UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(Address of Principal Executive Offices)
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(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading symbol |
| Name of Exchange on which registered |
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.
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).
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 | ☐ |
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☒ | 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
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As of April 30, 2022, there were
TABLE OF CONTENTS
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. These forward-looking statements are often, but not always, made through the use of words or phrases 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, operating expenses and ability to generate 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 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; |
| ● | 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 the ongoing COVID-19 pandemic on our business, operations and the markets in which we and our customers operate; |
| ● | our expectations regarding the potential impact of inflation and deflation and corresponding fluctuations in interest rates on our business and operating costs; |
| ● | our ability to adequately protect our intellectual property; and |
| ● | our ability to hire and retain necessary qualified employees to grow our business and expand our operations. |
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 in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Risk Factors.” 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. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
3
TRADEMARKS
Solely for convenience, our trademarks and trade names in this report 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.
4
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, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Short-term investments |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets, net | | — | ||||
Long-term investments | | | ||||
Other long-term assets |
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Restricted cash |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses and other current liabilities |
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Deferred revenue |
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Lease liabilities, short-term |
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| — | ||
Total current liabilities |
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Deferred rent, long term |
| — |
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Lease liabilities, long-term |
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| — | ||
Other long-term liabilities | | | ||||
Total liabilities |
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Commitments and contingencies (Note 17) |
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Stockholders’ equity: |
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Class A common stock, $ |
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Class B common stock, $ | | | ||||
Preferred stock, $ | ||||||
Additional paid-in capital |
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Accumulated deficit |
| ( |
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Accumulated other comprehensive income (loss) |
| ( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of operations
(Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Revenue: |
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Product revenue | $ | | $ | | ||
Service revenue |
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Non-commercial revenue |
| — |
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Total revenue |
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Costs and operating expenses: |
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Cost of product revenue |
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Cost of service revenue |
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Cost of non-commercial revenue |
| — |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total costs and operating expenses |
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Loss from operations |
| ( |
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Other income (expense): |
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Interest expense |
| ( |
| ( | ||
Change in fair value of preferred stock warrant liability |
| — |
| ( | ||
Other income (expense), net |
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Total other income (expense), net |
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Loss before income taxes |
| ( |
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Income tax expense |
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Net loss |
| ( |
| ( | ||
Accretion of redeemable convertible preferred stock to redemption value |
| — |
| ( | ||
Cumulative redeemable convertible preferred stock dividends |
| — |
| ( | ||
Net loss attributable to common stockholders — basic and diluted | ( | ( | ||||
Net loss per share attributable to Class A and Class B common stockholders — basic and diluted | ( | ( | ||||
Weighted average common shares outstanding — basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of comprehensive loss
(Unaudited)
(In thousands)
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Net loss | $ | ( | $ | ( | ||
Other comprehensive income: |
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Unrealized loss on short-term investments, net of tax |
| ( |
| — | ||
Comprehensive loss | $ | ( | $ | ( | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of stockholders’ equity
(Unaudited)
(In thousands, except share amounts)
Accumulated | ||||||||||||||||||||||||||||
Redeemable convertible | Class A | Class B | Additional | other | ||||||||||||||||||||||||
preferred stock | Common stock | Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||||
| Shares |
| Amount |
|
| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| deficit |
| income |
| Total | ||||||||
Balances at December 31, 2021 | — | $ | — | | $ | | | $ | |
| $ | | $ | ( | $ | ( | $ | | ||||||||||
Conversion of Class B common stock to Class A common stock |
| — | — | | | ( | ( | — | — | — | — | |||||||||||||||||
Restricted stock award liability accretion |
| — |
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| — |
| — | — | — | — | | — | — | | ||||||||||||||
Issuance of Class A common stock upon exercise of common stock options | — |
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Stock-based compensation expense |
| — |
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| — |
| — | — | — | — | | — | — |
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Net loss | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
Balances at March 31, 2022 |
| — |
| $ | — |
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| $ | | |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of stockholders’ deficit
(Unaudited), continued
(In thousands, except share amounts)
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| Accumulated |
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Redeemable convertible | Class A | Class B | Additional | other | ||||||||||||||||||||||||
preferred stock | Common stock | Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||||
| Shares |
| Amount |
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| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| deficit |
| income |
| Total | ||||||||
Balances at December 31, 2020 |
| | $ | | | $ | | — | — | $ | | $ | ( |
| $ | |
| $ | ( | |||||||||
Issuance of Series D1 redeemable convertible preferred stock, net of issuance costs of $ |
| | | — | — | — | — | — | — | — |
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| — | |||||||||||||||
Issuance of Series D2 redeemable convertible preferred stock, net of issuance costs of $ |
| | | — | — | — | — | — | — | — |
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Accretion of redeemable convertible preferred stock to redemption value |
| — | | — | — | — | — | ( | — | — |
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| ( | |||||||||||||||
Cumulative redeemable convertible preferred stock dividends |
| — | | — | — | — | — | ( | — | — |
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Issuance of Class A common stock upon exercise of common stock options |
| — | — | | | — | — | | — | — |
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Issuance of restricted Class A common stock awards |
| — | — | | | — | — | ( | — | — |
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Stock-based compensation expense |
| — | — | — | — | — | — | | — | — |
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Net loss |
| — | — | — | — | — | — | — | ( | — |
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Other comprehensive income | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Balances at March 31, 2021 |
| |
| $ | |
| | $ | | — | $ | — |
| $ | |
| $ | ( |
| $ | |
| $ | ( | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of cash flows
(Unaudited)
(In thousands)
| Three Months Ended March 31, | |||||
2022 | 2021 | |||||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization expense |
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Stock-based compensation expense |
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Change in fair value of preferred stock warrant liability |
| — |
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Noncash lease expense |
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Noncash interest expense |
| — |
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Accretion on investments |
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Other, net | | ( | ||||
Changes in operating assets and liabilities |
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Accounts receivable |
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Inventory |
| ( |
| ( | ||
Prepaid expenses and other current assets |
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Other long-term assets |
| ( |
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Accounts payable |
| ( |
| ( | ||
Accrued expenses and other current liabilities |
| ( |
| ( | ||
Deferred revenue |
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Deferred rent, long term |
| — |
| ( | ||
Net cash used in operating activities |
| ( |
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Cash flows from investing activities: |
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Purchases of property and equipment |
| ( |
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Purchases of investments | ( | — | ||||
Maturity of investments |
| — |
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Net cash (used) provided by investing activities |
| ( |
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Cash flows from financing activities: |
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Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs |
| — |
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Proceeds from issuance of Class A common stock upon stock option exercise |
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Proceeds from issuance of restricted Class A stock award |
| — |
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Payments on finance lease obligations | ( | — | ||||
Payments of deferred offering costs |
| — |
| ( | ||
Net cash provided by financing activities |
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Net (decrease) increase in cash, cash equivalents and restricted cash |
| ( |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of cash flows, continued
(Unaudited)
(In thousands)
| Three Months Ended March 31, | |||||
2022 | 2021 | |||||
Supplemental disclosure of cash flow information |
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Cash paid for interest | $ | | $ | | ||
Supplemental disclosure of non-cash investing activities |
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Establishment of right of use operating assets | $ | | $ | — | ||
Purchases of property and equipment in accounts payable | $ | | $ | — | ||
Supplemental disclosure of non-cash financing activities |
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Establishment of right of use finance assets | $ | | $ | — | ||
Deferred offering costs included in accounts payable and accrued expenses | $ | — | $ | | ||
Accretion of redeemable convertible preferred stock to redemption value | $ | — | $ | | ||
Cumulative redeemable convertible preferred stock dividends | $ | — | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
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 Asia. The Company is headquartered in Lowell, Massachusetts.
In March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (“COVID-19”) outbreak a pandemic. The impact of this pandemic has been and may continue to be extensive in many aspects of society, which has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. The Company cannot at this time predict the ultimate extent, duration, or full impact that the COVID-19 pandemic will have on its future financial condition and operations. The impact of the ongoing COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of COVID-19, and its variants, on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be materially adversely affected.
