SomaLogic, Inc. [SLGC] Filings

10-Q 1 slgc-20230331.htm 10-Q slgc-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-40090

SOMALOGIC, INC.

(Exact name of registrant as specified in its charter)


Delaware						85-4298912
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

2945 Wilderness Place

Boulder, Colorado 80301

(303) 625-9000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

SLGC

Nasdaq Capital Market

Warrants to purchase Common Stock

SLGCW

Nasdaq Capital Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☐

☒

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

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

As of April 28, 2023, there were approximately 187,945,300 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS


		Page

	Cautionary Note Regarding Forward-Looking Statements	1

	PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders' Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35

	Signatures	36

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical fact included in or incorporated by reference into this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words ““will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “pursue,” “should,” “target” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

These statements include, but are not limited to the following:

•the occurrence of any event, change or other circumstances, including the outcome of any legal proceedings that may be instituted against the Company;

•the ability to comply with the listing requirements of the Nasdaq;

•the risk of disruption, including in the Company’s information technology systems, to the Company’s current plans and operations;

•the ability to recognize the anticipated benefits of the Company’s business, which may be affected by, among other things, competition and the ability to grow and manage growth profitably and retain its key employees;

•costs related to the Company’s business;

•changes in applicable laws or regulations;

•the ability of the Company to raise financing in the future;

•the success, cost and timing of the Company’s product development, sales and marketing, and research and development activities;

•the ability to protect the Company’s intellectual property;

•the Company’s plans to engage in acquisition activities and the anticipated impact of such activities on the Company’s financial results;

•the impact of the procurement and budgetary cycles of customers;

•the Company’s ability to obtain and maintain regulatory approval for its products, and any related restrictions and limitations of any approved product;

•the Company’s ability to maintain existing license agreements and manufacturing arrangements;

•the Company’s ability to attract or retain sales and distribution partners;

•the Company’s ability to compete with other companies currently marketing or engaged in the development of products and services that serve customers engaged in proteomic analysis, many of which have greater financial and marketing resources than the Company;

•the size and growth potential of the markets for the Company’s products, and the ability of each to serve those markets, either alone or in partnership with others;

•the Company’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•the ability to use net operating losses and certain other tax attributes; and

•the Company’s financial performance.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company will not and does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

SomaLogic, Inc.
Condensed Consolidated Balance Sheets
Unaudited

(in thousands, except share data)


	March 31, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	438,509	$	421,830
Investments	62,061		117,758
Accounts receivable, net	25,585		17,006
Inventory	15,051		13,897
Deferred costs of services	1,181		1,337
Prepaid expenses and other current assets	4,666		9,873
Total current assets	547,053		581,701
Non-current inventory	6,985		4,643
Accounts receivable, net of current portion	9,048		9,284
Property and equipment, net of accumulated depreciation and amortization of $19,628 and $17,899 as of March 31, 2023 and December 31, 2022, respectively	19,706		19,564
Other long-term assets	4,349		5,083

Intangible assets	16,700		16,700
Goodwill	10,399		10,399
Total assets	$	614,240	$	647,374

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	22,676	$	16,794
Accrued liabilities	10,071		20,678
Deferred revenue	3,905		3,383
Other current liabilities	2,221		2,477

Total current liabilities	38,873		43,332
Warrant liabilities	3,160		4,213
Earn-out liability	—		15


Deferred revenue, net of current portion	31,469		31,732


Other long-term liabilities	5,428		5,524
Total liabilities	78,930		84,816
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding at March 31, 2023 and December 31, 2022	—		—
Common stock, $0.0001 par value; 600,000,000 shares authorized; 187,945,232 and 187,647,973 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	19		19
Additional paid-in capital	1,178,212		1,171,122
Accumulated other comprehensive loss	(164)		(513)
Accumulated deficit	(642,757)		(608,070)
Total stockholders’ equity	535,310		562,558
Total liabilities and stockholders’ equity	$	614,240	$	647,374

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SomaLogic, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
Unaudited

(in thousands, except share and per share amounts)


	Three Months Ended March 31,
		2023		2022
Revenue
Assay services revenue		$	18,419	$	18,800
Product revenue		1,186		453
Collaboration revenue		763		763
Other revenue		11		2,964
Total revenue		20,379		22,980
Operating expenses
Cost of assay services revenue		11,682		11,380
Cost of product revenue		634		272
Research and development		14,067		13,800
Selling, general and administrative		34,189		30,815
Total operating expenses		60,572		56,267
Loss from operations		(40,193)		(33,287)
Other income
Interest income and other, net		4,925		209

Change in fair value of warrant liabilities		1,053		12,640
Change in fair value of earn-out liability		15		16,462

Total other income		5,993		29,311
Net loss before income tax provision		$	(34,200)	$	(3,976)
Income tax provision		(2)		(3)
Net loss		$	(34,202)	$	(3,979)

Other comprehensive income (loss)
Net unrealized gain (loss) on available-for-sale securities		$	351	$	(652)
Foreign currency translation loss		(2)		(3)
Total other comprehensive income (loss)		349		(655)
Comprehensive loss		$	(33,853)	$	(4,634)

Net loss per share, basic and diluted		$	(0.18)	$	(0.02)
Weighted-average shares outstanding used to compute net loss per share, basic and diluted		186,524,473		182,050,468

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SomaLogic, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Unaudited

(in thousands, except share amounts)


	Three Months Ended March 31, 2023
	Common Stock			Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount







Balance at December 31, 2022	187,647,973	$	19			$	1,171,122	$	(513)	$	(608,070)	$	562,558
Issuance of Common Stock upon vesting of RSUs	185,863	—				—		—		—		—
Issuance of Common Stock upon exercise of options	111,396	—				172		—		—		172


Stock-based compensation	—	—				6,918		—		—		6,918

Impact of adoption of ASC 326	—	—				—		—		(485)		(485)
Net unrealized gain on available-for-sale securities	—	—				—		351		—		351
Foreign currency translation loss	—	—				—		(2)		—		(2)
Net loss	—	—				—		—		(34,202)		(34,202)
Balance at March 31, 2023	187,945,232	$	19			$	1,178,212	$	(164)	$	(642,757)	$	535,310


	Three Months Ended March 31, 2022
	Common Stock			Additional Paid-In Capital	Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount










