Company Quick10K Filing
Accelerate Diagnostics
Price18.92 EPS-2
Shares55 P/E-12
MCap1,034 P/FCF-20
Net Debt79 EBIT-74
TEV1,112 TEV/EBIT-15
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-07
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-03-09
10-Q 2015-09-30 Filed 2015-11-02
10-Q 2015-06-30 Filed 2015-07-31
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-11-04
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-02
10-K 2013-12-31 Filed 2014-03-07
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-20 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-Q 2012-10-31 Filed 2012-12-14
10-K 2012-07-31 Filed 2012-10-26
10-Q 2012-04-30 Filed 2012-06-13
10-Q 2012-01-31 Filed 2012-03-15
10-Q 2011-10-31 Filed 2011-12-14
10-K 2011-07-31 Filed 2011-10-27
10-Q 2011-04-30 Filed 2011-06-14
10-Q 2011-01-31 Filed 2011-03-16
10-Q 2010-10-31 Filed 2010-12-14
10-K 2010-07-31 Filed 2010-09-16
10-Q 2010-04-30 Filed 2010-06-14
10-Q 2010-01-31 Filed 2010-03-17
8-K 2020-08-18 Other Events, Exhibits
8-K 2020-06-29 Officers
8-K 2020-06-22 Officers
8-K 2020-05-08
8-K 2020-05-04
8-K 2020-04-15
8-K 2020-04-14
8-K 2020-03-24
8-K 2020-02-27
8-K 2020-01-31
8-K 2020-01-13
8-K 2019-12-20
8-K 2019-12-01
8-K 2019-11-07
8-K 2019-10-31
8-K 2019-08-20
8-K 2019-08-02
8-K 2019-05-10
8-K 2019-05-09
8-K 2019-02-19
8-K 2019-01-06
8-K 2018-12-21
8-K 2018-12-04
8-K 2018-11-06
8-K 2018-09-25
8-K 2018-08-06
8-K 2018-05-09
8-K 2018-05-03
8-K 2018-03-22
8-K 2018-02-15
8-K 2018-01-10

AXDX 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. Organization and Nature of Business; Basis of Presentation; Principles of Consolidation; Significant Accounting Policies
Note 2. Recently Issued Accounting Pronouncements
Note 3. Concentration of Credit Risk
Note 4. Fair Value of Financial Instruments
Note 5. Investments
Note 6. Inventory
Note 7. Property and Equipment
Note 8. License Agreements and Grants
Note 9. Deferred Revenue and Remaining Performance Obligations
Note 10. Long - Term Debt
Note 11. Convertible Notes
Note 12. Earnings per Share
Note 13. Employee Equity - Based Compensation
Note 14. Income Taxes
Note 15. Commitments
Note 16. Leases
Note 17. Industry, Geographic and Revenue Disaggregation
Note 18. Related Party Transactions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.4 a06302020-exh104ng.htm
EX-31.1 a06302020-exh311ng.htm
EX-31.2 a06302020-exh312ng.htm
EX-32 a06302020-exh32ng.htm

Accelerate Diagnostics Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
0.30.20.20.10.10.02012201420172020
Assets, Equity
0.10.10.0-0.0-0.1-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.10.0-0.0-0.12012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____

Commission file number: 001-31822
ACCELERATE DIAGNOSTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware84-1072256
(State or other jurisdiction(I.R.S. Employer Identification No.)
of incorporation or organization)
3950 South Country Club Road, Suite 470
Tucson,Arizona85714
(Address of principal executive offices)(Zip Code)

(520) 365-3100
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 parAXDXThe Nasdaq Stock Market LLC
value per share(The Nasdaq Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of August 5, 2020, there were 56,355,247 shares of the registrant’s common stock outstanding.



