STANDARD BIOTOOLS INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition ofStandard BioTools Inc. MD&A is provided as a supplement to, and should be read together with our consolidated financial statements and the notes to those statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections aboutStandard BioTools Inc. and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described in "Risk Factors" in Item 1A of this Form 10-K, in this Item 7, and elsewhere in this Form 10-K. Except as may be required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. __________________________ Unless the context requires otherwise, references in this Form 10-K to "Standard BioTools" the "Company," "we," "us," and "our" refer toStandard BioTools Inc. and its subsidiaries.
Our MD&A is organized in the following sections:
•Overview
•Fiscal 2022 Highlights •Critical Accounting Estimates •Recent Accounting Changes and Accounting Pronouncements •Results of Operations •Liquidity and Capital Resources
Overview
Standard BioTools Inc. is driven by a bold purpose - unleashing tools to accelerate breakthroughs in human health. We have an established portfolio of essential, standardized next-generation high resolution technologies that help biomedical researchers develop medicines faster and better. Our tools are designed to provide reliable and repeatable insights in health and disease using our proprietary mass cytometry and microfluidics technologies, which serve applications in proteomics and genomics that help transform scientific discoveries into better patient outcomes. We work with leading academic, government, pharmaceutical, biotechnology, plant and animal research, and clinical laboratories worldwide, focusing on the most pressing needs in translational and clinical research, including oncology, immunology, and immunotherapy. We distribute our systems through our direct sales force and support organizations located inNorth America ,Europe , andAsia-Pacific , and through distributors or sales agents in several European, Latin American, Middle Eastern, andAsia-Pacific countries. Our manufacturing operations are located inSingapore andCanada .
Our total revenue was
Fiscal 2022 Highlights
•Received
•Following the private placement, changed our name to
•Made significant changes to our leadership team, including the appointment of
Dr.
•Launched a new corporate business strategy based upon three pillars: 1) revenue
growth, 2) improving operating discipline through Standard BioTools Business
Systems (SBS), and 3) strategic capital allocation
•Implemented a phased restructuring program aimed at improving efficiency,
reducing operating costs, and aligning our workforce with the current needs of
our business
•Reduced headcount by 15%
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•Signed a 39-month sublease agreement for 25% of our corporate headquarters in
•Began operating under two reportable segments: Proteomics and Genomics. Each segment is identified by its unique portfolio of products
•Rationalized our product portfolio by discontinuing our laser capture microdissection (LCM), Flow Conductor and COVID-19 products
•Optimized our Genomics manufacturing operations by returning instrument
manufacturing to our own facility in
•Announced a
Critical Accounting Estimates
The consolidated financial statements and related notes included in this Form 10-K are prepared in accordance with generally accepted accounting principles inthe United States (U.S. GAAP). PreparingU.S. GAAP financial statements requires the use of estimates and assumptions to determine the value of the assets, liabilities, revenues and expenses reported on the consolidated balance sheets and statements of operations. We develop these estimates after considering historical transactions, the current economic environment and various other assumptions considered reasonable under the circumstances. Actual results may differ materially from these estimates and judgments. Accounts that rely heavily on estimated information to determine their values include revenue, trade receivables, inventories, right-of-use assets, goodwill, long-lived intangible assets, lease liabilities, and preferred equity. Refer to Note 2 to our consolidated financial statements for further information on our most significant accounting policies.
Revenue
We recognize revenue based on the amount of consideration we expect to receive in exchange for the goods and services we transfer to the customer. Our commercial arrangements typically include multiple, distinct products and services, and we allocate purchase consideration to the products and services based on each item's relative standalone selling price. Standalone selling prices (SSP) are generally determined using observable data from recent transactions. In cases where sufficient data is not available, we estimate a product's SSP using a cost plus margin approach or by applying a discount to the product's list price. We have entered and may continue to enter into development agreements with customers that require us to recognize revenue using an input method that determines the extent of our progress toward completion by comparing the actual costs incurred to the total expected cost. As part of the accounting for these arrangements, we develop estimates and assumptions that require judgment to determine the transaction price and progress towards completion. We review these estimates at the end of each reporting period using the best available information, revise the estimates as necessary, and recognize revenue commensurate with our progress toward completion.
Trade Receivables
Trade accounts receivable are recorded at net invoice value. We review our exposure to accounts receivable and provide allowances for uncollectible specific amounts if collectability is no longer reasonably assured. We evaluate such allowances on a regular basis and adjust them as needed. Significant judgment is required in determining the amounts of any such allowances.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Inventory costs include direct materials, direct labor, and normal manufacturing overhead. We regularly review inventory for excess and obsolete products and components. Significant judgment is required in determining provisions for slow-moving, excess, and obsolete inventories which are recorded when required to reduce inventory values to their estimated net realizable values based on product life cycle, development plans, product expiration, and quality issues.
