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FLDM > SEC Filings for FLDM > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for FLUIDIGM CORP

Form 10-Q for FLUIDIGM CORP


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, that are based on our management's beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section entitled "Risk Factors" and this Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "intends," "may," "plans," "potential," "predicts, "projects," "should," "will," "would" or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, "Risk Factors," elsewhere in this Form 10-Q and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this Form 10-Q.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.

"Fluidigm," the Fluidigm logo, "BioMark," "Access Array," "C 1," "EP1," "Dynamic Array," "SNPtype" and "DELTAgene" are trademarks or registered trademarks of Fluidigm Corporation. Other service marks, trademarks and trade names referred to in this Form 10-Q are the property of their respective owners.

In this Form 10-Q, "we," "us" and "our" refer to Fluidigm Corporation and its subsidiaries.

Overview

We develop, manufacture and market microfluidic systems for growth markets in the life science and agricultural biotechnology, or Ag-Bio, industries. Our proprietary microfluidic systems consist of instruments and consumables, including chips, assays and other reagents. Our systems are designed to significantly simplify experimental workflow, increase throughput and reduce costs, while providing the excellent data quality demanded by our customers. In addition, our proprietary technology enables genetic analysis that in many instances was previously impractical. We actively market four microfluidic systems, including 13 different chips for nucleic acid research and three families of assays, to leading academic institutions, diagnostic laboratories, and pharmaceutical, biotechnology and Ag-Bio companies. We have sold over 605 systems to customers in over 30 countries worldwide.

We have launched several product lines, including our BioMark system for gene expression analysis, genotyping and digital polymerase chain reaction, or digital PCR, in 2006, our EP1 system for single nucleotide polymorphism, or SNP, genotyping and digital PCR in 2008, our Access Array system for target enrichment in 2009, our BioMark HD real-time PCR system for high-throughput gene expression analysis, single-cell analysis, SNP genotyping and digital PCR in 2011, and our C1 Single-Cell Auto Prep system for single-cell analysis in June 2012. In addition, in May 2011, we launched our assay and reagent products, including our DELTAgene assays for gene expression, including single-cell analysis, our SNPtype assays for SNP genotyping, and our Access Array Target-Specific primers for next generation DNA sequencing. Our systems utilize one or more chips designed for particular applications and include specialized instrumentation and software, as well as assays and other reagents for certain applications.

We distribute our microfluidic systems through our direct sales force and support organizations located in North America, Europe and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern and Asia-Pacific countries. Our manufacturing operations are primarily located in Singapore. Our facility in Singapore manufactures our instruments and fabricates all of our chips for commercial sale and for our research and development purposes. Our South San Francisco facility fabricates chips for our research and development purposes and manufactures our assays and produces other reagents for commercial sale.


Table of Contents

Our total revenue grew from $25.4 million in 2009 to $42.9 million in 2011, and for the nine months ended September 30, 2012, our total revenue was $36.7 million. We have incurred significant net losses since our inception in 1999 and, as of September 30, 2012, our accumulated deficit was $237.2 million.

Critical Accounting Policies, Significant Judgments and Estimates

Our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates may occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

There have been no material changes in our critical accounting policies and estimates in the preparation of our condensed consolidated financial statements during the three and nine months ended September 30, 2012 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 26, 2012.

Results of Operation

Revenue

We generate revenue from sales of our products, license and collaboration agreements and government grants. Our product revenue consists of sales of instruments, including aftermarket instruments and services, and consumables, including chips, assays and other reagents. We have also entered into license and collaboration agreements and research and development contracts, and have received government grants to conduct research and development activities.

The following table presents our revenue by source for each period presented (in thousands):

                                       Three Months Ended September 30,            Nine Months Ended September 30,
                                          2012                  2011                 2012                  2011
Revenue:
Instruments                          $         6,750       $         6,437      $        19,548       $        17,828
Consumables                                    5,852                 3,731               16,578                10,463

Product revenue                               12,602                10,168               36,126                28,291
License and collaboration revenue                 15                   256                   53                 1,177
Grant revenue                                    165                   172                  496                   401

Total revenue                        $        12,782       $        10,596      $        36,675       $        29,869

The following table presents our product revenue by geography and as a percentage of total product revenue by geography based on the billing address of our customers for each period presented (in thousands):