Balance at December 31, 2021	181,552,241	$	18		$	1,110,991	$	(72)	$	(498,913)	$	612,024

Issuance of Common Stock upon exercise of options	624,685	—			1,242		—		—		1,242
Issuance of Common Stock for services	—	—			50		—		—		50

Stock-based compensation	—	—			8,627		—		—		8,627



Net unrealized loss on available-for-sale securities	—	—			—		(652)		—		(652)
Foreign currency translation loss	—	—			—		(3)		—		(3)
Net loss	—	—			—		—		(3,979)		(3,979)
Balance at March 31, 2022	182,176,926	$	18		$	1,120,910	$	(727)	$	(502,892)	$	617,309

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SomaLogic, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited

(in thousands)


	Three Months Ended March 31,
	2023		2022
Operating activities
Net loss	$	(34,202)	$	(3,979)
Adjustments to reconcile net loss to cash used in operating activities:
Stock-based compensation expense	7,183		8,671
Depreciation and amortization	1,754		755

Noncash lease expense	(47)		369
Change in fair value of warrant liabilities	(1,053)		(12,640)
Change in fair value of earn-out liability	(15)		(16,462)
Change in fair value contingent consideration	6		—
Amortization of premium (accretion of discount) on available-for-sale securities, net	(493)		77

Provision for expected credit losses	94		133
Cloud computing arrangement expenditures	(620)		(1,795)

Other	10		15
Changes in operating assets and liabilities:
Accounts receivable	(8,921)		(4,965)
Inventory	(3,496)		(1,760)
Deferred costs of services	156		462
Prepaid expenses and other current assets	1,096		(526)
Other long-term assets	—		(113)
Accounts payable	5,881		2,165
Deferred revenue	259		29,185
Accrued and other liabilities	(10,637)		(5,507)
Net cash used in operating activities	(43,045)		(5,915)
Investing activities
Purchases of property and equipment	(1,262)		(364)
Purchases of available-for-sale securities	—		(77,919)
Proceeds from maturities of available-for-sale securities	56,541		85,650
Net cash provided by investing activities	55,279		7,367
Financing activities

Proceeds from exercise of stock options and employee stock purchase plan	172		1,242
Net cash provided by financing activities	172		1,242
Effect of exchange rates on cash, cash equivalents and restricted cash	(7)		(10)
Net increase in cash, cash equivalents and restricted cash	12,399		2,684
Cash, cash equivalents and restricted cash at beginning of period	427,282		440,268
Cash, cash equivalents and restricted cash at end of period	$	439,681	$	442,952



Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment included in accounts payable	$	634	$	1,467
Operating lease assets obtained in exchange for lease obligations	—		4,134
Issuance of Common Stock for services	—		50

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	438,509		438,052
Restricted cash included in prepaid expenses and other current assets	547		—
Restricted cash included in other long-term assets	625		4,900
Total cash, cash equivalents and restricted cash at end of period	$	439,681	$	442,952

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements

Unaudited

Note 1 — Description of Business

Organization and Operations

SomaLogic, Inc. (“SomaLogic” or the “Company”) operates as a protein biomarker discovery and clinical diagnostics company that develops slow off-rate modified aptamers (“SOMAmers®”), which are modified nucleic acid-based protein binding reagents that are specific for their cognate protein, and offer proprietary SomaScan® services, which provide multiplex protein detection and quantification of protein levels in complex biological samples. The SOMAmers®/SomaScan® technology enables researchers to analyze various types of biological samples for protein biomarker signatures, which can be utilized in drug discovery and development. Biomarker discoveries from SomaScan® can lead to diagnostic applications in various areas of diseases including cardiovascular and metabolic disease, nonalcoholic steatohepatitis, and wellness, among others.

SomaLogic, Inc. was incorporated in Delaware on December 15, 2020 as a special purpose acquisition company (“SPAC”) under the name CM Life Sciences II Inc. (“CMLS II”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.

On September 1, 2021, we consummated a business combination (the “SPAC Merger”) wherein SomaLogic Operating Co. Inc. (“SomaLogic Operating”), a Delaware corporation formed on October 13, 1999, became a wholly-owned subsidiary of CMLS II. In connection with the closing of the SPAC Merger, we changed our name from CM Life Sciences II Inc. to SomaLogic, Inc.

Unless the context otherwise requires, the terms “we”, “us”, “our”, “SomaLogic" and “the Company" refer to SomaLogic, Inc. and its consolidated subsidiaries. See Note 4, Business Combinations, for more details of the SPAC Merger and, the presentation of historical amounts and balances after the SPAC Merger. Our Common Stock and warrants to purchase Common Stock are listed on the Nasdaq under the ticker symbols “SLGC” and “SLGCW”, respectively.

Other than information discussed herein, there have been no significant changes to our description of business disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements and accompanying notes include the accounts of SomaLogic and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2022 included in the 2022 Form 10-K.

These unaudited condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments considered necessary for a fair presentation of interim financial information, to present fairly our condensed consolidated financial position and our results of operations and cash flows. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period.

Certain reclassifications have been made to prior period amounts to conform to the current presentation.

Revisions of prior period consolidated financial statements

Capitalized costs incurred in relation to the development of software under hosting arrangements that are service contracts should be classified as operating activities in the statement of cash flows. We determined that the prior classification of these capitalized costs under purchases of property and equipment, net of proceeds from sales within investing activities in the condensed consolidated statement of cash flows was not material to the prior period condensed consolidated financial statements as a whole. The prior period’s condensed consolidated statement of cash flows has

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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements

Unaudited

been revised to reflect the proper classification of capitalized costs in the accompanying condensed consolidated financial statements as follows:


	Three Months Ended March 31, 2022
(in thousands)	As Previously Reported		Reclassification		Revised
Operating Activities
Cloud computing arrangement expenditures	$	—	$	(1,795)	$	(1,795)
Net cash used in operating activities	$	(4,120)	$	(1,795)	$	(5,915)

Investing Activities
Purchases of property and equipment, net of proceeds from sales	(2,159)		1,795		(364)
Net cash provided by investing activities	$	5,572	$	1,795	$	7,367

Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment included in accounts payable	$	905	$	562	$	1,467

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition, net realizable value of inventory, intangible asset valuations, and contingent consideration valuations. We base our estimates on current facts, historical and anticipated results, trends, and other relevant assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates, and such differences could be material to our consolidated financial position and results of operations.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially expose us to concentrations of credit risk consist principally of cash and cash equivalents, investments, and accounts receivable. We do not require collateral or other security related to our receivables. Our cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions may, at times, exceed federally insured limits.

