Quantum-Si Inc (QSI) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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 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, as originally planned, was designed to offer an end-to-end workflow including both sample preparation and sequencing and was comprised of CarbonTM, our automated sample preparation instrument, our Platinum® NGPS instrument, the Platinum Analysis Software service, and reagent
kits and proprietary semiconductor chips for use with our Platinum® instrument. 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 began a controlled launch of the Platinum® instrument and started to take orders in December 2022, and subsequently began limited commercial shipments of Platinum® in January 2023.
Since our initial launch of the Platinum® instrument, we have found that, consistent with other proteomics
detection technologies, customers select the biological sample type and sample preparation method they use. The range of sample types and sample preparation methods utilized in proteomics is extensive and often some level of optimization is
required to make them compatible with the downstream detection technology. Our initial platform contemplated CarbonTM as an automated sample preparation
instrument. While CarbonTM could help reduce sample preparation variation and streamline the end-to-end workflow in utilizing our Platinum® protein sequencing instrument, it is not an absolute requirement, and may not be
the best solution long-term. To this end, in October 2023, we completed an evaluation of CarbonTM as it relates to the workflow and in comparison to other
potential liquid handler and sample preparation solutions. This evaluation concluded that pursuing efforts to continue development of CarbonTM was not the most
effective use of our research and development efforts and therefore, we paused development related to CarbonTM to focus efforts on Platinum®, our reagent kits and semiconductor chips for use on Platinum®, and our Platinum
Analysis Software environment as our go forward platform to maximize value.
Now that our Platinum® and Platinum Analysis Software system has launched, we intend to follow a systematic, phased
approach to continue to successfully launch updates to our platform. 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 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 MS, 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 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, vaccine
development, quality assurance and quality control, among other applications.
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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. On May 11, 2023, the federal public
health emergency for COVID-19, declared under Section 319 of the Public Health Service Act, expired.
We have not incurred significant 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 the Consolidated Financial Statements. We will continue to evaluate the impact of the COVID-19 pandemic on our industry. We have concluded that, while it is possible that the virus could
have a future negative effect on our financial position, results of operations and cash flows in the Consolidated Financial Statements, the specific future impact is not readily determinable as of the date of the filing of this Annual Report on
Form 10-K. The Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
Other Global Developments
Throughout 2022 and 2023, 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 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.
Although we do not expect to be significantly impacted by the conflicts in Ukraine or Israel and Gaza, we have experienced some constraints in product and material availability and increasing costs required to
obtain some materials and supplies as a result of these conflicts on the global economy. To date, our business has not been materially impacted by the conflicts, however, as the conflicts continue or worsen, it may impact our business, financial
condition or results of operations.
Business Combination
On June 10, 2021, we consummated the Business Combination. The Business Combination was approved by HighCape’s stockholders at its special meeting held on June 9, 2021. The transaction resulted in
the combined company being renamed “Quantum-Si Incorporated” and Legacy Quantum-Si being renamed “Q-SI Operations Inc.” The combined company’s Class A common stock and warrants to purchase Class A common stock commenced trading on Nasdaq on June
11, 2021 under the symbol “QSI” and “QSIAW”, respectively. As a result of the Business Combination, we received proceeds of approximately $511.2 million on the day of the Closing. For further details on the impact of the Business Combination,
please refer to Note 3. Business Combination, in the accompanying notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Recent Developments
In April 2023, we informed the contract manufacturer that had manufactured our Platinum® and CarbonTM instruments that we intended to wind down the relationship and transition to a different contract manufacturer. In October 2023, we were informed the contract
manufacturer had filed a complaint in the state of Texas alleging breach of contract and made claims for economic damage under the contract as well as attorney costs. In January 2024 the suit was withdrawn and refiled in the state of Minnesota
alleging similar claims. Although it is not possible to determine the potential financial exposure associated with the alleged claim at this time given its early stage, we believe we have a meritorious defense and intend to vigorously defend
against all claims asserted in the complaint.
