connection with the Business Combination, SomaLogic Operating became a wholly owned subsidiary ofSomaLogic .
Business Overview
SomaLogic is a leading commercial-stage proteomics company. We have built an integrated proteomics platform capable of robust, high throughput proteomics analysis with broad proteome coverage, low limits of detection, high reproducibility and at low costs. We designed our platform with the goal of being a universal proteomics platform, with the breadth (number of proteins measured) and precision (accuracy of measurement) important for discovery and research applications, and both the reproducibility and robustness important for clinical applications. We currently run our platform within our own laboratory, receive samples from customers and provide them proteomics analysis services. We are also developing an integrated solution comprising kits and select equipment that would enable customers to perform our proteomics assay at their own sites and leverage our bioinformatics capabilities to analyze the data. 19 --------------------------------------------------------------------------------
Impact of the COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the Coronavirus Disease 2019 (COVID-19) outbreak to be a global pandemic. Since then, COVID-19 has continued to spread throughout much ofthe United States and the world causing uncertainty and disruption to business activities.
Our suppliers have been impacted by the COVID-19 pandemic, and we have experienced supply delays for certain equipment, instrumentation and other supplies that we use for our services and products.
The COVID-19 pandemic continues to be dynamic and near-term challenges across the economy remain. We expect continued volatility and unpredictability related to the impact of COVID-19 on our business results. We continue to actively monitor the pandemic and we will continue to take appropriate steps to mitigate the adverse impacts on our business posed by the on-going spread of COVID-19.
Effects of Inflation
We do not believe that inflation has had a material effect on our results of operations for the three-month period endedMarch 31, 2022 and 2021? however, our business could be affected by inflation in the future which could have an adverse impact on results of operations.
Factors Affecting Our Performance
The following factors have been important to our business and we expect them to impact our results of operations and financial condition in future periods:
•Continued adoption of our services and products
•We have a well-established base of marquee customer and Key Opinion Leaders
("KOL") relationships in place, and as we grow further, we expect to win
contracts with new customers and expand the scope of existing contracts with
existing customers.
•We plan to develop and grow our offering of reagents and corresponding solutions, including both small and large plex capabilities, site-of-service deployed assay options, and bioinformatics offerings to attract additional customers and cross-sell to existing customers.
•Ongoing focus on growing our proteomics database and artificial intelligence and machine learning analytics to drive value and market opportunities.
•Continued investment in growth
•Continue to invest significantly in our laboratory process and commercial infrastructure.
•Investments in research and development will include hiring of employees with the necessary scientific and technical backgrounds to enable enhancements to our existing services and products and bring new services and products to market.
•Ability to lower the costs associated with performing the assay
•Reduce the cost of raw materials by, in part, modifying our assays and laboratory processes to use materials and technologies that provide equal or greater quality at lower cost, improving how we manage our materials and negotiating favorable terms for our materials purchases.
•Reduce the cost of performing our SomaScan® assay as we move to either a less expensive array or Next Generation Sequencing system for our DNA readout of the protein concentrations present in a sample.
•Seasonality
•Our revenue can be seasonal dependent upon the procurement and budgeting cycles of many of our customers, especially government- or grant-funded customers, whose cycles often coincide with government fiscal year ends.
•Development and commercialization of clinical diagnostic tests
•We aim to continue to advance our portfolio of clinical diagnostic tests that
leverage our proprietary proteomics platform and artificial intelligence-enabled
bioinformatics. By developing additional tests, the
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--------------------------------------------------------------------------------Company can provide more options to customers and collaborators and further commercialize our platform driving growth in revenue.
•Expansion of our proteomic content
•To maintain our competitive advantage, we plan to increase the number of protein reagents for commercial availability based on allocated funding, resource availability, and the successful validation of new reagents.
•Upon successful commercialization of the new reagents, the impact to cost of revenue for the new proteomic content is estimated to be offset by the increased efficiencies we may gain from sample volume growth and value engineering initiatives.
Components of Results of Operations
Revenue
We derive our revenue from four primary sources: (1) assay services revenue, (2) product revenue, (3) collaboration revenue, and (4) other revenue. Customers include top biopharmaceutical companies and leading academic research universities.
