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FLDM > SEC Filings for FLDM > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for FLUIDIGM CORP


9-May-2013

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, unit sales, 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," "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 to leading academic institutions, clinical laboratories, and pharmaceutical, biotechnology, and agricultural biotechnology, or Ag-Bio, companies in growth markets, such as single-cell genomics, applied genotyping, and sample preparation for targeted resequencing. Our proprietary microfluidic systems consist of instruments and consumables, including integrated fluidic circuits, or IFCs, assays, and reagents. We actively market four microfluidic systems, including 13 different commercial IFCs for nucleic acid analysis, and three families of assay chemistries. 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 have sold over 730 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 System for high-throughput gene expression analysis, targeted single-cell gene expression analysis, SNP genotyping, and digital PCR in 2011; and our C1 Single-Cell Auto Prep System for single-cell sample preparation for single-cell analysis in June 2012. In addition, in May 2011, we launched assay products, including our DELTAgene assays for gene expression, our SNPtype assays for SNP genotyping, and our Access Array Target-Specific primers for targeted next-generation DNA sequencing. Our systems utilize one or more IFCs 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 IFCs for commercial sale and for our research and development purposes. Our South San Francisco facility fabricates IFCs for our research and development purposes, and manufactures our assays and produces other reagents for commercial sale.


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Our total revenue grew from $33.6 million in 2010 to $52.3 million in 2012, and for the three months ended March 31, 2013, our total revenue was $14.5 million. We have incurred significant net losses since our inception in 1999 and, as of March 31, 2013, our accumulated deficit was $244.4 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 months ended March 31, 2013 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 12, 2013.

Results of Operations

Revenue

We generate revenue from sales of our products, license agreements, and government grants. Our product revenue consists of sales of instruments and related services, and consumables, including IFCs, assays, and other reagents. We have entered into license agreements 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
                                               March 31,
                                           2013          2012
                      Revenue:
                      Instruments       $    7,905     $  5,900
                      Consumables            6,349        4,856


                      Product revenue       14,254       10,756
                      License revenue          116           23
                      Grant revenue            165          166


                      Total revenue     $   14,535     $ 10,945

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
                                                 March 31,
                                        2013                    2012
                 United States   $  6,919        49 %    $  5,812        54 %
                 Europe             3,501        25 %       2,568        24 %
                 Asia-Pacific       1,915        13 %       1,195        11 %
                 Japan              1,499        10 %         991         9 %
                 Other                420         3 %         190         2 %


                 Total           $ 14,254       100 %    $ 10,756       100 %

Our customers include academic research institutions, clinical laboratories, and pharmaceutical, biotechnology, and Ag-Bio companies worldwide. Total revenue from our five largest customers in each of the periods presented comprised 21% of our total revenue in the three months ended March 31, 2013 and 2012, respectively.


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Comparison of the Three Months Ended March 31, 2013 and March 31, 2012

Total Revenue

Total revenue increased by $3.6 million, or 33%, to $14.5 million for the three months ended March 31, 2013 compared to $10.9 million for the three months ended March 31, 2012.

Product Revenue

Product revenue increased by $3.5 million, or 33%, to $14.3 million for the three months ended March 31, 2013, compared to $10.8 million for the three months ended March 31, 2012.

Consumables revenue increased by $1.5 million, or 31%, primarily due to growth in IFC sales volume, driven by a 37% year-over-year increase in the installed base of our instrument systems, partially offset by a change in the sales mix to IFCs with lower average selling prices. Annualized IFC pull-through was within our historical range of between $40,000 to $50,000 per system for our analytical systems and slightly above our historical range of $10,000 to $15,000 per system for our preparatory systems. Increases in assays and reagents sales also contributed to the increase in consumables revenue.

Instrument revenue increased by $2.0 million, or 34%, primarily driven by increases in unit sales of our preparatory systems, which include our C1 Single-Cell Auto Prep System, first sold as a new product in the third quarter of 2012, as well as sales of our service offerings.

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.

