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FLDM > SEC Filings for FLDM > Form 10-Q on 12-May-2014All Recent SEC Filings

Show all filings for FLUIDIGM CORP

Form 10-Q for FLUIDIGM CORP


12-May-2014

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," "CyTOF," "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 life science analytical and preparatory systems for growth markets such as single-cell biology and production genomics. We sell to leading academic institutions, clinical laboratories, and pharmaceutical, biotechnology, and agricultural biotechnology, or Ag-Bio, companies worldwide. Our systems are based on proprietary microfluidics and multi-parameter mass cytometry technology, and are designed to significantly simplify experimental workflow, increase throughput, and reduce costs, while providing excellent data quality. We have sold approximately 1,000 systems to customers in over 30 countries worldwide.
We have launched several product lines since 2006, including systems for gene expression analysis, genotyping, digital polymerase chain reaction, or digital PCR, single nucleotide polymorphism genotyping, or SNP genotyping, target enrichment, high-throughput gene expression analysis, targeted single-cell gene expression analysis, and single-cell sample preparation. In May 2011, we launched assay products for gene expression and genotyping, and primers for targeted next-generation DNA sequencing. Our systems utilize one or more integrated fluidic circuits, or IFCs, designed for particular applications and include specialized instrumentation and software, as well as assays and other reagents for certain applications. Additionally, pursuant to our acquisition of DVS Sciences, Inc. (now Fluidigm Sciences Inc.), or DVS, on February 13, 2014, we now also develop, manufacture, market, and sell multi-parameter single-cell protein analysis systems and related reagents and data analysis tools. We distribute our 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 and Canada. Our facility in Singapore manufactures our genomics analytical and preparatory 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 also fabricated at our Singapore facility. Our proteomics analytical instruments are manufactured at our facility in Canada, and our assays and reagents for commercial sale and IFCs for our research and development purposes are manufactured at our facilities in South San Francisco and Sunnyvale, California.


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Our total revenue grew from $52.3 million in 2012 to $71.2 million in 2013, and for the three months ended March 31, 2014, our total revenue was $25.7 million. We have incurred significant net losses since our inception in 1999 and, as of March 31, 2014, our accumulated deficit was $272.8 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. Except as otherwise disclosed, 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, 2014 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on March 12, 2014. 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,
                        2014           2013
Revenue:
Instruments       $    15,107        $  7,905
Consumables            10,342           6,349
Product revenue        25,449          14,254
License revenue           112             116
Grant revenue             163             165
Total revenue     $    25,724        $ 14,535

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,

                         2014                  2013
United States   $   11,238        44 %   $  6,919     49 %
Europe               6,382        25 %      3,501     25 %
Japan                4,354        17 %      1,499     10 %
Asia-Pacific         2,092         8 %      1,915     13 %
Other                1,383         6 %        420      3 %
Total           $   25,449       100 %   $ 14,254    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 21% of our total revenue in the three months ended March 31, 2014 and 2013, respectively.


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Comparison of the Three Months Ended March 31, 2014 and March 31, 2013 Total Revenue
Total revenue increased by $11.2 million, or 77%, to $25.7 million for the three months ended March 31, 2014, compared to $14.5 million for the three months ended March 31, 2013.
Product Revenue
Product revenue increased by $11.2 million, or 79%, to $25.4 million for the three months ended March 31, 2014, compared to $14.3 million for the three months ended March 31, 2013.
Instrument revenue increased by $7.2 million, or 91%, primarily driven by increased unit sales of our preparatory systems, which include our C1 Single-Cell Auto Prep System; to a lesser extent, increases in unit sales of our BioMark HD System; and unit sale contributions from our recently acquired CyTOF 2 system. Higher sales of service offerings, including service related to CyTOF 2 systems, and higher average selling prices of our instrument systems also contributed to the increase in instrument revenue. The revenue increase was slightly offset by lower unit sales of our Access Array System and lower accessory sales.
Consumables revenue increased by $4.0 million, or 63%, primarily due to growth in overall IFC unit volume, driven mainly by increased sales to production genomics customers. Annualized IFC pull-through for our genomics analytical systems was slightly above our historical range of $40,000 to $50,000 per system and within our expected range of $15,000 to $25,000 per system for genomics preparatory systems. Annualized IFC pull-through for our proteomics analytical systems was within our historical range of $50,000 to $70,000 per system. To a lesser extent, sales from our recently acquired antibody consumables, and higher sales of our assays and reagents also contributed to the overall increases 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 March 31, 2014 and 2013.
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,
                              2014          2013
Cost of product revenue   $    8,704      $ 4,259
Product margin                    66 %         70 %

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 by $4.4 million, or 104%, to $8.7 million for the three months ended March 31, 2014. Overall cost of product revenue as a percentage of related revenue was 34% and 30% for the three months ended March 31, 2014 and 2013, respectively.
Non-cash charges resulting from the acquisition of DVS increased the cost of product revenue as a percentage of related revenue by approximately 7 percentage points. These charges included amortization of developed technology and step-up in the basis of acquired inventory.


