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FLDM > SEC Filings for FLDM > Form 10-Q on 7-Aug-2013All Recent SEC Filings

Show all filings for FLUIDIGM CORP

Form 10-Q for FLUIDIGM CORP


7-Aug-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, operating and other expenses, unit sales, business strategies, financing plans, expansion of our business, 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," "C1," "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 excellent data quality. In addition, our proprietary technology enables genetic analysis that in many instances was previously impractical. We have sold over 785 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 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, several of which are assembled at facilities of our contract manufacturers in Singapore, with testing and calibration of the assembled products performed at our Singapore facility. All of our IFCs for commercial sale and some IFCs for our research and development purposes are fabricated at our Singapore facility. Our South San Francisco facility fabricates IFCs 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 $33.6 million in 2010 to $52.3 million in 2012, and for the six months ended June 30, 2013, our total revenue was $32.0 million. We have incurred significant net losses since our inception in 1999 and, as of June 30, 2013, our accumulated deficit was $248.4 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 and six months ended June 30, 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 June 30,             Six Months Ended June 30,
                        2013                 2012              2013                2012
 Revenue:
 Instruments       $       10,165       $        6,898     $      18,070       $      12,798
 Consumables                7,102                5,870            13,452              10,726

 Product revenue           17,267               12,768            31,522              23,524
 License revenue               48                   15               163                  38
 Grant revenue                165                  165               330                 331

 Total revenue     $       17,480       $       12,948     $      32,015       $      23,893

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 June 30,                      Six Months Ended June 30,
                        2013                    2012                    2013                    2012
 United States   $ 10,148        59 %    $  6,499        51 %    $ 17,067        54 %    $ 12,311        52 %
 Europe             4,436        26 %       2,841        22 %       7,937        25 %       5,409        23 %
 Asia-Pacific       1,566         9 %       2,021        16 %       3,478        11 %       3,216        14 %
 Japan                386         2 %         998         8 %       1,885         6 %       1,989         8 %
 Other                731         4 %         409         3 %       1,155         4 %         599         3 %

 Total           $ 17,267       100 %    $ 12,768       100 %    $ 31,522       100 %    $ 23,524       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 19% and 20% of our total revenue in the three and six months ended June 30, 2013, respectively, and 25% and 21% of our total revenue in the three and six months ended June 30, 2012, respectively.


Table of Contents

Comparison of the Three Months Ended June 30, 2013 and June 30, 2012

Total Revenue

Total revenue increased by $4.5 million, or 35%, to $17.5 million for the three months ended June 30, 2013, compared to $12.9 million for the three months ended June 30, 2012.

Product Revenue

Product revenue increased by $4.5 million, or 35%, to $17.3 million for the three months ended June 30, 2013, compared to $12.8 million for the three months ended June 30, 2012.

Instrument revenue increased by $3.3 million, or 47%, 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, and to a much lesser extent, increased sales of our service offerings and higher average selling prices of our analytical systems. The revenue increase was offset in part by lower unit sales of our EP1 system, an analytical systems instrument.

Consumables revenue increased by $1.2 million, or 21%, primarily due to growth in IFC unit volume, driven by increased sales to production genomics customers. Annualized IFC pull through for our analytical systems was within our historical range of $40,000 to $50,000 per system and above the historical range of $10,000 to $15,000 per system for preparatory systems. Increases in assays and reagents sales also contributed to the increase in consumables revenue.

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 June 30, 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
                                                   June 30,
                                              2013           2012
                  Cost of product revenue   $   4,876       $ 3,926
                  Product margin                   72 %          69 %

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 $1.0 million, or 24%, to $4.9 million for the three months ended June 30, 2013 from $3.9 million for the three months ended June 30, 2012, due to higher sales volumes. Cost of product revenue as a percentage of related revenue was 28% and 31% for the three months ended June 30, 2013 and 2012, respectively. This improvement was mainly driven by increased IFC capacity utilization and increased IFC production yields, and a favorable change in the instrument systems sales mix resulting from sales of the C1 Single-Cell Auto Prep System, first sold as a new product in the third quarter of 2012, which has a higher product margin than other instruments. Other drivers of our improved product margin were lower production costs for other instruments and higher average instrument unit selling prices. This was offset in part by a higher product mix of lower margin instrument systems relative to consumables, and increased service costs.