Grant Revenue

Grant revenue consists of a grant from California Institute for Regenerative Medicine, or CIRM. Our 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 was $0.2 million for each of the three months ended March 31, 2013 and 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
                                                   March 31,
                                              2013           2012
                  Cost of product revenue   $   4,259       $ 3,546
                  Product margin                   70 %          67 %

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 royalty costs for licensed technologies included in our products, warranty, service, provisions for slow-moving and obsolete inventory, and stock-based compensation expense. Costs related to license and grant revenue are included in research and development expense.

Cost of product revenue increased $0.7 million, or 20%, to $4.3 million for the three months ended March 31, 2013 from $3.5 million for the three months ended March 31, 2012, due to higher sales volumes. Cost of product revenue as a percentage of related revenue was 30% and 33% for the three months ended March 31, 2013 and 2012, respectively. This improvement was primarily due to a favorable change in the sales mix to higher margin instruments, particularly the C1 Single-Cell Auto Prep System, and, in addition, higher assays and reagents sales volumes, and lower warranty costs. These improvements were offset in part by higher service and freight costs.


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Operating Expenses

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



                                                    Three Months Ended
                                                         March 31,
                                                     2013          2012
            Research and development              $    4,197     $  4,279
            Selling, general and administrative       11,146        9,403


            Total operating expenses              $   15,343     $ 13,682

Research and Development

Research and development expense consists primarily of personnel and 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. Our research and development efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services.

Research and development expense decreased $0.1 million, or 2%, to $4.2 million for the three months ended March 31, 2013 compared to $4.3 million for the three months ended March 31, 2012. The decrease in research and development expense was primarily due to a decrease in lab supplies and equipment costs of $0.2 million, offset by an increase in compensation costs and other employee-related expenses of $0.1 million. We incurred these costs to support 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 $1.7 million, or 19%, to $11.1 million for the three months ended March 31, 2013 compared to $9.4 million for the three months ended March 31, 2012. The increase was primarily due to an increase in compensation costs and other employee-related expenses of $1.4 million and an increase in sales and marketing activities of $0.3 million. The increase was primarily driven by expansion of worldwide commercial capabilities to support our growth, and to a lesser extent general and administrative expense 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 expanding global footprint and the overall growth in our business.


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Interest Expense and Other Expense, Net

We have incurred interest expense and amortization of debt discount related to
our long-term debt. The following table presents interest expense and other
income and expense items for each period presented (in thousands):



                                                      Three Months Ended
                                                           March 31,
                                                       2013           2012
         Interest expense                           $      (10 )     $ (307 )
         Gain from sale of investment in Verinata        1,777           -
         Other expense, net                               (213 )        (61 )

In September 2012, we paid the remaining balance due under our long-term debt. Accordingly, we did not incur any interest expense on long-term debt during the three months ended March 31, 2013. As a result, interest expense decreased $0.3 million, or 97%, for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. We expect interest expense to be less in 2013 compared to 2012 because we have fully repaid our long-term debt.

In February 2013, Illumina, Inc. acquired Verinata Health, Inc. (Verinata) for $350 million in cash and up to an additional $100 million in milestone payments through 2015. In March 2013, we received cash proceeds of $3.1 million in exchange for our ownership interest in Verinata, resulting in a gain of $1.8 million. If the milestone payments become payable in the future, we could receive up to $3.2 million in additional proceeds. The $1.8 million gain we recognized did not include any amounts that may be received upon the achievement of future milestones.

Other expense, net consists of foreign exchange gains and losses and interest income. Other expense, net increased $152,000 to $213,000 for the three months ended March 31, 2013, compared to $61,000 for the three months ended March 31, 2012. The increase was mainly driven by net foreign exchange losses of $0.2 million resulting primarily from an unfavorable change in the Japanese Yen.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2013, our principal sources of liquidity consisted of $61.8 million of cash and cash equivalents and $25.1 million of investments. As of March 31, 2013, our working capital totaled $87.0 million.

The following table presents our cash flow summary for each period presented (in thousands):

                                                            Three Months Ended
                                                                 March 31,
                                                            2013           2012
   Cash flow summary
   Net cash used in operating activities                  $    (884 )    $ (6,643 )
   Net cash provided by investing activities                  2,395         4,570
   Net cash provided by (used in) financing activities        1,767        (3,038 )
   Net increase (decrease) in cash and cash equivalents       3,166        (5,057 )

Net Cash Used in Operating Activities

We derive cash flows from operations primarily from cash collected from the sale of our products, license agreements, and grants from certain government entities. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure domestically and internationally and this may continue in the future.