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The unfavorable impact of these charges was partially offset by lower IFC costs resulting from higher production volumes related to higher sales volumes and inventory build-up in preparation for the transition of our Singapore manufacturing operations to a new site. In addition, instrument margins improved mainly due to favorable average unit sales prices; a higher mix of C1 Single-Cell Auto Prep Systems, which have a higher margin compared to other instruments; and lower freight and service costs as a percentage of revenues. Operating Expenses
The following table presents our operating expenses for each period presented (in thousands):

                                          Three Months Ended
                                                March 31,
                                            2014           2013
Research and development              $     7,646        $  4,197
Selling, general and administrative        15,257          11,146
Total operating expenses              $    22,903        $ 15,343

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 $3.4 million, or 82%, to $7.6 million for the three months ended March 31, 2014, compared to $4.2 million for the three months ended March 31, 2013. The acquisition of DVS contributed approximately $2.0 million. The remainder of the increase was attributable to headcount and other compensation-related costs of $1.0 million; and an increase in facility expenses of $0.2 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 $4.1 million, or 37%, to $15.3 million for the three months ended March 31, 2014, compared to $11.1 million for the three months ended March 31, 2013. The increase related to the acquisition of DVS was $1.5 million. We also had higher headcount and other compensation-related costs of $1.4 million, an increase in legal and accounting fees of $0.7 million; and an increase in sales and marketing activities of $0.1 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.
Acquisition-Related Expenses
Acquisition-related expenses were $10.7 million for the three months ended March 31, 2014 and primarily included accelerated vesting of certain DVS restricted stock and options, and consulting, legal, and investing banking fees.


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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
                                                     March 31,
                                                 2014           2013
Interest expense                            $     (1,026 )    $  (10 )
Gain from sales of investment in Verinata              -       1,777
Other income (expense), net                           48        (213 )

On February 4, 2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034, or the Notes. The Notes will accrue interest at a rate of 2.75% per year, payable semi-annually in arrears on February 1 and August 1 of each year, commencing August 1, 2014. The Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the Notes. As a result of the issuance of the Notes, we expect interest expense to be higher in future quarters as the expense will accrue over the full quarter as opposed to the partial quarter in the first quarter of 2014.
Interest expense increased by $1.0 million for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 related to the Notes, including amortization of underwriting commission and other debt related costs. Other income, net increased by $0.3 million for the three months ended March 31, 2014 compared to other expense, net of $213,000 for the three months ended March 31, 2013. In 2013, the loss was due primarily to an unfavorable rate change in the Japanese Yen against the U.S. dollar, which did not recur in the current period.
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.
Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2014, our principal sources of liquidity consisted of $101.0 million of cash and cash equivalents and $57.3 million of investments. As of March 31, 2014, our working capital totaled $158.4 million.
The following table presents our cash flow summary for each period presented (in thousands):

                                                         Three Months Ended
                                                              March 31,
                                                           2014          2013
Cash flow summary
Net cash used in operating activities                 $    (10,547 )   $ (884 )
Net cash (used in) provided by investing activities       (121,231 )    2,395
Net cash provided by financing activities                  197,499      1,767
Net increase in cash and cash equivalents                   65,763      3,166

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.


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Net cash used in operating activities was $10.5 million for the three months ended March 31, 2014, compared to $0.9 million for the three months ended March 31, 2013, an increase of $9.7 million. Cash used for working capital purposes increased by $3.9 million, driven primarily by higher accounts receivable and inventory, partially offset by increase in accounts payable. Our net loss, adjusted for non-cash and non-operating items and deferred revenue, for the three months ended March 31, 2014 increased by $5.8 million, compared to the same period in 2013 primarily due to acquisition-related expenses of $6.5 million.
Net Cash (Used In) 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.
Net cash used in investing activities was $121.2 million during the three months ended March 31, 2014. Net cash used in investing activities primarily consisted of $113.2 million related to the acquisition of DVS, net of acquired cash of $8.4 million, and excluding $4.1 million attributed to the acceleration of DVS share-based awards and classified as cash used in operating activities; purchases of investments of $15.0 million; and capital expenditures of $1.8 million primarily to support growth in our manufacturing operations; partially offset by proceeds from sales and maturities of investments of $8.8 million. 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 Financing Activities Net cash provided by financing activities was $197.5 million during the three months ended March 31, 2014 and consists of net proceeds of $195.2 million from the issuance of senior convertible notes and proceeds received in connection with the exercise of options for our common stock of $2.3 million. Net cash provided by 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. Capital Resources
At March 31, 2014, our working capital was $158.4 million, including cash, cash equivalents, and investments of $158.3 million. On February 4, 2014, we closed an underwritten public offering of approximately $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034, or the Notes. We received cash proceeds of $195.2 million, net of underwriting discounts. Debt issuance costs were approximately $1.1 million. We used $126.0 million of the net proceeds to fund the cash portion of the consideration payable by us in connection with our acquisition of DVS.
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, 2014, we had no borrowing outstanding under the bank line of credit.
We are estimating capital expenditures to be higher in 2014 primarily for leasehold improvements at our new Singapore manufacturing facility. 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.


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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 . . .

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