Assay services revenue
We generate assay services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the SomaScan® assay on customer samples to generate data on protein biomarkers. We expect assay services revenue to increase over the long term with new and recurring sales opportunities. With the enhancement of our proteomic services, we expect to capture more market opportunities outside ofthe United States region, as well as winning contracts with new customers and expanding the scope of sales with existing customers. Product revenue Product revenue primarily consists of kit sales, which enable our customers to bring the SomaScan® proteomic platform in-house and to build lines of business based on this technology. In preparation for a full-scale re-launch, we are establishing agreements with several sites to deploy kits in the future. This will allowSomaLogic to quickly grow into new geographic regions and expand our customer base. Collaboration revenue Collaboration revenue consists of fees earned for research and development services, except for grant revenue research and development services that are classified in other revenue. Collaboration revenue currently relates to an arrangement with one customer,NEC Solution Innovators, Ltd. ("NES"), a wholly owned subsidiary of NEC Corporation ("NEC"). We believe expanding collaborative arrangements with KOLs will allow for further enhancements of our integrated platform, lower barriers to adoption and introduce or expand new market channels and customers within geographic regions and markets we do not currently operate in. Other revenue Other revenue includes royalty revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers in return for the exclusive license to make, use or sell certain licensed products in certain geographic areas. Grant revenue represents funding under cost reimbursement programs from government agencies, and non-profit foundations for qualified research and development activities performed by the Company. We expect other revenue to continue to grow as we expand our commercial team and continue to pursue additional licensing relationships.
Cost of revenue
Cost of assay services revenue
Cost of assay services revenue consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related to assay services revenue. It also includes provisions for excess or obsolete inventory and costs for production variances, such as yield losses, material usages, spending and capacity variances. Cost of assay services revenue also includes royalty fees that the Company owes to third parties related to assay services.
We expect cost of assay services revenue to increase as we grow our sample volume. We expect the cost per sample to decrease over the long term due to the efficiencies we may gain as sample volume increases from improved
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utilization of our laboratory capacity and other value engineering initiatives.
If our sample volume throughput is reduced as a result of the COVID-19 pandemic
or otherwise, cost of revenue as a percentage of total revenue may be adversely
impacted due to fixed overhead cost.
Cost of product revenue
Cost of product revenue consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related to product revenue. Cost of product revenue is recognized in the period the related revenue is recognized. Shipping and handling costs incurred for product shipments are included in cost of product revenue in the condensed consolidated statements of operations and comprehensive loss. Cost of product revenue also includes royalty fees that the Company owes to third parties related to the sale of products.
Research and development
Research and development expenses consist primarily of salaries and benefits, laboratory supplies, clinical study costs, consulting fees and related costs. We believe that our continued investment in research and development is essential to our long-term competitive position. We plan to continue to invest significantly in our research and development efforts, including hiring additional employees, with an expected focus on advancing our assay and our bioinformatics platform, new clinical studies, as well as lowering the cost of assays. As a result of these and other initiatives, we expect research and development expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue.
Selling, general and administrative
Selling expenses consist primarily of personnel and marketing related costs. General and administrative expenses consist primarily of personnel costs for our finance, human resources, business development and general management, as well as professional services, such as legal and accounting services. As we continue to introduce new services and products, broaden our customer base and grow our business, we expect selling, general and administrative expenses to increase in future periods as the number of sales and marketing and administrative personnel grows. We also anticipate incurring increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs, as well as investor and public relations expenses associated with operating as a public company.
Interest income and other, net
Interest income and other, net primarily consists of interest earned on our cash equivalents and investments, which are invested in money market funds, commercial paper,U.S Treasuries, asset-backed securities, corporate bonds, and agency bonds. Interest expense Prior to the Business Combination, we had received various forms of financing including convertible debt, a credit agreement, and funds issued through the Paycheck Protection Program. Prior to the consummation of the Business Combination, these forms of debt were settled or forgiven. Interest expense is attributable to our borrowings under these debt agreements and non-cash amortization of debt issuance costs.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities consists of changes in fair value
related to the Public Warrant and Private Warrant liabilities. The warrant
liabilities are classified as marked-to-market liabilities pursuant to ASC 815,
Derivatives and Hedging ("ASC 815"), and the corresponding increase or decrease
in value impacts our net loss.