TABLE OF CONTENTS

Item 1. Legal Proceedings

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEET
(in thousands, except share data)
June 30,December 31,
20202019
Unaudited
ASSETS
Current assets:
Cash and cash equivalents$47,368  $61,014  
Investments41,326  47,437  
Trade accounts receivable2,592  3,222  
Inventory8,723  8,059  
Prepaid expenses1,400  955  
Other current assets1,099  1,165  
Total current assets102,508  121,852  
Property and equipment, net8,004  7,905  
Right of use assets3,569  3,917  
Other non-current assets734  750  
Total assets$114,815  $134,424  
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable$2,702  $2,351  
Accrued liabilities3,346  3,828  
Accrued interest1,262  1,262  
Deferred revenue232  271  
Current portion of long-term debt2,129    
Current operating lease liability447  450  
Total current liabilities10,118  8,162  
Non-current operating lease liability3,366  3,579  
Other non-current liabilities190  19  
Long-term debt2,662    
Convertible notes135,469  130,043  
Total liabilities$151,805  $141,803  
Commitments and contingencies
Stockholders’ deficit:
Preferred shares, $0.001 par value;
5,000,000 preferred shares authorized and none outstanding as of June 30, 2020 and December 31, 2019
    
Common stock, $0.001 par value;
85,000,000 common shares authorized with 56,249,482 shares issued and outstanding on June 30, 2020 and 85,000,000 common shares authorized with 54,708,792 shares issued and outstanding on December 31, 2019
56  55  
Contributed capital463,178  452,344  
Treasury stock(45,067) (45,067) 
Accumulated deficit(455,297) (414,653) 
Accumulated other comprehensive income (loss)140  (58) 
Total stockholders’ deficit(36,990) (7,379) 
Total liabilities and stockholders’ deficit$114,815  $134,424  

See accompanying notes to condensed consolidated financial statements.
3


ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Unaudited
(in thousands, except per share data)
Three Months EndedSix Months Ended
June 30,June 30,June 30,June 30,
2020201920202019
Net sales$2,125  $1,806  $4,468  $3,557  
Cost of sales1,171  907  2,459  1,823  
Gross profit954  899  2,009  1,734  
Costs and expenses:
Research and development5,347  6,149  11,189  13,083  
Sales, general and administrative11,332  12,837  24,275  25,559  
Total costs and expenses16,679  18,986  35,464  38,642  
Loss from operations(15,725) (18,087) (33,455) (36,908) 
Other income (expense):
Interest expense(3,835) (3,528) (7,584) (6,987) 
Foreign currency exchange gain (loss)91  6  (37) (53) 
Interest income224  812  604  1,653  
Other income (expense), net15  (1) (67) (3) 
Total other expense, net(3,505) (2,711) (7,084) (5,390) 
Net loss before income taxes(19,230) (20,798) (40,539) (42,298) 
Provision for income taxes  (17)   (238) 
Net loss$(19,230) $(20,815) $(40,539) $(42,536) 
Basic and diluted net loss per share$(0.35) $(0.38) $(0.74) $(0.78) 
Weighted average shares outstanding55,445  54,476  55,139  54,407  
Other comprehensive loss:
Net loss$(19,230) $(20,815) $(40,539) $(42,536) 
Net unrealized gain (loss) on debt securities available-for-sale(44) 98  179  219  
Foreign currency translation adjustment34  50  19  (26) 
Comprehensive loss$(19,240) $(20,667) $(40,341) $(42,343) 

See accompanying notes to condensed consolidated financial statements.
4


ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
Six Months Ended
June 30,June 30,
20202019
Cash flows from operating activities:
Net loss$(40,539) $(42,536) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,571  1,236  
Amortization of investment discount13  (320) 
Equity-based compensation7,615  6,278  
Amortization of debt discount and issuance costs5,426  4,843  
Realized loss on sale of investments3    
Loss on disposal of property and equipment527  407  
Contributions to deferred compensation plan(160)   
(Increase) decrease in assets:
Accounts receivable550  (51) 
Inventory(1,979) (2,217) 
Prepaid expense and other(363) (588) 
Increase (decrease) in liabilities:
Accounts payable390  476  
Accrued liabilities, and other(581) (1,110) 
Deferred revenue and income(39) 38  
Deferred compensation171  (18) 
Net cash used in operating activities(27,395) (33,562) 
Cash flows from investing activities:
Purchases of equipment(643) (76) 
Purchase of marketable securities(21,509) (17,601) 
Proceeds from sales of marketable securities  13,400  
Maturities of marketable securities27,844  54,447  
Net cash provided by investing activities5,692  50,170  
Cash flows from financing activities:
Proceeds from issuance of common stock216  251  
Proceeds from exercise of options3,031  4,369  
Proceeds from debt4,791    
Net cash provided by financing activities8,038  4,620  
Effect of exchange rate on cash19  (19) 
(Decrease) increase in cash and cash equivalents(13,646) 21,209  
Cash and cash equivalents, beginning of period61,014  66,260  
Cash and cash equivalents, end of period$47,368  $87,469  

