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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 001-40592
________________________________________
Rapid Micro Biosystems, Inc.
(Exact name of registrant as specified in its charter)
23-9-22.jpg
________________________________________
Delaware20-8121647
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1001 Pawtucket Boulevard West, Suite 280
 Lowell, MA
(Address of Principal Executive Offices)
 01854
(Zip Code)
(978) 349-3200
(Registrant’s telephone number, including area code)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading symbol(s)Name of Exchange on which registered
Class A common stock, $0.01 par value per share
RPID
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 x No o
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 x No o
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 fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyxEmerging growth companyx
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 o No x
As of April 30, 2024, there were 37,552,287 shares of the registrant’s Class A common stock, par value $0.01, outstanding.
As of April 30, 2024, there were 5,309,529 shares of the registrant’s Class B common stock, par value $0.01, outstanding.


TABLE OF CONTENTS
Page
2

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:
our business strategy for our Growth Direct platform and systems;
our future results of operations and financial position, including our expectations regarding revenue, gross margin, operating expenses and ability to generate positive cash flow;
our expectations and assumptions related to our future funding requirements and available capital resources, which may be impacted by market uptake of our Growth Direct system, our management of inventory and supply chain, our capital expenditures, our research and development activities and the expansion of our sales, marketing, manufacturing and distribution capabilities;
our ability to maintain and expand our customer base for our Growth Direct platform and systems;
the effectiveness of enhancements to our sales force and our sales processes;
anticipated trends and growth rates in our business and in the markets in which we operate;
our research and development activities and prospective new features, products and product approvals;
our ability to anticipate market needs and successfully develop new and enhanced solutions to meet those needs, including prospective products;
our ability to hire and retain necessary qualified employees to grow our business and expand our operations;
our expectations regarding the potential impact of inflation and fluctuations in interest rates on our business and operating costs;
our ability to regain and remain in compliance with the listing requirements of the Nasdaq Global Select Market;
our expectations regarding the potential impact of ongoing conditions in the financial markets and banking system on our operations and financial results; and
our ability to adequately protect our intellectual property.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed under Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We caution you not to place undue reliance on forward-looking statements which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
3



SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties as part of your evaluation of an investment in our Class A common stock. The principal risks and uncertainties affecting our business include, but are not limited to, the following:
We have incurred significant losses since inception, we expect to incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability;
Our limited operating history makes it difficult to evaluate our future prospects and the risks and challenges we may encounter;
Our business depends on the commercial success of our Growth Direct platform, which may not be achieved or maintained;
Our operating results have fluctuated significantly in the past and will fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations;
We have in the past and may in the future fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could adversely affect our business, reputation and financial results and cause our stock price to decline;
If we cannot maintain the level of sales of our Growth Direct systems or the sales of our consumables and service contracts to existing customers declines, our future operating results would be adversely affected;
We may need to raise additional capital to fund our existing operations, improve our platform or develop and commercialize new products or expand our operations;
Our business relies heavily on establishing and maintaining our position in the market as a leading provider of automated microbial quality control, ("MQC"), testing;
We may not be successful in expanding our business with existing customers and driving adoption of our solutions with new customers;
The size of the markets and forecasts of market growth for automated MQC testing and other of our key performance indicators are based on a number of complex assumptions and estimates, and may be inaccurate;
New product development involves a lengthy and complex process and we may be unable to develop or commercialize products on a timely basis, or at all;
Our customers use our Growth Direct platform as part of their quality control workflow, which is subject to regulation by the U.S. Food and Drug Administration, ("FDA"), and other comparable regulatory authorities;
If we are unable to manage our inventory and support demand for existing and future products on the Growth Direct platform, our business could suffer;
We have limited experience in marketing and sales, and if we are unable to improve the effectiveness of our marketing and sales organization to adequately expand our business with new and existing customers and address our customers’ needs or to expand our customer base, our business may be adversely affected;
If we cannot compete successfully, we may be unable to increase or sustain our revenue, or achieve and sustain profitability;
We must develop new products, adapt to rapid and significant technological change and respond to introductions of new products by competitors to remain competitive;
Due to the significant resources required to enable access in new markets, we must make strategic and operational decisions to prioritize certain markets, products and services. We may expend our resources to access markets and develop products and services that do not yield meaningful revenue or we may fail to capitalize on markets, products or services that may be more profitable or with a greater potential for success;
4

The Growth Direct platform may contain undetected errors or defects and may not meet the expectations of our customers, which means our business, financial condition, results of operations and prospects could suffer;
Potential product liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that we may develop;
If we lose key management, cannot recruit qualified employees, directors, officers or other significant personnel or experience increases in our compensation costs, our business may be materially harmed;
If our primary manufacturing and development facility becomes damaged or inoperable or we are required to vacate our existing facility, our ability to conduct and pursue our manufacturing and development efforts will be jeopardized;
Our manufacturing operations are dependent upon third-party suppliers, including single-source suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business;
If we are unable to obtain and maintain sufficient intellectual property protection for our technology, including the Growth Direct platform, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be impaired;
Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time;
The market price of our Class A common stock has been and may continue to be volatile and fluctuate substantially, which could result in substantial losses for our stockholders;
If our Class A common stock is delisted from the Nasdaq Stock Market, the liquidity of our Class A common stock would be adversely affected and the market price of our common stock could decrease; and
We have been, and may continue to be, subject to the actions of activist shareholders or unsolicited acquisition proposals, which could cause us to incur substantial costs, divert management’s and the board’s attention and resources, and have an adverse effect on our business and stock price.
TRADEMARKS
Solely for convenience, our trademarks and trade names in this Quarterly Report on Form 10-Q are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.

INTERNET POSTING OF INFORMATION
We routinely post information that may be important to investors in the “Investors” section of our website at www.rapidmicrobio.com. We encourage investors and potential investors to consult our website regularly for important information about us. The contents of our website are not incorporated by reference in this Quarterly Report on Form 10-Q and shall not be deemed “filed” under the Exchange Act.
5

PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated balance sheets
(Unaudited)
(In thousands, except share and per share amounts)
March 31,
2024
December 31,
2023
Assets
Current assets:
Cash and cash equivalents$22,433 $24,285 
Short-term investments57,103 67,768 
Accounts receivable4,921 5,532 
Inventory20,418 19,961 
Prepaid expenses and other current assets3,285 2,869 
Total current assets108,160 120,415 
Property and equipment, net12,615 12,832 
Right-of-use assets, net5,988 6,240 
Long-term investments 2,911 
Other long-term assets684 770 
Restricted cash284 284 
Total assets$127,731 $143,452 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$1,164 $1,973 
Accrued expenses and other current liabilities7,049 9,907 
Deferred revenue6,234 5,974 
Lease liabilities, short-term1,153 1,132 
Total current liabilities15,600 18,986 
Lease liabilities, long-term5,916 6,214 
Other long-term liabilities272 263 
Total liabilities21,788 25,463 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Class A common stock, $0.01 par value; 210,000,000 shares authorized at March 31, 2024 and December 31, 2023; 37,483,559 shares and 37,099,909 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
375 371 
Class B common stock, $0.01 par value; 10,000,000 shares authorized at March 31, 2024 and December 31, 2023; 5,309,529 shares issued and outstanding at March 31, 2024 and December 31, 2023
53 53 
Preferred stock, $0.01 par value: 10,000,000 shares authorized at March 31, 2024 and December 31, 2023; zero shares issued and outstanding at March 31, 2024 and December 31, 2023
  