                                           Three Months Ended September 30,                   Nine Months Ended September 30,
                                             2012                      2011                     2012                     2011
United States                        $    7,757         62 %    $  6,056        60 %    $   20,024        55 %    $ 15,362        54 %
Europe                                    2,678         21 %       2,466        24 %         8,088        23 %       7,021        25 %
Asia-Pacific                              1,267         10 %       1,134        11 %         4,484        12 %       2,784        10 %
Japan                                       774          6 %         472         5 %         2,763         8 %       2,659         9 %
Other                                       126          1 %          40         0 %           767         2 %         465         2 %

Total                                $   12,602        100 %    $ 10,168       100 %    $   36,126       100 %    $ 28,291       100 %


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Our customers include academic research institutions, diagnostic laboratories, and pharmaceutical, biotechnology and Ag-Bio companies worldwide. Total revenue from our five largest customers in each of the periods presented, respectively, comprised 21% and 20% of our total revenue in the three and nine months ended September 30, 2012, respectively, and 22% and 13% of our total revenue for the three and nine months ended September 30, 2011, respectively.

Comparison of the Three Months Ended September 30, 2012 and September 30, 2011

Total Revenue

Total revenue increased by $2.2 million, or 21%, to $12.8 million for the three months ended September 30, 2012 compared to $10.6 million for the three months ended September 30, 2011.

Product Revenue

Product revenue increased by $2.4 million, or 24%, to $12.6 million for the three months ended September 30, 2012 compared to $10.2 million for the three months ended September 30, 2011. Consumables revenue increased by $2.1 million, or 57%, primarily due to increased sales of production genotyping and gene expression chips, and to a lesser extent Access Array chips and assays. Chip sales growth was driven both by increases in the installed base of our instrument systems and analytical chip pull-through, offset to a much lesser extent by lower chip average selling prices. Instrument revenue increased by $0.3 million, or 5%, due to the launch of our C1 Single-Cell Auto Prep system, higher overall systems average unit selling prices and increased sales of service offerings and aftermarket instruments. This was offset by decreased unit sales of our analytical systems due to late timing of sales orders, competitive activity in digital PCR, and longer sales cycles and, to a much lesser extent, lower unit sales of the Access Array system.

We expect total unit sales of both instruments and consumables to increase over time as we continue our efforts to grow our customer base, expand our geographic market coverage and launch new products. However, we expect the average selling prices of our products to fluctuate over time based on market conditions, product mix and currency fluctuations.

License and Collaboration Revenue

License and collaboration revenue was $15,000 for the three months ended September 30, 2012 compared to $0.3 million for the three months ended September 30, 2011. In May 2010, we entered into a collaboration agreement with Novartis Vaccines & Diagnostics, Inc., or Novartis V&D, which provided us with milestone payments for the design and development of product prototypes. All of our performance obligations under this agreement were satisfied as of December 31, 2011, which resulted in the decrease in license and collaboration revenue in the three months ended September 30, 2012 compared to the same period in 2011.

Pursuant to the collaboration agreement, we granted an option to Novartis V&D to exclusively license our technology in specific areas of prenatal health and diagnostics. The collaboration agreement specifically provided that it would automatically terminate if the option was not exercised on or before April 30, 2012. The option expired unexercised on April 30, 2012 and the collaboration agreement terminated in accordance with its terms, effective May 1, 2012.

Grant Revenue

Grant revenue consists of a grant from California Institute for Regenerative Medicine, or CIRM, and an incentive grant from Singapore Economic Development Board, or EDB. Our first CIRM grant was awarded in 2009 in the amount of $0.8 million to be earned over a two-year period. Our second CIRM grant was awarded in 2011 in the amount of $1.9 million to be earned over a three-year period. The CIRM grant revenue is recognized as the related research and development services are performed, and costs associated with the grants are recognized as research and development expense during the period incurred.

Grant revenue decreased $7,000, or 4%, to $165,000 for the three months ended September 30, 2012 compared to $172,000 for the three months ended September 30, 2011. We did not have any revenue from the EDB grants in the three months ended September 30, 2012 as the grant agreement with the EDB was completed in May 2011. Based on correspondence with EDB, we believe we have satisfied our obligations applicable to our EDB grant revenue through September 30, 2012.