Right-of-Use Assets and Lease Liabilities
We determine if an arrangement is a lease, or contains a lease, at inception.
Operating leases are included in operating lease right-of-use (ROU) assets, and
operating lease liabilities in our consolidated balance sheets. ROU assets
represent our right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the
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lease. Operating lease ROU assets and liabilities are recognized at the
commencement date of the lease based on the present value of lease payments over
the lease term. As most of our leases do not provide an implicit rate, we
generally use our incremental borrowing rate based on the estimated rate of
interest for collateralized borrowing over a similar term of the lease payments
at commencement date. Significant judgment is required in determining the
incremental collateralized borrowing rate. Lease expense for lease payments is
recognized on a straight-line basis over the lease term.
Assessing goodwill and long-lived assets for impairment requires significant judgment as it involves selecting an appropriate valuation method, identifying reporting units, assigning assets and liabilities to the reporting units, and estimating future cash flows, remaining service lives, revenue growth rates, terminal values and discount rates.
Series B Redeemable Preferred Stock
The Purchase Agreements (as defined in Note 3 to the consolidated financial statements) for the issuance of shares of Series B Preferred Stock were accounted for as forward sales contracts at fair value in accordance with ASC 480, Distinguishing Liabilities from Equities. The Series B Preferred Stock was treated as mezzanine equity and recorded at its fair value upon issuance, net of issuance costs due to its redemption features, such as change of control and liquidation preference, which are outside of the Company's control. Subsequent remeasurement of the Series B Redeemable Preferred Stock amount presented within mezzanine equity to its redemption amount is not required since it is not probable that the instrument will become redeemable. Mezzanine equity which has characteristics of both liabilities and shareholders' equity (deficit) is presented separately on the consolidated balance sheets between these two items because it has some characteristics of both. Refer to Note 3 to the consolidated financial statements for additional information.
Recent Accounting Changes and Accounting Pronouncements
Adoption of New Accounting Guidance
InAugust 2020 , theFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendment to this ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification, which is expected to result in more convertible instruments being accounted for as a single unit, rather than being bifurcated between debt and equity. The new guidance was effective for fiscal years beginning afterDecember 15, 2021 . We adopted ASU 2020-06 effectiveJanuary 1, 2022 . The adoption of ASU 2020-06 did not have an impact on our financial results. InNovember 2021 , the FASB issued ASU 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendment was effective for annual periods beginning afterDecember 15, 2021 . The amendment established financial disclosure requirements for business entities that receive government assistance they account for by analogizing to a grant or contribution model due to a lack of specific GAAP guidance for such transactions. Entities that receive this type of assistance are required to include the following information in the notes to their financial statements: (1) the nature of the transaction, (2) the significant terms and conditions, (3) the accounting treatment, (4) the line items on the balance sheet and income statement that are affected along with (5) the respective amounts that have been recorded. We adopted ASU 2021-10 effectiveJanuary 1, 2022 .
Recent Accounting Pronouncements
None.
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--------------------------------------------------------------------------------Results of Operations
The following table presents our historical consolidated statements of
operations for the years ended
Year Ended December 31,
2022 2021
Revenue:
Total revenue $ 97,948 100 % $ 130,581 100 %
Costs and expenses:
Cost of product revenue 52,555 54 53,315 41
Cost of service revenue 8,342 9 7,893 6
Research and development 38,498 39 37,944 29
Selling, general and administrative 114,758 117 98,888 76
Total costs and expenses 214,153 219 198,040 152
Loss from operations (116,205) (119) (67,459) (52)
Interest expense (4,331) (4) (3,823) (3)
Loss on forward sale of Series B Preferred Stock (60,081) (61) - -
Loss on bridge loans (13,719) (14) - -
Surplus funding from NIH Contract 153 - 7,140 7
Other income, net 1,255 1 482 -
Loss before income taxes (192,928) (197) (63,660) (48)
Income tax benefit 2,830 3 4,423 3
Net loss $ (190,098) (194) % $ (59,237) (45) %
Strategic Financing and Business Improvement Actions