Significant customers are those that represent more than 10% of our total revenues or gross accounts receivable balances for the periods in the condensed consolidated statements of operations and comprehensive loss and as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenues and gross accounts receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:


	Accounts Receivable			Revenue
	March 31, 2023	December 31, 2022	Three months ended March 31,
				2023	2022
Customer A	26%	11%		45%	35%
Customer B	*	*		10%	*
Customer C	38%	51%		*	13%

* less than 10%

International sales entail a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection. Customers outside the United States collectively represent 66% and 44% of our revenues for the three months ended March 31, 2023 and 2022, respectively. Customers outside of the United States collectively represented 41% and 23% of our gross accounts receivable balance as of March 31, 2023 and December 31, 2022, respectively.

Certain components included in our products require customization and are obtained from a single source or a limited number of suppliers.

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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements

Unaudited

Business Combination

We account for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. A business combination is one that combines inputs and processes to create outputs, and where substantially all of the fair value of assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets. Identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities assumed is recorded as goodwill. Acquisition related costs are expensed as incurred and included in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. See Note 4, Business Combinations, for additional details.

Contingent Consideration

Contingent consideration arrangements represent a promise to deliver Common Stock and/or cash to former owners of an acquired business after the acquisition if certain specified events occur or conditions are met in the future are classified as liabilities and recognized at fair value at the acquisition date and at each subsequent reporting period. The contingent consideration liabilities contractually due beyond 12 months are recorded in other long-term liabilities on the condensed consolidated balance sheets. Subsequent changes in fair value are recorded in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. See Note 4, Business Combinations, for additional details.

Accounts Receivable and Allowance for Expected Credit Losses

Effective January 1, 2023, we adopted the requirements of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), along with the subsequently issued guidance amending and clarifying various aspects of ASU 2016-13, using the modified retrospective method of adoption. In accordance with that method, the comparative periods’ information continues to be reported under the relevant accounting guidance in effect for that period. For the current period, the standard replaces the existing incurred credit loss model with the current expected credit losses model for financial instruments, including accounts receivable, through a cumulative-effect adjustment to accumulated deficit as of the beginning of the first reporting period in which the guidance is effective.

We are exposed to credit losses primarily through sales of products and services and recognize an allowance for expected credit losses on accounts receivable in an amount equal to the current expected credit losses. The estimation of the allowance for expected credit losses is based on an analysis of historical loss experience, a review of the current aging status of receivables, assessments of current and estimated future economic and market conditions, and assessments of specific customer accounts to be considered at risk or uncollectible. We write off accounts receivable against the allowance for expected credit losses when we determine a balance is uncollectible and cease collection efforts. We did not write off any material accounts receivable balances during the periods ended March 31, 2023 and 2022.

As of March 31, 2023, we also recorded a long-term receivable for guaranteed fixed minimum royalties net of a discount related to a significant financing component. The related interest income is recognized over the term of the agreement on an effective interest rate basis.

Accounts receivable, net consisted of the following:


(in thousands)	March 31, 2023		December 31, 2022
Accounts receivable	$	35,363	$	26,441
Less: allowance for expected credit losses	(730)		(151)
Accounts receivable, net	$	34,633	$	26,290
Accounts receivable, net (current)	$	25,585	$	17,006
Accounts receivable, net of current portion	$	9,048	$	9,284

A rollforward of the allowance for expected credit losses balance for the three months ended March 31, 2023 is as follows:

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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements

Unaudited


(in thousands)
Allowance for doubtful accounts, December 31, 2022	$	(151)
Impact of adopting ASU 2016-13	(485)
Allowance for expected credit losses, January 1, 2023	(636)
Provision for credit losses	(94)
Write offs, net	—
Allowance for expected credit losses, March 31, 2023	$	(730)

Inventory

Inventory is stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Cost is determined using a standard cost system, whereby the standard costs are updated periodically to reflect current costs. We estimate the recoverability of inventory by referencing estimates of future demands and product life cycles, including expiration. We periodically analyze our inventory levels to identify inventory that may expire prior to expected usage, no longer meets quality specifications, or has a cost basis in excess of its estimated net realizable value and record a charge to cost of revenue for such inventory as appropriate. The value of inventory that is not expected to be used within 12 months of the balance sheet date is classified as non-current inventory in the accompanying condensed consolidated balance sheets.

In-process Research and Development

Acquired in-process research and development (“IPR&D”) relates to substantial research and development efforts that are incomplete at the acquisition date. IPR&D intangible assets are considered indefinite-lived until the completion or abandonment of the associated research and development efforts. During the development phase, these assets are not amortized but are tested for impairment annually during the fourth quarter of the year or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Once the IPR&D activities are completed, the intangible asset is amortized over its useful life on a straight-line basis.

Goodwill

Goodwill is the difference between the total consideration paid in a business combination and the fair value of the net of identifiable assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment on an annual basis during the fourth quarter of the year and in interim periods if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. All of our goodwill is assigned to our one reporting unit.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. For the quantitative goodwill impairment test, the fair value of the reporting unit is compared to its carrying value and an impairment is recorded for the excess carrying value over fair value, not to exceed the carrying amount of goodwill. There were no goodwill impairment losses recorded in any period presented.

Impairment of Long-Lived Assets

We evaluate a long-lived asset (or asset group) for impairment whenever events or changes in circumstances indicate that the carrying value of the asset (or asset group) may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the asset is expected to generate are less than the carrying value of the asset, an impairment loss is recorded to write down the asset to its estimated fair value based on a discounted cash flow approach. There were no impairment losses recorded in any period presented.

Leases

We determine if an arrangement is a lease at inception of the contract. Operating lease right-of-use (“ROU”) assets are included in other long-term assets, and operating lease liabilities are included in other current liabilities and other long-term liabilities in the condensed consolidated balance sheets.

ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As the implicit rate in our leases is generally unknown, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. We give consideration to our credit risk, term of the lease, total lease payments and adjust for the impacts of collateral, as necessary, when calculating our incremental borrowing rates.

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Operating lease ROU assets include lease incentives and initial direct costs incurred. When the lease incentives specify a maximum level of reimbursement and we are reasonably certain to incur reimbursable costs equal to or exceeding this level, we include the lease incentive in the measurement of the ROU assets and lease liabilities at commencement. The lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise any such options. Lease costs for our operating leases are recognized on a straight-line basis within operating expenses over the lease term in the condensed consolidated statements of operations and comprehensive loss.

We have lease agreements with lease and non-lease components. However, we have elected the practical expedient to not separate lease and non-lease components for all of our existing classes of assets. Therefore, the lease and non-lease components are accounted for as a single lease component. We have also elected to not apply the recognition requirement to any short-term leases with a term of 12 months or less.

We monitor for events or changes in circumstances that may require a reassessment or impairment of our leases, at which time our ROU assets for operating leases may be reduced by impairment losses.

Warrant Liabilities

During February 2021, in connection with CMLS II’s initial public offering, CMLS II issued 5,519,991 warrants (the “Public Warrants”) to purchase shares of Common Stock at $11.50 per share. Simultaneously, with the consummation of the CMLS II initial public offering, CMLS II issued 5,013,333 warrants through a private placement (the “Private Placement Warrants”, and together with the Public Warrants, the “Warrants”) to purchase shares of Common Stock at $11.50 per share. All of the Warrants were outstanding as of March 31, 2023.

We classify the Warrants as liabilities on our condensed consolidated balance sheets as these instruments are precluded from being indexed to our own stock given that the terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815, Derivatives and Hedging (“ASC 815”). Since the Warrants meet the definition of a derivative under ASC 815-40, we recorded these warrants as long-term liabilities at fair value on the date of the SPAC Merger, with subsequent changes in their respective fair values recognized within change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive loss at each reporting date. See Note 10, Stockholders' Equity, for more information on the Warrants.

Earn-Out Liability

As a result of the SPAC Merger, additional shares of Common Stock were provided to SomaLogic Operating shareholders and to certain employees and directors of SomaLogic (“Earn-Out Service Providers”) of up to 3,500,125 and 1,499,875, respectively (the “Earn-Out Shares”). The Earn-Out Shares are payable if the price of our Common Stock is greater than or equal to $20.00 for a period of at least 20 out of 30 consecutive trading days at any time between the 13- and 24-month anniversary of the closing date of the SPAC Merger (the “Triggering Event”). Any Earn-Out Shares issuable to an Earn-Out Service Provider (the “Service Provider Earn-Outs”) shall be issued only if such individual continues to provide services (whether as an employee or director) through the date of occurrence of the corresponding Triggering Event (or a change in control acceleration event, if applicable) that causes such Earn-Out Shares to become issuable. Any Earn-Out Shares that are forfeited pursuant to the preceding sentence shall be reallocated to the SomaLogic Operating shareholders in accordance with their respective pro rata Earn-Out Shares.

The Earn-Out Shares granted to shareholders are recognized as a liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the SPAC Merger and was recorded at fair value. The earn-out liability is remeasured at the end of each reporting period, with subsequent changes in fair value recognized within change in fair value of earn-out liability in the condensed consolidated statements of operations and comprehensive loss.

As the issuance of the Service Provider Earn-Outs is contingent on services being provided, they are accounted for in accordance with ASC 718, Compensation - Stock Compensation. See Note 11, Stock-based Compensation, for additional information regarding Earn-Out Shares granted to Earn-Out Service Providers.

Revenue Recognition

We recognize revenue from sales to customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 provides a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

We recognize revenue when or as control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue.

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Payment terms may vary by customer, are based on customary commercial terms, and are generally less than one year. We do not adjust revenue for the effects of a significant financing component for contracts where the period between the transfer of the good or service and collection is one year or less. We expense incremental costs to obtain a contract when incurred since the amortization period of the asset that would otherwise be recognized is one year or less.

Assay Services Revenue

We generate assay services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the SomaScan® assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan® services is recognized at the time the analysis data or report is delivered to the customer, which is when control has been transferred to the customer. SomaScan® services are sold at a fixed price per sample without any volume discounts, rebates, or refunds.

The delivery of each assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price must be allocated to each performance obligation based on its relative standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation as there are few directly comparable products in the market and factors such as customer size are factored into the determination of selling price. We determine standalone selling prices based on amounts invoiced to customers in observable transactions.

Product Revenue

Product revenue primarily consists of equipment and kit sales to customers that assay samples in their own laboratories. Equipment is generally accounted for as a bundle with installation, qualification and training services. Revenue is recognized based on the progress made toward achieving the performance obligation utilizing input methods, including costs incurred. Revenue from kit sales is recognized upon transfer of control to the customer. Shipping and handling costs billed to customers are included in product revenue in the condensed consolidated statements of operations and comprehensive loss.

Collaboration Revenue

In July 2011, NEC Corporation (“NEC”) and SomaLogic entered into a Strategic Alliance Agreement (the “SAA”) to develop a professional software tool to enable SomaScan® customers to easily access and interpret the highly multiplexed proteomic data generated by SomaLogic’s SomaScan® assay technology in the United States. To support this development, NEC made an upfront payment of $12.0 million. This agreement includes a clause whereby if there is a material breach of the contract or change in control of SomaLogic, we may be required to pay a fee to terminate the agreement.

We determined that the SAA met the criteria set forth in ASC 808, Collaborative Arrangements, (“ASC 808”) because both parties were active participants and were exposed to significant risks and rewards dependent on commercial failure or success. We recorded the upfront payment as deferred revenue to be recognized over the period of performance of 15 years. The revenue was recorded in collaboration revenue in the condensed consolidated statements of operations and comprehensive loss.