Future impacts to the Company’s business as a result of COVID-19, and its variants, could include disruptions to the Company’s manufacturing operations and supply chain caused by facility closures, reductions in operating hours, staggered shifts and other social distancing efforts; labor shortages; decreased productivity and unavailability of materials or components; limitations on its employees’ and customers’ ability to travel, and delays in shipments to and from affected countries and within the United States. While the Company maintains an inventory of finished products and raw materials used in its products, the effects of the ongoing COVID-19 pandemic could still lead to shortages in the raw materials necessary to manufacture its products.
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, 2021. 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, 2022 and the results of its operations and its cash flows for the three months ended March 31, 2022 and 2021. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and
12
2021 are also unaudited. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.
Reverse split
On July 9, 2021, the Company effected a -for-five reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s Preferred Stock (see Note 10). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the Preferred Stock conversion ratios.
Initial public offering
On July 19, 2021, the Company closed an initial public offering (“IPO”) of its Class A common stock, which resulted in the sale of
On August 4, 2021, the underwriters exercised their overallotment option in part and purchased
Liquidity
The Company has incurred recurring losses and net cash outflows from operations since its inception. The Company expects to continue to generate significant 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, the valuation of common stock and stock-based awards, and the valuation of the preferred stock warrant liability. 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.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained.
13
Other than policies noted below, there have been no significant changes to the significant accounting policies during the three months ended March 31, 2022, as compared to the significant accounting policies disclosed in Note 2 of the audited consolidated financial statements as of December 31, 2021 filed with the 2021 Form 10-K.
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 normal 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 represent 10% or more of the Company’s total revenue:
Three Months Ended March 31, |
| ||||
| 2022 |
| 2021 |
| |
Customer A |
| | % | * | |
Customer B | | % | * | ||
Customer C | | % | * | ||
Customer D | * | | % | ||
Customer E |
| * | | % | |
Customer F |
| * | | % | |
| | % | | % | |
* | – less than 10% |
The following table presents customers that represent 10% or more of the Company’s accounts receivable:
| March 31, | December 31, | |||
| 2022 |
| 2021 |
| |
Customer A | | % | | % | |
Customer B | | % | * | ||
Customer C |
| | % | * | |
Customer G | * | | % | ||
Customer H | * | | % | ||
Customer I |
| * | | % | |
| | % | | % |
* | – 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 are no significant concentrations around a single third-party supplier or manufacturer for the three months ended March 31, 2022 or 2021.
Debt issuance costs
The Company capitalizes certain legal and other third-party fees that are directly associated with the issuance of debt as debt issuance costs. Debt issuance costs are recorded as a direct reduction of the carrying amount of the associated debt on the condensed consolidated balance sheets and amortized as interest expense on the condensed consolidated statements of operations using the effective interest method, which approximates the straight-line method.
14
As of March 31, 2022 and December 31, 2021, the Company had
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 March 31, 2022 and December 31, 2021, the Company held cash of $
Restricted cash
As of March 31, 2022 and December 31, 2021, the Company was required to maintain guaranteed investment certificates of $
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 $
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.
15
Product warranties
The Company offers a
| March 31, | December 31, | ||||
| 2022 |
| 2021 | |||
Balance, beginning of period | $ | | $ | | ||
Warranty provisions | | — | ||||
Warranty repairs |
| ( |
| ( | ||
Balance, end of period | $ | | $ | | ||
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 its business as
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 unbilled amounts in 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 $
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 noncurrent deferred revenue. The Company did not record any non-current deferred revenue as of March 31, 2022 or December 31, 2021. Deferred revenue was $
16
Non-commercial revenue
The Company has historically generated revenue from a long-term contract with the U.S. Department of Health and Human Services Biomedical Advanced Research and Development Authority (“BARDA”) a part of the U.S. government. The Company’s contracts with the U.S. government typically are subject to the Federal Acquisition Regulation (“FAR”) and are priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods or services provided under U.S. government contracts. In September 2017, the Company signed a contract with BARDA, which was subsequently modified on multiple occasions to increase the contract value and adjust the cost share reimbursement rate. Modifications were accounted for in accordance with the contract modification framework. The contract is a cost-reimbursable, cost- sharing arrangement, whereby BARDA reimburses the Company for a percentage of the total costs that have been incurred including indirect allowable costs. Revenue on the BARDA contract is recognized over time using an input method based on cost incurred to date in relation to total estimated cost. Due to the structure of the arrangement, the transaction price is variable in nature based on actual cost incurred. As such the amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. All funding under this contract was fully earned by the fourth quarter of 2021.
Disaggregated revenue
The Company disaggregates revenue based on the recurring and non-recurring, and commercial and non-commercial, nature of the underlying sale. Recurring revenue includes sales of consumables and service contracts. Non-recurring revenue includes sales of Systems, LIMS connection software, validation services, field service, and revenue under the Company’s contract with BARDA. The following table presents the Company’s revenue by the recurring or non-recurring and commercial or non-commercial nature of the revenue stream (in thousands):
| Three Months Ended March 31, | |||||
| 2022 |
| 2021 | |||
Product and service revenue — recurring | $ | | $ | | ||
Product and service revenue — non-recurring |
| |
| | ||
Non-commercial revenue — non-recurring |
| — |
| | ||
Total revenue | $ | | $ | | ||
The following table presents the Company’s revenue by customer geography (in thousands):
| Three Months Ended March 31, | |||||
| 2022 |
| 2021 | |||
United States | $ | | $ | | ||
Germany |
| |
| | ||
Switzerland |
| |
| | ||
All other countries | | | ||||
Total revenue | $ | | $ | | ||
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 $
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 only
17
service-based 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 common stock and restricted stock units granted to employees based on the common stock value on the date of grant. The purchase price of the restricted common stock is the common stock value on the date of grant. The restricted common stock includes a repurchase right, whereas upon the occurrence of a specific event, the Company shall have the right to repurchase unvested restricted common stock shares. At March 31, 2022 and December 31, 2021, the Company had $
Comprehensive loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. For the three months ended March 31, 2022 and 2021, there were $
Recently adopted accounting pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations related to their leasing arrangements. The update requires lessees to recognize most leases, with the exception of short-term leases if a policy election is made, on their balance sheets as a right-of-use (ROU) asset representing the right to use an underlying asset and a lease liability representing the obligation to make lease payments over the lease term, measured on a discounted basis, while recognizing lease expense on their income statements in a manner similar to current GAAP. The guidance also requires entities to disclose key quantitative and qualitative information about its leasing arrangements.
The Company leases office and manufacturing space under operating lease agreements. The Company leases furniture under a financing agreement. The Company adopted Topic 842 on January 1, 2022 using the optional transition method to the modified retrospective approach. Under this transition provision, results for reporting periods beginning on January 1, 2022 are presented under Topic 842 while prior period amounts continue to be reported and disclosed in accordance with the Company’s historical accounting treatment under ASC Topic 840, Leases (“ASC 840”).
The Company elected the “package of practical expedients” permitted under the transition guidance, which among other things, does not require reassessment of whether contracts entered into prior to adoption are or contain leases, and allows carryforward of the historical lease classification for existing leases. The Company did not elect the “hindsight” practical expedient, and therefore measured the ROU assets and lease liabilities using the remaining portion of the lease term at adoption on January 1, 2022.
The Company made an accounting policy election not to recognize ROU assets and lease liabilities for leases with a term of twelve months or less. For all other leases, the Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at the commencement date of the lease (or January 1, 2022 for existing leases upon the adoption of ASC 842). Lease payments may include fixed rent escalation clauses or payments that depend on an index (such as the consumer price index). Subsequent changes to an index and any other periodic market-rate adjustments to base rent are recorded in variable lease expense in the period incurred. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by any lease incentives.
The Company has made an accounting policy election to account for lease and non-lease components in its contracts as single lease components for all asset classes. The non-lease components typically represent additional services transferred to the Company, such as common area maintenance for real estate, which are variable in nature and recorded in variable lease expense in the period incurred.