Our operating results for the year endedDecember 31, 2022 include certain items related to the strategic financing transaction and subsequent business improvement actions taken by the new management team, including the rationalization of our product portfolio and the restructuring plan announced inAugust 2022 . These items increased our loss from operations by$29.8 million for the year endedDecember 31, 2022 as shown below (in thousands): 50 --------------------------------------------------------------------------------
Year Ended
December 31,
2022
Revenue:
Portfolio rationalization (1) $ (1,588)
Cost of product and service revenue:
Portfolio rationalization (1) 3,350
Business improvement initiatives (2) 2,183
Retention bonuses 84
Restructuring (see Note 16) 63
Total cost of product and service revenue items 5,680
Research and development:
Portfolio rationalization (1) 3,526
Restructuring (Note 16) 1,116
Retention bonuses 756
Total research and development items 5,398
Selling, general and administrative:
Restructuring and other related costs (4) (see Note 16) 4,229
Retention bonuses 3,830
Strategic financing support (3) 3,800
Severance costs (4) 2,733
Business improvement initiatives (2) 2,197
Enterprise resource planning upgrade 391
Total selling, general and administrative items 17,180
Total $ 29,846
_______
(1) Costs related to the exit/de-emphasis of the LCM, Flow Conductor and
COVID-19 product lines, including
(2) Costs related to returning instrument manufacturing to our
(3) Costs to prepare the Private Placement Issuance, including legal and consulting expenses
(4) Termination benefits for members of the former management team, including the former CEO
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--------------------------------------------------------------------------------Revenue
We generate revenue primarily from sales of our products and services. Our
product revenue consists of sales of instruments and consumables. Consumables
revenue is largely driven by the size of our active installed base and the level
of usage per instrument. Service revenue is also linked to the size of our
active installed base as it is primarily comprised of post-warranty service
contracts for instruments.
Revenue by product type and as a percentage of total revenue are as follows ($
in thousands):
Year Ended December 31, Change
2022 2021 2022
Revenue:
Instruments $ 25,664 26 % $ 42,498 33 % (40) %
Consumables 46,790 48 57,878 44 (19) %
Product revenue 72,454 74 100,376 77 (28) %
Service revenue 23,712 24 25,917 20 (9) %
Product and service revenue 96,166 98 126,293 97 (24) %
Development revenue 818 1 2,559 2 (68) %
Grant revenue - - 1,582 1 (100) %
License revenue 964 1 147 - 556 %
Total revenue $ 97,948 100 % $ 130,581 100 % (25) %
Revenue by the geographic location of our customers and as a percentage of total revenue are as follows ($ in thousands):
Year Ended December 31, Change
2022 2021 2022
Americas $ 43,982 45 % $ 63,877 49 % (31) %
EMEA 33,136 34 42,722 33 (22) %
Asia-Pacific 20,830 21 23,982 18 (13) %
Total revenue $ 97,948 100 % $130,581 100 % (25) %
One genomics customer accounted for 11% of total revenue for the year ended
Revenue from our five largest customers represented 19% of total revenues for
the year ended
Total Revenue. Total revenue decreased by$32.6 million , or 25%, for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , driven primarily by a$27.9 million , or 28%, decline in product revenue and a$2.2 million , or 9%, decline in service revenue. A strongerU.S. dollar negatively impacted the Company's total revenue by$3.6 million , or 2.8 percent.Americas revenue declined by$19.9 million , or 31%, for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , primarily due to a reduction in product revenue from discontinued product lines, including our COVID-19 test products, and from lower unit sales of proteomics instruments. EMEA revenue decreased by$9.6 million , or 22%, primarily driven by a decline in proteomics instrument revenue. A strongerU.S. dollar negatively impacted EMEA revenue by approximately 4.7 percent. InAsia-Pacific , revenue decreased by$3.2 million , or 13%, primarily due to a decline in proteomics revenue. A strongerU.S. dollar negatively impactedAsia-Pacific revenues by approximately 5.8 percent. 52
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Segment Product and Service Revenue
Segment product and service revenue and as a percentage of the respective segment's total revenue are as follows ($ in thousands):
Year Ended December 31, Change
2022 2021 2022
Proteomics:
Instruments $ 16,923 33 % $ 29,964 44 % (44) %
Consumables 17,839 35 18,960 28 (6) %
Product revenue 34,762 68 48,924 72 (29) %
Service revenue 16,891 32 18,733 28 (10) %
Product and service revenue $ 51,653 100 % $ 67,657 100 % (24) %
Year Ended December 31, Change
2022 2021 2022
Genomics:
Instruments $ 8,741 20 % $ 12,534 21 % (30) %
Consumables 28,951 65 38,918 67 (26) %
Product revenue 37,692 85 51,452 88 (27) %
Service revenue 6,821 15 7,184 12 (5) %
Product and service revenue $ 44,513 100 % $ 58,636 100 % (24) %
Proteomics. Proteomics product and service revenue declined by $16.0 million , or
24%, for the year ended December 31, 2022 , compared to the year ended
December 31, 2021 . The year-over-year decline is primarily attributable to lower
unit sales of instruments.