Cost of Product Revenue

The following table presents our cost of product revenue and product margin for
each period presented (in thousands, other than percentages):



                                              Three Months Ended
                                                 September 30,
                                              2012           2011
                  Cost of product revenue   $   3,518       $ 3,305
                  Product margin                   72 %          67 %

Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, warranty, service, packaging and delivery costs. In addition, cost of product revenue includes royalty costs for licensed technologies included in our products, provisions for slow-moving and obsolete inventory and stock-based compensation expense. Costs related to license and collaboration and grant revenue are included in research and development expense.


Table of Contents

Cost of product revenue increased $0.2 million, or 6%, to $3.5 million for the three months ended September 30, 2012 from $3.3 million for the three months ended September 30, 2011. Cost of product revenue as a percentage of related revenue was 28% and 33% for the three months ended September 30, 2012 and September 30, 2011, respectively. This improvement was driven primarily by a shift in the sales mix of both consumables and instruments to higher margin products. Increased chip production, chip yield improvements, and lower instrument material costs also contributed to the overall improvement in our cost of product revenue.

Operating Expenses

The following table presents our operating expenses for each period presented
(in thousands):



                                                    Three Months Ended
                                                       September 30,
                                                     2012          2011
            Research and development              $    4,071     $  3,293
            Selling, general and administrative        9,102        8,053

            Total operating expenses              $   13,173     $ 11,346

Research and Development

Research and development expense consists primarily of personnel costs, independent contractor costs, prototype and material expenses and other allocated facilities and information technology expenses. We have made substantial investments in research and development since our inception.

Research and development expense was $4.1 million for the three months ended September 30, 2012, an increase of $0.8 million, or 24%, compared to $3.3 million for the three months ended September 30, 2011. The increase in research and development expense was primarily due to an increase in compensation costs and related expenses, including stock-based compensation, of $0.3 million, and lab supplies and equipment costs of $0.3 million, compared to the three months ended September 30, 2011. These increased costs were in support of our development and commercialization of new and existing products and services.

We believe that our continued investment in research and development is essential to our long-term competitive position and these expenses may increase in future periods.

Selling, General and Administrative

Selling, general and administrative expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services.

Selling, general and administrative expense increased $1.0 million, or 13%, to $9.1 million for the three months ended September 30, 2012 compared to $8.1 million for the three months ended September 30, 2011. The increase as compared to the three months ended September 30, 2011 was primarily due to an increase in compensation costs and related expenses, including stock-based compensation, of $1.0 million, an increase in sales and marketing activities of $0.3 million, offset by a decrease in legal expenses of $0.4 million. The increase in selling, general and administrative expenses was driven by costs related to expansion of worldwide commercial capabilities to support our growth.

We expect selling, general and administrative expense to increase in future periods as we continue to grow our sales, technical support, marketing and administrative headcount, support increased product sales, broaden our customer base and incur additional costs to support our expanded global footprint and the overall growth in our business.

Interest Expense, Interest Income and Other Income and Expense, Net

We receive interest income from our cash equivalents and investments.
Conversely, we incur, or have incurred, interest expense from our bank line of
credit, our long-term debt and the amortization of debt discount related to our
long-term debt. The following table presents these items for each period
presented (in thousands):



                                                Three Months Ended
                                                   September 30,
                                                2012            2011
                Interest expense              $    (107 )      $ (439 )
                Other income (expense), net         (75 )          25


Table of Contents

Interest expense decreased $0.3 million, or 76%, to $0.1 million for the three months ended September 30, 2012 compared to $0.4 million for the three months ended September 30, 2011. The decrease is primarily due to the reduction in the principal amount of our long-term debt beginning in March 2011, when we began making principal and interest payments totaling $0.6 million per month and, as required under our loan agreement, we made an additional principal payment of $2.3 million in March 2012. In June 2012, we elected to make another principal payment of $1.9 million using proceeds from our line of credit. In August and September 2012, we elected to pay the remaining $2.2 million balance due under the loan agreement. We expect interest expense to be less in 2012 compared to 2011 because we have fully repaid our long-term debt.

Comparison of the Nine Months Ended September 30, 2012 and September 30, 2011

Total Revenue

Total revenue increased by $6.8 million, or 23%, to $36.7 million for the nine months ended September 30, 2012 compared to $29.9 million for the nine months ended September 30, 2011.

