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FLDM > SEC Filings for FLDM > Form 10-Q on 4-Aug-2014All Recent SEC Filings

Show all filings for FLUIDIGM CORP

Form 10-Q for FLUIDIGM CORP


4-Aug-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 1,075 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 genomics 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 six months ended June 30, 2014, our total revenue was $53.3 million. We have incurred significant net losses since our inception in 1999 and, as of June 30, 2014, our accumulated deficit was $285.4 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. 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 six months ended June 30, 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. During the six months ended June 30, 2014, we have revised or added the following significant accounting policies:
Business Combinations
Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship. This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction. Long-lived Assets, including Goodwill
Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. We first conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we then conduct a two-step test for impairment of goodwill. In the first step, we compare the fair value of our reporting unit to its carrying values. If the fair values of our reporting unit exceed the carrying value of the net assets, goodwill is not considered impaired and no further analysis is required. If the carrying values of the net assets exceed the fair values of the reporting unit, then the second step of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value, then an impairment loss equal to the difference would be recorded. We evaluate our finite lived intangible assets for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If any indicator of impairment exists, we assess the recoverability of the affected intangible assets by determining whether the carrying value of the asset can be recovered through undiscounted future operating cash flows. If impairment is indicated, we estimate the asset's fair value using future discounted cash flows associated with the use of the asset, and adjust the carrying value of the asset accordingly.


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Results of Operations
The following table presents our historical condensed consolidated statements of
operations data for the three and six months ended June 30, 2014 and 2013, and
as a percentage of total revenue for the respective period ($ in thousands):
                                  Three Months Ended                              Six Months Ended
                                       June 30,                                       June 30,
                        2014        2014        2013       2013        2014        2014        2013       2013
Revenue:
Total revenue        $  27,607      100  %   $ 17,480      100  %   $  53,331      100  %   $ 32,015      100  %
Costs and expenses:
Cost of product
revenue                  9,955       36         4,876       28         18,659       35         9,135       29
Research and
development             11,374       41         4,997       29         19,020       36         9,194       29
Selling, general and
administrative          18,655       68        11,597       66         33,912       64        22,743       71
Acquisition-related
expenses                     -        -             -        -         10,696       20             -        -
Total costs and
expenses                39,984      145        21,470      123         82,287      155        41,072      129
Loss from operations   (12,377 )    (45 )      (3,990 )    (23 )      (28,956 )    (55 )      (9,057 )    (29 )
Interest expense        (1,415 )     (5 )          (2 )      -         (2,441 )     (4 )         (12 )      -
Gain from sale of
investment in
Verinata                     -        -             -        -              -        -         1,777        6
Other (expense)
income, net                (18 )      -           (39 )      -             30        -          (252 )     (1 )
Loss before income
taxes                  (13,810 )    (50 )      (4,031 )    (23 )      (31,367 )    (59 )      (7,544 )    (24 )
Benefit from
(provision for)
income taxes             1,128        4           (15 )      -          3,271        6           (53 )      -

Net loss $ (12,682 ) (46 )% $ (4,046 ) (23 )% $ (28,096 ) (53 )% $ (7,597 ) (24 )%

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            Six Months Ended
                            June 30,                     June 30,
                        2014           2013         2014         2013
Revenue:
Instruments       $    15,370        $ 10,165    $   30,477    $ 18,070
Consumables            12,109           7,102        22,451      13,452
Product revenue        27,479          17,267        52,928      31,522
License revenue            74              48           186         163
Grant revenue              54             165           217         330
Total revenue     $    27,607        $ 17,480    $   53,331    $ 32,015


Table of Contents

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,
                       2014                 2013                2014                2013
United States   $   14,200     52 %   $ 10,148     59 %   $ 25,438     48 %   $ 17,067     54 %
Europe               7,532     27 %      4,436     26 %     13,914     26 %      7,937     25 %
Japan                  358      1 %        386      2 %      4,712      9 %      1,885      6 %
Asia-Pacific         4,612     17 %      1,566      9 %      6,704     13 %      3,478     11 %
Other                  777      3 %        731      4 %      2,160      4 %      1,155      4 %
Total           $   27,479    100 %   $ 17,267    100 %   $ 52,928    100 %   $ 31,522    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% and 17% of our total revenue in the three and six months ended June 30, 2014, respectively, and 19% and 20% of our total revenue in the three and six months ended June 30, 2013, respectively.

Comparison of the Three Months Ended June 30, 2014 and June 30, 2013 Total Revenue
Total revenue increased by $10.1 million, or 58%, to $27.6 million for the three months ended June 30, 2014, compared to $17.5 million for the three months ended June 30, 2013.
Product Revenue
Product revenue increased by $10.2 million, or 59%, to $27.5 million for the three months ended June 30, 2014, compared to $17.3 million for the three months ended June 30, 2013.
Instrument revenue increased by $5.2 million, or 51%, primarily driven by the impact of unit sales of our CyTOF 2 system which we commenced selling upon the acquisition of DVS, increased net unit sales of our preparatory systems, which include our C1 Single-Cell Auto Prep System, and to a lesser extent, increases in unit sales of our EP1 System. Higher sales of service offerings, including service related to CyTOF 2 systems also contributed to the increase in instrument revenue. The revenue increase was partially offset by lower unit sales of our BioMark HD and Access Array Systems. Instrument revenue growth, excluding revenue attributable to the recently acquired operations of DVS, was 20% for the three months ended June 30, 2014 compared to the comparable period in 2013.
Consumables revenue increased by $5.0 million, or 71%, 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 within our historical range of $40,000 to $50,000 per system and slightly above our expected range of $15,000 to $25,000 per system for our genomics preparatory systems. Annualized IFC pull-through for our proteomics analytical systems was slightly above the 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 increase in consumables revenue. Consumables revenue growth, excluding revenue attributable to the recently acquired operations of DVS, was 51% for the three months ended June 30, 2014 compared to the comparable period in 2013. 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 which ended in April 2014. 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 $54,000 and $165,000 for the three months ended June 30, 2014 and 2013, respectively.