18
The Company uses its incremental borrowing rate which is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount in a similar economic environment to determine the present value of lease payments as the Company’s leases do not have a readily determinable implicit discount rate. Judgment is applied in assessing factors such as Company specific credit risk, lease term, nature, and quality of the underlying collateral, currency, and economic environment in determining the incremental borrowing rate to apply to each lease.
Upon adoption, the Company recorded operating lease ROU assets and lease liabilities of $
In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various areas related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted this guidance effective January 1, 2022, and the adoption had no material impact on its condensed consolidated financial statements and related disclosures.
Recently issued accounting pronouncements
The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups 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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016- 13”). The new standard adjusts the accounting for assets held at amortized costs basis, including marketable securities accounted for as available for sale, and trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The Company expects to adopt this guidance effective January 1, 2023, and it is currently evaluating the impact on its condensed consolidated financial statements and related disclosures.
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, 2022 | |||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets |
|
|
|
|
|
|
| |||||
Cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Short-term investments |
| |
| — |
| — |
| | ||||
Long-term investments | | — | — | | ||||||||
$ | | $ | — | $ | — | $ | | |||||
19
| Fair value measurements at December 31, 2021 | |||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets |
|
|
|
|
|
|
| |||||
Cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Short-term investments | | — | — | | ||||||||
Long-term investments |
| |
| — |
| — |
| | ||||
$ | | $ | — | $ | — | $ | | |||||
During the three months ended March 31, 2022 and 2021, respectively, there were
Valuation of short-term and long-term investments
Short-term and long-term investments, which consisted of U.S. Treasury bonds and notes were valued by the Company using quoted prices in active markets for similar securities, which represents a Level 1 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, 2022 | |||||||||||
Gross | Gross | |||||||||||
| Amortized |
| unrealized |
| unrealized |
| Fair | |||||
| cost |
| gains |
| losses |
| value | |||||
Short-term investments | ||||||||||||
U.S. Government Treasury Bills | $ | | $ | — | $ | ( | $ | | ||||
U.S. Government Treasury Notes | | — | ( | | ||||||||
$ | | $ | — | $ | ( | $ | | |||||
Long-term Investments | ||||||||||||
U.S. Government Treasury Notes - Maturity One - Five Years | | — | ( | | ||||||||
$ | | $ | — | $ | ( | $ | | |||||
| December 31, 2021 | |||||||||||
Gross | Gross | |||||||||||
| Amortized |
| unrealized |
| unrealized |
| Fair | |||||
Short-term investments |
| cost |
| gains |
| losses |
| value | ||||
U.S. Government Treasury Bills | $ | | $ | — | $ | ( | $ | | ||||
U.S. Government Treasury Notes | | — | ( | | ||||||||
$ | | $ | — | $ | ( | $ | | |||||
Long-term Investments | ||||||||||||
U.S. Government Treasury Notes - Maturity One - Five Years | $ | | $ | — | $ | — | $ | | ||||
$ | | $ | — | $ | — | $ | | |||||
20
5. Inventory
Inventory consisted of the following (in thousands):
| March 31, | December 31, | ||||
| 2022 |
| 2021 | |||
Raw materials | $ | | $ | | ||
Work in process |
| |
| | ||
Finished goods |
| |
| | ||
Total | $ | | $ | | ||
Raw materials, work in process and finished goods were net of adjustments to net realizable value of $
6. Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| March 31, | December 31, | ||||
| 2022 |
| 2021 | |||
Prepaid insurance | $ | | $ | | ||
Contract asset |
| |
| | ||
Deposits |
| |
| | ||
Lease receivables, current portion |
| |
| | ||
Other |
| |
| | ||
$ | | $ | | |||
7. Property and equipment, net
Property and equipment, net consisted of the following (in thousands):
| March 31, | December 31, | ||||
| 2022 |
| 2021 | |||
Manufacturing and laboratory equipment | $ | | $ | | ||
Computer hardware and software |
| |
| | ||
Office furniture and fixtures |
| |
| | ||
Leasehold improvements | | | ||||
Construction-in-process |
| |
| | ||
| |
| | |||
Less: Accumulated depreciation |
| ( |
| ( | ||
$ | | $ | | |||
Depreciation and amortization expense related to property and equipment was $
21
8. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| March 31, | December 31, | ||||
| 2022 |
| 2021 | |||
Accrued employee compensation and benefits expense | $ | | $ | | ||
Accrued vendor expenses |
| |
| | ||
Accrued warranty expense |
| |
| | ||
Deferred rent, current portion |
| — |
| | ||
Accrued taxes |
| |
| | ||
Other |
| |
| | ||
$ | | $ | | |||
9. Long-term debt
There was
Term loan agreements
2020 Term Loan
In May 2020, the Company entered into a $
At closing, the Company issued warrants to purchase
The Company incurred debt issuance costs of $
In September 2021, the Company repaid the 2020 Term Loan and incurred a debt extinguishment loss of $
10. Redeemable convertible preferred stock
The Company has historically issued Series A1 redeemable convertible preferred stock (the “Series A1 Preferred Stock”), Series B1 redeemable convertible preferred stock (the “Series B1 Preferred Stock”), Series C1 redeemable convertible preferred stock (the “Series C1 Preferred Stock”), Series C2 redeemable convertible preferred stock (the “Series C2 Preferred Stock”), Series D1 redeemable convertible preferred stock (the “Series D1 Preferred
22
Stock”) and Series D2 redeemable convertible preferred stock (the “Series D2 Preferred Stock”). The Series A1 Preferred Stock, Series B1 Preferred Stock, Series C1 Preferred Stock, Series C2 Preferred Stock, Series D1 Preferred Stock, and Series D2 Preferred Stock are collectively referred to as the “Preferred Stock”.
In March 2021, the Company issued and sold
On June 25, 2021, investors exchanged a total of
On July 14, 2021, the IPO resulted in the automatic conversion of all Series A1, Series B1, Series C1 and Series D1 preferred stock into
11. Preferred stock warrants
In connection with the 2020 Term Loan, the Company issued
In connection with the IPO, all of the Company’s outstanding preferred stock warrants were automatically converted to Class A common stock warrants. The Company determined the conversion to Class A common stock warrants resulted in equity classification of the Class A common stock warrants and reclassified the fair value of the preferred stock warrant liability as of the IPO date into stockholders’ equity (see Note 12).
The warrant liability was related to the warrants to purchase shares of the Company’s Series A1, B1, and C1 redeemable convertible preferred stock (see Note 10). The fair value of the warrant liability was determined based on inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
The Company used the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the warrant liability. Key estimates and assumptions impacting the fair value measurement include (i) the fair value per share of the underlying shares of applicable series of redeemable convertible preferred stock issuable upon exercise of the Warrants, (ii) the remaining contractual term of the Warrants, (iii) the risk-free interest rate, (iv) the expected dividend yield and (v) expected volatility of the price of the underlying applicable series of redeemable convertible preferred stock. The Company estimated the fair value per share of the underlying applicable series of redeemable convertible preferred stock based, in part, on the results of third-party valuations and additional factors deemed relevant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the Warrant. The Company estimated a zero expected dividend yield based on the fact that the Company has never paid or declared dividends and does not intend to do so in the foreseeable future. As the Company has historically been a private company and lacks company-specific historical and implied volatility information of its stock, the expected stock volatility was based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the Warrant.