Change in fair value of earn-out liability
Change in fair value of earn-out liability consists of changes in the earn-out liability related toEarn-Out Shares issued as part of the Business Combination. The earn-out liability is classified as a marked-to-market liability pursuant to ASC 815 and the corresponding increase or decrease in value impacts our net loss. 22 --------------------------------------------------------------------------------
Results of Operations
Comparison of the three months endedMarch 31, 2022 versus the three months endedMarch 31, 2021 Revenue Three Months Ended March 31, Change (in thousands) 2022 2021 $ % Assay services revenue$ 18,800 $ 14,573 $ 4,227 29 % Product revenue 453 193 260 135 % Collaboration revenue 763 763 - - % Other revenue 2,964 3,331 (367) (11) % Total revenue$ 22,980 $ 18,860 $ 4,120 22 %
Total revenue increased
The
Product revenue increased by$0.3 million , or 135%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to an increase in the volume of kits sold.
Other revenue decreased by
Cost of revenue
Three Months Ended March 31, Change
(in thousands) 2022 2021 $ %
Cost of assay services revenue $ 11,380 $ 6,155 $ 5,225 85 %
Cost of product revenue 272 90 182 202 %
Total cost of revenue $ 11,652 $ 6,245 $ 5,407 87 %
Total cost of revenue increased by
Cost of assay services revenue increased by$5.2 million , or 85%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase in cost of assay services revenue was primarily due to an increase in sample volumes. Additionally, our facilities experienced varying degrees of production inefficiencies due to delays in sample receipts. Cost of product revenue increased by$0.2 million , or 202%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to an increase in the volume of kits sold and an increase in the cost of materials. Research and development Three Months Ended March 31, Change (in thousands) 2022 2021 $ % Research and development $ 13,800$ 8,118 $ 5,682 70 % Research and development increased by$5.7 million , or 70%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase in research and development was primarily due to a$3.2 million increase in professional services and supplies related to projects for reducing costs and content expansion, a$1.6 million increase in wages and benefits due to increased headcount in our research and development team and a$0.9 million increase in stock-based compensation expense due to new option and RSU grants andEarn-Out Shares issued to Earn-Out Service Providers. 23 --------------------------------------------------------------------------------
Selling, general, and administrative
Three Months Ended March 31, Change
(in thousands) 2022 2021 $ %
Selling, general and administrative
141 %
Selling, general, and administrative increased by $18.0 million , or 141%, for
the three months ended March 31, 2022 compared to the three months ended
March 31, 2021 . The increase in selling, general and administrative was
primarily due to a $2.2 million increase in advisory and management services
incurred in relation to public-company compliance and other transactions, a
$7.4 million increase in wages and benefits due to increased headcount in our
commercial team, a $4.1 million increase in services incurred related to
marketing initiatives and product development, a $4.3 million increase in
stock-based compensation expense due to new option and RSU grants and Earn-Out
Shares issued to Earn-Out Service Providers.
Other income (expense)
Three Months Ended March 31, Change
(in thousands) 2022 2021 $ %
Other income (expense):
Interest income and other, net $ 206 $ 2 $ 204 NM
Interest expense - (1,174) 1,174 (100) %
Change in fair value of warrant
liabilities 12,640 - 12,640 NM
Change in fair value of earn-out
liability 16,462 - 16,462 NM
Total other income (expense) $ 29,308 $ (1,172) $ 30,480 NM A percentage calculation is not meaningful due to change in signs, a zero-value denominator or a percentage change greater than 200.
Interest income and other, net increased by$0.2 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to an average higher cash equivalents and investment balances during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 .
