SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|x||QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the quarterly period ended September 30, 2023
|o||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 001-40632
CYTEK BIOSCIENCES, INC.
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of
incorporation or organization)
47215 Lakeview Blvd. Fremont, California
|(Address of principal executive offices)||(Zip Code)|
Registrant’s telephone number, including area code: (877) 922-9835
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
Common Stock, par value $0.001 per share
The Nasdaq Global Select Market
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
|Smaller reporting company|
|Emerging growth company|
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The number of shares of Registrant’s Common Stock outstanding as of October 31, 2023 was 135,549,154.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited).
Cytek Biosciences, Inc.
Consolidated Balance Sheets
|(In thousands, except share and per share data)||September 30,|
|Cash and cash equivalents||$||163,629 ||$||296,601 |
|Restricted cash||— ||2,899 |
|Marketable securities||124,392 ||44,548 |
|Trade accounts receivable, net||55,402 ||48,864 |
|Inventories||66,875 ||48,154 |
|Prepaid expenses and other current assets||12,017 ||12,954 |
|Total current assets||422,315 ||454,020 |
|Deferred income tax assets, noncurrent||24,080 ||20,459 |
|Property and equipment, net||17,415 ||13,682 |
|Operating lease right-of-use assets||11,703 ||13,883 |
|Goodwill||16,457 ||10,144 |
|Intangible assets, net||24,292 ||4,331 |
|Other noncurrent assets||3,168 ||2,957 |
|Total assets||$||519,430 ||$||519,476 |
|Liabilities and stockholders’ equity|
|Trade accounts payable||$||4,711 ||$||4,805 |
|Legal settlement liability, current||2,600 ||2,163 |
|Accrued expenses||20,514 ||21,126 |
|Other current liabilities||7,821 ||7,960 |
|Deferred revenue, current||23,047 ||12,986 |
|Total current liabilities||58,693 ||49,040 |
|Legal settlement liability, noncurrent||16,095 ||15,596 |
|Deferred revenue, noncurrent||14,958 ||13,124 |
|Operating lease liability, noncurrent||10,139 ||12,312 |
|Long term debt||1,736 ||2,271 |
|Other noncurrent liabilities||2,285 ||1,587 |
|Total liabilities||103,906 ||93,930 |
|Commitments and contingencies (Note 18)|
Common stock, $0.001 par value; 1,000,000,000 authorized shares as of September 30, 2023 and December 31, 2022, respectively; 135,545,663 and 135,365,381 issued and outstanding shares as of September 30, 2023 and December 31, 2022, respectively.
|136 ||135 |
|Additional paid-in capital||451,648 ||442,887 |
|Accumulated other comprehensive loss||(1,579)||(697)|
|Noncontrolling interest in consolidated subsidiary||— ||251 |
|Total stockholders’ equity||415,524 ||425,546 |
|Total liabilities and stockholders’ equity||$||519,430 ||$||519,476 |
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
Cytek Biosciences, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
| ||Three Months Ended ||Nine Months Ended|
|(In thousands, except share and per share data)||September 30,|
|Product||$||38,441 ||$||36,389 ||$||110,065 ||$||104,963 |
|Service||9,559 ||4,088 ||24,717 ||10,737 |
|Total revenue, net||48,000 ||40,477 ||134,782 ||115,700 |
|Cost of sales:|
|Product||16,205 ||10,606 ||45,557 ||34,153 |
|Service||4,617 ||3,009 ||12,847 ||9,947 |
|Total cost of sales||20,822 ||13,615 ||58,404 ||44,100 |
|Gross profit||27,178 ||26,862 ||76,378 ||71,600 |
|Research and development||11,171 ||8,650 ||33,282 ||25,111 |
|Sales and marketing||12,076 ||8,810 ||37,587 ||24,201 |
|General and administrative||10,351 ||8,042 ||33,217 ||24,176 |
|Total operating expenses||33,598 ||25,502 ||104,086 ||73,488 |
|Income (loss) from operations||(6,420)||1,360 ||(27,708)||(1,888)|
|Other income (expense):|
|Interest income||1,622 ||1,584 ||4,965 ||1,993 |
|Other income (expense), net||1,208 ||(445)||4,600 ||(1,073)|
|Total other income (expense), net||2,235 ||490 ||7,888 ||(966)|
|Income (loss) before income taxes||(4,185)||1,850 ||(19,820)||(2,854)|
|Provision for (benefit from) income taxes||2,271 ||224 ||(2,169)||(1,620)|
|Net income (loss)||(6,456)||1,626 ||(17,651)||(1,234)|
|Less: net loss allocated to noncontrolling interests||— ||40 ||— ||281 |
|Net income (loss) attributable to common stockholders, basic and diluted||$||(6,456)||$||1,666 ||$||(17,651)||$||(953)|
|Net income (loss) attributable to common stockholders per share, basic||$||(0.05)||$||0.01 ||$||(0.13)||$||(0.01)|
|Net income (loss) attributable to common stockholders per share, diluted||$||(0.05)||$||0.01 ||$||(0.13)||$||(0.01)|
|Weighted-average shares used in calculating net income (loss) per share, basic ||136,173,278||134,711,701||135,862,905||134,342,059|
|Weighted-average shares used in calculating net income (loss) per share, diluted||136,173,278||138,709,335||135,862,905||134,342,059|
|Comprehensive income (loss):|
|Net income (loss)||$||(6,456)||$||1,626 ||$||(17,651)||$||(1,234)|
|Foreign currency translation adjustment, net of tax||165 ||(758)||(856)||(1,427)|
|Unrealized gain (loss) on marketable securities||15 ||- ||(26)||- |
|Net comprehensive income (loss)||$||(6,276)||$||868 ||$||(18,533)||$||(2,661)|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
Cytek Biosciences, Inc
Consolidated Statements of Stockholders’ Equity
| ||Common stock|
|(In thousands, except share data)|
interest in consolidated
|Balances at December 31, 2022||135,365,381||$||135 ||$||442,887 ||$||(17,030)||$||(697)||$||251 ||$||425,546 |
|Shares issued in connection with employee stock plans||283,856||1 ||203 ||- ||- ||- ||204 |
|Shares of Common Stock withheld related to net share settlement||(5,182)||- ||(57)||- ||- ||- ||(57)|
|Stock-based compensation||- ||- ||4,699 ||- ||- ||- ||4,699 |
|Unrealized gain on marketable securities||- ||- ||- ||- ||152 ||- ||152 |
|Foreign currency translation adjustment, net of tax||- ||- ||- ||- ||(42)||- ||(42)|
|Net loss||- ||- ||- ||(6,807)||- ||- ||(6,807)|
|Noncontrolling interest||- ||- ||16 ||- ||- ||(251)||(235)|
|Balances at March 31, 2023||135,644,055||$||136 ||$||447,748 ||$||(23,837)||$||(587)||$||- ||$||423,460 |
|Shares issued in connection with employee stock plans||697,670||- ||483 ||- ||- ||- ||483 |