23
The table below quantifies the weighted average of the unobservable inputs used to fair value the preferred stock warrant liability as of March 31, 2021, prior to their conversion into common stock warrants:
| Three Months Ended March 31, | |||
| 2021 | |||
Fair value of Series A1 preferred stock | $ | | ||
Fair value of Series B1 preferred stock | $ | | ||
Fair value of Series C1 preferred stock | $ | | ||
Remaining contractual term (in years) |
| | ||
Risk-free interest rate |
| | % | |
Expected dividend yield |
| — | % | |
Expected volatility |
| | % |
The following table provides a rollforward of the aggregate fair values of the Company’s preferred stock warrant liability, prior to their conversion into common stock warrants, for which fair values are determined using Level 3 inputs (in thousands):
| Three Months Ended March 31, | ||
| 2021 | ||
Balance, beginning of period | $ | | |
Change in fair value |
| | |
Balance, end of period | $ | | |
There were
12. Common stock and common stock warrants
As of March 31, 2022 and December 31, 2021, the Company’s restated certificate of incorporation authorized the issuance of
On June 25, 2021, the Company filed an amended and restated certificate of incorporation, which effected a recapitalization of the Company’s then outstanding common stock to Class A common stock and authorized an additional new class of common stock (Class B common stock). Rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. On July 19, 2021, the Company filed an amended and restated certificate of incorporation which authorized Class A common stock and Class B common stock to
Each share of Class A common stock entitles the holder to
As of March 31, 2022, the Company had reserved
In prior years the Company issued warrants to purchase common stock in conjunction with previous financing arrangements. In connection with the IPO, all outstanding preferred stock warrants were automatically converted to Class A common stock warrants. The contractual terms of the converted Class A common stock warrants remained
24
consistent with the original terms of the preferred stock warrants. The Company determined the event resulted in equity classification of the Class A common stock warrants and reclassified the fair value of the preferred stock warrant liability as of the IPO date into equity.
As of March 31, 2022, outstanding warrants to purchase common stock consisted of the following:
| March 31, 2022 | ||||||||
|
| Shares of |
| ||||||
common stock | |||||||||
Balance sheet | issuable upon | Weighted average | |||||||
Issuance date |
| Contractual term |
| classification |
| exercise of warrant |
| exercise price | |
(in years) | |||||||||
July 24, 2017 | Equity | | $ | | |||||
April 12, 2018 | Equity | | $ | | |||||
July 14, 2021 | Equity | | $ | | |||||
| |||||||||
As of December 31, 2021, outstanding warrants to purchase common stock outstanding consisted of the following:
| December 31, 2021 | ||||||||
|
| Shares of |
| ||||||
common stock | |||||||||
Balance sheet | issuable upon | Weighted average | |||||||
Issuance date |
| Contractual term |
| classification |
| exercise of warrant |
| exercise price | |
(in years) | |||||||||
July 24, 2017 | Equity | | $ | | |||||
April 12, 2018 | Equity | | $ | | |||||
July 14, 2021 | Equity | | $ | | |||||
| |||||||||
13. 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.
In March 2021, the Board of Directors approved an increase to the 2010 Plan shares by
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”), which became effective in connection with the IPO of Class A common stock. 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
25
determined by the Board of Directors. No more than
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, |
| ||||
| 2022 |
| 2021 |
| |
Risk-free interest rate |
| | % | | % |
Expected term (in years) |
|
| |||
Expected volatility |
| | % | | % |
Expected dividend yield |
| % | % | ||
Stock options
The following table summarizes the Company’s stock option activity since December 31, 2021:
Weighted | ||||||||||
Weighted | average | |||||||||
Number of | average | remaining | Aggregate | |||||||
| shares |
| exercise price |
| contractual term |
| intrinsic value | |||
(in years) | (in thousands) | |||||||||
Outstanding as of December 31, 2021 |
| | $ | |
| $ | | |||
Granted |
| |
| | ||||||
Exercised |
| ( |
| | ||||||
Expired |
| ( |
| | ||||||
Forfeited |
| ( |
| | ||||||
Outstanding as of March 31, 2022 |
| | $ | | $ | | ||||
Options vested and expected to vest as of March 31, 2022 |
| | $ | | $ | | ||||
Options exercisable as of March 31, 2022 |
| | $ | | $ | | ||||
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 the three months ended March 31, 2022 and 2021 was $
The weighted average grant-date fair value per share of stock options granted during the three months ended March 31, 2022 and 2021 was $
Restricted stock
In February 2021, the Company granted
26
The following table summarizes the Company’s restricted stock activity December 31, 2021:
Weighted | |||||
Number of | average | ||||
| shares |
| fair value | ||
Unvested as of December 31, 2021 | | $ | | ||
Granted | - | - | |||
Vested | ( | $ | | ||
Forfeited | - | - | |||
Unvested as of March 31, 2022 | | $ | | ||
Restricted stock units
Restricted stock unit grants to employees have a three-year vesting term. The Company expenses the fair value of the restricted stock units over the vesting period and accounts for forfeitures prospectively as they occur.
Weighted | |||||
Number of | average | ||||
| shares |
| fair value | ||
Unvested as of December 31, 2021 | - | $ | - | ||
Granted | | | |||
Vested | - | - | |||
Forfeited | ( | | |||
Unvested as of March 31, 2022 | | $ | | ||
The weighted average grant-date fair value per share of restricted stock units granted during the three months ended March 31, 2022 was $
27
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 aggregate number of shares of Class A common stock available for issuance under the 2021 ESPP is equal to (i)
Under the 2021 ESPP, eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to
During the three months ended March 31, 2022 and 2021, there were
The Company estimates the fair value of shares issued to employees under the 2021 ESPP using the Black-Scholes option-pricing model.
| Three Months Ended March 31, | |||
| 2022 | |||
Risk-free interest rate | | % | ||
Expected term (in years) |
|
| ||
Expected volatility |
| | % | |
Expected dividend yield |
| % | ||
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, | |||||
| 2022 |
| 2021 | |||
Cost of revenue | $ | | $ | | ||
General and administrative |
| |
| | ||
Sales and marketing |
| |
| | ||
Research and development |
| |
| | ||
Total stock-based compensation expense | $ | | $ | | ||
As of March 31, 2022, total unrecognized compensation expense related to unvested stock options held by employees and directors was $
28
years. Additionally, unrecognized compensation expense related to unvested restricted stock units held by employees and directors was $
14. Income taxes
During the three months ended March 31, 2022 and 2021, 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 (“AETR”), adjusted for the effect of discrete items arising in that quarter.
The impact of such inclusions 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, 2022 and December 31, 2021 the Company has recorded a full valuation allowance against its net deferred tax assets.
The Company files U.S. 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 federal and state jurisdictions, where applicable. There are currently no pending tax examinations in the U.S. The Company has not received notice of examination by any jurisdictions in the U.S.
The Company has a branch in Germany that is under examination in its local country for tax years 2016-2018. Any adjustments that may result from the examinations are not expected to have a material impact on the financial position, liquidity, or results of operations of the Company.
15. Net loss per share
As of March 31, 2022, the Company has Class A common stock and Class B common stock. According to the Company’s restated certificate of incorporation, 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.
The Company reported a net loss attributable to common stockholders for the three months ended March 31, 2022 and 2021, as such basic net loss per share attributable to common stockholders was the same as diluted
29
net loss per share attributable to common stockholders. Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
| Three Months Ended March 31, | |||||
| 2022 |
| 2021 | |||
Numerator: |
|
| ||||
Net loss | $ | ( | $ | ( | ||
Accretion of redeemable convertible preferred stock to redemption value |
| — |
| ( | ||
Cumulative redeemable convertible preferred stock dividends |
| — |
| ( | ||
Net loss attributable to common stockholders—basic and diluted | ( | ( | ||||
Denominator: |
|
|
|
| ||
Weighted average Class A common shares outstanding—basic and diluted | | | ||||
Weighted average Class B common shares outstanding—basic and diluted | | — | ||||
Total shares for EPS—basic and diluted | | | ||||
Net loss per share attributable to Class A common stockholders—basic and diluted | ( | ( | ||||
Net loss per share attributable to Class B common stockholders—basic and diluted | ( | $ | — | |||
The Company’s potentially dilutive securities, which include stock options, restricted stock, redeemable convertible preferred stock, common stock warrants and preferred 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 attributable to common stockholders 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 attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
| March 31, |
| |||
| 2022 |
| 2021 |
| |
Options to purchase common stock |
| |
| |
|
Unvested restricted common stock | | | |||
Warrants to purchase common stock |
| |
| |
|
Options to purchase common stock under ESPP | | — | |||
Redeemable convertible preferred stock (as converted to common stock) |
| — |
| |
|
Warrants to purchase preferred stock (as converted to warrants to purchase common stock) |
| — |
| |
|
| |
| |
| |
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16. Leases
The Company adopted Topic 842 on January 1, 2022 using the optional transition method to the modified retrospective approach. The impact of the adoption of Topic 842 to the Company's applicable balance sheet items as of January 1, 2022 is presented in the table below (in thousands). The standard did not have a material impact to the Company's unaudited condensed consolidated statements of operations, comprehensive loss, or cash flows.