Genomics. Genomics product and service revenue declined by $14.1 million , or
24%, during the year ended December 31, 2022 compared to the year ended
December 31, 2021 . The year-over-year decline is primarily attributable to the
reduced demand for COVID-19 test kits and other products that were discontinued
in 2022. An increase in OEM revenue was offset by a decline in sales to other
customers.
We expect the average selling prices of our products to fluctuate over time based on market conditions, product mix, and currency fluctuations.
Product and Service Cost, Product and Service Gross Profit, and Product and Service Margin
Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty, provisions for slow-moving and obsolete inventory, and stock-based compensation expense. Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities in response to market conditions and the demand for our products.
Cost of service revenue includes direct labor hours, overhead, and instrument parts. Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing instruments.
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--------------------------------------------------------------------------------Product and service cost, product and service gross profit, and product and service margin are as follows ($ in thousands):
Year Ended December 31, Change
2022 2021 2022
Cost of product revenue $ 52,555 $ 53,315 (1) %
Cost of service revenue 8,342 7,893 6 %
Cost of product and service revenue $ 60,897 $ 61,208 (1) %
Product and service gross profit $ 35,268 $ 65,085 (46) %
Product and service margin 36.7 % 51.5 % (14.8) ppts.
Product and service margin decreased by 14.8 percentage points for the year
ended December 31, 2022 compared to the year ended December 31, 2021 . Increased
provisions for excess and obsolete inventory accounted for 6.4 percentage points
of the decline in the product and service margin. Provisions for excess and
obsolete inventory were $7.9 million , or 8.2%, of product and service revenue
for the twelve months ended December 31, 2022 compared to $2.3 million , or 1.8%,
of product and service revenue for the twelve months ended December 31, 2021 .
The increase in these provisions primarily reflects the impact of our portfolio
rationalization initiatives. Fixed depreciation and amortization costs on a
lower revenue base contributed 2.9 percentage points to the decline in product
and service margin, while other factors, including an unfavorable product mix
and higher service costs contributed 2.9 and 2.4 percentage points,
respectively.
Operating Expenses
Year Ended December 31, Change
($ in thousands): 2022 2021 2022
Research and development $ 38,498 $ 37,944 1 %
Selling, general and administrative 114,758 98,888 16 %
Total operating expenses $ 153,256 $ 136,832 12 %
Research and Development
Research and development expense consists primarily of compensation-related
costs, product development and material expenses, and other allocated facilities
and information technology expenses. Our research and development efforts have
focused primarily on enhancing our technologies and supporting the development
and commercialization of new and existing products and services. Research and
development expense also includes costs incurred in conjunction with research
grants and development arrangements.
Research and development expense increased by $0.6 million , or 1%, to $38.5
million in 2022 compared to $37.9 million in 2021. The increase is primarily
attributable to a $3.5 million non-cash impairment charge to write off
long-lived intangible assets associated with discontinued products and $1.1
million of restructuring expenses. These expenses were mostly offset by a $2.3
million reduction in laboratory supplies, a $1.4 million reduction in consulting
fees, and a $0.4 million reduction in stock-based compensation expense, each of
which reflect reduced and refocused program activity.
Selling, General and Administrative
Selling, general and administrative (SG&A) expense consists primarily of personnel costs for, sales, marketing, business development, finance, legal, human resources, information technology, and general management, as well as professional services, including legal and accounting.
SG&A expense increased by$15.9 million , or 16%, to$114.8 million in 2022 compared to$98.9 million in 2021. The strategic financing and business improvement initiatives launched in 2022 increased SG&A expenses by$17.2 million . The total includes$4.2 million of restructuring and other related costs involving former executives,$3.8 million for retention bonuses to retain key employees,$3.8 million for legal and consulting fees in support of the private placement issuance, Company name change, and rebranding activities,$2.7 million for severance,$2.2 million in business improvement initiatives for strategic advisory and business consulting expenses, and$0.4 million to upgrade the ERP system. There was also a$2.0 million increase in travel expenses, as COVID-19 travel-related restrictions were relaxed. These cost increases were partially offset by a$1.7 million decrease in compensation expense and a$0.8 million decrease in stock-based compensation expense 54 --------------------------------------------------------------------------------
resulting from the headcount reductions, and a
Segment Loss from Operations
Year Ended December 31, Change
($ in thousands): 2022 2021 2022
Loss from operations:
Proteomics $ (28,751) $ (10,917) 163 %
Genomics (26,885) (10,198) 164 %
Corporate expenses (60,569) (46,344) 31 %
Total loss from operations $ (116,205) $ (67,459) 72 %
Proteomics. Proteomics loss from operations increased by $17.8 million , or 163%,
for the year ended December 31, 2022 compared to the year ended December 31,
2021 . The year over year increase in operating loss was primarily attributable
to an $11.8 million reduction in gross profit driven by lower unit sales of
instruments, a $3.5 million non-cash impairment charge to write-off the
developed technology acquired from InstruNor and a $2.5 million increase in
operating expenses.