In August 2023, we filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective on August 22, 2023, covering the offering of Class A
common stock, preferred stock, debt securities, warrants, rights and units.
In August 2023, we also entered into an Equity Distribution Agreement (“EDA”) with an outside placement agent (the “Agent”), under which we may, from time to time, sell shares of our Class A common
stock having an aggregate offering price of up to $75.0 million in “at-the-market” offerings through the Agent (the “ATM Offering”). The Shelf Registration Statement included a prospectus supplement covering the offering, issuance and sale of up
to $75.0 million of our Class A common stock, from time to time, through the ATM Offering. The shares to be sold under the EDA may be issued and sold pursuant to the Shelf Registration Statement. The EDA also provides that the Agent will be
entitled to compensation for its services in an amount up to 3.0% of the gross proceeds from the sales of shares sold through the Agent under the EDA. We have no obligation to sell any shares under the EDA and may at any time suspend solicitation
and offers under the EDA. To date, we have not issued or sold any shares of our Class A common stock under the ATM Offering.
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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 Consolidated Financial Statements, which have been prepared in accordance with U.S.
GAAP. The preparation of these 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
Consolidated Financial Statements, as well as expenses incurred during the reporting periods. Our estimates are based on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about items 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 primarily generated from the sales of instruments and consumables used in protein sequencing and analysis. Service
revenue is primarily generated from service maintenance contracts including access to analysis software and advanced training for instrument use. We recognize revenue when or as a customer obtains control of the promised goods and services. The
amount of revenue recognized reflects the consideration to which we expect to be entitled in exchange for these goods and services. This process involves identifying the contract with a customer, determining the performance obligations in the
contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue as the performance obligations have been satisfied. We have made the accounting policy
election allowed for under ASC 606-10-32-2A to exclude all sales taxes from transaction price. 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 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.
We consider performance obligation for sales of products satisfied upon shipment of the goods to the customer in accordance with the shipping terms (either upon shipment or delivery), which is
when control of the product is deemed to be transferred; this includes instruments and consumables. Customers generally do not have a right to return products, except for defective or damaged products during the warranty period or unless prior
written consent is provided. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenues for service maintenance
contracts, which start after the first year of purchase and are considered as service type warranties that effectively extend the standard first-year service coverage at the customer’s option are recognized ratably over the contract service
period as these services are performed evenly over time. Revenues for advanced training is recognized at a point in time upon satisfaction of the underlying performance obligation. We typically provide a standard one-year warranty which covers
defects in materials, workmanship and manufacturing or performance conditions under normal use and service. The first year of the warranty of the products is considered an assurance-type warranty and is recorded as Cost of revenue within the
Consolidated Statements of Operations and Comprehensive Loss. We have determined this standard first-year warranty is not a distinct performance obligation.
Stock-based Compensation
Stock-based compensation expense for stock option grants with only service conditions is recognized on a straight-line basis over the requisite service period of the individual grants, which is
generally the vesting period, based on the estimated grant date fair values. Stock-based compensation expense for stock option grants subject to non-financing event performance conditions on an accelerated basis is recognized as though each
vesting portion of the award was, in substance, a separate award.
Prior to the Business Combination, the fair value of the shares of common stock underlying stock options had historically been determined by the Board, with input from management and contemporaneous
third-party valuations, as there was no public market for the common stock. Given the absence of a public trading market for our common stock, the Board exercised reasonable judgment and considered numerous objective and subjective factors to
determine the best estimate of the fair value of our common stock at each option grant date.
After the completion of the Business Combination, we measure compensation expense for stock-based awards to employees, non-employees and directors based upon the awards’ initial grant-date fair
values. Stock-based compensation expense for stock options, restricted stock units and performance awards is recorded over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the
straight-line method over the requisite service period for the entire award. For awards with a market condition, we expense the grant date fair value at the target over the vesting period regardless of the value the award recipients ultimately
receive. The fair value of restricted stock without a market condition is estimated using the current market price of our common stock on the date of grant. The fair value of stock option grants with a market condition is estimated at the date of
grant using the Monte Carlo simulation model (“Monte Carlo”). The fair values of stock option grants are estimated as of the date of grant by applying the Black-Scholes option valuation model (“Black-Scholes”). The Black-Scholes and Monte Carlo
models incorporate assumptions as to stock price volatility, the expected life of options or restricted stock, a risk-free interest rate and dividend yield. The effect of forfeiture in compensation costs is recognized based on actual forfeitures
when they occur.