As Reported | Adjustments | Adjusted | |||||||
| December 31, 2021 |
| ASC 842 Adoption |
| January 1, 2022 | ||||
Assets | |||||||||
Right-of-use assets, net, operating | $ | — | $ | | $ | | |||
Right-of-use assets, net, financing | — | | | ||||||
Property and equipment, net | | ( | | ||||||
Total assets | $ | | $ | | $ | | |||
Liabilities and Stockholders' Equity | |||||||||
Current liabilities: | |||||||||
Lease liabilities, short-term, operating | $ | — | $ | | $ | | |||
Lease liabilities, short-term, financing | — | | | ||||||
Accrued expenses | | ( | | ||||||
Total current liabilities | $ | | $ | | $ | | |||
Lease liabilities, long-term, operating | — | | | ||||||
Lease liabilities, long-term, financing | — | | | ||||||
Deferred rent, long-term | | ( | — | ||||||
Other long-term liabilities | | ( | | ||||||
Total liabilities | $ | | $ | | $ | | |||
Total stockholders' equity | $ | | $ | — | $ | | |||
Total liabilities and stockholders' equity | $ | | $ | | $ | | |||
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
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Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended | |||
March 31, 2022 | |||
Cash paid for amounts included in measurement of lease liabilities: | |||
Operating cash outflows - payments on operating leases | $ | | |
Operating cash outflows - payments on financing leases | $ | | |
Financing cash outflows - payments on financing leases | $ | | |
Right-of-use assets obtained in exchange for new lease obligations: | |||
Operating leases | $ | | |
Financing leases | $ | | |
Supplemental balance sheet information related to the Company’s operating and financing leases is as follows (in thousands):
March 31, 2022 | ||||
Operating Leases: | ||||
Operating lease assets | $ | | ||
$ | | |||
Operating lease liabilities | | |||
Total operating lease liabilities | $ | | ||
Financing Leases: | ||||
Office furniture and fixtures | $ | | ||
Accumulated depreciation | ( | |||
Net property, plant and equipment | $ | | ||
$ | | |||
| ||||
Total financing lease liabilities | $ | | ||
Weighted-average remaining lease term - operating leases: | ||||
Weighted-average remaining lease term - financing leases: | ||||
Weighted-average discount rate - operating leases: | | % | ||
Weighted-average discount rate - financing leases: | | % | ||
The Components of lease expense were as follows (in thousands):
Three Months Ended | |||
March 31, 2022 | |||
Operating lease cost | $ | | |
Financing lease cost - amortization of right-of-use asset | | ||
Financing lease cost - interest on lease liability | | ||
Short-term lease cost | | ||
Variable lease cost | | ||
Total lease cost | $ | | |
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 $
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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 capital lease asset depreciation and interest expense was less than $
In March 2022, the Company amended the lease for its office and manufacturing space in Lowell, Massachusetts (the “Amendment”). The Amendment increased the amount of facility space subject to the lease and extended the expiration of the lease from July 2026 to July 2029. The terms of the Amendment include options for a
33
Maturities of the Company’s operating lease liabilities as of March 31, 2022 were as follows (in thousands):
Operating Leases | |||
2022 (excluding the three months ended March 31) | $ | | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter | | ||
Total lease payments | $ | | |
Less imputed interest | ( | ||
Total present value of lease liabilities | $ | | |
Maturities of the Company’s financing lease liability as of March 31, 2022 were as follows (in thousands):
Financing Leases | |||
2022 (excluding the three months ended March 31) | $ | | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter | | ||
Total lease payments | $ | | |
Less imputed interest | ( | ||
Total present value of lease liabilities | $ | ||
Maturities of the Company’s operating lease liabilities as of December 31, 2021 were as follows (in thousands):
Year Ended | |||
December 31, 2021 | |||
2022 | $ | | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter | | ||
Total minimum lease commitments | $ | | |
17. Commitments and contingencies
Supply agreement
In March 2020, the Company entered into an agreement with a supplier to provide raw materials used in the manufacturing process. As of March 31, 2022, the Company had committed to minimum payments under these arrangements totaling $
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Software subscription
During the year ended December 31, 2021, the Company entered into a non-cancelable agreement with a service provider for software as a service and cloud hosting services. As of March 31, 2022, the Company had committed to minimum payments under these arrangements totaling $
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, 2022 and December 31, 2021.
Legal proceedings
The Company is not a party to any 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.
18. Benefit plans
The Company established a defined contribution savings plan under Section 401(k) of the Code. This plan covers all 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 $
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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, 2021, included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 24, 2022 (the “2021 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 2021 Form 10-K, 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, or 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, or LIMS, connection software (which the majority of our customers purchase), 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 several days, a 50% improvement over 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, 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 preferred stock, proceeds from our IPO, borrowings under loan agreements and product and service sales as well as our cost-reimbursement contract with the U.S. Department of Health and Human Services Biomedical Advanced Research & Development Authority, or BARDA. All funding under this contract was fully earned by the fourth quarter of 2021 and, as such, we do not currently anticipate recognizing any non-commercial revenue in the year ending December 31, 2022.
On July 19, 2021, we closed an initial public offering of our Class A common stock, or the IPO, which resulted in the sale of 7,920,000 shares of our Class A common stock at a public offering price of $20.00 per share, before underwriting discounts. The IPO resulted in gross proceeds of $158.4 million and net proceeds of approximately $143.8 million after deducting underwriting discounts, commissions and estimated offering expenses payable by us. Additionally, on August 4, 2021, the underwriters exercised their overallotment option in part and purchased 1,086,604 shares of Class A common stock at the initial public offering price of $20.00 per share less discounts and commissions.
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The overallotment option exercise resulted in net proceeds of approximately $20.2 million. Immediately prior to the completion of the IPO, all of the outstanding shares of our Series A1, Series B1, Series C1 and Series D1 preferred stock converted into 24,200,920 shares of Class A common stock and all of the outstanding shares of our Series C2 and Series D2 converted into 6,903,379 shares of Class B common stock. As of March 31, 2022, no shares of our preferred stock remained outstanding.
Since our inception, we have incurred net losses in each year. We generated revenue of $4.2 million and $5.0 million for the three months ended March 31, 2022 and 2021, respectively, and incurred net losses of $14.9 million and $22.1 million for those same periods, respectively. As of March 31, 2022, we had an accumulated deficit of $330.0 million. We expect to continue to incur net losses for the foreseeable future 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; |
| ● | 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 as of March 31, 2022 enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. 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.”
COVID-19 update
In response to the COVID-19 pandemic and various resulting government directives, we took proactive measures to protect the health and safety of our employees, customers, and partners, while maintaining our ability to supply and service our customers. We continue to monitor the implications of the ongoing COVID-19 pandemic on our business, as well as our customers’ and suppliers’ businesses. Some of the measures we have taken follow:
| ● | During this pandemic, we moved quickly to implement several business continuity initiatives aimed at maintaining uninterrupted manufacturing and supply capabilities while keeping our workforce safe, including instituting a COVID-19 task force, forming multiple manufacturing teams with staggered shifts, increasing inventory safety stock levels, and establishing appropriate protective equipment and distancing policies for essential on-site personnel. |
| ● | We have been designated an essential business that can continue operations during the COVID-19 pandemic. In early March 2020, we promptly instituted protocols to have many personnel work remotely. At the same time, because of our continued designation as an essential business, many employees continue to work on-site at our facility in Lowell, Massachusetts to undertake manufacturing activities that support essential operations to provide mission-critical MQC testing products to global pharmaceutical customers |
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| manufacturing life-saving drugs. We restricted business travel in certain geographies. To date, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting and disclosure controls and procedures. |
| ● | Our production, shipping and customer service functions remain operational to maintain a continuous supply of products to our customers. We are communicating regularly with our suppliers and logistics partners so that our supply chain remains intact and we have not experienced any material supply issues to date. Our customer service teams around the world are operating remotely and remain available to assist our customers and partners as needed. |
| ● | As a result of travel restrictions and shelter-in-place orders, we experienced an impact on our ability to sell, ship, install and validate systems, as well as train customers in certain geographies, which negatively impacted our product and service revenues during 2022 and 2021. Despite these restrictions, we were able to implement several measures including remote and customer-assisted support activities to support the continued growth of our business. However, the rapid onset of the Omicron variant limited the effectiveness of these measures, which contributed to our weaker than expected system placements during the three months ended March 31, 2022. |
| ● | We continue to actively review and manage costs to navigate the current environment. |
While the disruption due to COVID-19, and its variants, is currently expected to be temporary, there is considerable uncertainty around its duration. We expect these disruptions to continue to impact our operating results. However, the related financial impact and duration of these disruptions cannot be reasonably estimated at this time.