Genomics. Genomics loss from operations increased by $16.7 million , or 164%, for
the year ended December 31, 2022 compared to the year ended December 31, 2021 ,
primarily due to a $20.5 million reduction in gross profit driven by lower
revenues and lower product and service margins. The unfavorable impact of these
items was partially offset by a $4.8 million reduction in operating expense,
which was primarily attributable to a $3.6 million reduction in R&D-related
expense as a result of targeted program reductions.
Corporate expenses. Corporate expenses include general and administrative expenses for functions shared by both operating segments such as executive management, human resources, and finance.
Interest Expense and Other Non-Operating Items
Year Ended December 31, Change
($ in thousands): 2022 2021 2022
Interest expense $ (4,331) $ (3,823) (13) %
Loss on forward sale of Series B Preferred Stock (60,081) - NA
Loss on bridge loans (13,719) - NA
Surplus funding from NIH Contract 153 7,140 98 %
Other income, net 1,255 482 (160) %
Total $ (76,723) $ 3,799 NA
Interest expense increased by $0.5 million , or 13%, for the year ended
December 31, 2022 compared to the year ended December 31, 2021 , principally due
to the $10.0 million Term Loan, which originated on August 1, 2021 and remained
fully drawn throughout 2022, as well as the Bridge Loans, which originated in
January 2022 and accrued interest until converted into Series B Redeemable
Preferred Stock in April 2022 as discussed below.
The Purchase Agreements for the issuance of 225,000 shares of Series B
Redeemable Preferred Stock for $225 million were accounted for as forward sales
contracts and recorded at fair value in accordance with ASC 480, Distinguishing
Liabilities from Equities. The fair value of the payable portion of the Purchase
Agreements was determined to be $285.1 million on April 4, 2022 , the closing
date of the Private Placement Issuance. The $60.1 million loss on the forward
sales of Series B Preferred Stock for the twelve months ended December 31, 2022
reflects the increase in the share price of our common stock from $2.84 per
share at the inception of the Agreements to $3.99 per share on April 4, 2022 .
Applying the guidance in ASC 825, Financial Instruments, we elected to record
the Bridge Loans, which commenced on January 4, 2022 at their fair value. The
change in fair value of the Bridge Loans from inception to their conversion on
April 4, 2022 was recorded as a loss on Bridge Loans. The fair value of the
Bridge Loans was largely driven by the value of our common stock and the value
of the Series B Preferred Stock into which they were converted. The loss on
Bridge Loans of $13.7 million in 2022 was largely driven by the increase in the
price of our common stock from inception to the conversion date.
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--------------------------------------------------------------------------------Refer to Note 3 within our consolidated financial statements for additional details relating to the Series B Redeemable Preferred Stock and the Bridge Loans.
In 2022, we recognized the final$0.2 million of income under the NIH Contract from amounts received in excess of amounts spent on capital expenditures and operating expenses. The$0.2 million recognized in 2022 increased the amount of cumulative income recognized under the agreement to$7.3 million .
Income Tax Benefit
Our tax provision is generally driven by our foreign operations and by discrete items, such as changes in our valuation allowances or adjustments made when finalizing our tax returns. Depending on the relative value of these items, we can either have either a tax benefit or expense in any given period. We recorded a tax benefit of$2.8 million , or an effective tax rate benefit of 1.5%, for the year endedDecember 31, 2022 compared to a tax benefit of$4.4 million , or an effective tax rate benefit of 6.9%, for the year endedDecember 31, 2021 . The reduced tax benefit in 2022 compared to 2021 was primarily the result of changes in the deferred tax expense related to foreign operations, which generated significant tax benefit in prior years.