See accompanying notes to condensed consolidated financial statements.
5



ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
Unaudited
(in thousands)
Six Months Ended
June 30,June 30,
20202019
Non-cash investing activities:
Net transfer of instruments from inventory to property and equipment$1,288  $1,715  
Supplemental cash flow information:
Interest paid$2,144  $2,144  
Income taxes paid, net of refunds$26  $9  

See accompanying notes to condensed consolidated financial statements.
6


ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Unaudited
(in thousands)
Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Common stock shares outstanding
Beginning54,994  54,454  54,709  54,232  
Exercise of options1,247  53  1,517  268  
Issuance of common stock under employee purchase plan8  5  23  12  
Ending56,249  54,512  56,249  54,512  
Common stock
Beginning$55  $54  $55  $54  
Exercise of Options1  1  1  1  
Ending$56  $55  $56  $55  
Contributed capital
Beginning$457,987  $440,154  $452,344  $432,885  
Exercise of options1,713  692  3,031  4,369  
Issuance of common stock under employee purchase plan104  111  215  250  
Equity-based compensation3,374  2,900  7,588  6,353  
Ending$463,178  $443,857  $463,178  $443,857  

See accompanying notes to condensed consolidated financial statements.
7



ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Unaudited
(in thousands)
Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Accumulated deficit
Beginning$(436,067) $(352,069) $(414,653) $(330,348) 
Cumulative effect of accounting changes    (105)   
Net loss(19,230) (20,815) (40,539) (42,536) 
Ending$(455,297) $(372,884) $(455,297) $(372,884) 
Treasury stock
Beginning$(45,067) $(45,067) $(45,067) $(45,067) 
Ending$(45,067) $(45,067) $(45,067) $(45,067) 
Accumulated other comprehensive (loss) income
Beginning$150  $(104) $(58) $(149) 
Net unrealized gain on debt securities available-for-sale(44) 98  179  219  
Foreign currency translation adjustment34  50  19  (26) 
Ending$140  $44  $140  $44  
Total stockholders' equity (deficit)$(36,990) $26,005  $(36,990) $26,005  

See accompanying notes to condensed consolidated financial statements.

8


ACCELERATE DIAGNOSTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION; PRINCIPLES OF CONSOLIDATION; SIGNIFICANT ACCOUNTING POLICIES

Accelerate Diagnostics, Inc. (“we” or “us” or “our” or “Accelerate” or the “Company”) is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 28, 2020.

The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date, but does not include all disclosures such as notes required by U.S. GAAP.

The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the entire year ending December 31, 2020, or any future period.

All amounts are rounded to the nearest thousand dollars unless otherwise indicated.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions and balances.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to accounts receivable, inventory, property and equipment, accrued liabilities, warranty liabilities, tax valuation accounts and equity–based compensation. Actual results could differ materially from those estimates.

Estimated Fair Value of Financial Instruments

The Company follows Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, which has defined fair value and requires the Company to establish a framework for measuring and disclosing fair value. The framework requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

9


Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The carrying amounts of financial instruments such as cash and cash equivalents, trade accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities, and other current liabilities approximate the related fair values due to the short-term maturities of these instruments.

The estimated fair value of the Company’s convertible note represents a Level 2 measurement. See Note 11, Convertible Notes for further detail on the Company’s convertible notes.

The estimated fair value of the Company’s long-term debt represents a Level 3 measurement, as the Loan is privately held with no public market. The carrying amount of the Loan approximates fair value due to the short-term nature of this instrument. See Note 10, Long-Term Debt for further detail on the Company’s long-term debt.

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or less at time of purchase are considered to be cash equivalents. Cash and cash equivalents include overnight repurchase agreement accounts and other investments. As part of our cash management process, excess operating cash is invested in overnight repurchase agreements with our bank. Repurchase agreements and other investments classified as cash and cash equivalents are not deposits and are not insured by the U.S. Government, the FDIC or any other government agency and involve investment risk including possible loss of principal. We believe, however, that the market risk arising from holding these financial instruments is minimal.