|Proceeds from Employee Stock Purchase Plan||145,569||- ||966 ||- ||- ||- ||966 |
|Shares of Common Stock withheld related to net share settlement||(16,604)||- ||(111)||- ||- ||- ||(111)|
|Repurchase of shares||(125,782)||- ||(981)||- ||- ||- ||(981)|
|Stock-based compensation||-||- ||5,922 ||- ||- ||- ||5,922 |
|Unrealized loss on marketable securities||-||- ||- ||- ||(192)||- ||(192)|
|Foreign currency translation adjustment, net of tax||-||- ||- ||- ||(980)||- ||(980)|
|Net loss||-||- ||- ||(4,388)||- ||- ||(4,388)|
|Balances at June 30, 2023||136,344,908||$||136 ||$||454,027 ||$||(28,225)||$||(1,759)||$||- ||$||424,179 |
|Shares issued in connection with employee stock plans||373,649||- ||440 ||- ||- ||- ||440 |
|Shares of Common Stock withheld related to net share settlement||(17,665)||- ||(149)||- ||- ||- ||(149)|
|Repurchase of shares||(1,155,229)||- ||(8,428)||- ||- ||- ||(8,428)|
|Stock-based compensation||- ||- ||5,758 ||- ||- ||- ||5,758 |
|Unrealized gain on marketable securities||- ||- ||- ||- ||15 ||- ||15 |
|Foreign currency translation adjustment, net of tax||- ||- ||- ||- ||165 ||- ||165 |
|Net loss||- ||- ||- ||(6,456)||- ||- ||(6,456)|
|Balances at September 30, 2023||135,545,663||$||136 ||$||451,648 ||$||(34,681)||$||(1,579)||$||- ||$||415,524 |
|(In thousands, except share data)|
|Accumulated other |
interest in consolidated
|Balances at December 31, 2021||133,749,663||$||126 ||$||423,625 ||$||(19,606)||$||897 ||$||343 ||$||405,385 |
|Exercise of stock options||493,267||8 ||356 ||- ||- ||- ||364 |
|Stock-based compensation||- ||- ||3,837 ||- ||- ||- ||3,837 |
|Foreign currency translation adjustment, net of tax||- ||- ||- ||- ||14 ||- ||14 |
|Net loss||- ||- ||- ||(2,021)||- ||- ||(2,021)|
|Noncontrolling interest||- ||- ||- ||- ||- ||(137)||(137)|
|Balances at March 31, 2022||134,242,930||$||134 ||$||427,818 ||$||(21,627)||$||911 ||$||206 ||$||407,442 |
|Shares issued in connection with employee stock plans||365,649||1 ||1,204 ||- ||- ||- ||$||1,205 |
|Shares of Common Stock withheld related to net share settlement||(6,908)||- ||(67)||- ||- ||- ||(67)|
|Stock-based compensation||- ||- ||3,934 ||- ||- ||- ||3,934 |
|Foreign currency translation adjustment, net of tax||- ||- ||- ||- ||(683)||- ||(683)|
|Net loss||- ||- ||- ||(598)||- ||- ||(598)|
|Noncontrolling interest||- ||- ||- ||- ||- ||(104)||(104)|
|Balances at June 30, 2022||134,601,671||$||135 ||$||432,889 ||$||(22,225)||$||228 ||$||102 ||$||411,129 |
|Shares issued in connection with employee stock plans||252,496||224 ||- ||- ||- ||224 |
|Shares of Common Stock withheld related to net share settlement||(5,028)||- ||(71)||- ||- ||- ||(71)|
|Stock-based compensation||- ||- ||4,359 ||- ||- ||- ||4,359 |
|Foreign currency translation adjustment, net of tax||- ||- ||- ||- ||(758)||- ||(758)|
|Net income||- ||- ||- ||1,666 ||- ||- ||1,666 |
|Noncontrolling interest||- ||- ||- ||- ||- ||(40)||(40)|
|Balances at September 30, 2022||134,849,139||$||135 ||$||437,401 ||$||(20,559)||$||(530)||$||62 ||$||416,509 |
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
Cytek Biosciences, Inc
Consolidated Statements of Cash Flows
| ||Nine months ended September 30,|
|Cash flows from operating activities:|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Depreciation and amortization||4,417 ||1,731 |
|Amortization of operating lease-right-of use assets||2,388 ||2,064 |
|Stock-based compensation||16,379 ||12,130 |
| Loss on disposal of property and equipment||7 ||— |
|Increase in accounts receivable allowance for credit losses||55 ||— |
|Provision for excess and obsolete inventory||798 ||462 |
|Gain on investments, accretion, and amortization, net||(5,265)||— |
|Interest expenses for accretion of the legal settlement liabilities||1,311 ||1,611 |
|Change in operating assets and liabilities:|
|Trade accounts receivable||(7,595)||(11,780)|
|Prepaid expenses and other assets||(2,336)||(15,035)|
|Trade accounts payable||10 ||2,770 |
|Accrued expenses and other liabilities||610 ||2,828 |
|Legal settlement liabilities||(374)||478 |
| Operating lease liabilities ||(2,154)||(1,408)|
|Deferred revenue||7,216 ||6,496 |
|Net cash used in operating activities||(4,231)||(18,424)|
|Cash flows from investing activities:|
|Purchases of marketable securities||(152,563)||— |
|Proceeds from maturities of marketable securities||78,000 ||— |
|Purchase of property and equipment||(3,148)||(3,218)|
|Acquisition of business||(44,896)||— |
|Purchase of intangible assets||(118)||(40)|
|Payment of investment||— ||(1,587)|
|Payment for additional investment in Cytek Japan||(235)||— |
|Net cash used in investing activities||(122,960)||(4,845)|
|Cash flows from financing activities:|
|Repayment of loan||(425)||— |
|Proceeds from Employee Stock Purchase Plan||966 ||765 |
|Payments for taxes related to net share settlement of equity awards||(317)||(138)|
|Proceeds from issuance of common stock under employee stock plans||1,127 ||1,036 |
|Payments for repurchase of shares||(9,409)||— |
|Net cash provided by (used in) financing activities||(8,058)||1,663 |
|Effect of exchange rate changes on cash, cash equivalents and restricted cash||(622)||(1,489)|
|Cash, cash equivalents and restricted cash:|
|Net decrease in cash, cash equivalents and restricted cash||(135,871)||(23,095)|
|Cash, cash equivalents and restricted cash at beginning of period||299,500 ||364,618 |
|Cash, cash equivalents and restricted cash at end of period||$||163,629 ||$||341,523 |
|Supplemental disclosure of cash flow information:|
|Cash paid for taxes||$||810 ||$||9,930 |
|Non-cash investing and financing activities:|
|Fixed asset purchases in accounts payable at period end||$||96 ||$||235 |
|Intangible asset in accrued expenses at period end||$||9 ||$||69 |
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
Cytek Biosciences, Inc.
Notes to consolidated financial statements
1. Description of business
Cytek Biosciences, Inc. (“Cytek” or the “Company”) is a leading cell analysis solutions company advancing the next generation of cell analysis tools by leveraging novel technical approaches. The Company has focused on becoming the premier cell analysis company through continued innovation that facilitates scientific advances in biomedical research and clinical applications.