In March 2020, NEC and SomaLogic mutually terminated the SAA and concurrently SomaLogic and NEC Solution Innovators, Ltd. (“NES”), a wholly owned subsidiary of NEC, entered into a new arrangement, the Joint Development & Commercialization Agreement (the “JDCA”), to develop and commercialize SomaScan® services in Japan. NES agreed to make annual payments of $2.0 million for five years, for a total of $10.0 million, in exchange for research and development activities, as described below. We determined the JDCA should be accounted for as a modification of the SAA. Therefore, the remaining SAA deferred revenue balance as of the date of the modification was included as consideration under the JDCA resulting in total consideration of $15.3 million for research and development activities. We determined that this arrangement also meets the criteria set forth in ASC 808. The JDCA contains three separate performance obligations: (i) research and development activities, (ii) assay services, and (iii) a 10-year exclusive license of our intellectual property.

(i) Research and Development Activities

We determined that NES is not a customer with respect to the research and development activities associated with the collaboration arrangement under ASC 808. We recognize revenue from these activities based on the progress made toward achieving the performance obligation utilizing input methods, including costs incurred, in collaboration revenue in the condensed consolidated statements of operations and comprehensive loss.

(ii) Assay Services

We determined that NES is a customer for the assay services performance obligation, which should be accounted for using the criteria under ASC 606. We receive a fixed fee (standalone selling price) per sample in exchange for assaying

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samples, which is a service performed for other customers in the ordinary course of business. This performance obligation is recognized at a point in time when the assay data report is delivered to the customer and recorded in assay services revenue in the condensed consolidated statements of operations and comprehensive loss.

(iii) License of Intellectual Property

We determined that NES is a customer for the license performance obligation, which should be accounted for using the criteria under ASC 606. We receive royalties based on NES’ net sales and determined the allocation of royalties solely to this performance obligation is consistent with the objectives in ASC 606. This performance obligation was satisfied at the beginning of the license term. Subject to the sales and usage-based royalty exception, revenue is recognized in the period in which the subsequent sale or usage has occurred. Royalties are recorded in other revenue in the condensed consolidated statements of operations and comprehensive loss.

Other Revenue

Other revenue includes royalty revenue and revenue received from research grants. We recognize royalty revenue for fees paid by customers in return for a license to make, use or sell certain licensed products in certain geographic areas. These fees are equivalent to a percentage of the customer’s related revenues. We recognize revenue for sales-based or usage-based royalties promised in exchange for a functional license of intellectual property when the later of the following events occurs: (i) the subsequent sale or usage occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied. As such, revenue is recognized in the period in which the subsequent sale or usage has occurred.

In June 2008, SomaLogic and New England Biolabs, Inc. (“NEB”) entered into an exclusive licensing agreement, whereby we provide a license to use certain proprietary information and know-how relating to its aptamer technology to make and use commercial products. In exchange, we receive royalties from NEB for this functional license of intellectual property. In September 2022, SomaLogic and NEB entered into a license and settlement agreement (“NEB Agreement”) that terminated the existing exclusive licensing arrangement and provided for a settlement of $8.0 million of previously constrained royalties recognized for the year ended December 31, 2022. The NEB Agreement also provided a non-exclusive license arrangement for the same proprietary information and know-how under which we are guaranteed fixed minimum royalties of $15.0 million to be received over the next 3 years. We recognized revenue for the guaranteed fixed minimum royalties of $13.2 million for the year ended December 31, 2022, net of a significant financing component of $1.8 million. Any revenue above the guaranteed fixed minimum royalties is recognized in the period in which the subsequent sale or usage has occurred. We have recorded a receivable of $12.8 million as of March 31, 2023, of which $8.7 million is recorded in accounts receivable, net of current portion and $4.1 million is recorded in accounts receivable, net on the condensed consolidated balance sheets. Interest income related to the significant financing component was $0.2 million for the period ended March 31, 2023, and is included in interest income and other, net in the condensed consolidated statements of operations and comprehensive loss.

Grant revenue represents funding under cost reimbursement programs or fixed rate arrangements from government agencies and non-profit foundations for qualified research and development activities performed by SomaLogic. We recognize grant revenue when it is reasonably assured that the grant funding will be received as evidenced through the existence of a grant arrangement, amounts eligible for reimbursement are determinable and have been incurred, the applicable conditions under the grant arrangements have been met, and collectability of amounts due is reasonably assured. The classification of costs incurred related to grants is based on the nature of the activities performed by SomaLogic. Grant revenue is recognized when the related costs are incurred and recorded in other revenue in the condensed consolidated statements of operations and comprehensive loss.

Illumina Cambridge, Ltd.

On December 31, 2021, we entered into a multi-year arrangement with Illumina Cambridge, Ltd. (“Illumina Agreement”) to jointly develop and commercialize co-branded kits that will combine Illumina’s Next Generation Sequencing (“NGS”) technology with SomaLogic’s SomaScan technology. Pursuant to the agreement, we received a non-refundable upfront payment of $30.0 million on January 4, 2022. This arrangement is accounted for in accordance with ASC 606. We concluded there are two performance obligations: (1) SOMAmer reagents necessary to develop and commercialize NGS based proteomic products, inclusive of the rights to licenses, patents and training to allow for the use of such reagents and (2) an option to purchase goods post-commercialization with a material right (“Material Right”). The total transaction price is subject to a constraint since it is uncertain that commercialization will be achieved; and therefore the transaction price was determined to be $30.0 million and was allocated to each of the performance obligations identified on a relative standalone selling price basis. Revenue from the performance obligations is recognized as follows in product revenue in the condensed consolidated statements of operations and comprehensive loss:

Reagents: Revenue is recognized when control transfers to the customer (i.e., when the SOMAmer reagents are shipped). We estimated the standalone selling price (“SSP”) based on observable pricing of similar performance obligations.

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Material Right: Revenue is recognized when Illumina exercises its option to purchase goods post-commercialization. We estimated the SSP based on an incremental discount to be provided to the customer adjusted for the likelihood that Illumina will exercise the option.

In June 2022, Illumina issued a purchase order that changed the promises under the Illumina Agreement. The purchase order represents a contract modification that is accounted for prospectively as if it were a termination of the existing contract and the creation of a new contract.

As a result, we determined that there were three new performance obligations (total of five performance obligations): (1) equipment bundle that includes customization services, integration services, system qualification services, site initiation services and training (“Equipment Bundle”), (2) qualification kits, and (3) support services. The contract modification resulted in an increase in the transaction price of $0.5 million. The updated transaction price was allocated between the performance obligations on a relative SSP basis. We estimated the SSP based on observable pricing of similar performance obligations. Revenue from the performance obligations is recognized as follows in product revenue in the condensed consolidated statements of operations and comprehensive loss:

Equipment Bundle: Revenue is recognized based on the progress made toward achieving the performance obligation utilizing input methods, including costs incurred.

