Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis provides information which management believes is relevant to an assessment and
understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto contained in this
Quarterly Report on Form 10-Q, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2022 contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and
Exchange Commission (the “SEC”) on March 17, 2023 and (iii) our other public reports filed with the SEC. This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those
described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, and this Quarterly Report on Form 10-Q. Actual results
may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” or “Quantum-Si” are intended to mean the business and operations of Quantum-Si
Incorporated and its consolidated subsidiaries. The unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, respectively, present the financial position and results of operations of Quantum-Si
Incorporated and its consolidated subsidiaries.
Overview
We are an innovative life sciences company with the mission of transforming single-molecule analysis and democratizing its use by providing researchers and clinicians access to the proteome, the set
of proteins expressed within a cell. We have developed a proprietary universal single-molecule detection platform that we are first applying to proteomics to enable Next-Generation Protein Sequencing (“NGPS”), the ability to sequence proteins in
a massively parallel fashion (rather than sequentially, one at a time), that can be used for the study of nucleic acids. We believe that with the ability to sequence proteins in a massively parallel fashion and offer a simplified workflow with a
faster turnaround time, NGPS has the potential to unlock significant biological information through improved resolution and unbiased access to the proteome at a speed and scale that is not available today. Traditionally, proteomic workflows to
sequence proteins required days or weeks to complete. Our platform is designed to offer a single-day workflow including both sample preparation and sequencing. Our platform is comprised of the Carbon™ automated sample preparation instrument, the
Platinum™ NGPS instrument, the Quantum-Si Cloud™ software service, and reagent kits and chips for use with our instruments. We intend to follow a systematic, phased approach to continue to successfully launch our platform, for research use only
(“RUO”). We believe we are the first company to successfully enable NGPS on a semiconductor chip, thus digitizing a massive proteomics opportunity, which allows for a massively parallel solution at the ultimate level of
sensitivity —single-molecule detection.
We believe that our platform offers a differentiated end-to-end workflow solution in a rapidly evolving proteomics tools market. Within our initial focus market of proteomics, our workflow is
designed to provide users a seamless opportunity to gain key insights into the immediate state of biological pathways and cell state. Our platform aims to address many of the key challenges and bottlenecks with legacy proteomic solutions, such as
mass spectrometry (“MS”), which are complicated and often limited by manual sample preparation workflows, high instrument costs both in terms of acquisition and ownership and complexity with data analysis, which together prevent broad adoption.
We believe our platform, which is designed to streamline sample preparation, sequencing, and data analysis at a lower instrument cost than legacy proteomic solutions, could allow our product to have wide utility across the study of the proteome.
For example, our platform could be used for biomarker discovery and disease detection, pathway analysis, immune response, and vaccine development, among other applications.
In 2021, we introduced our Platinum early access program to sites with participation from leading academic centers and key industry partners.
The early access program introduced the Platinum single-molecule sequencing system to key opinion leaders across the globe, for both expansion and development of applications and workflows. We launched the PlatinumTM protein
sequencing instrument and started to take orders in December 2022. We began commercial shipments of the Platinum™ protein sequencing instrument in January 2023.
Total revenue for the three months ended March 31, 2023 was $0.3
million. As of March 31, 2023, our backlog was approximately $0.2 million. We define backlog as purchase orders or signed contracts from our customers,
which we believe are firm and for which we have not yet recognized revenue. We expect to convert this backlog to revenue during the second quarter of 2023; however, our ability to do so is subject to customers who may seek to cancel or delay
their orders even if we are prepared to fulfill them.
COVID-19
The outbreak of the novel coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization on March 11, 2020 and declared a National Emergency by the President of the United
States on March 13, 2020, has led to adverse impacts on the United States and global economies and created uncertainty regarding potential impacts on our operating results, financial condition and cash flows. The COVID-19 pandemic had, and is
expected to continue to have, an adverse impact on our operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Governmental mandates related to COVID-19 or other
infectious diseases, or public health crises, have impacted, and we expect them to continue to impact, our personnel and personnel at third-party manufacturing facilities in the United States and other countries, and the availability or cost of
materials, which would disrupt or delay our receipt of instruments, components and supplies from the third parties we rely on to, among other things, produce our products currently under development. To the extent that any governmental authority
imposes additional regulatory requirements or changes existing laws, regulations, and policies that apply to our business and operations, such as additional workplace safety measures, our product development plans may be delayed, and we may incur
further costs in bringing our business and operations into compliance with changing or new laws, regulations, and policies. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and
financial condition, including expenses and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to
contain or treat COVID-19, as well as the economic impacts, including inflation on product and service costs.
The estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or address its impact and the economic impact on
local, regional, national and international markets as well as other changes in macroeconomic factors. While we are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and
financial condition due to numerous uncertainties, including the actions that may be taken by government authorities across the United States, adverse changes in macroeconomic conditions, if sustained or recurrent, could result in significant
changes in costs going forward with material adverse effect on our operating results, financial condition, and cash flows.
We have not incurred any impairment losses in the carrying values of our assets as a result of the COVID-19 pandemic and are not aware of any specific related event or circumstance that would
require us to revise our estimates reflected in our condensed consolidated financial statements. On May 11, 2023, the federal public health emergency for COVID-19, declared under Section 319 of the Public Health Service Act, expired.
Other Global Developments
In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. While these rate increases have not had a significant adverse impact on us to date, the
impact of such rate increases on the overall financial markets and the economy may adversely impact us in the future. In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain
disruptions. We continue to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.
In addition, although we have no operations in or direct exposure to Russia or Ukraine, we have experienced some constraints in product and material availability and increasing costs required to obtain some
materials and supplies as a result of the impact of the Russia-Ukraine military conflict on the global economy. To date, our business has not been materially impacted by the conflict, however, as the conflict continues or worsens, it may impact
our business, financial condition, results of operations or cash flows.
Recent Developments
In April 2023, we informed the contract manufacturer who manufactures our Platinum and Carbon instruments that we intend to wind down the relationship and transition
to a different contract manufacturer. In connection with the wind down, we intend to issue a last time buy order for finished instruments. Although the relationship was
not subject to a contractual arrangement, we expect to negotiate the purchase of certain inventory parts and components currently owned and held by the contract
manufacturer. We expect to have negotiated terms by the end of the third quarter.
On May 2, 2023, we announced that Jeffry Keyes was appointed by our Board of Directors as our Chief Financial Officer and Treasurer, effective on the date he
commences employment with us on or before May 15, 2023 (the “Appointment Date”). In addition, on April 27, 2023, we and Claudia Drayton, our current Chief Financial Officer and Treasurer, mutually determined that Ms. Drayton will step down from
such roles, effective as of the Appointment Date, and Ms. Drayton will assist with the transition by serving as a senior advisor to us until June 30, 2023.
Description of Certain Components of Financial Data
Revenue
Revenue is derived from sales of products and services. Product revenue is generated from the following sources: (i) instrument sales of our Platinum instrument and (ii) consumables,
which consist of sales of our sequencing reagents, chips, and library reagents. Service revenue is generated from service maintenance contracts, cloud subscription access, proof of concept services and advanced training for instrument use. Freight
revenue is recognized as Product revenue in the condensed consolidated statements of operations and comprehensive loss upon product shipment.
See Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further
information regarding our revenue recognition policies.
Cost of revenue
Cost of revenue primarily consists of product and service costs including material costs, personnel costs and benefits, inbound and outbound freight, packaging, warranty replacement costs,
facilities costs, depreciation and amortization expense, and inventory obsolescence and write-offs.
Research and development
Research and development expenses primarily consist of personnel costs and benefits, stock-based compensation, lab supplies, consulting and professional services, fabrication services, facilities
costs, depreciation and amortization expense, software, and other outsourced expenses. Research and development expenses are expensed as incurred. All of our research and development expenses are related to developing new products and services.
Selling, general and administrative
Selling, general and administrative expenses primarily consist of personnel costs and benefits, stock-based compensation, patent and filing fees, consulting and professional services, legal and
accounting services, facilities costs, depreciation and amortization expense, insurance and office expenses, product advertising and marketing.