Additional paid-in capital547,300 546,051 
Accumulated deficit(441,707)(428,385)
Accumulated other comprehensive loss(78)(101)
Total stockholders’ equity105,943 117,989 
Total liabilities and stockholders’ equity$127,731 $143,452 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of operations
(Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended March 31,
20242023
Revenue:
Product revenue$3,713 $3,324 
Service revenue1,898 1,711 
Total revenue5,611 5,035 
Costs and operating expenses:
Cost of product revenue5,173 4,981 
Cost of service revenue1,961 1,844 
Research and development3,842 3,153 
Sales and marketing3,281 3,462 
General and administrative5,627 6,467 
Total costs and operating expenses19,884 19,907 
Loss from operations(14,273)(14,872)
Other income (expense):
Interest income, net983 1,003 
Other expense, net(29)(11)
Total other income, net954 992 
Loss before income taxes(13,319)(13,880)
Income tax expense3 7 
Net loss$(13,322)$(13,887)
Net loss per share — basic and diluted$(0.31)$(0.32)
Weighted average common shares outstanding — basic and diluted43,245,83542,812,580
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of comprehensive loss
(Unaudited)
(In thousands)
Three Months Ended March 31,
20242023
Net loss$(13,322)$(13,887)
Other comprehensive income:
Unrealized gain on investments, net of tax23 447 
Comprehensive loss$(13,299)$(13,440)
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of stockholders’ equity
(Unaudited)
(In thousands, except share amounts)
Class A
Common stock
Class B
Common stock
Additional
paid-in
capital
Accumulated
deficit
Accumulated
other
comprehensive
loss
Total
SharesAmountSharesAmount
Balances at December 31, 202337,099,909 $371 5,309,529 $53 $546,051 $(428,385)$(101)$117,989 
Issuance of Class A common stock under ESPP198,299 2 — — 166 — — 168 
Vesting of restricted stock units185,331 2 — — (2)— —  
Issuance of Class A common stock upon exercise of common stock options20 — — — — — — — 
Stock-based compensation expense— — — — 1,085 — — 1,085 
Net loss— — — — — (13,322)— (13,322)
Other comprehensive income— — — — — — 23 23 
Balances at March 31, 202437,483,559 $375 5,309,529 $53 $547,300 $(441,707)$(78)$105,943 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9

RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of stockholders’ equity
(Unaudited), continued
(In thousands, except share amounts)
Class A
Common stock
Class B
Common stock
Additional
paid-in
capital
Accumulated
deficit
Accumulated
other
comprehensive
loss
Total
SharesAmountSharesAmount
Balances at December 31, 202236,538,805 $366 5,553,379 $55 $540,775 $(375,918)$(1,109)$164,169 
Issuance of Class A common stock under ESPP125,536 1 — — 123 — — 124 
Vesting of restricted stock units96,303 1 — — (1)— —  
Restricted stock award liability accretion— — — — 341 — — 341 
Issuance of Class A common stock upon exercise of common stock options7,896 — — — 6 — — 6 
Stock-based compensation expense— — — — 1,243 — — 1,243 
Net loss— — — — — (13,887)— (13,887)
Other comprehensive income— — — — — — 447 447 
Balances at March 31, 202336,768,540 $368 5,553,379 $55 $542,487 $(389,805)$(662)$152,443 
The accompanying notes are an integral part of these condensed consolidated financial statements.
10

RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of cash flows
(Unaudited)
(In thousands)
Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net loss$(13,322)$(13,887)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense806 759 
Stock-based compensation expense1,085 1,243 
Provision for excess and obsolete inventory85 34 
Noncash lease expense305 297 
Accretion on investments(500)(586)
Other8 9 
Changes in operating assets and liabilities:
Accounts receivable611 (142)
Inventory(543)209 
Prepaid expenses and other current assets(415)367 
Other long-term assets (23)
Accounts payable(809)(4,141)
Accrued expenses and other current liabilities(3,095)(1,615)
Deferred revenue259 790 
Net cash used in operating activities(15,525)(16,686)
Cash flows from investing activities:
Purchases of property and equipment(585)(759)
Purchases of investments(4,380)(17,831)
Maturity of investments18,480 32,500 
Net cash provided by investing activities13,515 13,910 
Cash flows from financing activities:
Proceeds from issuance of Class A common stock - stock option exercise 7 
Proceeds from issuance of Class A common stock - employee stock purchase plan168 124 
Payments on finance lease obligations(10)(9)
Net cash provided by financing activities158 122 
Net decrease in cash, cash equivalents and restricted cash(1,852)(2,654)
Cash, cash equivalents and restricted cash at beginning of period24,569 27,348 
Cash, cash equivalents and restricted cash at end of period$22,717 $24,694 
The accompanying notes are an integral part of these condensed consolidated financial statements.
11

RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of cash flows, continued
(Unaudited)
(In thousands)
Three Months Ended March 31,
20242023
Supplemental disclosure of cash flow information
Cash paid for interest$9 $10 
Supplemental disclosure of non-cash investing activities
Purchases of property and equipment in accounts payable and accrued expenses$348 $154 
The accompanying notes are an integral part of these condensed consolidated financial statements.
12

RAPID MICRO BIOSYSTEMS, INC.
Notes to condensed consolidated financial statements
(Amounts in thousands, except share and per share amounts)
(Unaudited)
1. Nature of the business and basis of presentation
Rapid Micro Biosystems, Inc. (the “Company”) was incorporated under the laws of the State of Delaware on December 29, 2006. The Company develops, manufactures, markets and sells Growth Direct systems (“Systems”) proprietary consumables, laboratory information management system (“LIMS”) connection software, and services to address rapid microbial analysis used for quality control in the manufacture of pharmaceuticals, medical devices and personal care products. The Company’s technology uses a highly sensitive camera and the natural auto fluorescence of living cells to identify and quantify microbial growth faster and more accurately than the traditional method, which relies on the human eye. The Company currently sells to customers in North America, Europe and the Asia-Pacific region. The Company is headquartered in Lowell, Massachusetts.
Basis of presentation
These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries in Germany and Switzerland. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s audited consolidated financial statements for the year ended December 31, 2023. 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 Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2024 and the results of its operations and its cash flows for the three months ended March 31, 2024 and 2023. The financial data and other information disclosed in these notes related to the three months ended March 31, 2024 and 2023 are also unaudited. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period.
Liquidity
The Company has incurred recurring losses and net cash outflows from operations since its inception. The Company expects to continue to generate operating losses for the foreseeable future. The Company expects that its existing cash and cash equivalents and investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months following the date these unaudited interim condensed consolidated financial statements were issued.
2. Summary of significant accounting policies
Use of estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, calculating the standalone selling price for revenue recognition, the valuation of inventory, and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific and relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
13

There have been no significant changes to the Company's significant accounting policies during the three months ended March 31, 2024, as compared to those disclosed in Note 2 of the audited consolidated financial statements as of December 31, 2023 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Risk of concentrations of credit, significant customers and significant suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term and long-term investments and accounts receivable. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company maintains its cash and cash equivalents and investments with financial institutions that management believes to be of high credit quality. The Company has not experienced any other-than-temporary losses with respect to its cash equivalents and investments and does not believe that it is subject to unusual credit risk beyond the credit risk associated with commercial banking relationships.
Significant customers are those which represent more than 10% of the Company’s total revenue or accounts receivable balance at each respective balance sheet date. The following table presents customers that represented 10% or more of the Company’s total revenue:
Three Months Ended March 31,
20242023
Customer A19.4 %20.1 %
Customer B14.3 %27.0 %
33.7 %47.1 %
The following table presents customers that represented 10% or more of the Company’s accounts receivable:
March 31,December 31,
20242023
Customer B41.9 %16.4 %
Customer A13.5 %10.7 %
Customer C*21.4 %
Customer D*12.4 %
55.4 %60.9 %
____________________________
*– less than 10%
The Company relies on third parties for the supply and manufacture of certain components of its products as well as third-party logistics providers. There were no significant concentrations around a single third-party supplier, manufacturer, or logistics provider for the three months ended March 31, 2024 or 2023.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. At both March 31, 2024 and December 31, 2023, the Company held cash of $0.1 million in banks located outside of the United States.
Restricted cash
As of both March 31, 2024 and December 31, 2023, the Company was required to maintain guaranteed investment certificates of $0.3 million with maturities of three months to one year that are subject to an insignificant risk of changes in value. The guaranteed investment certificates are held for the benefit of the landlord in connection with operating leases which have remaining terms of greater than one year and are classified as restricted cash (non-current) on the Company’s consolidated balance sheets.
14