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Black-Scholes is affected by the stock price on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term
of the option, expected risk-free interest rate, the expected volatility of common stock, and expected dividend yield; each of which is described below. The assumptions for expected term and expected volatility are the two assumptions that
significantly affect the grant date fair value.
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Expected Term: We calculate the expected term using the “simplified” method, which is the simple average of the vesting period and the contractual term. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Risk-free Interest Rate: The risk-free interest rate for periods within the expected term of the awards is based on the U.S. Treasury yield curve in effect at the time of the grant. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Expected Stock Price Volatility: We determined expected annual equity volatility based on the combination of the historical volatility of our common stock and the historical volatility of the common stock comparable to our common stock. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Dividend Yield: Because we have never paid a dividend and do not expect to begin doing so in the foreseeable future, we assume no dividend yield in valuing the stock-based awards. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Exercise Price: The exercise price is taken directly from the grant notice issued to employees and nonemployees. |
Stock options granted to non-employees are accounted for based on their fair value on the measurement date using the Black-Scholes option-pricing model. For further information regarding our
stock-based compensation and equity incentive plans, please refer to Note 2. Summary of Significant Accounting Policies, and Note 12. Stock-based Compensation, in the accompanying notes to our Consolidated Financial Statements included elsewhere
in this Annual Report on Form 10-K.
Warrant Liability
Outstanding warrants include Public Warrants which were issued as one-third of one redeemable warrant per unit during HighCape’s initial public offering on September 9, 2020, and Private Warrants
sold to the Sponsor. The Public Warrants and Private Warrants meet the definition of a derivative and we recorded these warrants as long-term liabilities in the Consolidated Balance Sheets at fair value upon the Closing of the Business
Combination, with subsequent changes in their respective fair values recognized in the Consolidated Statements of Operations and Comprehensive Loss at each reporting date.
Inventory
Inventory is stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method. Materials that may be
utilized for either commercial or, alternatively, for research and development purposes, are classified as inventory. Amounts in inventory used for
research and development purposes are charged to research and development expense when the product enters the research and development process and can no longer be used for commercial purposes and, therefore, does not have an “alternative
future use” as defined in authoritative guidance. During the year ended December 31, 2023, we identified $3.4 million of product that no longer had an alternative
future use and therefore was included as part of research and development expense.
An assessment of the recoverability of capitalized inventory is performed during each reporting period and, if needed, we record a reserve for any excess and obsolete inventory to
record inventory at its estimated net realizable value in the period it is identified. We also recorded an immaterial inventory excess and obsolescence reserve related to cost of revenue. There were no
such reserves recorded against inventory for the years ended December 31, 2022 or 2021.
For further information regarding our significant accounting policies and estimates, please refer to Note 2. Summary of Significant Accounting Policies, in the accompanying notes to our
Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
For a discussion of recently adopted accounting pronouncements and accounting pronouncements pending adoption, please refer to Note 2. Summary of Significant Accounting Policies, in the Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K.