Table of Contents

Operating Expenses

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



                                                    Three Months Ended
                                                         June 30,
                                                     2013          2012
            Research and development              $    4,997     $  3,987
            Selling, general and administrative       11,597        9,421

            Total operating expenses              $   16,594     $ 13,408

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 increased $1.0 million, or 25%, to $5.0 million for the three months ended June 30, 2013, compared to $4.0 million for the three months ended June 30, 2012. The increase in research and development expense was primarily due to an increase in headcount and other compensation-related costs of $0.5 million and an increase in facility expenses of $0.3 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 $2.2 million, or 23%, to $11.6 million for the three months ended June 30, 2013, compared to $9.4 million for the three months ended June 30, 2012. The increase was primarily due to an increase in headcount and other compensation-related costs of $1.8 million, and to a lesser extent, an increase in sales and marketing activities of $0.5 million, offset by a decrease in accounting and outside services of $0.2 million. The increase was primarily driven by expansion of our worldwide commercial capabilities, 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.

Interest Expense and Other Income and 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
                                                     June 30,
                                                2013           2012
                Interest expense              $     (2 )      $  (202 )
                Other income (expense), net        (39 )            9

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 June 30, 2013. As a result, interest expense decreased $0.2 million, or 99%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. We expect interest expense to be less in 2013 compared to 2012 because we have fully repaid our long-term debt.


Table of Contents

Comparison of the Six Months Ended June 30, 2013 and June 30, 2012

Total Revenue

Total revenue increased by $8.1 million, or 34%, to $32.0 million for the six months ended June 30, 2013, compared to $23.9 million for the six months ended June 30, 2012.

Product Revenue

Product revenue increased by $8.0 million, or 34%, to $31.5 million for the six months ended June 30, 2013, compared to $23.5 million for the six months ended June 30, 2012.

Instrument revenue increased by $5.3 million, or 41%, 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, and to a much lesser extent, increased sales of our service offerings and higher average selling prices of our instrument systems. The revenue increase was offset in part by lower unit sales of our EP1 system, an analytical systems instrument.

Consumables revenue increased by $2.7 million, or 25%, primarily due to growth in IFC unit volume, driven by increased sales to production genomics customers. Annualized IFC pull through for our analytical systems was within our historical range of $40,000 to $50,000 per system and above the historical range of $10,000 to $15,000 per system for preparatory systems. Increases in assays and reagents sales also contributed to the increase in consumables revenue.

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 $0.3 million for each of the six months ended June 30, 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):



                                               Six Months Ended
                                                   June 30,
                                               2013         2012
                   Cost of product revenue   $  9,135      $ 7,472
                   Product margin                  71 %         68 %

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 $1.7 million, or 22%, to $9.1 million for the six months ended June 30, 2013 from $7.5 million for the six months ended June 30, 2012, due to increased product sales. Cost of product revenue as a percentage of related revenue was 29% and 32% for the six months ended June 30, 2013 and 2012, respectively. This improvement was mainly driven by a favorable change in the instrument systems sales mix resulting from sales of the C1 Single-Cell Auto Prep System, first sold as a new product in the third quarter of 2012, which has a higher product margin than other instruments; lower production costs for other instruments; and increased IFC capacity utilization and increased IFC production yields. This was offset in part by a higher product mix of lower margin instrument systems relative to consumables, and increased service costs.


Table of Contents

Operating Expenses

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



                                                     Six Months Ended
                                                         June 30,
                                                     2013         2012
             Research and development              $  9,194     $  8,266
             Selling, general and administrative     22,743       18,824

             Total operating expenses              $ 31,937     $ 27,090

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 was $9.2 million for the six months ended June 30, 2013, an increase of $0.9 million, or 11%, compared to $8.3 million for the six months ended June 30, 2012. The increase in research and development expense was primarily due to an increase in headcount and other compensation-related costs of $0.5 million and an increase in facility expenses of $0.3 million. 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 $3.9 million, or 21%, to $22.7 million for the six months ended June 30, 2013, compared to $18.8 million for the six months ended June 30, 2012. The increase was primarily due to an increase in headcount and other compensation-related costs of $3.3 million, and to a lesser extent, an increase in sales and marketing activities of $0.8 million, offset by a decrease in accounting and outside services of $0.4 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.

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):



                                                       Six Months Ended
                                                           June 30,
                                                       2013          2012
          Interest expense                           $     (12 )    $ (509 )
          Gain from sale of investment in Verinata       1,777          -
          Other expense, net                              (252 )       (52 )

Interest expense decreased $497,000, or 98%, to $12,000 for the six months ended June 30, 2013, compared to $509,000 for the six months ended June 30, 2012. 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 . . .

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