Investments

The Company invests in various debt securities available-for-sale and equity securities which are primarily held in the custody of major financial institutions. Debt securities available-for-sale consist of certificates of deposit, U.S. government and agency securities, commercial paper, asset-backed securities, and corporate notes and bonds. Equity securities consist of mutual funds. The Company records these investments in the condensed consolidated balance sheet at fair value. Unrealized gains or losses for debt securities available-for-sale are included in accumulated other comprehensive income (loss), a component of stockholders’ equity. Unrealized gains or losses for equity securities are included in other income (expense), net, a component of statements of operations and comprehensive loss. The Company considers all debt securities available-for-sale, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.

On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a debt security available-for-sale in an unrealized loss position has suffered impairment as a result of credit loss or other factors. A debt security available-for-sale is considered impaired if its fair value is less than its amortized cost basis at the reporting date.

If we intend to sell the debt security or if it is more-likely-than-not that we will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is recognized and the unrealized loss is recorded as a direct write-down of the security's amortized cost basis with an offsetting entry to earnings. If we do not intend to sell the debt security or believe we will not be required to sell the debt security before the recovery of its amortized cost basis, the impairment is assessed to determine if a credit loss component exists. We use a discounted cash flow method to determine the credit loss component. In the event a credit loss exists, an allowance for credit losses is recorded in earnings for the credit loss component of the impairment while the remaining portion of the impairment attributable to factors other than credit loss is recognized, net of tax, in accumulated other comprehensive income (loss). The amount of impairment recognized due to credit factors is limited to the excess of the amortized cost basis over the fair value of the security available-for-sale.

10


Inventory

Inventory is stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first out method. The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value and records a charge to expense for such inventory as appropriate.

Accounts Receivable

Accounts receivable consist of amounts due to the Company for sales to customers and are based on what we expect to collect in exchange for goods and services. Receivables are considered past due based on the contractual payment terms and are written off if reasonable collection efforts prove unsuccessful.

We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the condensed consolidated statements of operations. We assess collectibility by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectibility issues. In determining the amount of the allowance for credit losses, we consider historical collectibility and make judgments about the creditworthiness of customers based on credit evaluations. We also consider customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. The allowance for credit losses as of June 30, 2020 was $0.1 million.

Property and Equipment

Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. Gains and losses from retirement or replacement are included in costs and expenses. Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the assets, ranging from one to seven years. Leasehold improvements are depreciated over the remaining life of the lease or the life of the asset, whichever is less.

Instruments Classified as Property and Equipment

Property and equipment includes Accelerate Pheno systems (also referred to as instruments) used for sales demonstrations, instruments under rental agreements and instruments used for research and development. Depreciation expense for instruments used for sales demonstrations is recorded as a component of sales, general and administrative expense. Depreciation expense for instruments placed at customer sites pursuant to reagent rental agreements is recorded as a component of cost of sales. Depreciation expense for instruments used in our laboratory and research is recorded as a component of research and development expense. The Company retains title to these instruments and depreciates them over five years. Losses from the retirement of returned instruments are included in costs and expenses.

The Company evaluates the recoverability of the carrying amount of its instruments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, and this evaluation is performed at least annually. This evaluation is based on our estimate of future cash flows and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair value are insufficient to recover the carrying amount of instruments. No impairment charges have been recorded as of June 30, 2020 and December 31, 2019.

Long-lived Assets

Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows from and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair value are insufficient to recover the carrying amount of the long-lived asset.

11


Warranty Reserve

Instruments are typically sold with a one year limited warranty, while kits and accessories are typically sold with a sixty days limited warranty. Accordingly, a provision for the estimated cost of the limited warranty repair is recorded at the time revenue is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. The expense incurred for these provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss.

Warranty reserve activity for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Beginning balance$342  $206  $403  $215  
Provisions      70  
Warranty cost incurred
(37) (10) (98) (89) 
Ending balance$305  $196  $305  $196  

Paycheck Protection Program (PPP) Loan

The PPP was established by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, through a significant expansion of the Small Business Administration (“SBA”) 7(a) loan program. On April 14, 2020, the Company entered into a promissory note (the “PPP Note”) evidencing an unsecured loan in the amount of $4.8 million.

The Company elected to account for the PPP Note in accordance with ASC 470, Debt, with interest accrued in accordance with the interest method under ASC 835-30, Imputation of Interest. The Company recognized the entire PPP Note amount as a liability on the balance sheet, with interest accrued and expensed over the term of the loan. The Company did not impute additional interest at a market rate because transactions where interest rates are prescribed by governmental agencies are excluded from the scope of ASC 835-30.