Interest expense decreased by
The change in fair value of warrant liabilities resulted in a gain of$12.6 million during the three months endedMarch 31, 2022 , due to the quarterly remeasurement of the warrant liabilities. The warrant liabilities were recorded as part of the Business Combination and did not exist during the three months endedMarch 31, 2021 . Therefore no remeasurement of the warrant liabilities was recorded in the prior period. The change in fair value of the earn-out liability resulted in a gain of$16.5 million for the three months endedMarch 31, 2022 , due to the quarterly remeasurement of the earn-out liability. The earn-out liability was recorded as part of the Business Combination and did not exist during the three months endedMarch 31, 2021 . Therefore no remeasurement of the earn-out liability was recorded in the prior period.
Non-GAAP Financial Measures
We present non-GAAP financial measures in order to assist readers of our
condensed consolidated financial statements in understanding the core operating
results used by management to evaluate and run the business, as well as, for
financial planning purposes. Our non-GAAP financial measure, Adjusted EBITDA,
provides an additional tool for investors to use in comparing our financial
performance over multiple periods.
Adjusted EBITDA is a key performance measure that our management uses to assess
its operating performance. Adjusted EBITDA facilitates internal comparisons of
our operating performance on a more consistent basis, and we use this measure
for business planning, forecasting, and decision-making. We believe that
Adjusted EBITDA enhances an investor's understanding of our financial
performance as it is useful in assessing our operating performance from
period-to-period by excluding certain items that we believe are not
representative of our core business.
Adjusted EBITDA should not be considered as an alternative to, or more
meaningful than, net loss as determined in accordance with GAAP or as an
indicator of our operating performance. Certain items excluded from Adjusted
EBITDA are significant components in understanding and assessing a company's
financial performance. Our presentation of Adjusted EBITDA should not be
construed as an inference that our results will be unaffected by those adjusted
items. Our
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--------------------------------------------------------------------------------Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate this measure in the same manner.
Adjusted EBITDA
We calculate Adjusted EBITDA as net loss adjusted to exclude interest expense, net, depreciation and amortization, and other non-recurring items. The other non-recurring items include the change in the fair value of warrant liabilities and the earn-out liability. The following table is a reconciliation of net loss in accordance with GAAP to non-GAAP adjusted EBITDA for the three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, (in thousands) 2022 2021 Net loss $ (3,979)$ (9,484) Adjustments to reconcile to EBITDA: Interest expense, net (206) 1,172 Depreciation and amortization 755 703 EBITDA (3,430) (7,609) Adjustments to reconcile to Adjusted EBITDA: Change in fair value of warrant liabilities (1) (12,640) - Change in fair value of earn-out liability (2) (16,462) - Adjusted EBITDA$ (32,532) $ (7,609) (1) Represents change in fair value of warrant liabilities. See Note 4, Fair Value Measurements , for more details. (2) Represents change in fair value of earn-out liability. See Note 4, Fair Value Measurements , for more details.
Liquidity and Capital Resources
Liquidity Outlook
We believe that our existing cash and cash equivalents and investments will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our sample volume growth rate, the pace of expansion of sales and marketing activities, the timing and extent of spending to supporting research and development efforts, the introduction of new and enhanced products and services, and the level of costs to operate as a public company. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products and technologies.
Cash Sources
Historically, our primary sources of liquidity have been proceeds from the Business Combination, cash collected from our customers, net proceeds from sale of our capital stock, and borrowings from debt facilities. During the first three months of 2022, our primary source of liquidity was cash collected from our customers in the amount of$47.2 million .