Liquidity and Capital Resources
Sources of Liquidity
As ofDecember 31, 2022 , our principal sources of liquidity consisted of$165.8 million of cash and cash equivalents, and short-term investments. We expect these sources will be sufficient to support the operations of our business and any debt maturities for at least the next 12 months from the date of filing this Annual Report. Our future capital needs will depend upon many factors, including the market acceptance of our products and services; the effectiveness of our business improvement initiatives and restructuring program launched inAugust 2022 ; the costs and pace of developing new products; the costs of supporting sales growth; product quality; and the costs and timing of acquiring other businesses, assets or technologies. The following table presents our cash flow summary for each year presented (in thousands): Year Ended December 31, 2022 2021 Cash flow summary: Net cash used in operating activities$ (89,370) $ (44,061) Net cash used in investing activities (88,127) (11,946) Net cash provided by financing activities 230,758 15,959
Effect of foreign exchange rate fluctuations on cash and cash equivalents
(404) (21)
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 52,857 $ (40,069) Net Cash Used in Operating Activities. We derive cash flows from operations primarily by collecting amounts due from sales of our products and services, and from fees earned under product development, license and grant agreements. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses and working capital to support the business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure domestically and internationally. Net cash used in operating activities in 2022 was$89.4 million . and consisted of a net loss of$190.1 million partially offset by non-cash items of$116.2 million and cash used in assets and liabilities of$15.5 million . Non-cash items included a$60.1 million loss on forward sale of Series B Preferred Stock, depreciation and amortization of$15.0 million , stock-based compensation expense of$14.9 million , a$13.7 million loss on Bridge Loans, a$7.9 million provision for excess and obsolete inventory, and a$3.5 million impairment charge for InstruNor development technology. The net cash used in assets and liabilities was primarily due to a$8.5 million increase in inventory, a$6.0 million decrease in other current liabilities, a$3.5 million decrease in deferred revenues, and a$2.8 million decrease of accounts payable. This is partially offset by increased accrued compensation and benefits of$4.1 million including accruals for restructuring expenses, and a$1.1 million reduction of accounts receivable. 56 --------------------------------------------------------------------------------Net Cash Used in Investing Activities. Our primary investing activities consist of purchases, sales, and maturities of our short-term investments and capital expenditures for manufacturing, laboratory, and computer equipment and software to support our infrastructure and workforce. We expect to continue to incur costs for capital expenditures to improve manufacturing efficiencies and strengthen our information technology and network security. However, we may choose to decrease or defer certain capital expenditures and development activities, while further optimizing our organization. Net cash used in investing activities in 2022 was$88.1 million , which primarily consists of$137.3 million for the purchase of investments in short-term securities, partially offset by$53.0 million of cash receipts from maturities of such securities. Net Cash Provided by Financing Activities. Net cash provided by financing activities totaled$230.8 million in 2022. The principal sources of cash were$25.0 million of proceeds from the receipt of the Bridge Loans inJanuary 2022 and$225 million of proceeds from the issuance of Series B Preferred Stock inApril 2022 . The Bridge Loans automatically converted into Series B Preferred Stock upon the completion of the preferred stock financing. The principal uses of cash were$12.5 million for equity issuance costs related to the Series B Preferred Stock and$6.8 million for the repayment of advances under the Revolving Credit Facility.
Purchase Obligations and Commitments
Purchase obligations consist of contractual and legally binding commitments to purchase goods and services. Our purchase obligations with suppliers specify all significant terms, including fixed, minimum or variable price provisions , and the approximate timing of the transaction The majority of our contracts are cancellable with little or no notice or penalty. However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation. For example, if a supplier has purchased raw materials to produce a good for us, and those goods cannot be returned or otherwise used by our vendor, we are obligated to reimburse them for the costs they incurred. As ofDecember 31, 2022 , these purchase commitments totaled$13.5 million . Capital expenditure commitments as ofDecember 31, 2022 were immaterial. In addition, we have certain non-cancellable commitments with service providers that are not material in the aggregate.
We have additional obligations beyond the purchase of goods and services, including the following:
•Contingent obligations to our Series B Redeemable Preferred Stockholders. See Note 3 Private Placement Issuance- Series B Preferred Stock- Change of Control Provisions and Liquidation Rights. •Principal amounts due under our debt obligations, including end-of-term fees, totaled$66.2 million atDecember 31, 2022 , of which$2.1 million is due and payable in 2023. See Note 9 Debt for additional information. •Future payments for operating lease obligations atDecember 31, 2022 totaled$37.8 million , of which$3.7 million is expected to be paid in 2023. See Note 10 Leases for additional information. •Additional information on our obligations under license and patent agreements, and indemnification agreements entered into in the ordinary course of business is provided in Note 17 Commitments and Contingencies. The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In addition, some of our future purchasing needs are not current contractual obligations and are therefore not included in the commitment amounts above because they are not handled through binding contracts or are not fulfilled by vendors on a purchase order basis within short time horizons.