Net cash used in operating activities was $0.9 million for the three months ended March 31, 2013, compared to $6.6 million for the three months ended March 31, 2012, a decrease of $5.7 million. Cash used for working capital purposes decreased by $4.0 million, driven primarily by increased cash collections from our customers and our net loss, excluding non-cash and non-operating items, decreased by $1.7 million.

Net Cash Provided by Investing Activities

Our primary investing activities consist of purchases, sales, and maturities of our short-term and long-term investments, and capital expenditures for manufacturing, laboratory, and computer equipment and software to support our expanding infrastructure and work force. We expect to continue to expand our manufacturing capability, including improvements in manufacturing productivity, and expect to incur additional costs for capital expenditures related to these efforts in future periods. In addition, we expect to continue to incur costs for capital expenditures for demonstration units and loaner equipment to support our sales and service efforts, and computer equipment and software to support our growth.


Table of Contents

Net cash provided by investing activities was $2.4 million during the three months ended March 31, 2013. Net cash provided by investing activities primarily consisted of proceeds from sales and maturities of investments of $7.4 million and proceeds from sale of investment in Verinata of $3.1 million, partially offset by purchases of investments of $7.4 million and purchases of capital equipment of $0.7 million to support growth in our commercial and manufacturing operations.

Net cash provided by investing activities was $4.6 million during the three months ended March 31, 2012. Net cash provided by investing activities primarily related to proceeds from sales and maturities of investments of $24.4 million, partially offset by purchases of investments of $19.4 million and purchases of capital equipment or $0.4 million to support our infrastructure and manufacturing operations.

Net Cash Provided by (used in) Financing Activities

Net cash provided from financing activities was $1.8 million during the three months ended March 31, 2013 from proceeds received in connection with the exercise of options for our common stock.

Net cash used in financing activities was $3.0 million during the three months ended March 31, 2012 primarily relating to repayment of $3.8 million on our long-term debt, consisting of principal and balloon payments, partially offset by proceeds received in connection with the exercise of options for our common stock of $0.8 million.

Capital Resources

At March 31, 2013, our working capital was $87.0 million, including cash, cash equivalents, and investments of $86.9 million. We have a bank line of credit agreement that is collateralized by our assets, excluding intellectual property, and provides us the ability to draw up to $10.0 million, of which $6.0 million is available on a non-formula basis, subject to certain covenants and other restrictions. The balance of $4.0 million is available based on eligible receivables. At March 31, 2013, we had no borrowing outstanding under the bank line of credit. We are estimating capital expenditures to be higher in 2013 primarily to continue our improvements in manufacturing productivity, equipment for research and development to support development and commercialization of new and existing products and services, sales demonstration and loaner equipment to service the growth in our global customer base, and computer equipment and software to support our growth.

We believe our existing cash, cash equivalents, and investments will be sufficient to meet our working capital and capital expenditure needs for at least the next 18 months. However, we may experience lower than expected cash generated from operating activities or greater than expected capital expenditures, cost of revenue or operating expenses, and we may need to raise additional capital to expand the commercialization of our products, expand and fund our operations, further our research and development activities, or acquire or invest in a business. Our future funding requirements will depend on many factors, including market acceptance of our products, the cost of our research and development activities, the cost of filing and prosecuting patent applications, the cost associated with litigation or disputes relating to intellectual property rights or otherwise, the cost and timing of regulatory clearances or approvals, if any, the cost and timing of establishing additional sales, marketing and distribution capabilities, the cost and timing of establishing additional technical support capabilities, and the effect of competing technological and market developments. In the future, we may acquire businesses or technologies from third parties, and we may decide to raise additional capital through debt or equity financing to the extent we believe this is necessary to successfully complete these acquisitions. We currently have no material commitments or agreements relating to any such acquisitions.

If we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our development programs. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support, research and development, or other resources devoted to our products or cease operations.


Table of Contents

Off-Balance Sheet Arrangements

As of March 31, 2013, we have not had any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K promulgated under the Exchange Act.

Contractual Obligations and Commitments

. . .

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