Software Development Costs
The Company accounts for software development costs for internal-use software under the provisions of ASC 350-40, “Internal-Use Software” (“ASC 350”). Accordingly, certain costs to develop internal-use computer software are capitalized, provided these costs are expected to be recoverable. There was $1.4 million of software development costs related to the Company's enterprise resource planning ("ERP") system capitalized in other long-term assets at both March 31, 2024 and December 31, 2023, net of accumulated amortization of $0.8 million and $0.7 million, respectively. These capitalized costs are being amortized on a straight-line basis over the initial subscription term of five years. For each of the three months ended March 31, 2024 and 2023, there was $0.1 million of amortization expense related to capitalized software development costs recorded in the condensed consolidated statements of operations.
Fair value measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. 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 that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s cash equivalents, short-term and long-term investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.
Product warranties
The Company offers a one-year limited assurance warranty on System sales, which is included in the selling price. The accrual for these warranty obligations is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. The following table presents a summary of changes in the amount reserved for warranty cost (in thousands):
Three Months Ended March 31,
20242023
Balance, beginning of period$689 $872 
Warranty provisions  
Warranty repairs (346)
Balance, end of period$689 $526 
Segment information
The Company determined its operating segment after considering the Company’s organizational structure and the information regularly reviewed and evaluated by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company has determined that its CODM is its Chief Executive Officer. The CODM reviews the financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources. On the basis of these factors, the Company determined that it operates and manages
15

its business as one operating segment, that develops, manufactures, markets and sells Systems and related LIMS connection software, consumables and services; and accordingly has one reportable segment for financial reporting purposes. Substantially all of the Company’s long-lived assets are held in the United States.
Revenue recognition
Remaining performance obligations
The Company does not disclose the value of remaining performance obligations for (i) contracts with an original contract term of one year or less, (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice when that amount corresponds directly with the value of services performed, and (iii) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied distinct service that forms part of a single performance obligation. The Company does not have material remaining performance obligations associated with contracts with terms greater than one year.
Contract balances from contracts with customers
Contract assets arise from customer arrangements when revenue recognized exceeds the amount billed to the customer and the Company’s right to payment is conditional and not only subject to the passage of time. The Company had $0.1 million in contract assets as of both March 31, 2024 and December 31, 2023, included in prepaid expenses and other current assets.
Contract liabilities represent the Company’s obligation to transfer goods or services to a customer for which it has received consideration (or the amount is due) from the customer. The Company has a contract liability related to service revenue, which consists of amounts that have been invoiced but that have not been recognized as revenue. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue and amounts expected to be recognized as revenue beyond 12 months of the balance sheet date are classified as non-current deferred revenue. The Company did not record any non-current deferred revenue as of March 31, 2024 or December 31, 2023. Deferred revenue was $6.2 million and $6.0 million at March 31, 2024 and December 31, 2023, respectively. Revenue recognized during the three months ended March 31, 2024 and 2023 that was included in deferred revenue at the prior period-end was $1.4 million and $1.0 million, respectively.
Disaggregated revenue
The Company disaggregates revenue based on the recurring and non-recurring nature of the underlying sale. Recurring revenue includes sales of consumables and service contracts. The Company considers these to be recurring revenues because customers typically place purchase orders on a periodic basis as they use their Growth Direct system(s) over time. These arrangements typically contain a single performance obligation and thus the entire consideration to which the Company is entitled is allocated entirely to that performance obligation. Non-recurring revenue includes sales of systems, LIMS connection software, validation services, and field services, and typically contains multiple performance obligations. The Company considers these to be non-recurring revenues because customers typically place single purchase orders for a bundle of products and services on a one-time or infrequent basis. For these arrangements, significant judgment is applied in identifying the distinct performance obligations, determination of the transaction price, transaction price allocation, and determination of standalone selling price for each of the distinct performance obligations.
The following table presents the Company’s revenue by the recurring or non-recurring nature of the revenue stream (in thousands):
Three Months Ended March 31,
20242023
Product and service revenue — recurring$3,743 $3,253 
Product and service revenue — non-recurring1,868 1,782 
Total revenue$5,611 $5,035 
16

The following table presents the Company’s revenue by customer geography (in thousands):
Three Months Ended March 31,
20242023
United States$2,149 $1,703 
Switzerland972 973 
Japan800 1,386 
Germany464 413 
All other countries1,226 560 
Total revenue$5,611 $5,035 
Advertising costs
Advertising costs are expensed as incurred and are included in sales and marketing expenses in the condensed consolidated statements of operations. Advertising costs were less than $0.1 million during each of the three months ended March 31, 2024 and 2023.
Stock-based compensation
The Company measures all stock-based awards granted to employees, officers and directors based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company issues stock-based awards with (i) service-based vesting conditions only and (ii) stock-based awards with both service-based and Company performance vesting conditions, and records the expense for these awards using the straight-line method. Forfeitures are accounted for prospectively as they occur.
The Company measures all restricted stock units granted to employees based on the common stock value on the date of grant. The purchase price of the restricted stock is the common stock value on the date of grant.
Recently issued accounting pronouncements
The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups ("JOBS") Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the newer revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The new standard requires enhanced disclosures about a public entity's reportable segments including more detailed information about a reportable segment's expenses. The amendments in this update apply to all public entities that are required to report segment information, and include those entities that have a single reportable segment. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. ASU 2023-09 provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.
17