Capital Resources
At
Repurchase of Common Shares
OnNovember 23 2022 , our board of directors authorized the repurchase of up to$20.0 million of shares of the Company's common stock in the open market or in negotiated transactions throughDecember 31, 2023 . The repurchases are expected to be funded by cash on hand. We repurchased a total of 422,309 shares of common stock under this program at a total cost of$0.6 million , or an average of$1.33 per share in 2022. As ofDecember 31, 2022 , the Company had a remaining authorization to repurchase up to$19.4 million of shares under this program. The timing and amount of future repurchases will depend upon 57 -------------------------------------------------------------------------------- several factors, including market and business conditions, the daily trading volume of our stock and applicableSEC regulations. Repurchases may be suspended or discontinued at any time. 2014 Notes and 2019 Notes InFebruary 2014 , we closed an underwritten public offering of our 2014 Notes. Pursuant to the Indenture governing the 2014 Notes, holders of the 2014 Notes have the right, subject to certain conditions specified in such indenture, to require the Company to repurchase all or a portion of their 2014 Notes on each ofFebruary 6, 2021 ,February 6, 2024 , andFebruary 6, 2029 , at a repurchase price in cash equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. OnFebruary 6, 2021 , holders of$0.5 million of the 2014 Notes exercised their right for us to repurchase their notes in accordance with this provision leaving$0.6 million of 2014 Notes outstanding atDecember 31, 2022 . InNovember 2019 , we closed a private placement of$55.0 million aggregate principal amount of our 2019 Notes. The 2019 Notes bear interest at 5.25% per annum, payable semiannually onJune 1 andDecember 1 of each year, beginning onJune 1, 2020 . The Notes mature onDecember 1, 2024 , unless earlier repurchased or converted pursuant to their terms. The 2019 Notes will be convertible at the option of the holder at any point prior to close of business on the second scheduled trading day preceding the maturity date. The initial conversion rate of the 2019 Notes is 344.8276 shares of the Company's common stock per$1,000 principal amount of 2019 Notes (which is equivalent to an initial conversion price of$2.90 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. The 2019 Notes will also be convertible at our option upon certain conditions in accordance with the terms of the indenture governing the 2019 Notes. On or afterDecember 1, 2021 toDecember 1, 2022 , if the price of the Company's common stock has equaled or exceeded 150% of the Conversion Price (as defined in the indenture, currently$2.90 per share, subject to adjustment) for a specified number of days (Issuer's Conversion Option), we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company. On or afterDecember 1, 2022 , if the price of the Company's common stock has equaled or exceeded 130% of the Conversion Price then in effect for a specified number of days, we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company. The aggregate net carrying value of the 2014 and 2019 Notes was$54.6 million atDecember 31, 2022 .
The foregoing summaries of the 2014 Notes and the 2019 Notes are not complete
and are qualified in their entirety by the applicable indentures, forms of
global notes, and other agreements and documents filed with the
Revolving Credit Facility
OnAugust 2, 2018 , we entered into a Loan and Security Agreement withSilicon Valley Bank (as amended the Revolving Credit Facility), which provides for secured revolving loans in an aggregate principal amount of up to the lesser of (i)$15.0 million or (ii) the sum of (a) 85% of our eligible receivables and (b) 50% of our eligible inventory, in each case, subject to certain limitations (Borrowing Base), provided that the amount of eligible inventory that may be counted towards the Borrowing Base shall be subject to a cap as set forth in the Revolving Credit Facility. InAugust 2021 , we amended our Revolving Credit Facility to extend the maturity date toAugust 2, 2023 and to provide for a new$10.0 million Term Loan Facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facility). The Credit Facility is collateralized by substantially all our property, other than intellectual property. The maturity date of the Term Loan Facility isJuly 1, 2025 , subject to the following condition: in the event the principal amount of our convertible debt exceeds$0.6 million as ofJune 1, 2024 or if the maturity date of our 2019 Notes has not been extended beyondJanuary 1, 2026 by that date, then the maturity date of the Term Loan Facility will beJune 1 , 2024.The Amendment also added a financial covenant to the Credit Facility, requiring us to maintain a minimum Adjusted Quick Ratio of at least 1.25 to 1.00 and a Liquidity requirement greater than$20.0 million . The interest rate on advances made under the Revolving Credit Facility is the greater of (i) prime rate plus 0.50% or (ii) 5.25% per annum. Interest on any outstanding advances is due and payable monthly and the principal balance is due at maturity though loans can be prepaid at any time without penalty. Fees for Revolving Credit Facility include an annual commitment fee of$112,500 and a quarterly unused line fee based on the Borrowing Base. As ofDecember 31, 2022 , there were no borrowings under the Revolving Credit Facility and the total availability was$9.2 million . We are in compliance with all the terms and conditions of the Revolving Credit Agreement as ofDecember 31, 2022 .