The PPP Note will remain a liability until either of the following criteria are met:

The Company has been legally released from being the primary obligor under the liability (i.e. the PPP Note is for-given)

The Company pays the lender and is relieved of its obligation for the liability

See Note 10, Long-Term Debt for further detail regarding the PPP Note.

Convertible Notes

The Company accounts for convertible debt instruments that may be settled in cash or equity upon conversion, which includes the 2.50% Senior Convertible Notes due 2023 (the “Notes”), by separating the liability and equity components of the instruments in a manner that reflects our nonconvertible debt borrowing rate. The Company determined the carrying amount of the liability component of the Notes by using estimates and assumptions that market participants would use in pricing a debt instrument. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.

The equity component is treated as a discount on the liability component of the Notes, which is amortized over the term of the Notes using the effective interest rate method. Debt issuance costs related to the Notes are allocated to the liability and equity components of the Notes based on their relative values. Debt issuance costs allocated to the liability component are amortized over the life of the Notes as additional non-cash interest expense. Transaction costs allocated to equity are netted with the equity component of the convertible debt instrument in stockholders’ deficit.
12



Revenue Recognition

The Company recognizes revenue when control of the promised good or service is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales taxes are excluded from revenues.

The Company determines revenue recognition through the following steps:

Identification of the contract with a customer

Identification of the performance obligations in the contract

Determination of the transaction price

Allocation of the transaction price to the performance obligations

Recognition of revenue as we satisfy a performance obligation

Product revenue is derived from the sale or rental of our instruments and sales of related consumable products. When an instrument is sold, revenue is generally recognized upon installation of the unit consistent with contract terms, which do not include a right of return. When a consumable product is sold, revenue is generally recognized upon shipment. Invoices are generally issued when revenue is recognized and the term between invoicing and when payment is due is not typically significant.

Service revenue is derived from the sale of extended service agreements which are generally non-cancellable. This revenue is recognized on a straight-line basis over the contract term beginning on the effective date of the contract because the Company is standing ready to provide services. Invoices are generally issued annually and coincide with the beginning of individual service terms.

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine relative standalone selling prices based on the price charged to customers for each individual performance obligation.

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The Company has determined these costs would have an amortization period of less than one year and has elected to recognize them as an expense when incurred. Contract asset opening and closing balances were immaterial for the three and six months ended June 30, 2020.

Cost of Sales

Cost of sales includes cost of materials, direct labor, equity-based compensation, facility and other manufacturing overhead costs for consumable tests and instruments sold to customers. Cost of sales for instruments also includes depreciation on revenue generating instruments that have been placed with our customers under a reagent rental agreement. Cost of sales includes repair and maintenance cost for instruments covered by a service agreement or instruments covered by a reagent rental agreement. Cost of sales also includes warranty related expenses.

Shipping and Handling

Shipping and handling costs billed to customers are included as a component of revenue. The corresponding expense incurred with third party carriers is included as a component of sales, general and administrative costs on the condensed consolidated statements of operations and comprehensive loss.

Leases

The Company accounts for commercial leases in accordance with ASC 842, Leases. We determine if an arrangement is or contains a lease and the type of lease at inception. The Company classifies commercial leases
13


as finance leases (lessee) or sales-type leases (lessor) when there is either a transfer of ownership of the underlying asset by the end of the lease term, the lease contains an option to purchase the asset that we are reasonably certain will be exercised, the lease term is for the major part of the remaining economic life of the asset, the present value of the lease payments and any residual value guarantee equals or substantially exceeds all the fair value of the asset, or the asset is of such a specialized nature that it will have no alternative use to the lessor at the end of the lease term. Payments contingent on future events (i.e. based on usage) are considered variable and excluded from lease payments for the purposes of classification and initial measurement. Several of our leases include options to renew or extend the term upon mutual agreement of the parties and others include one-year extensions exercisable by the lessee. None of our leases contain residual value guarantees, restrictions, or covenants.

To determine whether a contract contains a lease, the Company uses its judgment in assessing whether the lessor retains a material amount of economic benefit from an underlying asset, whether explicitly or implicitly identified, which party holds control over the direction and use of the asset, and whether any substantive substitution rights over the asset exist.