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Results of Operations for the year ended December 31, 2023 as compared with the year ended December 31, 2022
The following table presents the Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2023 (dollars in thousands):
| 2023 | 2022 | % Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | ||||||||||||
| Product | $ | 1,031 | $ | - | nm | |||||||
| Service | 51 | - | nm | |||||||||
| Total revenue | 1,082 | - | nm | |||||||||
| Cost of revenue | 594 | - | nm | |||||||||
| Gross profit | 488 | - | nm | |||||||||
| Operating expenses: | ||||||||||||
| Research and development | 67,025 | 72,062 | (7.0 | )% | ||||||||
| Selling, general and administrative | 44,634 | 42,296 | 5.5 | % | ||||||||
| Goodwill impairment | - | 9,483 | (100.0 | )% | ||||||||
| Total operating expenses | 111,659 | 123,841 | (9.8 | )% | ||||||||
| Loss from operations | (111,171 | ) | (123,841 | ) | (10.2 | )% | ||||||
| Dividend income | 9,536 | 5,301 | 79.9 | % | ||||||||
| Gain (loss) on marketable securities, net | 5,587 | (20,603 | ) | (127.1 | )% | |||||||
| Change in fair value of warrant liabilities | (278 | ) | 6,243 | (104.5 | )% | |||||||
| Other income, net | 366 | 458 | (20.1 | )% | ||||||||
| Loss before provision for income taxes | (95,960 | ) | (132,442 | ) | (27.5 | )% | ||||||
| Provision for income taxes | - | - | nm | |||||||||
| Net loss and comprehensive loss | $ | (95,960 | ) | $ | (132,442 | ) | (27.5 | )% |
Revenue, Cost of Revenue and Gross Profit
Revenue is derived from sales of products and services. Product revenue is generated from the following sources: (i) sales of our Platinum® instrument, (ii) consumables, which consist of sales of our library, sequencing reagents and semiconductor chips, and (iii) freight revenue, which is recognized upon shipment. Service revenue is generated from
service maintenance contracts including Platinum® Analysis Software access, and advanced training for instrument use.
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, royalty
costs, facilities costs, depreciation and amortization expense, and inventory excess and obsolescence reserves.
Revenue, Cost of revenue and Gross profit for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total revenue | $ | 1,082 | $ | - | $ | 1,082 | nm | ||||||
| Cost of revenue | 594 | - | 594 | nm | |||||||||
| Gross profit | $ | 488 | $ | - | $ | 488 | nm | ||||||
| Gross profit margin | 45.1 | % | - |
We began a controlled launch of the Platinum® instrument and started to take orders in December 2022. We
subsequently began limited commercial shipments of Platinum® in January 2023.
Total revenue recognized for the year ended December 31, 2023 was $1.1 million for the sale of Platinum® instruments,
related reagent kits and service maintenance contracts. Cost of revenue recognized for the year ended December 31, 2023 was $0.6 million. Gross profit was $0.5 million for the year ended December 31, 2023. There was no such revenue or cost of
revenue recognized, or gross profit for the year ended December 31, 2022.
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Research and Development Expenses
Research and development expenses primarily consist of personnel costs and benefits, stock-based compensation, lab supplies, consulting and professional services, fabrication services, charges
related to product without an alternative future use, facilities costs, software, and other outsourced expenses. Research and development expenses are recognized as incurred. Our research and development expenses are primarily related to
developing new products and services.
Research and development expenses for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Research and development | $ | 67,025 | $ | 72,062 | $ | (5,037 | ) | (7.0 | )% |
Research and development expenses decreased by $5.0 million, or 7.0%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. This decrease was primarily due to a $5.3
million decrease in fabrication and outsourced services, a $2.0 million decrease in payroll and payroll-related costs primarily driven by restructuring activities in 2023, and a $1.9 million decrease in collaboration costs. The decreases were
also partially offset by a $3.4 million increase in reserves in related to product that no longer had an alternative future use, a $1.5 million increase in depreciation and amortization expense as well as other small fluctuations from 2022.
During the fourth quarter of 2023 we secured critical parts required to transition our Platinum® contract manufacturing process to a new manufacturing partner. As
part of this process, we were required to buy a minimum amount of parts from our former contracted manufacturer, resulting in $3.4 million of inventory without an alternative future use being included in the aforementioned inventory reserve.
Selling, General and Administrative Expenses
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.
Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Selling, general and administrative | $ | 44,634 | $ | 42,296 | $ | 2,338 | 5.5 | % |
Selling, general and administrative expenses increased by $2.3 million, or 5.5%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This increase was primarily due
to a $2.9 million increase in consulting costs, a $1.6 million increase in payroll and payroll-related costs and a $0.6 million increase in trade show costs. Payroll and payroll-related costs increased primarily due to increased headcount for
anticipated ramp up of commercial sales and also severance related restructuring costs. These increases were partially offset by a $3.4 million decrease in other costs, primarily driven by a $1.6 million decrease in insurance costs from lower
market premiums.
Goodwill Impairment
Goodwill impairment for the years ended December 31, 2023 and 2022 is as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Goodwill impairment | $ | - | $ | 9,483 | $ | (9,483 | ) | (100.0 | )% |
Goodwill impairment decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022. Goodwill was recorded as part of the Majelac Technologies LLC
(“Majelac”) acquisition in 2021 and was fully impaired in the fourth quarter of 2022.
Dividend Income
Dividend income primarily consists of dividends earned on fixed income mutual funds classified as marketable securities.
Dividend income for the years ended December 31, 2023 and 2022 is as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dividend income | $ | 9,536 | $ | 5,301 | $ | 4,235 | 79.9 | % |
Dividend income increased by $4.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 as a result of higher dividends earned on invested balances in marketable
securities.
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Gain (Loss) on Marketable Securities, Net
Gain (loss) on marketable securities, net, for the years ended December 31, 2023 and 2022 is as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gain (loss) on marketable securities, net | $ | 5,587 | $ | (20,603 | ) | $ | 26,190 | (127.1 | )% |
Realized and unrealized gain (loss) on marketable securities, net, was a gain of $5.6 million for the year ended December 31, 2023 as compared to a loss of $20.6 million for the year ended
December 31, 2022. The current year gains related to market adjustments of investments in marketable securities, primarily resulting from a decrease in interest rates during the year ended December 31, 2023 as compared to increases in interest
rates during the year ended December 31, 2022. These gains were partially offset by an increase in marketable securities sold with associated realized losses during the year ended December 31, 2023 as compared to 2022.
Change in Fair Value of Warrant Liabilities
The warrant liabilities were recorded at fair value as part of the Business Combination. Change in fair value of warrant liabilities primarily consists of the change in the fair value of our
Public Warrants and Private Warrants.
Change in warrant liabilities for the years ended December 31, 2023 and 2022 is as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in fair value of warrant liabilities | $ | (278 | ) | $ | 6,243 | $ | (6,521 | ) | (104.5 | )% |
The fair value of warrant liabilities decreased $6.5 million, or 104.5%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. This decrease was primarily driven by
the decrease in the underlying price of our Class A common stock experienced during the year ended December 31, 2023.
Other income, net
Other income, net, for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands):
| 2023 | 2022 | $ Change | % Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other income, net | $ | 366 | $ | 458 | $ | (92 | ) | (20.1 | )% |
Other income, net, decreased by $0.1 million, or 20.1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. For the year ended December 31, 2023, Other income, net,
included a $0.4 million gain for the write off of contingent consideration related to the Majelac acquisition. For the year ended December 31, 2022, Other income, net, included a $0.5 million decrease in fair value related to the Majelac
acquisition. For further details regarding the acquisition of Majelac, please refer to Note 4. Acquisition, in the accompanying notes to the Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K.
Liquidity and Capital Resources
To date, we have financed our operations through the initial capital provided from the Business Combination. Going forward, we anticipate debt or equity offerings will be the primary source of
funds to support our operating needs and capital expenditures until we reach scale of our commercial operations.