Product Revenue

Product revenue increased by $7.8 million, or 28%, to $36.1 million for the nine months ended September 30, 2012 compared to $28.3 million for the nine months ended September 30, 2011. Consumables revenue increased by $6.1 million, or 58%, primarily due to increased sales of production genotyping and gene expression chips, and to a lesser extent Access Array chips and assays. Chip sales growth was driven both by increases in the installed base of our instrument systems and analytical chip pull-through, offset to a much lesser extent by lower chip average selling prices. Instrument revenue increased by $1.7 million, or 10%, due to the launch of our C1 Single-Cell Auto Prep system, and increased sales of our service offerings and aftermarket instruments. This was offset by decreased unit sales of the Access Array system and, to a much lesser extent, decreased unit sales of our analytical systems due to late timing of sales orders, competitive activity in digital PCR, and longer sales cycles in the third quarter of 2012.

We expect total unit sales of both instruments and consumables to increase over time as we continue our efforts to grow our customer base, expand our geographic market coverage and launch new products. However, we expect the average selling prices of our products to fluctuate over time based on market conditions, product mix and currency fluctuations.

License and Collaboration Revenue

License and collaboration revenue was $53,000 for the nine months ended September 30, 2012 compared to $1.2 million for the nine months ended September 30, 2011. In May 2010, we entered into a collaboration agreement with Novartis V&D, which provided us with milestone payments for the design and development of product prototypes. All of our performance obligations under this agreement were satisfied as of December 31, 2011, which resulted in the decrease in license and collaboration revenue in the nine months ended September 30, 2012 compared to the same period in 2011.

Pursuant to the collaboration agreement, we granted an option to Novartis V&D to exclusively license our technology in specific areas of prenatal health and diagnostics. The collaboration agreement specifically provided that it would automatically terminate if the option was not exercised on or before April 30, 2012. The option expired unexercised on April 30, 2012 and the collaboration agreement terminated in accordance with its terms, effective May 1, 2012.

Grant Revenue

Grant revenue consists of a grant from CIRM and an incentive grant from the EDB. Our first CIRM grant was awarded in 2009 in the amount of $0.8 million to be earned over a two-year period. Our second CIRM grant was awarded in 2011 in the amount of $1.9 million to be earned over a three-year period. The CIRM grant revenue is recognized as the related research and development services are performed and costs associated with the grants are recognized as research and development expense during the period incurred.

Grant revenue increased $95,000, or 24%, to $496,000 for the nine months ended September 30, 2012 compared to $401,000 for the nine months ended September 30, 2011. The increase is due to the revenue earned under the second CIRM grant. We did not have any revenue from the EDB grants in the nine months ended September 30, 2012 as the grant agreement with the EDB was completed in May 2011. Based on correspondence with EDB, we believe we have satisfied our obligations applicable to our EDB grant revenue through September 30, 2012.


Table of Contents

Cost of Product Revenue

The following table presents our cost of product revenue and product margin for
each period presented (in thousands, other than percentages):



                                              Nine Months Ended
                                                September 30,
                                              2012          2011
                  Cost of product revenue   $  10,990      $ 9,183
                  Product margin                   70 %         68 %

Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, warranty, service, packaging and delivery costs. In addition, cost of product revenue includes royalty costs for licensed technologies included in our products, provisions for slow-moving and obsolete inventory and stock-based compensation expense. Costs related to license and collaboration and grant revenue are included in research and development expense.

Cost of product revenue increased $1.8 million, or 20%, to $11.0 million for the nine months ended September 30, 2012 from $9.2 million for the nine months ended September 30, 2011. Cost of product revenue as a percentage of related revenue was 30% and 32% for the nine months ended September 30, 2012 and September 30, 2011, respectively. This improvement was due to a higher product mix of higher margin consumables relative to instruments systems, and lower chip manufacturing cost due to increased production and yield improvements. This was slightly offset by higher instrument costs primarily due to lower unit production volume and freight costs.

Operating Expenses

The following table presents our operating expenses for each period presented
(in thousands):



                                                     Nine Months Ended
                                                       September 30,
                                                     2012          2011
             Research and development              $  12,337     $  9,935
             Selling, general and administrative      27,926       23,338
             Litigation settlement                        -         3,000

             Total operating expenses              $  40,263     $ 36,273

Research and Development

Research and development expense consists primarily of personnel costs, independent contractor costs, prototype and material expenses and other . . .

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