3. Fair value of financial assets and liabilities
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):
Fair value measurements as of March 31, 2024
Level 1Level 2Level 3Total
Assets    
Cash equivalents$19,346 $ $ $19,346 
Short-term investments52,923 4,180  57,103 
$72,269 $4,180 $ $76,449 
Fair value measurements as of December 31, 2023
Level 1Level 2Level 3Total
Assets
Cash equivalents$20,306 $ $ $20,306 
Short-term investments62,625 5,143  67,768 
Long-term investments2,911   2,911 
$85,842 $5,143 $ $90,985 
During the three months ended March 31, 2024 and 2023, there were no transfers in or out of Level 3.
Valuation of short-term and long-term investments
U.S. Treasury bills and notes included in short-term and long-term investments were valued by the Company using quoted prices in active markets for identical securities, which represents a Level 1 measurement within the fair value hierarchy. The Company's certificates of deposit included in short-term and long-term investments were valued using quoted prices for similar assets in active markets (or identical assets in inactive markets), which represent a Level 2 measurement within the fair value hierarchy.
4. Investments
Short-term and long-term investments by investment type consisted of the following (in thousands):
March 31, 2024
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Short-term investments
Certificates of Deposit$4,192 $ $(11)$4,181 
U.S. Government Treasury Bills14,795  (6)14,789 
U.S. Government Treasury Notes38,194 3 (64)38,133 
$57,181 $3 $(81)$57,103 
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December 31, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Short-term investments
Certificates of Deposit$5,164 $ $(21)$5,143 
U.S. Government Treasury Bills16,184 9  16,193 
U.S. Government Treasury Notes46,536 42 (146)46,432 
$67,884 $51 $(167)$67,768 
Long-term Investments
U.S. Government Treasury Notes - Maturity Up To Two Years2,896 15  2,911 
$2,896 $15 $ $2,911 
5. Inventory
Inventory consisted of the following (in thousands):
March 31,December 31,
20242023
Raw materials$11,654 $12,873 
Work in process423 150 
Finished goods8,341 6,938 
Total$20,418 $19,961 
Raw materials, work in process and finished goods were net of adjustments to net realizable value of $0.7 million and $0.6 million as of March 31, 2024 and December 31, 2023, respectively.
6. Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
March 31,December 31,
20242023
Prepaid insurance$803 $1,282 
Contract asset94 51 
Deposits742 667 
Other receivables333 137 
Prepaid financing fees295 292 
Other1,018 440 
$3,285 $2,869 
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7. Property and equipment, net
Property and equipment, net consisted of the following (in thousands):
March 31,December 31,
20242023
Manufacturing and laboratory equipment$13,850 $13,750 
Computer hardware and software2,034 1,960 
Office furniture and fixtures589 589 
Leasehold improvements8,995 8,551 
Construction-in-process2,165 2,292 
27,633 27,142 
Less: Accumulated depreciation(15,018)(14,310)
$12,615 $12,832 

Depreciation and amortization expense related to property and equipment was $0.7 million for each of the three months ended March 31, 2024 and 2023.
8. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
March 31,December 31,
20242023
Accrued employee compensation and benefits expense$2,779 $4,808 
Accrued vendor expenses3,198 4,017 
Accrued warranty expense689 689 
Accrued taxes259 252 
Other124 141 
$7,049 $9,907 
9. Common stock and common stock warrants
As of both March 31, 2024 and December 31, 2023, the Company’s restated certificate of incorporation authorized the issuance of Class A and Class B common stock. Each share of Class A common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. The Company’s Class B common stock is non-voting. Class A and Class B common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of Preferred Stock. As of March 31, 2024, no cash dividends had been declared or paid.
As of March 31, 2024, the Company had reserved 24,147,346 shares of Class A common stock for the exercise of outstanding stock options and warrants, vesting of restricted stock units, the number of shares remaining available for grant under the Company’s 2021 Incentive Award Plan (see Note 10), the number of shares available for purchase under the Company’s Employee Stock Purchase Plan (see Note 10) and the conversion of Class B common stock.
20

As of both March 31, 2024 and December 31, 2023, outstanding warrants to purchase common stock consisted of the following:
Issuance dateContractual termBalance sheet
classification
Shares of
common stock
issuable upon
exercise of warrant
Weighted average
exercise price
(in years)
July 24, 201710Equity17,194$292.81 
April 12, 201810Equity30,000$1.00 
July 14, 2021 *10Equity975,109$1.46 
1,022,303
____________________________
*– In connection with the IPO, preferred stock warrants were automatically converted to Class A common stock warrants. The contractual term of the converted Class A common stock warrants remained consistent with the original term of the preferred stock warrants, with original issue dates between 2017-2020.
10. Stock-based compensation
2010 Stock Option and Grant Plan
The Company’s 2010 Stock Option and Grant Plan (the “2010 Plan”) provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards and other stock-based awards to employees, officers, directors and consultants of the Company.
Following the effectiveness of the Company's initial public offering ("IPO") in July 2021, no additional awards are being granted under the 2010 Plan and shares of existing outstanding options that were issued under the 2010 Plan and are forfeited or canceled will be available for grant under the 2021 Incentive Award Plan.
2021 Incentive Award Plan
In July 2021, the board of directors adopted, and the Company’s stockholders approved, the 2021 Incentive Award Plan (the “2021 Plan”). The 2021 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards. The 2021 Plan has a term of ten years. The aggregate number of shares of Class A common stock available for issuance under the 2021 Plan is equal to the sum of (i) 4,200,000 shares; (ii) any shares which are subject to the 2010 Plan awards that become available for issuance under the 2021 Plan; and (iii) an annual increase for ten years on the first day of each calendar year beginning on January 1, 2022, equal to the lesser of (A) 5% of the aggregate number of shares of Class A common stock outstanding on the last day of the immediately preceding calendar year and (B) such smaller amount of shares as determined by the board of directors. No more than 33,900,000 shares of Class A common stock may be issued under the 2021 Plan upon the exercise of incentive stock options. As of March 31, 2024, there were 4,738,976 shares available for issuance under the 2021 Plan.
The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees and directors:
Three Months Ended March 31,
20242023
Risk-free interest rate 4.1 %4.2 %
Expected term (in years)6.06.0
Expected volatility49.5 %47.8 %
Expected dividend yield0 %0 %
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Stock options
The following table summarizes the Company’s stock option activity since December 31, 2023:
Number of
shares
Weighted
average
exercise price
Weighted
average
remaining
contractual term
Aggregate
intrinsic value
(in years)(in thousands)
Outstanding as of December 31, 20236,530,511$2.59 7.12$ 
Granted 751,9200.95 
Exercised(20)0.75 
Expired(139,529)8.08 
Forfeited(31,707)1.28 
Outstanding as of March 31, 20247,111,175$2.31 7.28$263 
Options vested and expected to vest as of March 31, 20247,111,175$2.31 7.28$263 
Options exercisable as of March 31, 20244,003,111$2.60 6.09$180 
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s Class A common stock for those options that had exercise prices lower than such fair value.
The intrinsic value of stock options exercised during each of the three months ended March 31, 2024 and 2023 was less than $0.1 million.
The weighted average grant-date fair value per share of stock options granted during the three months ended March 31, 2024 and 2023 was $0.50 and $0.63, respectively.
Restricted stock units
Restricted stock unit grants to employees typically have a three-year service-based vesting term in which vesting occurs annually on the anniversary of the grant date. During the three months ended March 31, 2024, the Company granted restricted stock units with service-based vesting conditions only. The Company expenses the fair value of the restricted stock units over the expected vesting period and accounts for forfeitures prospectively as they occur.
The following table summarizes the Company's restricted stock units activity since December 31, 2023:
Number of
shares
Weighted
average
fair value
Unvested as of December 31, 20231,681,760$2.28 
Granted420,640$0.95 
Vested(263,175)$4.39 
Forfeited(16,341)$2.80 
Unvested as of March 31, 20241,822,884$1.66 
The weighted average grant-date fair value per share of restricted stock units granted during the three months ended March 31, 2024 and 2023 was $0.95 and $1.20, respectively.