The Company has successfully developed and manufactured its full spectrum flow cytometry platform (“instrument(s)” or “product(s)”). The Company believes its core instruments, the Aurora and Northern LightsTM systems, are the first full spectrum flow cytometers able to deliver high-resolution, high-content and high-sensitivity cell analysis by utilizing the full spectrum of fluorescence signatures from multiple lasers to distinguish fluorescent tags on single cells (“Full Spectrum ProfilingTM” or “FSPTM”). The Company’s FSP platform includes instruments, accessories, reagents, software, and services to provide a comprehensive and integrated suite of solutions for its customers.
On February 28, 2023, the Company completed the acquisition of the flow cytometry and imaging (“FCI”) business unit of Luminex Corporation ("Luminex"), including relating to the business of manufacturing, marketing, selling, servicing and maintaining Amnis® and Guava® instruments, and flow cytometry reagent products and services.
The Company was incorporated in the state of Delaware in December 2014 and is headquartered in Fremont, California with offices, manufacturing facilities and distribution channels across the globe.
2. Basis of presentation and summary of significant accounting policies
The Company has prepared the accompanying unaudited interim consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).
Principles of consolidation
The unaudited interim consolidated financial statements include the accounts of Cytek Biosciences, Inc., its wholly-owned subsidiaries, Cytek Limited (HK), Cytek Biosciences B.V. (Europe), Cytek (Shanghai) Biosciences Co., Ltd., Cytek Biosciences (Wuxi) Co., Ltd., Cytoville Biosciences Shanghai Co., Ltd., Cytek (Shanghai) Software Development Technology Co., Ltd., Cytek Japan Kabushiki Kaisha (“Cytek Japan”), Cytek Biosciences Ltd (UK), and Cytek Biosciences GmbH (Germany). All intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the Company’s unaudited interim consolidated financial statements and accompanying notes as of the date of the unaudited interim consolidated financial statements. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance. The Company operates and manages its business as one reportable and operating segment.
Foreign currency translation and transactions
The Company has determined that the functional and reporting currency for its operations across the globe is the functional currency of the Company’s international subsidiaries. Accordingly, all foreign balance sheet accounts have been translated into U.S. dollars using the rate of exchange at the respective balance sheet date. Components of the unaudited interim consolidated statements of operations and comprehensive income have been translated at the average exchange rate for the year or the reporting period. Translation gains and losses are recorded in accumulated other
comprehensive income as a component of stockholders’ equity. Gains or losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in the unaudited interim consolidated statements of operations and comprehensive income.
Cash, cash equivalents, and restricted cash
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value.
The Company’s cash and cash equivalents consist of money held in demand depositary accounts and money market funds. The carrying amount of cash and cash equivalents was $163.6 million and $299.5 million as of September 30, 2023 and December 31, 2022, respectively, which approximates fair value and was determined based upon Level 1 inputs. As of December 31, 2022, the $2.9 million of restricted cash which related to the Wuxi building purchase was released in April 2023. The money market account is valued using quoted market prices with no valuation adjustments applied and is categorized as Level 1. The Company limits its credit risk associated with cash and cash equivalents by maintaining its bank accounts at major and reputable financial institutions. The Company’s cash and cash equivalents balance exceeded the federally insured limit of $250,000 as of September 30, 2023.
The Company classifies restricted cash as current on the accompanying unaudited interim consolidated balance sheets based upon the term of the remaining restrictions.
The following is a summary of cash, cash equivalents and restricted cash on the consolidated balance sheets (in thousands):
|Cash||$||14,725 ||$||123,371 |
|U.S. Treasury||23,838 ||29,930 |
|Federal agency securities||- ||19,908 |
|Commercial paper||- ||5,955 |
|Money market funds||125,066 ||117,437 |
|Restricted cash||- ||2,899 |
|Total cash, cash equivalents and restricted cash as presented on the consolidated statements of cash flows||$||163,629 ||$||299,500 |
Available-for-sale investments. The Company's investments may consist of U.S. treasury and U.S. government agency securities, corporate notes and bonds, commercial paper, and money market funds. The Company has designated all investments as available-for-sale and, therefore, such investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss. The Company generally holds securities until maturity; however, they may be sold under certain circumstances including, but not limited to, when necessary for the funding of acquisitions and other strategic investments. Realized gains and losses on the sale of investments are recorded in interest and other income, net in the consolidated statements of operations. Investments with remaining maturities at date of purchase greater than 90 days and remaining maturities as of the reporting period less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments.
Equity Investment. The Company's investment consists of non-marketable equity investments in a privately held company. The Company’s non-marketable equity investments do not have readily determinable fair values. Therefore, the Company elects to apply the measurement alternative and record these investments at cost, less any impairment, plus or minus observable price changes in orderly transactions for identical or similar investments of the same issuer. Investment is included within other noncurrent assets on our consolidated balance sheets and adjustments to their carrying amounts are recorded in other income (expense), net in the consolidated statements of operations. There were no material events or circumstances impacting the carrying amount of our strategic investments during the three months ended September 30, 2023.
Trade accounts receivable, net
The Company’s accounts receivable consists principally of amounts due related to product sales of instrument systems and accessories, as well as installation and repair services. These receivables are generally due within 30 to 90 days of the period in which the corresponding sales occur and do not bear interest are classified as trade accounts
receivable, net on the consolidated balance sheets. Trade accounts receivable are reported at their estimated net realizable value.
Allowance for uncollectible receivables
The Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13, Financial Instruments - Credit Losses “), on December 31, 2022, which was retroactively applied as of the first day of fiscal year 2022, as further described within the section below titled Recently Adopted Accounting Pronouncements. This accounting standard requires companies to measure expected credit losses on financial instruments based on the total estimated amount to be collected over the lifetime of the instrument. Prior to the adoption of this accounting standard, the Company recorded incurred loss reserves against receivable balances based on current and historical information.
Expected credit losses for uncollectible receivable balances consider both current conditions and reasonable and supportable forecasts of future conditions. Current conditions considered include pre-defined aging criteria, as well as specified events that indicate the balance due is not collectible. Reasonable and supportable forecasts used in determining the probability of future collection consider publicly available macroeconomic data and whether future credit losses are expected to differ from historical losses.
The Company is not party to any off-balance sheet arrangements that would require an allowance for credit losses in accordance with this accounting standard.
The changes in the allowance for uncollectible receivables for the nine months ended September 30, 2023 were as follows (in thousands):
|Allowance for uncollectible receivables|
|Balance at December 31, 2022||$||102 |
|Utilization of allowance for uncollectible receivables||- |
|Provision for credit losses||55 |
|Balance at September 30, 2023||$||157 |
Inventories are stated at the lower of cost and net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based on an estimate of demand for products, potential obsolescence of technology, product life cycles, and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds its estimated selling price. These factors are impacted by market and economic conditions, technology changes, and new product introductions and require estimates that may include elements that are uncertain. The Company's estimates of forecasted demand are based upon analysis and assumptions including, but not limited to, expected product lifecycles, product development plans and historical usage by product. If inventory is written down, a new cost basis is established that cannot be increased in future periods.