The following table presents a summary of our consolidated cash flows for operating, investing, and financing activities for the years ended December 31, 2023 and 2022, as well as the period
ending cash and cash equivalents and working capital (in thousands):
| 2023 | 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| Net cash (used in) provided by: | ||||||||
| Net cash used in operating activities | $ | (94,036 | ) | $ | (90,560 | ) | ||
| Net cash provided by investing activities | 143,428 | 137,185 | ||||||
| Net cash provided by financing activities | 149 | 1,909 | ||||||
| Net increase in cash and cash equivalents | $ | 49,541 | $ | 48,534 |
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Net cash used in operating activities
The net cash used in operating activities of $94.0 million for the year ended December 31, 2023 was primarily due to our net loss of $96.0 million, which primarily resulted from continued spend on
research and development efforts and commercialization ramp up, stock-based compensation of $8.5 million, net cash outflows from changes in operating assets and liabilities of $6.6 million, realized and unrealized gain (loss) on marketable
securities, net, of $5.6 million and depreciation and amortization of $4.2 million.
Net cash provided by investing activities
The net cash provided by investing activities of $143.4 million in the year ended December 31, 2023 was due primarily to sales of marketable securities of $272.5 million, partially offset by
purchases of marketable securities of $123.8 million and purchases of property and equipment of $4.5 million. Of the property and equipment spend, approximately $4.1 million was utilized to expand our Branford, Connecticut facility with the
remaining amount primarily utilized to fund research and development equipment.
Net cash provided by financing activities
The net cash provided by financing activities of $0.1 million in the year ended December 31, 2023 was due primarily to approximately $0.4 million of proceeds from the exercise of stock options.
These proceeds were offset by approximately $0.2 million of deferred offering costs paid for the Shelf Registration Statement and the ATM Offering, both of which are defined and described below.
Liquidity Outlook
Since our inception, we have generated no revenue and 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. 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 successfully reach commercial scale of our current products and products under development. However, we can provide no assurance our current products will reach commercial scale, or products under development will be
successfully commercialized in the future.
We expect that our cash and cash equivalents and investments in marketable securities as of December 31, 2023, which includes the funds raised in connection with the Business Combination, 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 the funds on hand to continue to invest in the commercial launch of
our products, to further invest in research and development, for other operating expenses, business acquisitions and for working capital and general corporate purposes.
As of December 31, 2023, we had cash and cash equivalents and investments in marketable securities totaling $257.7 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 Platinum® instrument and started to take orders in December 2022 and we began commercial shipments
of Platinum® in January 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) costs of running a public company; (v) other items affecting our forecasted level of expenditures and use of cash resources including potential acquisitions; and (vi)
increased product and service costs.
In August 2023, we filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective on August 22, 2023, covering the offering of Class A
common stock, preferred stock, debt securities, warrants, rights and units.
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In August 2023, we also entered into an Equity Distribution Agreement (“EDA”) with an outside placement agent (the “Agent”), under which we may, from time to time, sell shares of our Class A
common stock having an aggregate offering price of up to $75.0 million in “at-the-market” offerings through the Agent (the “ATM Offering”). The Shelf Registration Statement included a prospectus supplement covering the offering, issuance and
sale of up to $75.0 million of our Class A common stock, from time to time, through the ATM Offering. The shares to be sold under the EDA may be issued and sold pursuant to the Shelf Registration Statement. The EDA also provides that the Agent
will be entitled to compensation for its services in an amount up to 3.0% of the gross proceeds from the sales of shares sold through the Agent under the EDA. We have no obligation to sell any shares under the EDA and may at any time suspend
solicitation and offers under the EDA. To date, we have not issued or sold any shares of our Class A common stock under the ATM Offering.
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.
Related Party Transaction
For a description of our related party transactions, please refer to Note 17. Related Party Transactions, in the accompanying notes to the Consolidated Financial Statements included elsewhere in
the Annual Report on Form 10-K.
Capital Expenditures
During the year ended December 31, 2023, capital expenditures were $4.5 million. We forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual
amount and timing of such capital expenditures will ultimately be determined by the volume of business. We anticipate our future capital expenditures will be at approximately the same level as compared to the year ended December 31, 2023. We
have funded and plan to continue funding these capital expenditures with cash and financing.
Contractual Obligations
We lease certain facilities and equipment under noncancelable lease agreements that expire at various dates through 2032. As of December 31, 2023, the future payments, before adjustments for
tenant incentives, under leases was $31.1 million.
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 $0.1 million.
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