2021 Employee Stock Purchase Plan
In July 2021, the board of directors adopted, and the Company’s stockholders approved, the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective in connection with the IPO of Class A common stock. The
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aggregate number of shares of Class A common stock available for issuance under the 2021 ESPP is equal to (i) 400,000 shares and (ii) an annual increase for ten years on the first day of each calendar year beginning on January 1, 2022, equal to the lesser of (A) 1% of the aggregate number of shares of Class A common stock outstanding on the last day of the immediately preceding calendar year and (B) such smaller amount of shares as determined by the board of directors. No more than 6,300,000 shares of Class A common stock may be issued under the 2021 ESPP.
Under the 2021 ESPP, eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15% of eligible compensation during an offering period. Generally, each offering period will be for 6 months as determined by the Company's board of directors. In no event may an employee purchase more than 100,000 shares per offering period based on the closing price on the first trading date of an offering period or the last trading date of an offering period, or more than $25,000 worth of stock during any calendar year. The purchase price for shares to be purchased under the 2021 ESPP is 85% of the lesser of the market price of the Company's common stock on the first trading date of an offering period or on any purchase date during an offering period (March 14 or September 14).
During the three months ended March 31, 2024, there were 198,299 shares of Class A common stock purchased under the 2021 ESPP. The Company recognized less than $0.1 million of expense related to the 2021 ESPP for each of the three months ended March 31, 2024 and 2023. As of March 31, 2024, 1,045,858 shares were available for future issuance under the 2021 ESPP.
The Company estimates the fair value of shares issued to employees under the 2021 ESPP using the Black-Scholes option-pricing model. The following weighted average assumptions were used in the calculation of fair value of shares under the 2021 ESPP at the grant date for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31,
20242023
Risk-free interest rate5.4 %4.7 %
Expected term (in years)0.50.5
Expected volatility49.4 %47.8 %
Expected dividend yield0 %0 %
2023 Inducement Plan

In May 2023, the board of directors adopted the 2023 Inducement Plan (the “Inducement Plan”) pursuant to which the Company reserved 330,000 shares of Class A common stock to be used exclusively for grants of equity-based awards to individuals who were not previously employees or directors of the Company as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of equity-based awards in the form of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and dividend equivalent rights. The Inducement Plan was adopted by the board of directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.

In May 2023, pursuant to the Inducement Plan, the Company granted inducement awards to the Company's Senior Vice President, Sales & Marketing, in the form of an option to purchase 220,000 shares of the Company's Class A common stock, with an exercise price per share of $0.83, and 110,000 restricted stock units. The option and restricted stock unit awards were granted as inducements material to the commencement of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

In February 2024, the Company amended its Inducement Plan to reserve an additional 225,000 shares of its Class A common stock. The amendment was adopted by the compensation committee of the board of directors, without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.