Property and equipment, net
Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation is recorded using the straight-line method based on the estimated useful lives of the depreciable property or, for leasehold improvements, the remaining term of the lease, whichever is shorter. Assets not yet placed in use are not depreciated. The Company’s estimated useful lives of its property and equipment are as follows:
| ||Estimated Useful Lives|
|Furniture and fixtures||7 years|
|Laboratory equipment||5 years|
|Office and computer equipment||3 years|
|Leasehold improvements||Shorter of expected lease term or estimated useful life|
Upon sale or retirement of the assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized in the consolidated statement of operations and comprehensive loss. Expenditures for general maintenance and repairs are expensed as incurred.
Goodwill and intangible assets, net
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisition of entities are estimated by management based on the fair value of assets received. Intangible assets are amortized on a straight-line basis over the estimated useful lives. The Company’s estimated useful lives of its intangible assets are as follows:
|Estimated Useful Lives|
3 - 15 years
|FCI developed technology|
1 - 6 years
7 - 8 years
|Reagent licenses||7 years|
|IP license||5 years|
Accounting for Impairment of Long-Lived Assets
Long-lived assets with finite lives include property and equipment and acquired intangible assets. The Company evaluates long-lived assets, including acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds these estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group.
Goodwill and indefinite-lived intangible assets are not amortized but rather tested for impairment at least annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that impairment may exist. Goodwill impairment is recognized when the quantitative assessment results in the carrying value of the reporting unit exceeding its fair value, in which case an impairment charge is recorded to goodwill to the extent the carrying value exceeds the fair value, limited to the amount of goodwill. The Company did not recognize any impairment of goodwill for all periods presented.
Fair value of financial instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
The carrying amounts reflected in the unaudited interim consolidated balance sheets for cash and cash equivalents, trade accounts receivable, net, trade accounts payable and accrued expenses approximate their fair values.
The Company’s product revenue consists of sales of its instrument systems and accessories. The Company recognizes product revenue at the point in time when control of the product is transferred to the customer.
The Company’s service revenue primarily consists of post-warranty service contracts, installations and repairs, which are recognized over time. Post-warranty service contracts are recognized ratably over the term of the contract and installations and repair services are recognized as they are delivered to the customer.
Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Invoicing for products occurs upon delivery and payment terms are 30 to 90 days. Service contracts are invoiced upfront and payment terms are generally 30 days. For those arrangements that have terms greater than one year, any payments received upfront are for reasons other than financing. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods. Variable consideration is not material.
Certain of the Company’s sales contracts involve the delivery or performance of multiple products and services within contractually binding arrangements. The Company has determined these performance obligations qualify as distinct performance obligations, as the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer, and the Company’s promise to transfer the good or service is separately identifiable from other promises in the contract. For these arrangements that contain multiple performance obligations, the Company allocates transaction price based on the relative standalone selling price (“SSP”) method by comparing the SSP of each distinct performance obligation to the total value of the contract. The Company uses a range of amounts to estimate SSP for products and services sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs.
Sales, value-add and other taxes, collected from customers concurrent with revenue generating activities and remitted to governmental authorities are not included in revenue. Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and are included in cost of sales.
The Company recognizes revenue in certain circumstances before product delivery occurs (commonly referred to as bill-and-hold transactions). When the Company enters into bill-and-hold arrangements, the Company determines if the customer obtains control of the product by determining (a) the reason for the bill-and-hold arrangement; (b) whether the product was identified separately as belonging to the customer; (c) whether the product was ready for physical transfer to the customer; and (d) whether the Company was unable to utilize the product or direct it to another customer. For bill-and-hold arrangements, the associated product inventory is identified separately by the Company as belonging to the customer and is ready for physical transfer.
As of the nine months ended September 30, 2023, $2.8 million was included in revenue for products that had not shipped. As of the nine months ended September 30, 2022, the Company had $6.1 million of revenue included under bill-and-hold arrangements.
The Company’s standard arrangement for sales to end users is a purchase order or an executed contract. Revenue is recognized upon transfer of control of the product to the customer, which occurs at a point in time depending on the shipping terms.
The Company’s arrangements with its distributors include a purchase order. The purchase order is governed by terms and conditions set forth in the applicable distribution agreement. Revenue is recognized upon transfer of control of the products to the distributor, which occurs at a point in time depending on the shipping terms.
The Company’s service revenue primarily consists of post-warranty service contracts, installations and repairs, which are recognized over time. Post-warranty service contracts are recognized ratably over the term of the contract and installations and repair services are recognized as they are delivered to the customer. Service contracts are typically between three years. and
Contract liabilities consist of fees invoiced or paid by the Company’s customers for which the associated services have not been performed and revenue has not been recognized based on the Company’s revenue recognition criteria described above. Such amounts are reported as deferred revenue for service and customer deposits for instruments on the consolidated balance sheets. Deferred revenue that is expected to be recognized during the following 12 months is recorded as a current liability and the remaining portion is recorded as noncurrent.
Assurance-type product warranties
The Company provides a one-year assurance-type warranty that is included with the sale of its instruments. At the time revenue is recognized for the products, the Company establishes an accrual for estimated warranty expense based on historical data and trends of product reliability and costs of repairing and replacing defective products. The Company exercises judgment in estimating the expected product warranty costs, using data such as the historical repair costs. While management believes that historical experience provides a reliable basis for estimating such warranty cost, unforeseen quality issues or component failure rates could result in future costs in excess of such estimates, or alternatively, improved quality and reliability in the Company’s products could result in actual expenses that are below those currently estimated.
Research and development costs
Research and development costs are expensed as incurred. Research and development expenses to date consist primarily of salaries, benefits, stock-based compensation, independent contractor costs, laboratory supplies, equipment maintenance, materials expenses, and software license fees. Payments made prior to the receipt of goods or services to be used in research and development activities are recorded as prepaid expenses until the related goods or services are received.
The cost of advertising, marketing and media is expensed as incurred. For the three and nine months ended September 30, 2023, advertising, marketing and media expenses were $0.5 million and $2.7 million, respectively. For the three and nine months ended September 30, 2022, advertising, marketing and media expenses were $0.5 million and $1.6 million, respectively.
The Company maintains an equity incentive compensation plan under which incentive stock options and nonqualified stock options to purchase common stock, and restricted stock units for common stock, are granted to employees and non-employee consultants. Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. The fair value of stock options granted to employees is estimated using the Black-Scholes option pricing model. The Company records forfeitures as they occur. The weighted-average assumptions used in estimating the fair value of stock options granted during each of the periods presented are:
Expected Volatility—Expected volatility is estimated by studying the volatility of selected industry peers deemed to be comparable to the Company's business corresponding to the expected term of the awards.
Expected Term—Expected term represents the period that the Company's stock-based awards are expected to be outstanding and is determined using the simplified method.