Qualification Kits: Revenue is recognized when control transfers to the customer (i.e., when the qualification kits are shipped).

Support Services: Revenue is recognized for the support services as the services are provided.

We did not recognize any revenue during the three months ended March 31, 2023 or 2022 pursuant to the Illumina Agreement for performance obligations satisfied.

Restricted Cash

Restricted cash represents cash on deposit with a financial institution as security for letters of credit outstanding for the benefit of the landlords related to operating leases and a bank guarantee with an international customer. The portion of restricted cash expected to be released within twelve months is classified as prepaid expenses and other current assets on the condensed consolidated balance sheets was $0.5 million and $4.7 million as of March 31, 2023 and December 31, 2022, respectively. Cash expected to be restricted for greater than twelve months is classified as other long-term assets on the condensed consolidated balance sheets was $0.6 million and $0.8 million as of March 31, 2023 and December 31, 2022.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the tax bases of assets and liabilities and their respective financial reporting amounts, based on enacted tax laws and statutory tax rates applicable to the periods in which these temporary differences are expected to reverse. We evaluate the need to establish or release a valuation allowance based upon expected levels of taxable income, future reversals of existing temporary differences, tax planning strategies, and recent financial operations. Valuation allowances are established to reduce deferred tax assets to the amount expected to be more likely than not realized in the future.

The effect of income tax positions is recognized only when it is more likely than not to be sustained. Interest and penalties associated with uncertain tax positions are recorded in income tax benefit (provision) in the condensed consolidated statements of operations and comprehensive loss.

Segment Information

We have one operating segment. Our chief operating decision maker (the “CODM”) role is performed by our Chief Executive Officer. The CODM manages our operations on a consolidated basis for purposes of allocating resources and assessing performance. Substantially all of our operations and decision-making functions are located in the United States.

Other Significant Accounting Policies

Our significant accounting policies are described in our 2022 Form 10-K. There have been no significant changes to those policies.

Recent Accounting Pronouncements

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of an extended transition

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period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies so long as we remain an emerging growth company.

Recently Adopted Accounting Standards

Financial Instruments — Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which sets forth a “current expected credit loss” (“CECL”) model that requires us to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. We adopted ASU 2016-13, as amended, on January 1, 2023 using a modified retrospective approach and recorded a cumulative effect adjustment to accumulated deficit. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financials.

Note 3 — Revenue

The following table provides information about disaggregated revenue by product line:


	Three Months Ended March 31,
(in thousands)	2023		2022
Assay services revenue	$	18,419	$	18,800
Product revenue	1,186		453
Collaboration revenue	763		763
Other revenue:
Royalties	—		2,955
Other	11		9
Total other revenue	11		2,964
Total revenue	$	20,379	$	22,980

Contract Balances and Remaining Performance Obligations

Contract liabilities represent our obligation to transfer goods or services to customers from which we have received consideration. Deferred revenue is classified as current if we expects to be able to recognize the deferred amount as revenue within 12 months of the balance sheet date. Deferred revenue is recognized as or when we satisfy our performance obligations under the contract.

As of March 31, 2023 and December 31, 2022, deferred revenue of $35.4 million and $35.1 million, respectively, was comprised of balances related to our collaboration revenue, product, assay services, and other revenue. As of March 31, 2023 and December 31, 2022, the portion of deferred revenue related to collaboration revenue was $2.1 million and $2.9 million, respectively. As of March 31, 2023, the estimated remaining performance period is 2.0 years. As of March 31, 2023 and December 31, 2022, the portion of deferred revenue related to assay services and other revenue was $2.9 million and $1.8 million, respectively. As of March 31, 2023, the deferred revenue related to assay services and other revenue will be recognized within 12 months.

As of March 31, 2023 and December 31, 2022, the deferred product revenue related to the Illumina Agreement amounted to $30.4 million for each period. As of March 31, 2023, the estimated remaining performance obligation period is approximately 8.0 years.

A summary of the change in contract liabilities is as follows:


(in thousands)	March 31, 2023		December 31, 2022
Balance at beginning of period	$	35,115	$	5,385
Recognition of revenue included in balance at beginning of period	(1,228)		(2,772)
Revenue deferred during the period, net of revenue recognized	1,487		32,502
Balance at end of period	$	35,374	$	35,115

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Note 4 — Business Combinations

On July 25, 2022, we entered into an Agreement and Plan of Merger to acquire 100% of the equity interests in Palamedrix, Inc. ("Palamedrix") (the “Palamedrix Acquisition”). Palamedrix is a DNA nano tech firm that provides scientific and engineering expertise, miniaturization technology and enhanced ease-of-use capabilities that we intend to leverage as we develop the next generation of SomaScan® Assay. The Palamedrix Acquisition provides for up to $0.5 million to be paid to the founders contingent upon settlement of pre-acquisition legal matters. It also provides for three potential additional payments of up to $17.5 million to the owners, including non-founder and founder employees, to be settled in cash and/or Common Stock contingent on the achievement of certain net sales milestone targets by the fifth and sixth year anniversary of the closing date of the acquisition (the “Milestone Consideration”). The acquisition closed on August 31, 2022.

The following table summarizes the fair value of consideration transferred to acquire Palamedrix:


(in thousands)
Cash	$	15,778
Common Stock	11,832
Contingent consideration	1,448
Fair value of replaced Palamedrix equity awards relating to pre-combination service	625
Total consideration transferred	$	29,683

Consideration transferred includes 3,215,295 shares of Common Stock issued to Palamedrix securityholders. An additional 815,177 shares of Common Stock were issued to Palamedrix employees and founders that were accounted for as post-combination compensation expense. The fair value of Common Stock is based on a per share price of $3.68 on August 31, 2022, the acquisition date.

We are in the process of completing our purchase accounting, whereby the purchase price is allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. The purchase accounting is considered preliminary and is subject to revision based on final determinations of fair value and allocations of purchase price to the acquired identifiable assets acquired and liabilities assumed.