In March 2024, pursuant to the Inducement Plan as amended, the Company granted inducement awards to the Company's Vice President, Legal, in the form of an option to purchase 150,000 shares of the Company's Class A common stock, with an exercise price per share of $0.99, and 75,000 restricted stock units. The option and restricted stock unit awards were granted as inducements material to the commencement of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).
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As of March 31, 2024, no shares were available for future issuance under the Inducement Plan.
Stock-based compensation
Stock-based compensation expense was classified in the condensed consolidated statements of operations as follows (in thousands):
Three Months Ended March 31,
20242023
Cost of revenue$147 $174 
Research and development129 157 
Sales and marketing105 131 
General and administrative704 781 
Total stock-based compensation expense$1,085 $1,243 
As of March 31, 2024, total unrecognized compensation expense related to unvested stock options held by employees and directors was $3.8 million, which is expected to be recognized over a weighted average period of 1.8 years. Additionally, unrecognized compensation expense related to unvested restricted stock units held by employees and directors was $2.4 million, which is expected to be recognized over a weighted average period of 1.9 years.
11. Income taxes
During the three months ended March 31, 2024 and 2023, the pretax losses incurred by the Company, as well as the research and development tax credits generated, received no corresponding tax benefit because the Company concluded that it is more likely than not that the Company will be unable to realize the value of any resulting deferred tax assets. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance in the future.
The Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate, adjusted for the effect of discrete items arising in that quarter. The income tax provision was generated from operations in Germany and Switzerland.
The impact of such discrete items could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which primarily consist of net operating loss carryforwards. The Company has considered its history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. As a result, as of March 31, 2024 and December 31, 2023 the Company has recorded a full valuation allowance against its net deferred tax assets.
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal, state and international jurisdictions, where applicable. There are currently no pending tax examinations in the U.S., and the Company has not received notice of examination from any jurisdictions in the U.S.
12. Net loss per share
As of March 31, 2024, the Company had Class A common stock and Class B common stock. Both classes have the same rights to the Company’s earnings and neither of the shares have any prior or senior rights to dividends to other shares.
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Basic and diluted net loss per share was calculated as follows (in thousands, except share and per share amounts):
Three Months Ended March 31,
20242023
Numerator:
Net loss$(13,322)$(13,887)
Denominator:
Weighted average Class A common shares outstanding—basic and diluted 37,936,30637,259,201
Weighted average Class B common shares outstanding—basic and diluted 5,309,5295,553,379
Total shares for EPS—basic and diluted 43,245,83542,812,580
Net loss per share attributable to Class A common stockholders—basic and diluted $(0.31)$(0.32)
Net loss per share attributable to Class B common stockholders—basic and diluted $(0.31)$(0.32)
The Company’s potentially dilutive securities, which include stock options, restricted stock, restricted stock units, and common stock warrants, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:
March 31,
20242023
Options to purchase common stock7,111,1756,064,365
Unvested restricted common stock1,822,884286,324
Warrants to purchase common stock286,324874,714
Options to purchase common stock under ESPP11,5595,244
9,231,9427,230,647
13. Leases
The Company determines if an arrangement is or contains a lease at inception, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. Under ASC 842, a contract is or contains a lease when (i) explicitly or implicitly identified assets have been deployed in the contract and (ii) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company also considers whether its service arrangements include the right to control the use of an asset. See Note 2 for more information on the Company’s accounting policies for leases.
The Company leases office and manufacturing space under operating lease agreements that have initial terms ranging from approximately 8 to 10 years. The Company leases furniture under a financing lease agreement that has an initial term of approximately 8 years. Some leases include one or more options to renew, generally at the Company's sole discretion, with renewal terms that can extend the lease term by up to 5 years. In addition, certain leases contain termination options, where the rights to terminate are held by either the Company, the lessor, or both parties. Options to extend a lease are included in the lease term when it is reasonably certain that the Company will exercise the option. Options to terminate a lease are excluded from the lease term when it is reasonably certain that the Company will not exercise the option. The Company’s leases generally do not contain any material restrictive covenants or residual value guarantees.
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Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended March 31,
20242023
Cash paid for amounts included in measurement of lease liabilities:
Operating cash outflows - payments on operating leases$331 $316 
Operating cash outflows - payments on financing leases$9 $10 
Financing cash outflows - payments on financing leases$10 $9 
Supplemental balance sheet information related to the Company’s operating and financing leases is as follows (in thousands):
March 31, 2024December 31, 2023
Operating Leases:
Operating lease assets$5,732 $5,972 
Operating lease liabilities, short-term$1,109 $1,090 
Operating lease liabilities, long-term5,665 5,952 
Total operating lease liabilities$6,774 $7,042 
Financing Leases:
Office furniture and fixtures$386 $386 
Accumulated depreciation(130)(118)
Net property, plant and equipment$256 $268 
Lease liabilities, short-term$43 $42 
Lease liabilities, long-term252 262 
Total financing lease liabilities$295 $304 
Weighted-average remaining lease term - operating leases (in years):5.295.54
Weighted-average remaining lease term - financing leases (in years):5.255.50
Weighted-average discount rate - operating leases:3.8 %3.8 %
Weighted-average discount rate - financing leases:12.0 %12.0 %
The components of lease expense were as follows (in thousands):
Three Months Ended March 31,
20242023
Operating lease cost$305 $297 
Financing lease cost - amortization of right-of-use asset12 12 
Financing lease cost - interest on lease liability9 10 
Variable lease cost205 170 
Total lease cost$531 $489 
Operating lease cost is recognized on a straight-line basis over the lease term. Total rent expense, including the Company’s share of the lessors’ operating expenses, was $0.5 million for each of the three months ended March 31, 2024 and 2023. Financing lease cost includes asset amortization on a straight-line basis over the lease term and interest accretion calculated using the effective interest method. Total financing lease asset depreciation and interest expense was less than $0.1 million for each of the three months ended March 31, 2024 and 2023.
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Maturities of the Company’s operating lease liabilities as of March 31, 2024 were as follows (in thousands):
Operating Lease Maturities
2024 (excluding the three months ended March 31)$1,003 
20251,368 
20261,401 
20271,435 
20281,468 
Thereafter805 
Total lease payments$7,480 
Less imputed interest(706)
Total present value of lease liabilities$6,774 
Maturities of the Company’s financing lease liability as of March 31, 2024 were as follows (in thousands):
Financing Lease Maturities
2024 (excluding the three months ended March 31)$56 
202575 
202675 
202775 
202875 
Thereafter38 
Total lease payments$394 
Less imputed interest(99)
Total present value of lease liabilities$295 
14. Commitments and contingencies
Indemnification agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and certain of its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of March 31, 2024 and December 31, 2023.
Legal proceedings
The Company is not a party to any material litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to legal proceedings.
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15. Benefit plans
The Company maintains a defined contribution savings plan under Section 401(k) of the Code. This plan covers all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Matching contributions to the plan may be made at the discretion of the Company’s board of directors. The Company made contributions of $0.3 million and $0.2 million to the plan during the three months ended March 31, 2024 and 2023, respectively.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated condensed financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2023, included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 1, 2024 (the “2023 Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of the 2023 Form 10-K and this Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are an innovative life sciences technology company that enables the safe and efficient manufacture of pharmaceutical products through our rapid automated microbial quality control ("MQC"), detection platform. We develop, manufacture, market and sell the Growth Direct system and related proprietary consumables, and value-added services to enable rapid MQC testing in the manufacture of biologics, cell and gene therapies, vaccines, sterile injectables, and other healthcare products. Our system delivers the power of industrial automation to bioprocessing and pharmaceutical manufacturing firms by modernizing and digitizing their MQC operations. Our Growth Direct platform, developed with over 15 years of active feedback from our customers, was purpose-built to meet the growing demands posed by the increasing scale, complexity, and regulatory scrutiny confronting global pharmaceutical manufacturing. Our Growth Direct platform comprises the Growth Direct system, optional laboratory information management system ("LIMS") connection software (which the majority of our customers purchase) and other software, proprietary consumables, and comprehensive field service, validation services and post-warranty service contracts. Once embedded and validated in our customers’ facilities, our Growth Direct platform provides for recurring revenues through ongoing sales of consumables and service contracts.