Dividend Yield— The expected dividend yield is zero as the Company has never declared or paid cash dividends and has no current plans to do so in the foreseeable future.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero-coupon issued in effect at the time of grant for periods corresponding with the expected term of the option.
The Company accounts for income taxes under an asset and liability approach. Deferred income taxes comprise the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credit carryforwards measured by applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized.
The Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The
Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company’s policy for interest and penalties related to uncertain tax positions is to recognize interest and penalties, if any, in interest expense and other expense, respectively, in the accompanying consolidated statement of operations. Accrued interest and penalties, if any, are included in accrued expenses in the consolidated balance sheet.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and foreign jurisdictions. The U.S. state and foreign jurisdictions have statutes of limitations that generally range from three to five years. The Company’s federal, state and foreign income tax returns are subject to examination unless the statutes of limitations close. The Company is not currently under examination for federal, state, and foreign income tax purposes.
The Company intends to reinvest its undistributed earnings of its foreign operations. Following enactment of the 2017 Tax Cuts and Jobs Act (the "Tax Act"), the repatriation of cash to the United States is generally no longer taxable for federal income tax purposes. However, the repatriation of cash held outside the United States could be subject to applicable foreign withholding taxes and state income taxes. The Company may remit foreign earnings to the United States to the extent it is tax efficient to do so. It does not expect the tax impact from remitting these earnings to be material. The Company adopted this guidance on January 1, 2021 on a prospective basis, and the adoption did not have a material impact to the Company’s unaudited interim consolidated financial statements.
Net income (loss) attributable to common stockholders per share
Basic net income (loss) attributable to common stockholders per share and diluted net income (loss) attributable to common stockholders per share are computed using the weighted-average number of shares of common stock outstanding for the period. Net income (loss) per share attributable to common stockholders is calculated using the two-class method, which is an earnings allocation formula that determines net income (loss) per share for the holders of shares of the Company’s common stock and participating securities. The Company’s redeemable convertible preferred stock contains participation rights in any dividend paid by the Company and is deemed to be a participating security. The participating securities include a contractual obligation to participate in the income of the Company and are included in the calculation of net income (loss) per share in the periods in which net income (loss) is recorded.
Diluted net income (loss) attributable to common stockholders per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method. The Company allocates earnings first to preferred stockholders based on non-cumulative dividend rights if and when declared and then to common and preferred stockholders based on ownership interests. The weighted-average number of shares of common stock included in the computation of diluted net income (loss) attributable to common stockholders per share gives effect to all potentially dilutive common stock equivalents, including outstanding options and redeemable convertible preferred stock.
Common stock equivalents are excluded from the computation of diluted net loss attributable to common stockholders per share if their effect is antidilutive.
The Company uses the acquisition method of accounting under ASC 805, Business Combinations. Each acquired company’s operating results are included in the Company's consolidated financial statements starting on the date of acquisition. The purchase price is equivalent to the fair value of consideration transferred. Tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition are recorded at the acquisition date fair value. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed.
Amounts allocated to assets and liabilities are based upon fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to the identifiable intangible assets. Management makes estimates of fair value based upon assumptions believed to be reasonable and that of a market participant. These estimates are based on historical experience and information obtained from the management of the acquired companies and the estimates are inherently uncertain. The separately identifiable intangible assets generally include developed technology, customer relationships, trade names, and reagent licenses.
Recently adopted accounting pronouncements
There are no relevant recently issued accounting pronouncements that would materially impact the Company’s consolidated financial statements and related disclosures. There were no new accounting pronouncements adopted during the nine months ended September 30, 2023 that materially impacted the Company’s condensed consolidated financial statements and related disclosures.
3. Concentrations of credit risk and other risks and uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company maintains accounts in federally insured financial institutions in excess of federally insured limits. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held and of the money market funds in which these investments are made. The Company holds marketable securities with high credit ratings.
4. Revenue from contracts with customers
Disaggregation of revenue
The following table depicts the disaggregation of revenue by sales channel mix and customer mix as defined by the nature of workflows (in thousands):
|Three months ended September 30,||Nine Months Ended September 30,|
|Sales channel mix|
|Direct sales channel||$||36,916 ||$||30,204 ||$||100,223 ||$||94,725|
|Distributor channel||11,084 ||10,273 ||34,559 ||20,975 |
|Total revenue, net||$||48,000 ||$||40,477 ||$||134,782 ||$||115,700 |
| || || || |
|Customer mix|| || || || |
|Academia and government||$||20,118 ||$||18,983 ||$||55,721 ||$||48,796 |
|Biotechnology, pharmaceutical, distributor and contract research organizations||27,882 ||21,494 ||79,061 ||66,904 |
|Total revenue, net||$||48,000 ||$||40,477 ||$||134,782 ||$||115,700 |
Revenue by geographical markets is presented in Note 22, Geographic areas.
Remaining performance obligations
The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of September 30, 2023 (in thousands):
|Less than 1 year||Greater than 1 year||Total|
|Product revenue||$||1,006 ||$||- ||$||1,006 |
|Service revenue||22,041 ||14,958 ||36,999 |
|Total revenue||$||23,047 ||$||14,958 ||$||38,005 |
The following table provides information about receivables, deferred revenue from contracts with customers, and customer deposits (in thousands):
|Trade accounts receivable||$||55,402 ||$||48,864 |
|Contract liabilities:|| || |
|Deferred revenue||$||38,005 ||$||26,110 |
|Customer deposits, which are included in 'Other current liabilities'||1,645 ||1,555 |
|Total contract liabilities||$||39,650 ||$||27,665 |
The following provides a roll-forward of the contract liabilities (in thousands):
|Balance at December 31, 2021||$||17,889 |
|Revenue deferred||34,462 |
|Balance at December 31, 2022||$||27,665 |
|Revenue deferred||40,642 |
|Balance at September 30, 2023||$||39,650 |
5. Balance sheet details
The following table shows the components of inventory (in thousands):
|Raw materials||$||37,265 ||$||26,925 |
|Work in progress||11,932 ||4,897 |
|Finished goods||17,678 ||16,332 |
|Total inventories||$||66,875 ||$||48,154 |
Prepaid expenses and other current assets
The following table shows the components of prepaid expenses and other current assets (in thousands):
|Prepaid inventory||$||559 ||$||621 |
|Prepaid rent||423 ||293 |
|Prepaid insurance||1,055 ||1,466 |
|Prepaid income tax||2,578 ||2,080 |
|Prepaid VAT tax||760 ||- |
|Prepaid tradeshow||201 ||- |
|Other||1,960 ||2,687 |
|Other current assets:|
|Tax refund receivable||2,231 ||2,011 |
|Other||2,250 ||3,796 |
|Total prepaid expenses and other current assets||$||12,017 ||$||12,954 |
The following table shows the components of accrued expenses (in thousands):
|Accrued compensation and related benefits||$||13,690 ||$||13,911 |
|Professional service fees||775 ||1,276 |
|Purchases||2,248 ||2,457 |
|Product warranty||2,782 ||2,126 |
|Other||1,019 ||1,356 |
|Total accrued expenses||$||20,514 ||$||21,126 |
For the product warranty analysis refer to Note 20.