The following table represents the preliminary allocation of consideration transferred to the identifiable assets acquired and the liabilities assumed based on the fair values as of August 31, 2022:


(in thousands)
Cash and cash equivalents	$	2,521
Prepaid expenses and other current assets	251
Property and equipment	1,246
Intangible assets	16,700
Other long-term assets	1,289
Accounts payable	(68)
Accrued liabilities	(81)
Other current liabilities	(634)
Deferred income taxes, net	(1,390)
Other long-term liabilities	(550)
Net identifiable assets acquired	$	19,284
Goodwill	10,399
Total consideration transferred	$	29,683

The goodwill is generated from operational synergies and cost savings that we expect to achieve from the combined operations and Palamedrix’s knowledgeable and experienced assembled workforce. The goodwill is not deductible for tax purposes.

All unvested awards of non-founder employees were accelerated on a discretionary basis as part of the Palamedrix Acquisition. These awards were exchanged at the close date for cash, Common Stock, and Milestone Consideration. As a result, we allocated $1.3 million of the total consideration transferred to post-combination compensation expense. The amount is recorded in selling, general and administrative in the condensed consolidated statement of operations and comprehensive loss during the year ended December 31, 2022.

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In addition, the unvested awards of the Palamedrix founders were exchanged for cash, Common Stock, and Milestone Consideration on a consistent basis with all other shareholders. However, the Common Stock and Milestone Consideration replacement awards granted to the Palamedrix founders require continuing employment for a period of three years. The Common Stock awards vest ratably over the service period and are equity classified. The Milestone Consideration awards vest after a three year service period or upon the achievement of the milestones.

The Milestone Consideration replacement awards of non-founder and founder employees are accounted for under ASC 718. As the milestone payments are a fixed monetary value settled in cash and/or Common Stock, they are liability classified. A liability of $1.5 million as of March 31, 2023 is recorded in other long-term liabilities on the condensed consolidated balance sheets.

Note 5 — Fair Value Measurements

Assets measured at fair value on a recurring basis

The following tables set forth our financial assets measured at fair value on a recurring basis and the level of inputs used in such measurements:


As of March 31, 2023 (in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Aggregate Fair Value		Fair Value Level
Cash and cash equivalents:
Cash	$	22,317	$	—	$	—	$	22,317	Level 1
Money market funds	416,192		—		—		416,192		Level 1

Total cash and cash equivalents	438,509		—		—		438,509
Investments:
Commercial paper	42,524		2		(74)		42,452		Level 2
U.S. Treasuries	7,749		—		(23)		7,726		Level 2

Corporate bonds	4,475		—		(12)		4,463		Level 2
Agency bonds	7,458		—		(38)		7,420		Level 2
Total investments	62,206		2		(147)		62,061
Total assets measured at fair value on a recurring basis	$	500,715	$	2	$	(147)	$	500,570


As of December 31, 2022 (in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Aggregate Fair Value		Fair Value Level
Cash and cash equivalents:
Cash	$	44,045	$	—	$	—	$	44,045	Level 1
Money market funds	377,785		—		—		377,785		Level 1
Total cash and cash equivalents	421,830		—		—		421,830
Investments:
Commercial paper	58,794		—		(195)		58,599		Level 2
U.S. Treasuries	35,252		—		(175)		35,077		Level 2

Corporate bonds	11,782		—		(39)		11,743		Level 2
Agency bonds	12,426		—		(87)		12,339		Level 2
Total investments	118,254		—		(496)		117,758
Total assets measured at fair value on a recurring basis	$	540,084	$	—	$	(496)	$	539,588

As of March 31, 2023 and December 31, 2022, we had $0.3 million and $0.5 million, respectively, of accrued interest on investments recorded in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets.

Our investments consist of money market funds, commercial paper, U.S. Treasuries, corporate bonds, and agency bonds. All of the commercial paper, U.S. Treasuries, corporate bonds and agency bonds are designated as available-for-sale securities and have an effective maturity date that is less than one year from the respective balance sheet date, and accordingly, have been classified as current in the condensed consolidated balance sheets.

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We classify our investments in money market funds within Level 1 of the fair value hierarchy because they are valued using quoted market prices. We classify our commercial paper, U.S Treasuries, asset-backed securities, corporate bonds and agency bonds as Level 2 and obtain the fair value from a third-party pricing service, which may use quoted market prices for identical or comparable instruments or model-driven valuations using observable market data or inputs corroborated by observable market data.

We adopted ASU 2016-13 on January 1, 2023. Under the new guidance, we evaluated our available-for-sale securities with unrealized losses for impairment, considering available evidence, including the extent to which fair value is less than cost, whether an allowance for expected credit loss is required, and adverse factors that could affect the value of the securities. Any unrealized losses from declines in fair value below the amortized cost basis as a result of non-credit factors are recognized in accumulated other comprehensive loss as a separate component of stockholders’ equity, along with unrealized gains. Realized gains and losses and declines in fair value, if any, on available-for-sale securities are included in interest and other income, net in the condensed consolidated statements of operations and comprehensive loss.

We evaluated the available-for-sale securities as of March 31, 2023 and determined that no available-for-sale securities in an unrealized loss position are arising from credit related reasons. Additionally, we do not intend to sell or believe that it is not more likely than not that we will be required to sell the securities before recovery of the amortized cost bases and have therefore not recorded any allowances for available-for-sale securities in our allowance for expected credit losses as of March 31, 2023. We did not recognize any realized gains or losses for the three months ended March 31, 2023. Subsequent to March 31, 2023, we sold $10.5 million of investments prior to maturity. The realized loss was immaterial.

We evaluated our securities for other-than-temporary impairment as of December 31, 2022, and considered the decline in fair value to be primarily attributable to current economic and market conditions and we would not be required to sell the securities before recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of December 31, 2022.

Liabilities measured at fair value on a recurring basis

The following table presents information about our liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation inputs we utilized to determine such fair value:


(in thousands)	March 31, 2023		December 31, 2022		Fair Value Level
Warrant liability - public warrants	$	1,656	$	2,208	Level 1
Warrant liability - private placement warrants	1,504		2,005		Level 2
Earn-out liability	—		15		Level 3
Milestone contingent consideration	1,171		1,165		Level 3
Holdback contingent consideration	450		450		Level 3
Total liabilities measured at fair value on a recurring basis	$	4,781	$	5,843

Warrant liabilities

The public warrants were valued using Level 1 inputs as they are traded in an active market. The fair value of the private placement warrants is equivalent to that of the public warrants as they have substantially the same terms; however, as they are not actively traded, they are classified as Level 2 in the hierarchy table above.