As of
Cash Uses
Historically, our primary use of cash has been to investment in research and development, our laboratory process, commercial infrastructure and scale our operations to support growth. We may be required to seek additional equity or debt financing. In the event we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition. We also have entered into various non-cancelable operating lease agreements for administrative and laboratory facilities. As ofMarch 31, 2022 , our total future minimum lease commitments were$5.1 million , and we have two lease agreements for buildings to be constructed inLouisville, Colorado , with lease terms that are expected to commence in 2023. See Note 5, Leases , for more information on our lease commitments. 25 --------------------------------------------------------------------------------
Cash flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended March 31,
(in thousands) 2022 2021
Net cash used in operating activities $ (4,120) $ (3,891)
Net cash provided by (used in) investing activities 5,572 (75,682)
Net cash provided by financing activities 1,242 617
Effect of exchange rates on cash, cash equivalents and restricted cash
(10) (5)
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 2,684
Cash flows from operating activities
Cash used in operating activities for the three months endedMarch 31, 2022 was$4.1 million , and was primarily attributable to a net loss of$4.0 million , which included a non-cash gain on the change in fair value of the earn-out liability of$16.5 million and a non-cash gain on the change in fair value of warrant liabilities of$12.6 million . This was partially offset by non-cash stock-based compensation expense of$8.7 million , non-cash depreciation and amortization of$0.8 million , non-cash lease expense of right of use asset of$0.4 million , non-cash provision for excess and obsolete inventory of$0.1 million , non-cash amortization of premium on available-for-sale securities, net, of$0.1 million , and non-cash provision of doubtful accounts of$0.1 million . Additionally, we experienced a net increase in our operating assets and liabilities of$18.8 million , which was primarily due to the$29.2 million increase in deferred revenue and a$2.2 million increase in accounts payable. These changes were partially offset by a$5.5 million decrease in accrued and other liabilities, a$5.0 million increase in accounts receivable, and a$1.9 million increase in inventory. Cash used in operating activities for the three months endedMarch 31, 2021 was$3.9 million , which was primarily attributable to a net loss of$9.5 million and was partially offset by non-cash stock-based compensation expense of$3.3 million , non-cash depreciation and amortization of$0.7 million , and non-cash amortization of debt issuance costs, discounts and premiums of$0.2 million . Additionally, we experienced a net increase in our operating assets and liabilities of$1.1 million , which was primarily due to the$2.6 million decrease in accounts receivable, a$1.0 million increase in accounts payable as a result of advisory services incurred related to the Business Combination, and a$0.9 million increase in deferred revenue. These changes were partially offset by a$2.6 million decrease in accrued and other liabilities and a$0.7 million increase in inventory.
Cash flows from investing activities
Cash provided by investing activities for the three months endedMarch 31, 2022 was$5.6 million , consisting of$7.7 million for the proceeds from sales and maturities of available-for-sale securities, net of purchase of available-for-sale securities, and$2.2 million for the purchase of property and equipment. Cash used in investing activities for the three months endedMarch 31, 2021 was$75.7 million , consisting of$75.5 million for the purchase of available-for-sale securities, net of proceeds from sales and maturities of available-for-sale securities, and$0.2 million for the purchase of property and equipment.
Cash flows from financing activities
Cash provided by financing activities for the three months endedMarch 31, 2022 was$1.2 million , which was attributable to the proceeds from the exercise of options to purchase our common stock. Cash provided by financing activities for the three months endedMarch 31, 2021 was$0.6 million , consisting of$0.8 million in proceeds from the exercise of options to purchase our common stock, partially offset by the payment of$0.2 million of deferred transaction costs related to the Business Combination.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which have been prepared in accordance withUnited States generally accepted accounting principles, or GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs, expenses and related disclosures. We evaluate our estimates and judgments on an on-going basis. We base our estimates on current facts, historical and anticipated results, trends, and other relevant assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates, and such differences could be material to the Company's condensed consolidated financial position and results of operations. Within the context of these critical accounting 26 --------------------------------------------------------------------------------
policies, we are not currently aware of any reasonably likely event that would result in materially different amounts being reported.
Our significant accounting policies are described in more detail in Note 2, Significant Accounting Policies, in our 2021 Form 10-K. Our most critical accounting policies and estimates are those that require difficult, subjective, and/or complex judgments and estimates and are used in the preparation of our consolidated financial statements. Our critical accounting policies and estimates are described in more detail in Critical Accounting Policies and Estimates in our 2021 Form 10-K. Other than information discussed herein, there have been no significant changes to our critical accounting policies and estimates disclosed in our 2021 Form 10K for the year endedDecember 31, 2021 .