Other current liabilities
The following table shows the components of other current liabilities (in thousands):
|Other current liabilities:|
|Customer deposits||$||1,645 ||$||1,555 |
|Income tax payable||- ||246 |
|Sales and use tax payable||2,213 ||1,421 |
|2,879 ||2,931 |
|Current portion of loan||548 ||580 |
|Other||536 ||1,227 |
|Total other current liabilities||$||7,821 ||$||7,960 |
6. Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy (in thousands):
|Money market funds||$||125,066 ||$||125,066 ||$||- ||$||- |
|U.S Treasury||23,838 ||23,838 ||- ||- |
|Short-term investments:|| || || |
|U.S. Treasury||35,401 ||35,401 ||- ||- |
|Federal agency securities||47,347 ||- ||47,347 ||- |
|Commercial paper||41,644 ||- ||41,644 ||- |
|Total||$||273,296 ||$||184,305 ||$||88,991 ||$||- |
|U.S. Treasury||$||29,930 ||$||29,930 ||$||— ||- |
|Federal agency securities||19,908 ||- ||19,908 ||- |
|Commercial paper||5,955 ||- ||5,955 ||- |
|Money market funds||117,437 ||117,437 ||- ||- |
|Short-term investments:|| || |
|U.S. Treasury||9,786 ||9,786 ||- ||- |
|Federal agency securities||11,626 ||- ||11,626 ||- |
|Commercial paper||23,136 ||- ||23,136 ||- |
|Total||$||217,778 ||$||157,153 ||$||60,625 ||$||- |
The Company did not have any transfers of financial assets measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 for any of the periods presented.
The table above does not include the Company's investments in privately held equity securities. Non-marketable equity investments of $1.6 million are included within Other noncurrent assets on the consolidated balance sheet as of September 30, 2023.
The following tables summarize the Company's investments in available-for-sale securities by significant investment category reported as short-term as of September 30, 2023 (in thousands):
|September 30, 2023|
|Amortized Cost||Gross Unrealized Gains|
Gross Unrealized Loss
|Estimated Fair Value|
|U.S. Treasury||$||35,403 ||$||3 ||$||(4)||$||35,402 |
|Federal agency securities||47,357 ||12 ||(23)||47,346 |
|Commercial paper||41,644 ||- ||- ||41,644 |
|Total available-for-sale investments||$||124,404 ||$||15 ||$||(27)||$||124,392 |
The following table summarizes the contractual maturities of the Company's available-for-sale securities at September 30, 2023 (in thousands):
|September 30, 2023|
|Amortized Cost||Fair Value|
|Mature in less than one year||$||124,404 ||$||124,392 |
|Total||$||124,404 ||$||124,392 |
8. Property and equipment, net
The following table shows the components of property and equipment, net (in thousands):
|Laboratory equipment||$||8,900 ||$||4,777 |
|Leasehold improvements||3,582 ||3,481 |
|Building and land||6,541 ||5,553 |
|Construction in progress||218 ||178 |
|Office and computer equipment||1,210 ||890 |
|Furniture and fixtures||2,017 ||1,962 |
|Total property and equipment||22,468 ||16,841 |
|Less: accumulated depreciation||(5,053)||(3,159)|
|Property and equipment, net||$||17,415 ||$||13,682 |
Total depreciation expense for the three and nine months ended September 30, 2023 was $0.9 million and $2.0 million, respectively. Total depreciation expense for three and nine months ended September 30, 2022 was $0.4 million and $1.2 million, respectively.
On February 28, 2023, the Company completed the acquisition of the Luminex FCI business unit, including relating to the business of manufacturing, marketing, selling, servicing and maintaining Amnis and Guava branded instruments, and flow cytometry reagent products and services, for an aggregate cash consideration of $44.9 million.
The acquisition was accounted for as a business combination in accordance with ASC 805. The tangible and intangible assets acquired were recorded at estimated fair value on the acquisition date. The purchase price allocation is based upon preliminary valuations and estimates and assumptions which are subject to change within the purchase price allocation period, generally one year from the acquisition date.
During the three months ended September 30, 2023, we recorded the following changes as a result of measurement period adjustments to the fair value of the initial assets related to inventory, property and equipment, customer relationships and trade names as follows:
•Inventories decreased by $0.2 million
•Property and equipment increased by $1.4 million
•Customer relationships increased by $1.7 million
•Developed technologies decreased by a total $0.4 million
•Trade names increased by a total of $0.2 million
The measurement period adjustments noted above decreased goodwill by $2.7 million.
The Company identified the following areas as subject to change within the purchase price allocation period: intangible asset and inventory fair values recognized and measured in accordance with ASC 820, Fair Value Measurement, deferred income tax assets acquired and liabilities assumed are recognized and measured in accordance with
ASC 740 Income Taxes. The following table summarizes the preliminary estimated fair value of assets acquired and liabilities assumed at the date of the acquisition (in thousands):
|Fair value of assets acquired and liabilities assumed:|
|Property and equipment||3,040 |
|Prepaid expenses||70 |
|Customer Relationships||10,200 |
|Amnis ImageStream developed technology||8,900 |
|Guava easyCyte and Muse developed technology||140 |
|Amnis FlowSight and CellStream developed technology||20 |
|Amnis tradename||2,900 |
|Guava tradename||90 |
|Other current liabilities||(316)|
|Fair value of net assets acquired||$||44,896 |
The $6.3 million of goodwill arising from the acquisition is primarily attributed to significant time-to-market advantages, as the Company gained immediate access to Luminex’s FCI products, existing relationships and business infrastructure and Luminex’s knowledgeable and experienced FCI workforce. The goodwill is expected to be deductible for tax purposes. The Company is currently evaluating the amount of goodwill which is expected to be deductible and will finalize this amount in future periods. Management plans to integrate the acquired FCI business into its existing business structure, which is comprised of a single reportable segment and a single reporting unit.
Intangible assets identified for recognition separate from goodwill were those that satisfied either the contractual or legal criterion or the separability criterion in the accounting guidance. The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows:
|Fair Value||Useful life (years)|
|(In thousands, except for years)|
|Customer relationships||$||10,200 ||8|
|Amnis ImageStream Developed Technology||8,900 ||6|
|Guava easyCyte and Muse Developed Technology||140 ||2|
|Amnis FlowSight and CellStream Developed Technology||20 ||1|
|Amnis Tradename||2,900 ||15|
|Guava Tradename ||90 ||3|
The customer relationships intangible asset represents the fair value of the underlying relationships with Luminex’s FCI customers. The tradename intangible asset represents the fair value of brand and name recognition associated with the marketing of the acquired Luminex FCI product lines. The FCI developed technology intangible asset represents the fair value of access to certain imaging and microcapillary technologies.