Earn-out liability

The fair value of the Earn-Out Shares was estimated using a Monte Carlo simulation model. The fair value is based on the simulated price of the Company over the maturity date of the contingent consideration and increased by estimated forfeitures of Earn-Out Shares issued to Earn-Out Service Providers. During the three months ended March 31, 2023, the earn-out liability was determined to be immaterial and was fully written off.

The significant unobservable inputs used in the Monte Carlo simulation to measure the Earn-Out Shares that are categorized within Level 3 of the fair value hierarchy were as follows:


	December 31, 2022
Stock price on valuation date	$	2.51
Volatility	78.10		%
Risk-free rate	4.75		%
Dividend yield	—		%

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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements

Unaudited

The rollforward of the fair value of the earn-out liability is summarized as follows:


(in thousands)	Fair Value
Balance as of December 31, 2022	$	15
Change in fair value of earn-out liability	(15)
Balance as of March 31, 2023	$	—

Milestone Contingent Consideration

The fair value of milestone contingent consideration was estimated using a Monte Carlo simulation model. The fair value is based on an option pricing framework, whereby a range of possible scenarios were simulated around forecasted net sales.

The significant unobservable inputs used in the Monte Carlo simulation to measure the milestone contingent consideration that are categorized within Level 3 of the fair value hierarchy were as follows:


	March 31, 2023		December 31, 2022
Volatility	35.0	%	35.0	%
Risk-free rate	3.6	%	4.0	%
Weighted average cost of capital	30.0	%	30.0	%
Cost of debt	10.8	%	10.0	%

The change in the fair value of the milestone contingent consideration is summarized as follows:


(in thousands)	Fair Value
Balance as of December 31, 2022	$	1,165
Change in fair value of milestone contingent consideration	6
Balance as of March 31, 2023	$	1,171

Holdback Contingent Consideration

The holdback contingent consideration related to the Palamedrix Acquisition was $0.5 million as of March 31, 2023 and is recorded in other long-term liabilities on the condensed consolidated balance sheets. There was no significant change in fair value between December 31, 2022 and March 31, 2023. The fair value of holdback contingent consideration was estimated using a scenario-based analysis. The fair value is based on the expected holdback release date and expected holdback payment. The future expected payments were discounted to the valuation date using the cost of debt.

The significant unobservable inputs used in the scenario-based analysis to measure the holdback contingent consideration that are categorized within Level 3 of the fair value hierarchy were as follows:


	March 31, 2023		December 31, 2022
Cost of debt	11.5	%	10.2	%

Note 6 — Leases

We have operating leases for certain office spaces with lease terms ranging from two to five years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at our election to renew or extend the leases for additional periods ranging from three to ten years. These optional periods have not been considered in the determination of the ROU assets or lease liabilities associated with these leases as we did not consider the exercise of these options to be reasonably certain. The ROU

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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements

Unaudited

asset is included in other long-term assets on the condensed consolidated balance sheets and was $3.4 million and $3.9 million as of March 31, 2023, and December 31, 2022, respectively.

Lease Costs

Lease costs for operating leases are recognized on a straight-line basis over the lease term. The total lease cost for the period was as follows:


	Three Months Ended		Three Months Ended
(in thousands)	March 31, 2023		March 31, 2022
Operating lease cost	$	591	$	401
Variable lease cost	378		181
Short-term lease cost	12		11
Total lease cost	$	981	$	593

Lease Maturities

The table below reconciles the undiscounted lease payment maturities to the lease liabilities for our operating leases:


(in thousands)	March 31, 2023
Remainder of 2023	$	1,923
2024	1,143
2025	834
2026	143


Total	4,043
Less: amount of lease payments representing interest	(115)

Present value of future minimum lease payments	3,928
Less: current operating lease liabilities (included in other current liabilities)	(2,221)
Long-term operating lease liabilities (included in other long-term liabilities)	$	1,707

Supplemental Lease Information

Supplemental information related to our operating leases was as follows:


	March 31, 2023
Weighted average remaining lease term	2.1 years
Weighted average discount rate	2.5	%

Cash paid for amounts included in the measurement of our operating lease liabilities for the three months ended March 31, 2023 and 2022 was $0.6 million and $0.5 million, respectively.

In February 2022, we executed two separate lease agreements (the “Leases”) to lease buildings pending construction that had not yet commenced. Both leases were set to expire on November 30, 2033, unless extended or early terminated in accordance with the terms of the lease. In accordance with the lease agreements, we made a deposit of $4.1 million during the first quarter of 2022. The deposit was restricted from withdrawal and held by a bank in the form of collateral for an irrevocable standby letter of credit held as security.

On August 25, 2022, we entered into a lease termination agreement (the “Lease Termination”) for the Leases prior to lease commencement. As consideration for the termination of the Leases, we agreed to pay the landlord a termination fee of $6.0 million of which $2.5 million was paid on the termination date. During the fourth quarter of 2022 the remaining liability was reduced by $1.0 million after the landlord entered into a separate lease with a third party. The remaining $2.5 million liability was paid in January 2023 and the $4.1 million deposit was released in March 2023.

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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements

Unaudited

Note 7 — Inventory

Inventory was comprised of the following:


(in thousands)	March 31, 2023		December 31, 2022
Raw materials	$	19,753	$	16,710
Work in process	1,535		1,191
Finished goods	748		639
Total inventory

SomaLogic, Inc. [SLGC] Filings
SomaLogic, Inc. [SLGCW] Filings
10-Q	[2023-05-15]
10-K	[2023-03-28]
10-Q	[2022-11-15]
10-Q	[2022-08-15]
10-Q	[2022-05-16]
10-K	[2022-03-29]
10-Q	[2021-11-15]
S-1	[2021-10-01]
10-Q	[2021-08-16]
10-Q	[2021-05-24]
S-1	[2021-02-01]

SomaLogic, Inc. [SLGC] Filings

SomaLogic, Inc. [SLGCW] Filings