Lessee

Operating leases are included in right-of-use (“ROU”) assets and operating lease liabilities within our consolidated balance sheets. These assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and their related liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Typically, we use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments. We use the implicit rate when readily determinable. ROU assets are net of lease payments made and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option. As of June 30, 2020 and December 31, 2019, the Company was not party to finance lease arrangements.

Our operating leases consist primarily of leased office, factory, and laboratory space in the U.S. and office space in Europe, have between two and six-year terms, and typically contain penalizing, early-termination provisions.

Lessor

The Company leases instruments to customers under “reagent rental” agreements, whereby the customer agrees to purchase consumable products over a stated term, typically five years or less, for a volume-based price that includes an embedded rental for the instruments. When collectibility is probable, that amount is recognized as income at lease commencement for sales-type leases and as product is shipped, typically in a straight–line pattern, over the term for operating leases, which typically include a termination without cause or penalty provision given a short notice period.

Consideration is allocated between lease and non-lease components based on stand-alone selling price in accordance with ASC 606, Revenue from Contracts with Customers.

Net investment in sales-type leases are included within our condensed consolidated balance sheets as a component of other current assets and other non-current assets, which include the present value of lease payments not yet received and the present value of the residual asset, which are determined using the information available at commencement, including the lease term, estimated useful life, rate implicit in the lease, and expected fair value of the instrument.

Nonqualified Cash Deferral Plan

The Company's Cash Deferral Plan (the “Deferral Plan”), provides certain key employees, with an opportunity to defer the receipt of such participant's base salary. The Deferral Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code. All of the investments held in the Deferral Plan are equity securities consisting of mutual funds and recorded at fair value with changes in the investments' fair value recognized as earnings in the period they occur. The corresponding liability for the Deferral Plan is included in other non-current liabilities in the condensed consolidated balance sheet.
14



Equity-Based Compensation

The Company may award stock options, restricted stock units (“RSUs”), performance-based awards, and other equity-based instruments to its employees, directors and consultants. Compensation cost related to equity-based instruments is based on the fair value of the instrument on the grant date, and is recognized over the requisite service period on a straight-line basis over the vesting period for each tranche (an accelerated attribution method) except for performance-based awards. Performance-based awards vest based on the achievement of performance targets. Compensation costs associated with performance-based awards are recognized over the requisite service period based on probability of achievement. Performance-based awards require management to make assumptions regarding the likelihood of achieving performance targets.

The Company estimates the fair value of service based and performance based stock option awards, including modifications of stock option awards, using the Black-Scholes option pricing model. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield.

Volatility: The expected volatility is based on the historical volatility of the Company's stock price over the most recent period commensurate with the expected term of the stock option award.

Expected term: The estimated expected term for employee awards is based on the calculation published by the SEC in SAB110 for use when there is not a sufficient history of employee exercise patterns. For consultant awards, the estimated expected term is the same as the life of the award.

Risk-free interest rate: The risk-free interest rate is based on published U.S. Treasury rates for a term commensurate with the expected term.

Dividend yield: The dividend yield is estimated as zero as the Company has not paid dividends in the past and does not have any plans to pay any dividends in the foreseeable future.

The Company records the fair value of RSUs or stock grants based on published closing market price on the day before the grant date. The Company accounts for forfeitures as they occur rather than on an estimated basis.

Deferred Tax Assets

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets. The change in deferred tax assets and liabilities for the period represents the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws in deferred tax assets and liabilities are reflected as an adjustment to the tax provision or benefit in the period of enactment.

The Company follows the provisions of ASC 740, Income Taxes, to account for any uncertainty in income taxes with respect to the accounting for all tax positions taken (or expected to be taken) on any income tax return. This guidance applies to all open tax periods in all tax jurisdictions in which the Company is required to file an income tax return. Under U.S. GAAP, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not certain of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more likely than not to be realized upon resolution of the position. Interest and penalties, if any, would be recorded within tax expense.

Foreign Currency Translation and Foreign Currency Transactions

Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive loss.

The Company has assets and liabilities, including receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in foreign currency exchange gain and loss, within the condensed consolidated statement of operations and comprehensive loss.
15



Loss Per Share

Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Potentially dilutive common shares consist of shares issuable from stock options and unvested RSUs. Potentially dilutive common shares would also include common shares that would be outstanding if the Notes at the balance sheet date were converted. Diluted earnings are not presented when the effect of adding such additional common shares is antidilutive.