The fair value of the intangible assets acquired were estimated using variations of the income approach. The fair value of the customer relationships intangible asset was determined based on the multi-period excess earnings method and the relief-from-royalty method was utilized to estimate the fair values of the tradename and FCI developed technology intangible assets. The key assumptions used in estimating the fair values of intangible assets included
forecasted financial information; customer retention rates; factors for technological obsolescence; royalty rates and discount rates. The cash flow projections were discounted using rates ranging from 29.0% to 39.0% The cash flows were based on estimates used to price the transaction, including market participant considerations, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.
All acquired intangibles are being amortized over their estimated useful lives using the straight-line method of amortization.
The fair value assigned to the assets acquired are based on reasonable assumptions and estimates that market participants would use. Actual results may differ from these estimates and assumptions.
The results of operations for the acquisition are included in the consolidated financial statements of the Company from the date of the acquisition. For the three and nine months ended September 30, 2023 $6.8 million and $18.8 million of the Company's revenue were attributable to the acquired business unit.
The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three and nine months ended September 30, 2023 and 2022 as if the acquisition had occurred as of January 1, 2022, after giving effect to certain purchase accounting and financing adjustments. These amounts are based on financial information of the acquired business unit and are not necessarily indicative of what the Company’s operating results would have been had the acquisition taken place on January 1, 2022:
|Three months ended September 30,||Nine months ended September 30,|
|Revenue||$||48,000 ||$||49,691 ||$||139,359 ||$||145,474 |
|Income (loss) before income taxes||(4,185)||339 ||(19,180)||(7,104)|
|Net Income (loss)||$||(6,456)||$||475 ||$||(17,170)||$||(4,471)|
Pro forma financial information is presented as if the operations of the acquired business unit had been included in the consolidated results of the Company since January 1, 2022 and gives effect to transactions that are directly attributable to the acquisition. Adjustments include additional depreciation and amortization expense related to the fair value of acquired property and equipment and intangible assets as if such assets were acquired on January 1, 2022. Transaction costs incurred by the Company related to the acquisition totaled approximately $1.5 million for the nine months ended September 30, 2023, respectively, which were expensed and recorded as a component of general and administrative expenses in the consolidated statement of operations.
10. Goodwill and intangible assets, net
The addition of goodwill for the nine months ended September 30, 2023 is discussed in Note 9.
The following table shows the components of intangible assets, net (in thousands):
|Patents and trademarks||$||579 ||$||534 |
|Tradename||3,769 ||700 |
|FCI developed technology||9,060 ||- |
|IP license||476 ||476 |
|Customer relationships||12,400 ||2,200 |
|Reagent license||1,800 ||1,800 |
|Total intangible assets||28,084 ||5,710 |
|Less: accumulated amortization||(3,792)||(1,379)|
|Intangible assets, net||$||24,292 ||$||4,331 |
Total amortization expense for the three and nine months ended September 30, 2023 was approximately $0.9 million and $2.4 million, respectively. Total amortization expense for the three and nine months ended September 30, 2022 was approximately $0.2 million and $0.6 million, respectively.
11. Legal settlement liability
On February 13, 2018, Becton, Dickinson, and Company (“BD”) filed a lawsuit against the Company alleging trade secret misappropriation and copyright infringement. On October 6, 2020, the Company entered into a Settlement, License and Equity Issuance Agreement with BD pursuant to which the Company and BD agreed to a mutual release of all claims against each other as of the date thereof (the “BD Agreement”). Additionally, BD granted Cytek a non-exclusive, irrevocable, perpetual, worldwide and non-transferrable license to certain BD patents and covenanted that it would not enforce or permit or encourage the enforcement of BD patents against Cytek or its affiliates in connection with the development, manufacture, use, importation, offer for sale or sale of its then-current instruments. In exchange, the Company agreed that Cytek and its affiliates would not dispute or challenge in a legal proceeding the validity, enforceability or scope of the applicable BD patent claims and agreed to make certain payments to BD, including (i) a one-time upfront payment of $2.0 million, (ii) a low single digit royalty payment for ten years, based on net sales of certain of its products, (iii) $6.0 million milestone payment upon the occurrence of a certain sales threshold, and (iv) a specified payment upon the closing of a change of control transaction, if any. The Company also issued 2,087,545 shares of the Company’s common stock to BD during the year ended December 31, 2020 in connection with the BD settlement. The Company achieved the sales milestone and made the milestone payment in the quarter ended December 31, 2021.
The Company separated the settlement agreement into two elements, the litigation settlement and future licensing rights. The Company could not readily determine the fair value of the litigation settlement of prior infringement claims between the Company and BD. Therefore, the Company applied the residual method and allocated the difference between the total present value consideration payable under the BD Agreement and the estimated fair value of the future licensing rights to the litigation settlement element. The Company determined the estimated fair value of the future licensing rights based on the relief from royalty method. The significant assumptions used were the market royalty rate estimated as a royalty rate that a market participant would pay to license the BD intellectual property, forecasted sales subject to the market royalty rate and the discount rate.
The patents in question were determined to have an average useful life of 18 months. Accordingly, beginning the third quarter of 2022, the remaining contractual payments will be classified as operating expenses as they are considered to be represented of deferred litigation settlement. The Company did not record any product cost of sales related to the royalty expense for the three and nine months ended September 30, 2023, and recorded $0.0 million and $0.8 million of product cost of sales related to royalty expense for the three and nine months ended September 30, 2022, respectively. The Company recorded $0.5 million and $1.3 million of interest expense for the three and nine months ended September 30, 2023, respectively, and $0.6 million and $1.6 million of interest expense for the three and nine months ended September 30, 2022, respectively, to accrete the present value discount of the payment streams over the payment period of ten years from the settlement date using the effective interest rate method. The Company made a one-time upfront payment and issued 2,087,545 shares of the Company’s common stock to BD during the year ended December 31, 2020. The Company recorded legal settlement liability on the consolidated balance sheets of $18.7 million and $17.8 million as of September 30, 2023 and December 31, 2022, respectively, and will record licensing expense in future periods.
The following table shows the components of the legal settlement liability (in thousands):
|Legal settlement liability||$||2,600 ||$||2,163 |
|Legal settlement liability||16,095 ||15,596 |
|Total legal settlement liability||$||18,695 ||$||17,759 |
On November 7, 2022, Cytek (Wuxi) Biosciences Co., Ltd, the Company’s China subsidiary (“Cytek Wuxi”), entered a fixed asset loan agreement with Bank of Communications, China. The loan is denominated in Chinese renminbi and collateralized by Cytek Wuxi's cash deposit to the bank. The deposit was in a separate account with Cytek Wuxi's name, but the use of such account is restricted. The Company presented the deposit as restricted cash on the audited consolidated balance sheets as of December 31, 2022 and unaudited interim consolidated balance sheets as of March 31, 2023. In April 2023, the restricted cash account was released. The total loan amount is $2.9 million and the loan term is five years. The current portion of the loan of $548,000 is included in other current liabilities. The fixed interest rate on the loan was 4.5% as of September 30, 2023.