Our technology fully automates and digitizes the process of pharmaceutical MQC and is designed to enable our customers to perform this critical testing process more efficiently, accurately, and securely. Our Growth Direct platform accelerates time to results by 50% or more compared to the traditional method, and reduces MQC testing to a simple two-step workflow, eliminating up to 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers. We seek to establish the Growth Direct as the trusted global standard in automated MQC by delivering the speed, accuracy, security, and data integrity compliance that our customers depend on to ensure patient safety and consistent drug supply.
Since inception, we have devoted a majority of our resources to designing, developing, and building our proprietary Growth Direct platform and associated products, launching our Growth Direct platform commercially, advancing our technological capabilities, expanding our sales and marketing infrastructure to grow our sales, building a global customer support team to deliver our value-added services, investing in robust manufacturing and supply chain operations to serve our customers globally, and providing general and administrative support for these operations. To date, we have funded our operations primarily with proceeds from sales of redeemable convertible preferred stock, borrowings under loan agreements, revenue from products, services and contracts, and proceeds from our IPO, as well as our cost-reimbursement/cost sharing contracts with the U.S. Department of Health and Human Services Biomedical Advanced Research & Development Authority ("BARDA").
Since our inception, we have incurred net losses in each year. We generated revenue of $5.6 million and $5.0 million for the three months ended March 31, 2024 and 2023, respectively, and incurred net losses of $13.3 million and $13.9 million for those same periods, respectively. As of March 31, 2024, we had an accumulated deficit of $441.7 million. We expect to continue to incur net losses in connection with our ongoing activities, including:
growing sales of our products in both the United States and international markets by further expanding our sales and marketing capabilities;
scaling our manufacturing and supply chain processes and infrastructure to meet growing demand for our products;
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investing in research and development to develop new products and further enhance our existing products;
protecting and building on our intellectual property portfolio; and
attracting, hiring and retaining qualified personnel.
Until such time as we can generate revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings and debt financings. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue our expansion plans including the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.
We believe that our cash and cash equivalents and investments as of March 31, 2024 enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the issuance date of the unaudited interim condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Liquidity and Capital Resources.”
Effects of inflation and interest rates
The current inflationary and interest rate environment could have a negative impact on our results of operations, cash flows and overall financial condition. We may experience inflationary pressures on significant cost categories including labor, materials and freight. We continue to monitor the impact of inflation on these costs in order to minimize its effects through productivity improvements and cost reductions. There can be no assurance, however, that our operating results will not be affected by inflation in the future. In addition, inflation and increased interest rates may decrease demand for our Growth Direct systems, as our customers may face economic uncertainty as a result. A decrease in demand for our products or increases in our costs, as well as any steps we may take to mitigate changes, could impact our overall growth. However, the related financial impact cannot be reasonably estimated at this time.
Factors affecting our performance
We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described under the section titled “Risk Factors” to this Quarterly Report on Form 10-Q and other factors as set forth in Part I, Item 1A of the 2023 Form 10-K.
New customer adoption of the Growth Direct platform
Our financial performance has largely been driven by, and a key factor to our future success will be, our ability to increase the global adoption of our Growth Direct platform in our key markets. We plan to drive global customer adoption through both direct and indirect sales and marketing organizations in North America, Europe, and the Asia-Pacific region.
We are focused on enhancing customer engagement and experience and improving the efficiency and effectiveness of our sales team. We are making targeted investments in these organizations and expect to continue to do so in the future. Examples of these investments include new tools and training for the sales organization, targeted marketing initiatives, expanding lead generation capabilities and hosting Growth Direct demonstrations and other customer-focused events.
Expansion within our existing customer base
There is an opportunity to broaden adoption and increase utilization of our Growth Direct platform throughout our existing customers' organizations as these customers purchase more systems. These additional systems will allow our existing customers to convert more of their test volume at existing locations, to support multiple locations, to meet redundancy requirements, or to increase capacity. As of March 31, 2024, approximately 40% of our customers have purchased Growth Direct systems for multiple sites, and approximately 55% of our customers have purchased multiple Growth Direct systems. Increased utilization amongst existing customers can also occur as customers advance through the Growth Direct platform adoption cycle, from early validation of initial applications to validation and conversion of
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multiple applications on the Growth Direct platform, or as the result of new product approvals or increases in their manufacturing volumes for existing products.
Innovating and launching new products on the Growth Direct platform
We believe the depth, scalability and robust capabilities of our Growth Direct platform allow us to address key opportunities and challenges facing MQC testing in the pharmaceutical industry. As an innovative leader in automated MQC testing, we intend to invest in further enhancements in our existing Growth Direct platform as well as end-to-end workflow solutions in our core market. We plan to further invest in research and development to support the expansion of our Growth Direct platform through development and launch of new applications to capture greater share of customer testing volume, new product formats to broaden our ability to serve different market segments and launch of new products and technologies to address adjacent segments of the overall MQC workflow. We plan to continue to hire employees with the necessary scientific and technical backgrounds to enhance our existing products and help us introduce new products to market. We expect to incur additional research and development expenses as a result. By expanding and continuously enhancing the Growth Direct platform, we believe we can drive incremental revenue from existing clients as well as broaden the appeal of our solutions to potential new customers.
Revenue mix
Our revenue is derived from sales of our Growth Direct systems, our LIMS connection and other software, proprietary consumables, and services. Growth Direct system revenue involves a capital selling process and tends to be somewhat concentrated within a relatively small (but varied) group of customers each year, so it is subject to variability from quarter to quarter.
Gross margin improvement
The majority of our customers are large global pharmaceutical manufacturers and contract development and manufacturing organizations, or CDMOs. In order to meet the expectations of our customers, we have made significant investments to build infrastructure and develop capabilities in areas such as procurement, manufacturing, distribution, quality and after sales service. Given our current business scale, our revenues are not yet sufficient to fully cover these costs, impacting our current gross margin profile.
In order to improve our gross margins, we are actively targeting numerous areas including:

Reducing instrument and consumable product costs (materials and labor) through activities including strategic sourcing and product redesign;

Increasing product manufacturing efficiency through activities including increased throughput on our automated consumables manufacturing line and manufacturing process optimization; and

Increasing productivity and efficiency in our service organization.