Dividend income
Dividend income primarily consists of dividends earned on fixed income mutual funds classified as marketable securities.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities primarily consists of the change in the fair value of our publicly traded warrants (the “Public Warrants”) and our warrants sold in a private placement
(the “Private Warrants”).
Other income (expense), net
Other income (expense), net primarily consists of realized and unrealized losses on fixed income mutual funds in marketable securities.
Provision for income taxes
We utilize the asset and liability method of accounting for income taxes where deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities using the enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A
valuation allowance is established against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized. We recorded a full valuation
allowance as of March 31, 2023 and 2022. Based on the available evidence, we believe that it is more likely than not that we will be unable to utilize all of our deferred tax assets in the future.
Results of Operations
The following is a discussion of our results of operations for the three months ended March 31, 2023 and 2022 and our accounting policies are described in Note 2 “Summary of Significant Accounting
Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
|
|
Three months ended March 31,
|
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
% Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
251
|
|
|
$
|
-
|
|
|
nm
|
|
Service
|
|
|
3
|
|
|
|
-
|
|
|
nm
|
|
Total revenue
|
|
|
254
|
|
|
|
-
|
|
|
nm
|
|
Cost of revenue
|
|
|
130
|
|
|
|
-
|
|
|
nm
|
|
Gross profit
|
|
|
124
|
|
|
|
-
|
|
|
nm
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
18,167
|
|
|
|
18,771
|
|
|
|
(3.2
|
)%
|
Selling, general and administrative
|
|
|
11,178
|
|
|
|
8,369
|
|
|
|
33.6
|
%
|
Total operating expenses
|
|
|
29,345
|
|
|
|
27,140
|
|
|
|
8.1
|
%
|
Loss from operations
|
|
|
(29,221
|
)
|
|
|
(27,140
|
)
|
|
|
7.7
|
%
|
Dividend income
|
|
|
2,219
|
|
|
|
855
|
|
|
|
159.5
|
%
|
Change in fair value of warrant liabilities
|
|
|
391
|
|
|
|
2,647
|
|
|
|
(85.2
|
)%
|
Other income (expense), net
|
|
|
3,000
|
|
|
|
(11,537
|
)
|
|
|
(126.0
|
)%
|
Loss before provision for income taxes
|
|
|
(23,611
|
)
|
|
|
(35,175
|
)
|
|
|
(32.9
|
)%
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
nm
|
|
Net loss and comprehensive loss
|
|
$
|
(23,611
|
)
|
|
$
|
(35,175
|
)
|
|
|
(32.9
|
)%
|
Comparison of the Three Months Ended March 31, 2023 and 2022
Revenue
|
|
Three months ended
March 31,
|
|
|
Change
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
Amount
|
|
%
|
Total revenue
|
|
$
|
254
|
|
|
$
|
-
|
|
|
$
|
254
|
|
nm
|
Total revenue increased by $0.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The
increase was primarily due to revenue recognized on the sale of PlatinumTM instruments and kits. We launched the PlatinumTM instrument and started to take orders in December 2022. We began commercial shipments of the Platinum™ protein sequencing instrument in January 2023.
Cost of revenue
|
|
Three months ended
March 31,
|
|
|
Change
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
Amount
|
|
%
|
Cost of revenue
|
|
$
|
130
|
|
|
$
|
-
|
|
|
$
|
130
|
|
nm
|
Cost of revenue increased by $0.1 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The
increase was primarily due to costs associated with the sale of PlatinumTM instruments and kits. We launched the PlatinumTM instrument and started to take orders in December 2022. We began commercial shipments of the Platinum™ protein sequencing instrument in January 2023.
Research and development
|
|
Three months ended
March 31,
|
|
|
Change
|
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
Amount
|
|
|
%
|
|
Research and development
|
|
$
|
18,167
|
|
|
$
|
18,771
|
|
|
$
|
(604
|
)
|
|
|
(3.2
|
)%
|
Research and development expenses decreased by $0.6 million, or 3.2%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily due to
a decrease of $1.0 million related to internal and external product development activities, $0.9 million of internally developed software costs that were capitalized as a result of product development milestones that were met during the three
months ended March 31, 2023 and $0.2 million of reduced stock-based compensation. These decreases were partially offset by an increase of $1.5 million of payroll costs as a result of increased headcount and the payment of severance costs in
connection with the restructuring efforts announced during the three months ended March 31, 2023.