Comprehensive Loss

In addition to net loss, comprehensive loss includes all changes in equity during a period, except those resulting from investments by and distributions to owners. The Company holds investments classified as debt securities available-for-sale and records the change in fair market value as a component of comprehensive loss. The Company also has adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars which is included as a component of comprehensive loss.

NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Standards that were recently adopted

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Fair Value Measurement (Topic 820); Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies, among other things, the disclosures required for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs. The guidance removes, among other things, the disclosure requirement to disclose transfers between Levels 1 and 2. Level 3 fair value measurement disclosures should be applied prospectively while all other amendments should be applied retrospectively. The Company adopted ASU 2018-13 on January 1, 2020, which had no impact to our condensed consolidated financial statements as the Company did not carry Level 3 fair value items upon implementing this ASU on January 1, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. In November 2018, ASU 2018-19 was issued which amended the standard to clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU 2019-04, 2019-05, 2019-10, ASU 2019-11, 2020-02 and 2020-03 to provide additional guidance on the credit losses standard. ASU 2016-13 amends the guidance on measuring credit losses on financial assets (including trade accounts receivable and available for sale debt securities) held at amortized cost. Previously, an “incurred loss” methodology was used for recognizing credit losses which delays recognition until it is probable a loss has been incurred. This amendment requires assets valued at amortized cost to be presented at the net amount expected to be collected using an allowance for credit losses. Reversal of credit losses on available for sale debt securities are now recorded in current period net income. The Company adopted ASU 2016-13 on January 1, 2020. We adopted this standard using a modified-retrospective approach, and recorded a $0.1 million cumulative-effect adjustment to the opening balance of accumulated deficit in connection with the adoption. This adjustment was recorded to establish an allowance for trade account receivables and investment in leases. No cumulative-effect adjustment was recorded for unrealized losses on debt securities available-for-sale as the issuers of such securities held by us were of high credit quality. As a result, the condensed consolidated financial statements for the current periods are presented under the new standard, while the comparative prior year period is not adjusted and continues to be reported in accordance with our historical accounting policy.

Standards not yet adopted

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for the equity method investments in Topic 323 and the accounting for certain forward contracts and purchased options in Topic 815. This ASU is effective for us on January 1, 2021, with early adoption permitted. We are currently assessing the
16


impact this will have on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740); Simplifying the Accounting for Income Taxes. ASU 2019-12 reduces complexity in the accounting standard. This ASU is effective for us on January 1, 2021, with early adoption permitted. We are currently assessing the impact this will have on our condensed consolidated financial statements.

NOTE 3. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and accounts receivable, including receivables from major customers.

The Company has financial institutions for banking operations that hold 10% or more of the Company’s cash and cash equivalents. As of June 30, 2020, three of the Company's financial institutions held 59%, 18% and 12% of the Company’s cash and cash equivalents, respectively. As of December 31, 2019, two of the Company's financial institutions held 73% and 18% of the Company’s cash and cash equivalents, respectively.

The Company grants credit to domestic and international customers. Exposure to losses on accounts receivable is principally dependent on each client's financial position. None of the Company's customers accounted for 10% or more of the net accounts receivable balance as of June 30, 2020. The Company had one customer that accounted for 11% of the Company’s net accounts receivable balance as of December 31, 2019.

Customers who represented 10% or more of the Company’s total revenue during the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Customer A10%***
Customer B*13%**
Customer C*11%**
Customer D***10%

* Less than 10% for the period indicated

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NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables represent the financial instruments measured at fair value on a recurring basis in the financial statements of the Company and the valuation approach applied to each class of financial instruments at June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets:
Cash and cash equivalents:
Money market funds$28,348  $  $  $28,348  
Total cash and cash equivalents28,348      28,348  
Equity investments:
Mutual funds160      160  
Total equity investments160      160  
Debt securities available-for-sale:
Certificates of deposit  4,961    4,961  
U.S. Treasury securities19,193      19,193  
U.S. Agency securities  2,510    2,510  
Corporate notes and bonds  14,502    14,502  
Debt securities available-for-sale19,193  21,973    41,166  
Total assets measured at fair value$47,701  $21,973  $  $69,674  

December 31, 2019
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets:
Cash and cash equivalents:
Money market funds$43,745  $  $  $43,745  
Commercial paper  1,993