At the same time, we also expect future revenues from both products and services to grow at rates significantly higher than the related costs to provide and support those products and services. As a result, we also expect increasing revenues from both products and services to contribute significantly to future gross margin expansion. We have experienced positive trends in gross margin, improving from (36)% to (27)% for the three months ended March 31, 2023 and 2024, respectively.
Key business metrics
We regularly review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe that the
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following metrics are representative of our current business; however, we anticipate these may change or be substituted for additional or different metrics as our business grows and evolves.
Three Months Ended March 31,Change
20242023Amount%
(dollars in thousands)
Systems placed:
Systems placed in period33— — %
Cumulative systems placed1441281612.5 %
Systems validated:
Systems validated in period32150.0 %
Cumulative systems validated1241051918.1 %
Product and service revenue — total$5,611 $5,035 $576 11.4 %
Product and service revenue — recurring$3,743 $3,253 $490 15.1 %

Growth Direct system placements
We consider a Growth Direct system to be “placed” upon transfer of control of the system to the customer, at which point the revenue for that system is recognized. We regularly review the number of Growth Direct systems placed and cumulative Growth Direct system placements in each period as a leading indicator of our business performance. Our revenue has historically been driven by, and in the future will continue to be impacted by, the rate of Growth Direct system placements as a reflection of our success selling and delivering our products. We expect our Growth Direct system placements to continue to grow over time as we increase penetration in our existing markets and expand into new markets.
The number of Growth Direct system placements and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system order volume and timing, and access to customer sites (including the timing of customer site construction activities). As a result, we expect to experience continued variability in our period-to-period number of Growth Direct system placements due to the aforementioned factors.
Validated systems
We regularly review the number of Growth Direct systems validated and cumulative Growth Direct systems validated in each period as indicators of our business performance. Management focuses on validated Growth Direct systems as a leading indicator of likely future recurring revenue as well as a reflection of our success supporting our customers in validating placed systems. We expect our validated Growth Direct systems to continue to grow over time as we increase our base of cumulative systems placed and then install and validate those systems. After a Growth Direct system is placed with a customer and installed, we work with the customer to validate the system, which typically takes anywhere from three to nine months. Once a validation has been completed, we generally expect our customers to transition from their legacy manual method to our automated method and begin regular utilization of consumables over a period of up to three months after the validation is completed. However, the timeline for such transition may be longer depending on the specific circumstances of each individual customer. In addition, in exceptional cases, we have reacquired Growth Direct systems from customers that were previously placed and, in some cases, previously validated. Our metrics showing cumulative systems placed and cumulative systems validated are not reduced to reflect these reacquired systems.
The number of validated Growth Direct systems and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system placement volume and timing, whether customers have previously validated Growth Direct systems within their site or network, access to customer sites, customer site readiness, availability of required customer personnel and the time to install and validate each individual system. As a result, we expect to experience continued fluctuations in our period-to-period number of Growth Direct systems validated due to the aforementioned factors.
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Recurring revenue
We regularly assess trends relating to our recurring revenue, which is the revenue from consumables and service contracts, based on our product offerings, our customer base and our understanding of how our customers use our products. Recurring revenue was 66.7% and 64.6% of our total revenue for the three months ended March 31, 2024 and 2023, respectively. Our recurring revenue as a percentage of the total product and service revenue will generally vary based upon the number of Growth Direct systems placed and the cumulative number of validated systems in the period, as well as other variables such as the volume of tests being conducted and the test application(s) being used on customers' Growth Direct systems.
Components of results of operations
Revenue
We generate revenue from sales of our Growth Direct system (including our LIMS connection and other software), consumables, validation services, service contracts, and field service. We primarily sell our products and services through direct sales representatives. The arrangements are noncancellable and nonrefundable after ownership passes to the customer.
Three Months Ended March 31, 2024Percentage
of total
revenue
Three Months Ended March 31, 2023Percentage
of total
revenue
(in thousands)(in thousands)
Product revenue$3,713 66.2 %$3,324 66.0 %
Service revenue1,898 33.8 %1,711 34.0 %
Total revenue$5,611 100.0 %$5,035 100.0 %
Product revenue
We derive product revenue primarily from the sale of our Growth Direct systems and related consumables as well as our LIMS connection software, which the majority of our customers purchase. As of March 31, 2024, we had placed 144 Growth Direct systems to over 40 customers globally, including 70% of the top twenty pharmaceutical companies as measured by revenue and the manufacturers of 21% of globally approved cell and gene therapies, including manufacturers of 86% of approved gene-modified autologous CAR-T cell therapies.
Growth Direct systems
Growth Direct system revenue is a non-recurring product revenue stream that we recognize as revenue upon transfer of control of the system to the customer. The Growth Direct system is fully functional for use by the customer upon delivery. Although we do not require our customers to use our installation and validation services, our customers typically elect to purchase those services from us. As such, transfer of control occurs at shipment or delivery depending on contractual terms.
We expect our Growth Direct system revenue to continue to grow over time as we increase system placements into our existing customers and markets and expand into new customers and markets.
Consumables
Our consumable revenue is a recurring product revenue stream comprised of two proprietary consumables to capture test samples for analysis on the Growth Direct system, an Environmental Monitoring, or EM, consumable, and a Water/Bioburden consumable, or W/BB, consumable. Both proprietary consumables support the growth-based compendial method for MQC testing mandated by global regulators and provide results that are comparable to traditional consumables. Our consumables are designed with features that enable automation on the Growth Direct system, with bar coding for tracking and data integrity, and physical characteristics for robotic handling, to support vision detection and prevent counterfeiting.
We expect consumable revenue to increase in future periods as our base of cumulative validated Growth Direct systems grows and those systems enter routine use and utilize our consumables on a recurring, ongoing basis.
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LIMS Connection Software
Our LIMS connection software is a non-recurring product revenue stream. Although optional, the majority of our customers elect to purchase this software, which allows Growth Direct systems to export result reports and securely link to a customer’s two-way LIMS connection software to completely eliminate manual data entry and drive productivity.
Service revenue
We derive service revenue from validation services, field service including installations, and service contracts sold to our customers. Other than revenue from service contracts, which is recurring service revenue, revenue from all other field services as well as validation services are non-recurring service revenue streams.
We offer our customers validation services (including related documentation) that enable them to replace their existing manual testing method and utilize their Growth Direct systems in compliance with relevant MQC regulations. Validation services are recognized as revenue over time as these services are provided to the customer.
We offer our customers service contracts that can be purchased after the expiration of the one-year assurance warranty that all of our customers receive with the purchase of a Growth Direct system. Under these contracts, they are entitled to receive phone support, emergency on-site maintenance support and preventative maintenance visits. These service contracts generally have fixed fees and a term of one year. We recognize revenue from the sale of service contracts over time as these services are provided over the respective contract term.
We also offer our customers field service which primarily consists of services provided by our field service engineers to install Growth Direct systems at customer sites, perform one-time paid field service, and provide preventative maintenance service during the one-year assurance warranty period. We recognize revenue from installation services, one-time paid field service, and preventative maintenance service during the assurance warranty period over time as these services are provided to the customer.
We expect service revenue to increase in future periods as the number of placed and validated Growth Direct systems grows and we are able to generate increasing non-recurring revenue from validation services and field service for newly placed systems and increasing recurring revenue from service contracts for validated systems.
Costs and operating expenses
Costs of revenue
Cost of product revenue primarily consists of costs for raw material parts and associated freight, shipping and handling costs, salaries and other personnel costs including stock-based compensation expense, contract manufacturer costs, scrap, warranty cost, inventory reserves, royalties, depreciation and amortization expense, allocated information technology and facility-related costs, overhead and other costs related to those sales recognized as product revenue in the period.
Cost of service revenue primarily consists of salaries and other personnel costs including stock-based compensation expense, travel costs, materials consumed when performing installations, validations and other services, allocated information technology and facility-related costs, costs associated with training, and other expenses related to service revenue recognized in the period.
Research and development
Research and development expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering and consultant services and other costs associated with our technology Growth Direct platform and products, which include:
employee-related expenses, including costs for salaries, bonuses and other personnel costs including stock-based compensation expense, for employees engaged in research and development functions;
the cost of developing, maintaining and improving new and existing product designs;
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the cost of hardware and software engineering;
research materials and supplies;
external costs of outside consultants engaged to conduct research and development associated with our technology and products; and
allocated information technology and facility-related costs, which include headcount-related costs for those functions as well as expenses for information technology systems and services, software, rent, facilities maintenance, and insurance as well as related depreciation and amortization.
Our research and development costs are expensed as incurred. We believe that our continued investment in research and development is essential to our long-term competitive position, and we expect these expenses to increase in future periods.
Sales and marketing
Sales and marketing expenses consist primarily of salaries, commissions, benefits and other personnel costs including stock-based compensation expense as well as costs relating to travel, consulting, public relations and allocated information technology and facility-related costs for our employees engaged in sales and marketing activities. We expect sales and marketing expenses to increase in future periods as the number of sales and marketing personnel grows and we continue to expand our geographic reach and capabilities, broaden our customer base and introduce new products.
General and administrative
General and administrative expenses consist primarily of salaries, bonuses and other personnel costs including stock-based compensation expense for our executive, finance, legal, human resources and general management employees, as well as director and officer insurance costs and professional fees for legal, patent, accounting, audit, investor relations, recruiting, consulting, regulatory, compliance, board of directors' fees and other services. General and administrative expenses also include direct and allocated information technology and facility-related costs. General and administrative expenses are expected to increase in future years as the number of administrative personnel grows to support increasing business size and complexity.
Other income (expense)
Interest income, net
Interest income, net is comprised primarily of interest income from investments.
Other expense, net
Other expense, net, primarily consists of other miscellaneous income and expense unrelated to our core operations.
Income tax expense
We generated significant taxable losses during each of the three months ended March 31, 2024 and 2023 and, therefore, have not recorded any U.S. federal or state income tax expense during those periods. However, we did record an immaterial amount of foreign income tax expense during each of those periods.
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Results of operations
Comparison of the three months ended March 31, 2024 and 2023
The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31,Change
20242023Amount%
(in thousands)
Revenue:
Product revenue$3,713 $3,324 $389 11.7 %
Service revenue1,898 1,711 187 10.9 %
Total revenue5,611 5,035 576 11.4 %
Costs and operating expenses:
Cost of product revenue5,173 4,981 192 3.9 %
Cost of service revenue1,961 1,844 117 6.3 %
Research and development3,842 3,153 689 21.9 %
Sales and marketing3,281 3,462 (181)(5.2)%
General and administrative5,627 6,467 (840)(13.0)%
Total costs and operating expenses19,884 19,907 (23)(0.1)%
Loss from operations(14,273)(14,872)599 (4.0)%
Other income (expense):
Interest income, net983 1,003 (20)(2.0)%
Other expense, net(29)(11)(18)163.6 %
Total other income (expense), net954 992 (38)(3.8)%
Loss before income taxes(13,319)(13,880)561 (4.0)%
Income tax expense(4)(57.1)%
Net loss$(13,322)$(13,887)$565 (4.1)%
Revenue
Product revenue increased by $0.4 million, or 11.7%, with this increase attributable to favorable increases in volume and average selling prices related to our consumables. We placed three systems in the first quarters of both 2024 and 2023.
Service revenue increased by $0.2 million, or 10.9%. The increase in service revenue was primarily due to increases in revenues related to validations and installations as well as service contracts due to an increase in the cumulative number of Growth Direct systems validated and under such contracts.
Costs and operating expenses
Costs of revenue
Cost of product revenue increased by $0.2 million, or 3.9%. The increase was driven primarily by costs associated with a higher volume of consumables partially offset by incremental cost as a result of the impact of the mix of consumables sold.
Cost of service revenue increased by $0.1 million, or 6.3%. This increase was primarily attributable to greater headcount-related costs for compensation and benefits due to hiring of staff, as well as incremental travel and material costs to support the higher number of validated systems at customer sites.
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Research and development
Three Months Ended March 31,Change
20242023Amount%
(dollars in thousands)
Research and development$3,842 $3,153 $689 21.9 %
Percentage of total revenue68.5 %62.6 %
Research and development expenses increased by $0.7 million, or 21.9%. This increase was primarily due to slightly higher headcount and higher third-party spend to support new product development activities.
Sales and marketing
Three Months Ended March 31,Change
20242023Amount%
(dollars in thousands)
Sales and marketing$3,281 $3,462 $(181)(5.2)%
Percentage of total revenue58.5 %68.8 %
Sales and marketing expenses decreased by $0.2 million, or 5.2%. This decrease was primarily the result of a lower variable compensation, recruiting fees and travel expense during the quarter. These reductions were partially offset by the impact of higher headcount due to hiring completed in 2023.
General and administrative
Three Months Ended March 31,Change
20242023Amount%
(dollars in thousands)
General and administrative$5,627 $6,467 $(840)(13.0)%
Percentage of total revenue100.3 %128.4 %
General and administrative expenses decreased by $0.8 million, or 13.0%. The decrease was largely attributable to a $0.6 million reduction in bonus expense. Bonus expense for the first quarter of 2023 included a portion of retention bonuses that were put into place in connection with a restructuring action we implemented in August 2022. This retention bonus program expired in the third quarter of 2023 and had no impact on the first quarter of 2024. Lower third-party legal fees and business insurance premiums also contributed to the decrease.
Other income (expense)
Interest income
Interest income, which was related to interest earned on our investments, remained flat for each of the three months ended March 31, 2024 and 2023.
Other expense
Other expense, which is comprised of miscellaneous expenses unrelated to our core business, remained flat for each of the three months ended March 31, 2024 and 2023.
Income tax expense
Income tax expense was less than $0.1 million for each of the three months ended March 31, 2024 and 2023. The expense is attributable to an income tax provision related to our German subsidiary.
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Liquidity and capital resources
Since our inception, we have incurred operating losses. To date, we have funded our operations primarily through proceeds from sales of redeemable convertible preferred stock, borrowings under loan agreements, revenue from sales of our products and services, and proceeds from our IPO.
We believe that our cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the date the condensed consolidated financial statements