Selling, general and administrative
|
|
Three months ended
March 31,
|
|
|
Change
|
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
Amount
|
|
|
%
|
|
Selling, general and administrative
|
|
$
|
11,178
|
|
|
$
|
8,369
|
|
|
$
|
2,809
|
|
|
|
33.6
|
%
|
Selling, general and administrative expenses increased by $2.8 million, or 33.6%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The increase was
primarily due to an increase of $4.8 million of stock-based compensation, partially offset by a reduction of $1.7 million of expenses primarily consulting, professional fees and insurances and a decrease of $0.3 million in personnel costs.
Personnel costs in the three months ended March 31, 2022 included costs related to the separation of our former Chief Executive Officer from the Company.
Dividend income
|
|
Three months ended
March 31,
|
|
|
Change
|
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
Amount
|
|
|
%
|
|
Dividend income
|
|
$
|
2,219
|
|
|
$
|
855
|
|
|
$
|
1,364
|
|
|
|
159.5
|
%
|
Dividend income increased by $1.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 as a result of higher dividends earned on invested balances in
marketable securities.
Change in fair value of warrant liabilities
|
|
Three months ended
March 31,
|
|
|
Change
|
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
Amount
|
|
|
%
|
|
Change in fair value of warrant liabilities
|
|
$
|
391
|
|
|
$
|
2,647
|
|
|
$
|
(2,256
|
)
|
|
|
(85.2
|
)%
|
The fair value of warrant liabilities decreased by $2.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.
Other income (expense), net
|
|
Three months ended
March 31,
|
|
|
Change
|
|
(in thousands, except for % changes)
|
|
2023
|
|
|
2022
|
|
|
Amount
|
|
|
%
|
|
Other income (expense), net
|
|
$
|
3,000
|
|
|
$
|
(11,537
|
)
|
|
$
|
14,537
|
|
|
|
(126.0
|
)%
|
Other income (expense), net increased by $14.5 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily as a result of an increase in unrealized
gains of $16.6 million as a result of the mark to market of investments in marketable securities, which consist of fixed income mutual funds. The increase in unrealized gains was partially offset by an increase in realized losses of $2.1
million.
Non-GAAP Financial Measures
We present non-GAAP financial measures in order to assist readers of our condensed consolidated financial statements in understanding the core operating results that our management uses to evaluate
the business and for financial planning purposes. Our non-GAAP financial measures, EBITDA and Adjusted EBITDA, provide an additional tool for investors to use in comparing our financial performance over multiple periods.
EBITDA and Adjusted EBITDA are key performance measures that our management uses to assess our operating performance. EBITDA and Adjusted EBITDA facilitate internal comparisons of our operating
performance on a more consistent basis. We use these performance measures for business planning purposes and forecasting. We believe that EBITDA and Adjusted EBITDA enhance an investor’s understanding of our financial performance as it is useful
in assessing our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.
Our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate these measures in the same manner. EBITDA and Adjusted EBITDA are
not prepared in accordance with U.S. GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. When evaluating our performance, you should consider EBITDA and Adjusted EBITDA
alongside other financial performance measures prepared in accordance with U.S. GAAP, including net loss.
EBITDA and Adjusted EBITDA
We calculate EBITDA as net loss adjusted to exclude dividend income and depreciation and amortization expense. Adjusted EBITDA is calculated as EBITDA adjusted to exclude change in fair value of
warrant liabilities, other (income) expense, net, stock-based compensation, and other non-recurring items. The other non-recurring items include costs related to the organizational restructuring incurred during the three months ended March 31,
2023.