13. Common stock
As of September 30, 2023, the Company has authorized 1,000,000,000 shares of common stock at $0.001 par value. Holders of common stock are entitled to one vote per share, and to receive dividends, only and if declared by the Board of Directors and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders, subordinate to the rights, preferences and privileges of any outstanding Preferred Stock with respect to dividends and in connection with a liquidation, winding up and dissolution of the Company. The holders have no preemptive or other subscription rights.
On July 16, 2021, the Board and the Company’s stockholders approved an amendment and restatement of the Company’s certificate of incorporation to effect a 1.3333-for-1 stock split of its common stock and redeemable convertible preferred stock, which became effective upon filing with the Secretary of State of the State of Delaware on July 16, 2021.
On July 16, 2021, the Board and the Company’s stockholders approved an amendment and restatement of the Company’s certificate of incorporation, which became effective immediately following the closing of the Company's initial public offering (“IPO”) and filing with the Secretary of State of the State of Delaware on July 27, 2021
On August 26, 2022, the Company filed with the SEC an automatic shelf registration statement on Form S-3ASR (File No. 333-267118) (the “Registration Statement”). In connection with the filing of the Registration Statement, the Company also entered into a sales agreement (the “2022 Sales Agreement”) with Piper Sandler & Co. (“Piper”) as sales agent to sell from time to time up to $150 million of the Company’s common stock through an “at-the-market” offering program as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
Pursuant to the terms of the 2022 Sales Agreement, the aggregate compensation payable to Piper is up to 3% of the gross proceeds from the sale of common stock sold by Piper pursuant to the 2022 Sales Agreement. Each party agreed in the 2022 Sale Agreement to provide indemnification and contribution against certain liabilities, including liabilities under the Securities Act, subject to the terms of the 2022 Sales Agreement. As of September 30, 2023, the Company has not made any sales of common stock pursuant to the 2022 Sales Agreement.
On May 17, 2023, the Board approved a program for the repurchase by the Company of up to an aggregate of $50 million of its outstanding common stock. During the three months ended September 30, 2023, the Company repurchased 1,155,229 shares of its outstanding common stock for a total cost of approximately $8.4 million at an average price per share of $7.42. During the nine months ended September 30, 2023, the Company repurchased 1,281,011 shares of its outstanding common stock for a total cost of approximately $9.4 million at an average price per share of $7.33. The repurchase program was used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. The repurchased shares of common stock were retired.
14. Stock-based compensation plan
As of September 30, 2023, the Company had three stock-based compensation plans (the “Plans”) which are described below.
2015 Equity Incentive Plan
In March 2015, the Board approved the 2015 Equity Incentive Plan (“2015 Plan”), which provided for the granting of stock options to employees, directors and consultants of the Company. As of the effective date of the 2021 Plan described below, the 2015 Plan was terminated and no further equity awards may be granted pursuant to the 2015 Plan. Outstanding stock options granted under the 2015 Plan will continue to be governed by the provisions of the 2015 Plan until expiration or exercise, whichever is earlier.
2021 Equity Incentive Plan
In July 2021, the Board approved the 2021 Equity Incentive Plan (the “2021 Plan”), which provides for the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock unit ("RSU") awards, performance awards, and other awards to employees, directors and consultants of the Company. The 2021 Plan became effective on July 22, 2021 in connection with the IPO. Upon the 2021 Plan’s effective date, there were 18,000,000 shares of the Company’s common stock reserved for issuance thereunder. On January 1 of each year commencing after the effective date of the IPO and continuing through and including January 1, 2031, the number of shares of the Company’s common stock reserved for issuance under the 2021 Plan will increase automatically by an amount equal to 4% of the number of shares of the Company’s common stock outstanding on the preceding December 31, unless the Company’s
Board of Directors elects to authorize a lesser number of shares prior to the applicable January 1. As of September 30, 2023, the total number of shares of common stock available for issuance under the 2021 Plan was 21,204,295 shares.
2021 Employee Stock Purchase Plan
In July 2021, the Board approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on July 22, 2021 in connection with the IPO. Upon the ESPP’s effective date, there were 2,000,000 shares of the Company’s common stock reserved for issuance thereunder. On January 1 of each year commencing after the effective date of the IPO and continuing through and including January 1, 2031, the number of shares of the Company’s common stock reserved for issuance under the ESPP will increase automatically by an amount equal to the lesser of (1) 1% of the number of shares of the Company’s common stock outstanding on the preceding December 31, (2) 5,000,000 shares and (3) a number of shares determined by the Board. During the nine months ended September 30, 2023, 145,569 shares were issued pursuant to purchases under the ESPP. As of September 30, 2023, the total number of shares of common stock available for issuance under the ESPP was 4,352,888 shares.
Stock option valuation assumptions
The Company estimates the fair value of each stock option grant on the date of grant using the Black-Scholes option pricing model. The model assumptions include expected volatility, expected term, dividend yield, and the risk-free interest rate. The expected volatility was based on the volatility of a group of similar entities. The Company derived expected term by using the “simplified” method (the expected term is determined as the average of the time-to-vesting and contractual life of the option), as the Company has limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior. The Company based the risk-free rate on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the option. The Company has never paid any dividends and does not anticipate paying dividends in the foreseeable future, and therefore used an expected dividend yield of zero in the valuation model.
The following table shows stock option activity during the periods indicated (in thousands except share and per share data):
Number of options outstanding
|Weighted-average exercise price||Weighted-average remaining contractual term|
|Aggregate intrinsic value|
|Balance as of December 31, 2022||7,578,635||$||7.76 ||7.42||$||37,200 |
|Options granted||1,295,948||10.09 ||- ||- |
|Options exercised||(911,407)||1.24 ||- ||- |
|Options forfeited||(337,754)||12.08 ||- ||- |
|Options expired||(97,257)||15.22 ||- ||- |
|Balance as of September 30, 2023||7,528,165||$||8.66 ||7.18||$||12,753 |
|Options exercisable as of September 30, 2023||4,533,451||$||6.75 ||6.38||$||11,643 |
The weighted-average grant date fair value of options granted during the three months ended September 30, 2023 was $4.91 and the company did not grant any stock options during the three months ended September, 2022. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2023 and 2022 was $6.64 and $8.14 per share, respectively.
There was $24.1 million and $31.6 million of unrecognized stock-based compensation expense related to unvested stock options as of September 30, 2023 and 2022, respectively. The unrecognized stock-based compensation expense is estimated to be recognized over a period of 2.12 years and 2.42 years as of September 30, 2023 and 2022, respectively.
The Company currently uses authorized and unissued shares to satisfy option exercises.
The aggregate intrinsic value is calculated as the difference between the exercise price and the estimated fair value of the Company’s common stock as of September 30, 2023.
The following table shows RSU awards activity during the periods indicated:
|Weighted-average grant date fair value per share||Weighted-average remaining contractual term (in years)||Aggregate intrinsic value (in thousands)|
|Unvested balance at December 31, 2022||1,169,508||$||13.36 ||1.59||$||11,941 |
|Granted||2,402,781||10.09 || || |
|Vested||(443,768)||12.22 || || |
|Forfeited||(313,399)||10.99 || || |
|Unvested balance at September 30, 2023||2,815,122|