Effects of Inflation and Interest Rates
The current inflationary environment and rising interest rates 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. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. 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 2021 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, Asia and Australia.
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We are investing substantially in these organizations and expect to continue to do so in the future. As part of this effort, we increased our direct sales and marketing team by 9% during the three months ended March 31, 2022.
Expansion within our existing customer base
There is an opportunity to increase broader adoption and utilization of our Growth Direct platform throughout our existing customers’ organizations by existing customers purchasing 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, 2022, a majority of our customers have purchased Growth Direct systems for multiple sites, and approximately 60% 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 multiple applications on the Growth Direct platform.
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.
Expanding Growth Direct into adjacent end markets
We have identified several market expansion opportunities including deploying our existing Growth Direct platform into the personal care products market. We continuously seek to identify other market opportunities where our Growth Direct platform could enhance MQC testing. We could expand into these markets through our existing technologies, through adapting our existing technologies, or through developing new products to specifically address the unmet needs of these adjacent markets. We may drive our expansion into these markets by building commercial infrastructure to specifically target customers in those markets, or by partnering with other participants in those markets.
Revenue mix
Our revenue is derived from sales of our Growth Direct systems, our LIMS connection software, proprietary consumables, services and our cost-reimbursement contract with BARDA. Growth Direct system revenue involves a capital selling process and tends to be somewhat concentrated within a small (but different) group of customers each year, it is subject to variability from quarter to quarter. While we expect Growth Direct systems revenue to be the largest contributor to our revenue over the near- to mid-term, as our base of validated Growth Direct systems continues to grow, we expect our recurring revenue (consumables and service contracts) to grow at a faster rate than our non-recurring revenues (Growth Direct systems, validation and other services), which we expect to drive variability and longer-term trends in our revenue mix.
Our non-commercial revenue was historically generated from a long-term contract with BARDA. All funding under our contract with BARDA was fully earned by the fourth quarter of 2021 and, as such, we do not currently anticipate recognizing any non-commercial revenue in the year ending December 31, 2022.
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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 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 |
| ||||||||||
| 2022 |
| 2021 |
| Amount |
| % |
| ||||
(dollars in thousands) | ||||||||||||
Systems placed: |
|
|
|
|
|
|
|
| ||||
Systems placed in period |
| 2 |
| 8 |
| (6) |
| (75.0) | % | |||
Cumulative systems placed |
| 118 |
| 95 |
| 23 |
| 24.2 | % | |||
Systems validated: |
|
|
|
|
|
|
| |||||
Systems validated in period |
| 9 |
| 1 |
| 8 |
| 800.0 | % | |||
Cumulative systems validated |
| 93 |
| 52 |
| 41 |
| 78.8 | % | |||
Product and service revenue — total | $ | 4,160 | $ | 4,785 | $ | (625) |
| (13.1) | % | |||
Product and service revenue — recurring | $ | 2,658 | $ | 1,606 | $ | 1,052 |
| 65.5 | % | |||
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 COVID-19 related restrictions). 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 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 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.
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 order volume and timing, whether customers have previously validated Growth Direct systems within their site or network, access to customer sites (including as a result of COVID-19 related restrictions), customer site readiness 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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Product and service revenue
We regularly assess trends relating to our combined product and service revenue as an indicator of our business performance. Product and service revenue represents all of our commercial revenue for the business. It excludes non-commercial revenue, which typically supports other business functions such as research and development and is by its nature subject to significant variability.
During the three months ended March 31, 2022 and 2021, travel restrictions related to COVID-19, and its variants, negatively impacted our ability to ship, install and validate systems, as well as train customers in certain geographies. This negatively impacted our product and service revenue in those periods. While we expect these disruptions to continue to impact our operating results, the related financial impact and duration of these disruptions cannot be reasonably estimated at this time.
Recurring revenue
We regularly assess trends relating to 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 63.9% and 32.2% of our total revenue for the three months ended March 31, 2022 and 2021, 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 validated in the period, as well as other variables such as the volume of tests being conducted, and the test application(s) being used on those Growth Direct systems. As our base of validated systems continues to grow, we expect our recurring revenue streams to grow at a faster rate that will ultimately result in our recurring revenue constituting the majority of our revenue over the longer term.
Components of results of operations
Revenue
We generate revenue from sales of our Growth Direct system including our LIMS connection software, consumables, validation services, service contracts and field service as well as our contractual arrangement with BARDA. We primarily sell our products and services through direct sales representatives. The arrangements are noncancelable and nonrefundable after ownership passes to the customer.
Three Months Ended |
| Percentage |
| Three Months Ended |
| Percentage |
| ||||
March 31, | of total | March 31, | of total |
| |||||||
| 2022 |
| revenue |
| 2021 |
| revenue |
| |||
(in thousands) | (in thousands) |
| |||||||||
Product revenue | $ | 2,563 |
| 61.6 | % | $ | 3,718 |
| 74.4 | % | |
Service revenue |
| 1,597 |
| 38.4 | % |
| 1,067 |
| 21.4 | % | |
Non-commercial revenue |
| — |
| - | % |
| 210 |
| 4.2 | % | |
Total revenue | $ | 4,160 |
| 100.0 | % | $ | 4,995 |
| 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, 2022, we had placed 118 Growth Direct systems to over thirty customers globally, including over half of the top twenty pharmaceutical companies as measured by revenue and approximately 30% of globally approved cell and gene therapies.
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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, and, 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 in our existing customers and markets and expand into new customers and markets.
Consumables
Our consumable revenue is a recurring product revenue stream composed 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 to prevent counterfeiting.
We expect consumable revenue to increase in future periods as our base of cumulative validated Growth Direct systems grows and those systems utilize our consumables on a recurring, ongoing basis.
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. Revenue from validation services and field service are non-recurring service revenue streams, while revenue from service contracts is a recurring service revenue stream.
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 two preventative maintenance visits per year. 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 consists of services provided by our field service engineers to install Growth Direct systems at customer sites. We recognize revenue from field service 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.
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Non-commercial revenue
We have generated non-commercial revenue from long-term contracts with governmental agencies and third parties. To date, our non-commercial revenue has been derived from contracts with BARDA. All funding under these contracts were fully earned by the fourth quarter of 2021 and, as such, we do not currently anticipate recognizing any non-commercial revenue in the year ending December 31, 2022.
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.
Cost of non-commercial revenue primarily consisted of salaries and other personnel costs including stock-based compensation expense, consulting expense, materials, travel and other costs related to the revenue recognized as non-commercial revenue during the period. Our contract with BARDA was subject to the Federal Acquisition Regulation, or FAR and is priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods or services provided under U.S. government contracts. All obligations under the BARDA contract were performed by the fourth quarter of 2021 and, as such, we do not currently anticipate recognizing any costs of non-commercial revenue in the year ending December 31, 2022.
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; |
| ● | 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 |
| ● | information technology and facilities expenses, which include direct and allocated expenses for rent, maintenance of facilities and insurance as well as related depreciation and amortization. |
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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 finance, legal, human resources and general management employees, as well as professional fees for legal, patent, accounting, audit, investor relations, recruiting, consulting 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 periods as the number of administrative personnel grows to support increasing business size and complexity. We have also incurred incremental accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor relations expenses associated with operating as a public company.