The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
|
|
Three months ended March 31,
|
|
(in thousands)
|
|
2023
|
|
|
2022
|
|
Net loss
|
|
$
|
(23,611
|
)
|
|
$
|
(35,175
|
)
|
Adjustments to reconcile to EBITDA:
|
|
|
|
|
|
|
|
|
Dividend income
|
|
|
(2,219
|
)
|
|
|
(855
|
)
|
Depreciation and amortization
|
|
|
803
|
|
|
|
452
|
|
EBITDA
|
|
|
(25,027
|
)
|
|
|
(35,578
|
)
|
Adjustments to reconcile to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
|
(391
|
)
|
|
|
(2,647
|
)
|
Other (income) expense, net
|
|
|
(3,000
|
)
|
|
|
11,537
|
|
Stock-based compensation
|
|
|
3,908
|
|
|
|
(714
|
)
|
Restructuring costs
|
|
|
813
|
|
|
|
-
|
|
Adjusted EBITDA
|
|
$
|
(23,697
|
)
|
|
$
|
(27,402
|
)
|
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily with proceeds from the issuance of equity to private investors. In addition, on June 10, 2021, we completed the Business Combination, and
as a result we received proceeds of approximately $511.2 million on the day of the Closing. Additionally, we began to generate revenue during 2023. Our primary uses of liquidity have been operating expenses, capital expenditures and our
acquisition of certain assets of Majelac. Cash flows from operations have been historically negative as we continue to invest in the development of our technology in NGPS. We expect to incur negative operating cash flows on an annual basis for
the foreseeable future until such time that we can generate more significant revenue.
We expect that our existing cash and cash equivalents and investments in marketable securities, together with revenue from the sale of our products and services, will be sufficient to meet our
liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months. We expect to use our cash and cash equivalents and investments in marketable securities and funds from revenue
generated to invest in the commercial launch of our Carbon™ product, to further invest in research and development, for other operating expenses, business
acquisitions and for working capital and general corporate purposes.
As of March 31, 2023, we had cash and cash equivalents and investments in marketable securities totaling $322.1 million. Our future capital requirements may vary from those currently planned and
will depend on various factors including the pace and success of product commercialization.
We launched the PlatinumTM instrument and started to take orders in December 2022. We began commercial shipments of Platinum™ protein sequencing instrument in January 2023. We plan to launch CarbonTM in 2023. Our business will require an accelerated amount of spending to
enhance the sales and marketing teams, continue to drive development, and build inventory. Other factors that could accelerate cash needs include: (i) delays in achieving scientific and technical milestones; (ii) unforeseen capital expenditures
and fabrication costs related to manufacturing for commercialization; (iii) changes we may make in our business or commercialization strategy; (iv) the impact of the COVID-19 pandemic; (v) costs of running a public company; (vi) other items
affecting our forecasted level of expenditures and use of cash resources including potential acquisitions; and (vii) increased product and service costs.
In the future, we may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available to us on acceptable terms or otherwise, we may
be unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition, operating
results and cash flows.
Cash flows
The following table summarizes our cash flows for the periods indicated:
|
|
Three months ended
March 31,
|
|
(in thousands)
|
|
2023
|
|
|
2022
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(28,698
|
)
|
|
$
|
(23,229
|
)
|
Net cash provided by investing activities
|
|
|
26,039
|
|
|
|
21,698
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
730
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(2,659
|
)
|
|
$
|
(801
|
)
|
Net cash used in operating activities
The net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities. We expect that the cash provided by
financing activities in 2021 will continue to be our primary source of funds to support operating needs and capital expenditures for the foreseeable future.
The net cash used in operating activities of $28.7 million for the three
months ended March 31, 2023 was due primarily to a net loss of $23.6 million, a gain on marketable securities (realized and unrealized) of $2.9 million, net cash outflows from changes in operating assets and liabilities of $7.0 million and a change in fair value of warrant liabilities of $0.4 million, partially offset by stock-based compensation of $3.9 million, depreciation and
amortization of $0.8 million and non-cash lease expense of $0.5 million.
The net cash used in operating activities of $23.2 million for the three months ended March 31, 2022 was due primarily to a net loss of $35.2
million and a change in fair value of warrant liabilities of $2.6 million, partially offset by unrealized losses of marketable securities of $11.5 million and net cash inflows from changes in operating assets and liabilities of $2.9 million.
Net cash provided by investing activities
The net cash provided by investing activities of $26.0 million in the three months ended March 31, 2023 was due primarily to sales of marketable securities of $29.5 million, offset by purchases of
property and equipment of $2.6 million and capitalized internally developed software costs of $0.9 million.