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):

                             Three Months Ended
                                   June 30,
                              2014          2013
Cost of product revenue   $    9,955      $ 4,876
Product margin                    64 %         72 %

Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology, 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 $5.1 million, or 104%, to $10.0 million for the three months ended June 30, 2014 from $4.9 million for the three months ended June 30, 2013. Overall cost of product revenue as a percentage of related revenue was 36% and 28% for the three months ended June 30, 2014 and 2013, respectively.
The increase in cost of product revenue during the quarter ended June 30, 2014 was primarily driven by amortization of developed technology of approximately $2.8 million. Excluding this charge, non-GAAP product margin would be approximately 74%, and approximately 2 percentage points higher than the comparable period in the prior year. The unfavorable impact of this charge was partially offset by improved instrument margins mainly due to a higher sales mix of C1 Single-Cell Auto Prep Systems, which have a higher margin compared to other instruments; lower IFC costs resulting from higher production volumes related to higher sales volumes; and favorable sales volumes and average unit sales prices for our assays and reagents. In addition, there was an overall shift in the sales mix from instruments to consumables which have relatively higher margins.
Operating Expenses
The following table presents our operating expenses for each period presented (in thousands):

                                          Three Months Ended
                                                June 30,
                                            2014           2013
Research and development              $    11,374        $  4,997
Selling, general and administrative        18,655          11,597
Total operating expenses              $    30,029        $ 16,594

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 $6.4 million, or 128%, to $11.4 million for the three months ended June 30, 2014, compared to $5.0 million for the three months ended June 30, 2013. The increase was mainly due to higher headcount and other compensation-related costs of $4.5 million, an increase in lab supplies and equipment costs of $1.1 million, and an increase in outside services of $0.4 million. We incurred these costs to support our development and commercialization of new and existing products and services. The total research and development costs attributable to the recently acquired operations of DVS were approximately $4.1 million for the quarter.
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.


Table of Contents

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 $7.1 million, or 61%, to $18.7 million for the three months ended June 30, 2014, compared to $11.6 million for the three months ended June 30, 2013. The increase was mainly due to increased headcount and other compensation-related costs of $3.8 million, integration expense of approximately $1.1 million, an increase in legal and accounting fees of $1.0 million, and an increase in sales and marketing activities of $0.8 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. The total selling, general and administrative costs attributable to the recently acquired operations of DVS were approximately $2.5 million.
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 expense, net for each period presented (in thousands):

Three Months Ended
                              June 30,
                          2014           2013
Interest expense     $     (1,415 )     $ (2 )
Other expense, net            (18 )      (39 )

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. Interest expense increased by $1.4 million for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The increase is due to accrued interest on the Notes and amortization of underwriting commission and other debt related costs.
Other expense, net decreased by $21,000 for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The decrease in loss in the three months ended June 30, 2014 compared to the comparable period in 2013 was due primarily to higher interest income from the investment of remaining proceeds from the issuance of the Notes. Benefit from Income Taxes
We recorded a tax benefit of $1.1 million, or an effective tax benefit of 8.2%, for the three months ended June 30, 2014. The tax benefit for the three months ended June 30, 2014 was primarily attributable to amortization of our acquisition-related deferred tax liability and income tax benefit from our foreign operations.
Comparison of the Six Months Ended June 30, 2014 and June 30, 2013 Total Revenue
Total revenue increased by $21.3 million, or 67%, to $53.3 million for the six months ended June 30, 2014, compared to $32.0 million for the six months ended June 30, 2013.
Product Revenue
Product revenue increased by $21.4 million, or 68%, to $52.9 million for the six months ended June 30, 2014, compared to $31.5 million for the six months ended June 30, 2013.


Table of Contents

Instrument revenue increased by $12.4 million, or 69%, primarily driven by increased net unit sales of our preparatory systems, which include our C1 Single-Cell Auto Prep System, the impact of unit sales of our CyTOF 2 system which we commenced selling upon the acquisition of DVS, and to a lesser extent, increases in unit sales of our BioMark HD System. Higher sales of service offerings, including service related to CyTOF 2 systems, also contributed to the increase in instrument revenue. The revenue increase was partially offset by lower unit sales of our Access Array System and lower accessory sales. Instrument revenue growth, excluding revenue attributable to the recently acquired operations of DVS, was 38% for the six months ended June 30, 2014 compared to the comparable period in 2013.
Consumables revenue increased by $9.0 million, or 67%, 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 within our historical range of $40,000 to $50,000 per system and slightly above our expected range of $15,000 to $25,000 per system for our . . .

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