On
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--------------------------------------------------------------------------------Term Loan
As ofDecember 31, 2022 , the carrying value of the Term Loan Facility was$10.3 million and it was fully drawn. Interest on the term loan accrues on the outstanding principal amount thereof at the greater of (i) a floating per annum rate equal to three quarters of one percentage point (0.75%) above the prime rate (as customarily defined), or 4% with a final payment equal to 6.5% of the aggregate original principal amounts of each term loan advance due on the earlier of the maturity date of the Term Loan Facility, the acceleration of the term loan advances or any prepayment of a term loan advance. Interest is payable monthly. The principal amount of the term loan advances is repayable beginning onAugust 1, 2023 , in twenty-four equal monthly installments. The$2.1 million current portion of the term-loan represents principal repayments that will be made in 2023. The effective interest rate on the Term Loan Facility, reflecting the impact of debt issuance costs, the end-of-term fee and expected timing of principal repayment was 9.3% per annum as ofDecember 31, 2022 .
Series B Preferred Stock
OnApril 4, 2022 , we completed the Private Placement Issuance, issuing 255,559 shares of Series B Preferred Stock. The rights, preferences and privileges of the Series B Preferred Stock are set forth in the Series B-1 Certificate of Designations and Series B-2 Certificate of Designations (collectively, the Series B Certificates of Designations). The Series B Preferred Stock ranks senior to our common stock with respect to dividend rights, redemption rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The holders of Series B Preferred Stock are entitled to participate in all dividends declared on our common stock on an as-converted basis, on the terms and subject to the conditions set forth in the Series B Certificates of Designations.
The following is a brief summary of the conversion rights and other key provisions of the Series B Preferred Stock:
Holder Voluntary Conversion Rights
The Series B Preferred Stock is convertible at the option of the holders thereof at any time into a number of shares of common stock equal to the Conversion Rate (as defined in the Series B Certificates of Designations), which is initially 294.1176 shares of common stock per share of Series B Preferred Stock, in each case subject to certain adjustments and certain limitations on conversion.
Issuer Call Provision
At any time after the fifth anniversary of the closing of the Private Placement Issuance, if the last reported sale price of the common stock is greater than 250% of the Conversion Price (as defined in the Series B Certificates of Designations) as of such time for at least 20 consecutive trading days, we may elect to convert all of the outstanding shares of Series B Preferred Stock into shares of common stock.
Issuer Redemption Provision
After the seventh anniversary of the closing of the Private Placement Issuance, subject to certain conditions, we may, at our option, redeem all of the outstanding shares of Series B Preferred Stock at a redemption price per share of Series B Preferred Stock, payable in cash, equal to the Liquidation Preference (as defined in the Series B Certificates of Designations).
Change of Control Provisions
If we undergo certain change of control transactions, each holder of outstanding shares of Series B Preferred Stock will have the option, subject to the holder's right to convert all or a portion of the shares of Series B Preferred Stock held by such holder into common stock, to require us to purchase all or a portion of such holder's outstanding shares of Series B Preferred Stock that have not been converted into common stock at a purchase price per share of Series B Preferred Stock, payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that such holder would have been entitled to receive if such holder had converted such share of Series B Preferred Stock into common stock immediately prior to the change of control transaction (Change of Control Put). In the event of a change of control in which we are not expected to be the surviving corporation or if our common stock will no longer be listed on aU.S. national securities exchange, we will have a right to redeem, subject to the holder's right to convert into common stock prior to such redemption, all of such holder's shares of Series B Preferred Stock, or if a holder exercises the Change of Control Put in part, the remainder of such holder's shares of Series B Preferred Stock, at a redemption price per share payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that the holder would have received if such holder had converted such share of Series B Preferred Stock into common stock immediately prior to the change of control transaction. 59 --------------------------------------------------------------------------------
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the Series B Preferred Stock has a liquidation preference equal to the greater of (i) the Liquidation Preference (as defined in the Series B Certificates of Designations, currently$3.40 ) and (ii) the amount per share of Series B Preferred Stock that such holder would have received had all holders of Series B Preferred Stock, immediately prior to such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, converted all shares of Series B Preferred Stock into common stock pursuant to the terms of the Series B Certificates of Designations (without regard to any limitations on conversion contained therein).
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