Revenue recognition
We recognize revenue from sales to customers under ASC 606, Revenue from Contracts with Customers. ASC 606 provides a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation. We recognize revenue when or as control of promised goods or services is transferred to the customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue and products are sold without the right of return. Payment terms may vary by customer, are based on customary commercial terms, and are generally less than one year. We do not adjust revenue for the effects of a significant financing component for contracts where the period between the transfer of the goods or services and collection is one year or less. We expense incremental costs to obtain a contract as incurred since the amortization period of the asset that would otherwise be recognized is one year or less.
Assay services revenue
We generate assay services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the SomaScan® assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan® services is recognized at the time the analysis data or report is delivered to the customer, which is when control has been transferred to the customer. SomaScan® services are sold at a fixed price per sample without any volume discounts, rebates or refunds. The delivery of each assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price must be allocated to each performance obligation based on its relative standalone selling price. When assay services are included with other products or services within a customer contract, judgment is required to determine whether the promises are distinct or should be combined and to determine the transaction price allocation and standalone selling price. Standalone selling price is primarily determined based on amounts invoiced to customers in observable transactions. Standalone selling price varies depending on customer size, volume and contract length. Product revenue Product revenue primarily consists of kit sales to customerswho have deployed the assay in their own laboratories. We receive a fixed price per kit and revenue from product sales is recognized upon transfer of control to the customer. Our principal terms of sale are freight on board ("FOB") shipping point and as such, we transfer control and record revenue for product sales upon shipment. Shipping and handling costs billed to customers are included in product revenue in the condensed consolidated statements of operations and comprehensive loss.
Collaboration revenue
We provide research and development services that are accounted for in
accordance with ASC 808, Collaborative Arrangements, because both parties are
active participants and are exposed to significant risks and rewards depending
on the activity's commercial failure or success. The most critical judgments
used to estimate revenue from collaborative arrangements include the
determination of units of account within the scope of ASC 606, the number of
distinct performance obligations, estimation of transaction price including
allocation to the identified performance obligations, and determination of the
pattern of recognition.
Other revenue
Other revenue includes royalty revenue and revenue received from research
grants. We recognize royalty revenue for fees paid by customers in return for
the exclusive license to make, use or sell certain licensed products in certain
geographic areas. We recognize revenue for a sales or usage-based royalty
promised in exchange for a license of
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intellectual property when the later of the following events occurs: (i) the
subsequent sale or usage occurs, or (ii) the performance obligation to which
some or all of the sales-based or usage-based royalty has been satisfied. As
such, revenue is recognized in the period in which the subsequent sale or usage
has occurred.
Grant revenue represents funding under cost reimbursement programs from
government agencies and non-profit foundations for qualified research and
development activities performed by the Company. For efforts performed under
these grant agreements, our policy is to recognize revenue when it is reasonably
assured that the grant funding will be received as evidenced through the
existence of a grant arrangement, amounts eligible for reimbursement are
determinable and have been incurred, the applicable conditions under the grant
arrangements have been met, and collectability of amounts due is reasonably
assured. The classification of costs incurred related to grants is based on the
nature of the activities provided by the Company. Grant revenue is recognized
when the related costs are incurred and recorded in other revenue in the
condensed consolidated statements of operations and comprehensive loss.
Warrant Liabilities
We classify the warrants as liabilities on the condensed consolidated balance sheets as these instruments are precluded from being indexed to our own stock given that the terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815. Since the warrants meet the definition of a derivative under ASC 815-40, the Company recorded these warrants as long-term liabilities at fair value on the date of the Business Combination, with subsequent changes in their respective fair values recognized within change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive loss at each reporting date.
Earn-Out Liability
As a result of the Business Combination, the Company recognizedEarn-Out Shares contingently issuable to former stockholders of Old SomaLogic as a liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the Business Combination and was recorded at fair value. The earn-out liability is remeasured at the end of each reporting period, with the corresponding change in fair value recognized within change in fair value of earn-out liability in the condensed consolidated statements of operations and comprehensive loss at each reporting date.
Recently Issued Accounting Pronouncements
Please refer to Note 2, Significant Accounting Policies - Recent Accounting Pronouncements , in "Part I. Financial Information - Item 1. Financial Statements" for a discussion of recent accounting pronouncements and their anticipated effect on our business.
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