Other income (expense)
Interest expense
Interest expense is comprised of interest cost associated with outstanding borrowings under our loan and security agreements, amortization of deferred financing costs and debt discounts associated with such arrangements.
Change in fair value of preferred stock warrant liability
In connection with the May 2020 term loan facility, we entered into with a lender, or the 2020 Term Loan, we issued 1,195,652 warrants to purchase shares of Series C1 Preferred Stock at an exercise price of $1.15 per share. These warrants were immediately exercisable and expire 10 years after the issuance date. We also have other outstanding warrants to purchase preferred stock issued in connection with previous financing arrangements.
We classified all of our warrants to purchase preferred stock as a liability on our consolidated balance sheets until our IPO because the warrants were freestanding financial instruments that may require us to transfer assets upon exercise. The liability associated with each of these warrants was initially recorded at fair value upon the issuance date and was subsequently remeasured to fair value at each reporting date. The resulting change in the fair value of the preferred stock warrant liability was recorded as a component of other income (expense) in our consolidated statements of operations. We continued to recognize changes in the fair value of this preferred stock warrant liability at each reporting period until the IPO when they qualified for equity classification.
In connection with the IPO, the preferred stock warrants were automatically converted to Class A common stock warrants. We determined the event resulted in equity classification of the Class A common stock warrants and derecognized the fair value of the preferred stock warrant liability as of the IPO date and reclassified to equity.
Other income
Other income primarily consists of interest income as well as other miscellaneous income unrelated to our core operations.
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Income tax expense
We generated significant taxable losses during the three months ended March 31, 2022 and 2021 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.
Results of operations
Comparison of the three months ended March 31, 2022 and 2021
The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:
Three Months Ended |
| |||||||||||
March 31, | March 31, | Change |
| |||||||||
| 2022 |
| 2021 |
| Amount |
| % | |||||
| (in thousands) | |||||||||||
Revenue: | ||||||||||||
Product revenue | $ | 2,563 | $ | 3,718 | $ | (1,155) |
| (31.1) | % | |||
Service revenue |
| 1,597 |
| 1,067 |
| 530 |
| 49.7 | % | |||
Non-commercial revenue |
| — |
| 210 |
| (210) |
| (100.0) | % | |||
Total revenue |
| 4,160 |
| 4,995 |
| (835) |
| (16.7) | % | |||
Costs and operating expenses: |
|
|
|
| ||||||||
Cost of product revenue |
| 4,358 |
| 5,510 |
| (1,152) |
| (20.9) | % | |||
Cost of service revenue |
| 1,726 |
| 1,137 |
| 589 |
| 51.8 | % | |||
Cost of non-commercial revenue |
| — |
| 414 |
| (414) |
| (100.0) | % | |||
Research and development |
| 3,525 |
| 2,147 |
| 1,378 |
| 64.2 | % | |||
Sales and marketing |
| 3,456 |
| 2,275 |
| 1,181 |
| 51.9 | % | |||
General and administrative |
| 6,094 |
| 3,203 |
| 2,891 |
| 90.3 | % | |||
Total costs and operating expenses |
| 19,159 |
| 14,686 |
| 4,473 |
| 30.5 | % | |||
Loss from operations |
| (14,999) |
| (9,691) |
| (5,308) |
| 54.8 | % | |||
Other income (expense): |
|
|
|
| ||||||||
Interest expense |
| (11) |
| (932) |
| 921 |
| (98.8) | % | |||
Change in fair value of preferred stock warrant liability |
| — |
| (11,448) |
| 11,448 |
| (100.0) | % | |||
Other income (expense), net | 103 | (11) | 114 | (1,036.4) | % | |||||||
Total other income (expense), net |
| 92 |
| (12,391) |
| 12,483 |
| (100.7) | % | |||
Loss before income taxes |
| (14,907) |
| (22,082) |
| 7,175 |
| (32.5) | % | |||
Income tax expense |
| 23 |
| 19 |
| 4 |
| 21.1 | % | |||
Net loss | $ | (14,930) | $ | (22,101) | $ | 7,171 |
| (32.4) | % | |||
Revenue
Product revenue decreased by $1.2 million, or 31.1%. The decrease in product revenue is a result of fewer Growth Direct system placements. The number of system placements and rate of growth varies from period-to-period due to factors including, but not limited to, the volume and timing of system orders. In the three months ended March 31, 2022, volume and timing of system orders were impacted by the readiness of and access to customer sites related to COVID-19 restrictions. Higher shipments of consumables and improved consumables average selling price had favorable impacts of $0.8 million and $0.3 million, respectively, on our revenue growth.
Service revenue increased by $0.5 million, or 49.7%. The increase in service revenue was primarily due to a $0.3 million increase in validation revenue due to the increase in Growth Direct systems placed, as well as a $0.2 million increase in service contract revenue, driven by an increase in cumulative number of Growth Direct systems installed and on service contracts.
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During the quarters ended March 31, 2022 and 2021, restrictions on travel and access to customer sites related to COVID-19, and its variants, including the rapid onset of the Omicron variant in the second half of the fourth quarter of 2021 negatively impacted our ability to sell, ship, install and validate systems, as well as train customers in certain geographies. This negatively impacted our product and service revenue in the periods. While we expect these disruptions to continue to impact our operating results, the related financial impact and duration of these disruptions cannot be reasonably estimated at this time.
Non-commercial revenue was zero and $0.2 million, for the three months ended March 31, 2022 and 2021, respectively. All funding under the BARDA contract was fully earned by the fourth quarter of 2021 and, as such, we do not currently anticipate recognizing any non-commercial revenue in the year ending December 31, 2022.
Costs and operating expenses
Costs of revenue
Cost of product revenue decreased by $1.2 million, or 20.9%. The reduction in cost of product revenue was driven by a net $0.7 million cost reduction due to fewer systems placed in the period, partially offset by an increase in consumables costs due to higher unit volume sold. Material cost savings resulted in an additional $0.5 million in cost reductions.
Cost of service revenue increased by $0.6 million, or 51.8%. This increase was driven by an increase of $0.5 million due to higher headcount-related costs associated with additional validation and field service employees hired in 2021 and an increase in travel-related costs correlating with an increase in field service and validation activity to support our growing base of Growth Direct systems in the field. A $0.1 million increase in other costs also contributed to the increase.
Cost of non-commercial revenue was zero for the three months ended March 31, 2022, compared to $0.4 million for the three months ended March 31, 2021. All funding under the BARDA contract was fully earned by the fourth quarter of 2021 and, as such, we do not currently anticipate recognizing any corresponding costs in the year ending December 31, 2022.
Research and development
Three Months Ended |
| |||||||||||
| March 31, |
| Change | |||||||||
| 2022 |
| 2021 |
| Amount |
| % | |||||
(dollars in thousands) | ||||||||||||
Research and development | $ | 3,525 | $ | 2,147 | $ | 1,378 |
| 64.2 | % | |||
Percentage of total revenue |
| 84.7 | % |
| 43.0 | % |
|
|
|
| ||
Research and development expenses increased by $1.4 million, or 64.2%. This increase was primarily due to an increase of $1.4 million in employee-related costs due primarily to higher headcount partially offset by a reduction in consulting expenses of $0.3 million, an increase in IT and facility-related costs of $0.2 million, and an increase in other general research and development costs of $0.1 million.
Sales and marketing
Three Months Ended |
| |||||||||||
| March 31, |
| Change | |||||||||
| 2022 |
| 2021 |
| Amount |
| % | |||||
(dollars in thousands) | ||||||||||||
Sales and marketing | $ | 3,456 | $ | 2,275 | $ | 1,181 | 51.9 | % | ||||
Percentage of total revenue |
| 83.1 | % |
| 45.5 | % |
|
|
|
| ||
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Sales and marketing expenses increased by $1.2 million, or 51.9%. This increase was due to employee-related costs of $1.4 million primarily due to the expansion of our sales and marketing organizations to support increased commercial activity and an increase of $0.2 million in IT and facility-related costs. These increases were partially offset by a $0.4 million decrease in consulting and marketing activity-related expenses, primarily due to increased spend during the first quarter of 2021 to support market research completed in preparation for our IPO.