The net cash provided by investing activities of $21.7 million in the three months ended March 31, 2022 was due to sales of marketable securities of $25.0 million, offset by purchases of property and equipment of
$2.5 million and marketable securities of $0.8 million.
Net cash provided by financing activities
There were no financing activities in the three months ended March 31, 2023.
Net cash provided by financing activities of $0.7 million in the three months ended March 31, 2022 resulted from proceeds from exercise of stock options.
Contractual Obligations
We lease certain facilities and equipment under non-cancellable lease agreements that expire at various dates through 2032. As of March 31, 2023, the future payments, before adjustments for tenant incentives, under
leases was $34.1 million, which includes a lease we entered into in December 2021 for a facility in New Haven, Connecticut, which commenced in January 2022, and a lease that commenced in April 2022 for a facility in Branford, Connecticut.
Licenses related to certain intellectual property
We license certain intellectual property, some of which may be utilized in our current or future product offerings. To preserve the right to use such intellectual property, there are minimum annual
fixed royalty payments of approximately $0.2 million. We commercialized our Platinum™ protein sequencing instrument and began to generate revenue in 2023. As a result, there will be royalties payable by us based on the current anticipated
utilization.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the condensed consolidated financial statements, as well as expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue recognition
Revenue is derived from sales of products and services. Product revenue is generated from the following sources: (i) instrument sales of our Platinum instrument and (ii) consumables,
which consist of sales of our sequencing reagents, chips, and library reagents. Service revenue is generated from service maintenance contracts, cloud subscription access, proof of concept services and advanced training for instrument use. Freight
revenue is recognized as Product revenue in the condensed consolidated statements of operations and comprehensive loss upon product shipment.
We recognize revenue when control of our products and services is
transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the
distinct performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been
satisfied. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. A performance obligation is considered distinct from other obligations
in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation
satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. We allocate transaction price to the performance obligations
in a contract with a customer, based on the relative standalone selling price of each performance obligation. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone
selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information and specific factors such as competitive positioning, internal costs, profit objectives, and
internally approved pricing guidelines related to the performance obligation.
Our performance obligation for sales of products is satisfied upon shipment of the goods to the customer in accordance with the shipping
terms (either upon shipment or delivery); this would include instruments and consumables. Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as fulfillment
costs and are included in Cost of revenue in the condensed consolidated statements of operations and comprehensive loss. Shipping and handling costs billed to customers are considered part of the transaction price and are recognized as
revenue with the underlying product sales. Invoicing typically occurs upon shipment and payment is typically due within 30 days from invoice. Revenue from services is generated from services rendered related to service maintenance contracts,
cloud subscription access, proof of concept services, and advanced training. Revenues for service maintenance contracts, which start after the first year of purchase, and cloud subscription access are recognized ratably over the contract
service period. Revenues for proof of concept services and advanced training is recognized upon satisfaction of the underlying performance obligation. We typically provide a standard one-year warranty which covers defects in materials and
workmanship and manufacturing or performance conditions under normal use and service for the first year. The first year of the warranty of our products is considered an assurance-type warranty. We have determined that this standard first-year
warranty is a distinct performance obligation. We also sell service maintenance contracts, which are considered to be service type warranties, that effectively extend the standard first-year warranty coverage at the customer’s option.
Customers have an option to renew or cancel the service maintenance contracts on an annual basis. We make certain judgments in the application of the revenue recognition model including determination of the timing and pattern of satisfaction
of performance obligations, determination of the transaction price of performance obligations and estimation of variable consideration if any. Customers generally do not have a right of return, except for defective or damaged products during
the warranty period or unless prior written consent is provided. Revenue for these agreements is recognized when each distinct performance obligation is satisfied. Deferred revenue primarily consists of billings and payments received in
advance of revenue recognition from service maintenance contracts after the first year, cloud subscription access, proof of concept services and advanced training, and is reduced as the revenue recognition criteria are met.
There have been no additional material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 17, 2023.
See Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding
our significant accounting policies and estimates.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting
Policies – Recently Issued Accounting Pronouncements” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.