General and administrative
Three Months Ended |
| |||||||||||
March 31, | Change |
| ||||||||||
| 2022 |
| 2021 |
| Amount |
| % | |||||
(dollars in thousands) | ||||||||||||
General and administrative | $ | 6,094 | $ | 3,203 | $ | 2,891 |
| 90.3 | % | |||
Percentage of total revenue |
| 146.5 | % |
| 64.1 | % |
|
|
|
| ||
General and administrative expenses increased by $2.9 million, or 90.3%. This increase was primarily driven by costs required to operate as a public company. This included a $1.7 million increase in employee-related costs related to higher headcount and a $0.8 million increase related to public company business insurance and compensation of the non-employee members of our board of directors. The remaining $0.4 million of the increase related to other general and administrative expenses.
Other income (expense)
Interest expense
Interest expense for the three months ended March 31, 2022 and 2021 was less than $0.1 million and $0.9 million, respectively. The decrease of $0.9 million, or 98.8%, was primarily due to the repayment of our 2020 Term Loan in September 2021.
Change in fair value of preferred stock warrant liability
The change in fair value of preferred stock warrant liability was zero for the three months ended March 31, 2022, compared to a loss of $11.4 million for the three months ended March 31, 2021. The loss in the prior year was due to an increase in the fair value of the underlying preferred stock in that period.
Other income (expense)
Other expense remained relatively consistent at $0.1 million and less than $0.1 for the three months ended March 31, 2022 and 2021, respectively.
Income tax expense
Income tax expense was less than $0.1 million for the three months ended March 31, 2022 and March 31, 2021. The expense was recorded for our German subsidiary.
Liquidity and capital resources
Since our inception, we have incurred significant operating losses. To date, we have funded our operations primarily through proceeds from sales of redeemable convertible preferred stock, borrowing under loan agreements, revenue from sales of our products, services and contracts and proceeds from our IPO. As of March 31, 2022, we had cash, cash equivalents and short and long-term investments of $184.2 million. We believe that our cash, cash equivalents and short- and long-term 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 contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, were issued.
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Contractual obligations and commitments
In March 2022, we amended the lease for our office and manufacturing space in Lowell, Massachusetts, or the Amendment. The Amendment increased the amount of facility space subject to the lease and extended the expiration of the lease from July 2026 to July 2029. The terms of the Amendment include options for a one-time, five-year extension of the lease and early termination of the lease in July 2026 (subject to an early termination fee), as well as a $0.3 million tenant improvement allowance. Monthly rent payments are fixed and future minimum lease payments under the lease (as amended) are $4.6 million.
Cash flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Net cash used in operating activities | $ | (16,801) | $ | (11,262) | ||
Net cash (used) provided by investing activities |
| (99,548) |
| 9,749 | ||
Net cash provided by financing activities |
| 463 |
| 80,069 | ||
Net (decrease) increase in cash and cash equivalents and restricted cash | $ | (115,886) | $ | 78,556 | ||
Operating activities
During the three months ended March 31, 2022, operating activities used $16.8 million in cash, primarily resulting from our net loss of $14.9 million, net cash used by changes in our operating assets and liabilities of $3.7 million, which were partially offset by non-cash charges of $1.8 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2022 consisted primarily of increases in inventory of $2.0 million driven by an increase in finished goods and raw material inventory, a decrease in prepaid and other assets of $0.8 million driven by amortization, as well as a decrease in accounts payable of $0.4 million and an increase in deferred revenue of $0.6 million. The cash used by operating assets and liabilities was partially offset by a reduction in accrued expenses and other liabilities of $3.9 million.
During the three months ended March 31, 2021, operating activities used $11.3 million in cash, primarily resulting from our net loss of $22.1 million, net cash used by changes in our operating assets and liabilities of $1.3 million, which were partially offset by non-cash charges of $12.1 million, which include the non-cash change in fair value of preferred stock warrant liability of $11.4 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2021 consisted primarily of increases in inventory of $0.8 million to support increased production volume, and decreases of $2.0 million in accounts payable and $0.8 million in accrued expenses and other current liabilities. The cash used by operating assets and liability is partially offset by a decrease in accounts receivable of $1.3 million, an increase in deferred revenue of $0.7 million, and a decrease in prepaid and other current assets of $0.3 million.
Investing activities
During the three months ended March 31, 2022, net cash used in investing activities was $99.5 million, due to purchases of investments of $97.2 million and purchases of property and equipment of $2.3 million.
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During the three months ended March 31, 2021, net cash provided by investing activities was $9.7 million, consisting of maturities of investments of $10.0 million, partially offset by purchases of property and equipment of $0.3 million.
Financing activities
During the three months ended March 31, 2022, net cash provided by financing activities was $0.5 million, primarily from Class A common stock issued upon stock option exercises.
During the three months ended March 31, 2021, net cash provided by financing activities was $80.1 million, consisting primarily of net proceeds of $79.8 million from the issuance of Series D1 and D2 redeemable convertible preferred stock and $0.6 million in proceeds from restricted common stock purchased by an employee and stock option exercises, partially offset by $0.3 million cash paid for offering costs.
Seasonality
Our revenues vary from quarter to quarter as a result of factors such as our customers’ budgetary cycles and extended summer vacation periods that could impact our ability to deliver products and provide onsite services to our customers during those periods. We expect this volatility to continue for the foreseeable future, which may cause fluctuations in our operating results and financial metrics. In addition, trends may vary in the future as our revenue mix shifts from non-recurring to recurring revenues.
Critical accounting estimates
Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. Our estimates are based on our historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in Note 2 — Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2021 Form 10-K, other than as disclosed in Note 2.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 — Summary of Significant Accounting Policies to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Emerging growth company status
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth
49
companies, and our financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of the IPO, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
Further, even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and inflationary pressure. There has been no material change in our exposure to market risks from that discussed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2021 Form 10-K.
Item 4. Controls and Procedures
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are probable to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on our business, financial condition, results of operations and prospects because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
There have been no material changes from the risk factors discussed under the heading “Risk Factors” and elsewhere in our 2021 Form 10-K and they continue to apply to our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser
None.
Use of Proceeds
On July 14, 2021, the Registration Statement on Form S-1 (File No. 333-257431) relating to our IPO was declared effective by the SEC. There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
51
Incorporated by Reference | Filed/ | |||||
|---|---|---|---|---|---|---|
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Furnished Herewith |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | * | |||||
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | * | |||||
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. | ** | |||||
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. | ** | |||||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | * | ||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | * | ||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | * | ||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | * | ||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | * | ||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | * | ||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * | ||||
*Filed herewith.
**Furnished herewith.
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: May 10, 2022 | ||
RAPID MICRO BIOSYSTEMS, INC. | ||
By: | /s/ Robert Spignesi | |
Robert Spignesi | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Sean Wirtjes | |
Sean Wirtjes | ||
Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) | ||
53
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(a) OR 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Spignesi, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Rapid Micro Biosystems, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 10, 2022
| By: | /s/ Robert Spignesi |
| Name: | Robert Spignesi |
| Title: | Chief Executive Officer |
| | (principal executive officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) OR 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sean Wirtjes, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Rapid Micro Biosystems, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 10, 2022
| By: | /s/ Sean Wirtjes |
| Name: | Sean Wirtjes |
| Title: | Chief Financial Officer |
| | (principal financial officer and principal accounting officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Rapid Micro Biosystems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, the undersigned, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 10, 2022
| | |
| By: | /s/ Robert Spignesi |
| Name: | Robert Spignesi |
| Title: | Chief Executive Officer |
| | (principal executive officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Rapid Micro Biosystems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, the undersigned, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 10, 2022
| | |
| By: | /s/ Sean Wirtjes |
| Name: | Sean Wirtjes |
| Title: | Chief Financial Officer |
| | (principal financial officer and principal accounting officer) |