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 .
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Securities registered pursuant to Section 12(b) of the Exchange Act:
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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 | ◻ |
| ⌧ | |
Non-accelerated filer | ◻ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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As of October 30, 2020, the registrant had
TTABLE OF CONTENTS
2
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about our financial performance, and are subject to a number of risks, uncertainties and assumptions, including those described in this Quarterly Report on Form 10-Q and in “Part I, Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as may be updated by “Part II, Item 1A, Risk Factors” of our subsequently filed Quarterly Reports on Form 10-Q, or other filings that we make with the Securities and Exchange Commission, or SEC. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, events or circumstances reflected in the forward-looking statements will be achieved or occur. You should read this Quarterly Report on Form 10-Q, and the documents that we reference herein and have filed with the SEC, with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to new information, actual results or to changes in our expectations, except as required by law.
Unless the context otherwise requires, the terms “Quanterix,” the “Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to Quanterix Corporation and its subsidiaries. “Quanterix,” “Simoa,” “Simoa HD-X,” “Simoa HD-1,” “SR-X,” “SP-X,” “HD-X Analyzer,” “HD-1 Analyzer” and our logo are our trademarks. All other service marks, trademarks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Quanterix Corporation
Condensed Consolidated Balance Sheets
(amounts in thousands, except share and per share data)
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| September 30, 2020 |
| December 31, 2019 | |||
Assets | ||||||
Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable (less reserve for doubtful accounts of $ |
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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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Restricted cash |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Right-of-use assets | | — | ||||
Other non-current assets |
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Total assets | $ | | $ | | ||
Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable (including $ | $ | | $ | | ||
Accrued compensation and benefits |
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Other accrued expenses (including $ |
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Deferred revenue (including $ |
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Current portion of long term debt |
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Short term lease liabilities | | — | ||||
Other current liabilities | | | ||||
Total current liabilities |
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Deferred revenue, net of current portion |
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Long term debt, net of current portion |
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Long term lease liabilities | | — | ||||
Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies (Note 11) |
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Stockholders’ equity: |
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Common stock, $ |
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Authorized— |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) | | ( | ||||
Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
See accompanying notes
4
Quanterix Corporation
Condensed Consolidated Statements of Operations
(amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||
Product revenue (including related party activity of $ | $ | | $ | | $ | | $ | | |||||
Service and other revenue (including related party activity of $ |
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Collaboration and license revenue |
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Grant revenue | | — | | — | |||||||||
Total revenue |
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Costs of goods sold: |
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Cost of product revenue (including related party activity of $ |
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Cost of services and other revenue |
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Cost of collaboration and license revenue | | — | | — | |||||||||
Total costs of goods sold, services, and licenses |
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Gross profit | | | | | |||||||||
Operating expenses: |
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Research and development |
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Selling, general, and administrative |
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Total operating expenses |
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Income (loss) from operations |
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| ( |
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Interest income (expense), net |
| ( |
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Other expense, net |
| ( |
| ( |
| ( |
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Income (loss) before income taxes | | ( | ( | ( | |||||||||
Income tax benefit | | | | | |||||||||
Net income (loss) | $ | | $ | ( | $ | ( | $ | ( | |||||
Net income (loss) per share, basic | $ | | $ | ( | $ | ( | $ | ( | |||||
Weighted-average common shares outstanding, basic |
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Net income (loss) per share, diluted | $ | | $ | ( | $ | ( | $ | ( | |||||
Weighted-average common shares outstanding, diluted |
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See accompanying notes
5
Quanterix Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
(amounts in thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2020 |
| 2019 |
| 2020 |
| 2019 | ||||||
Net income (loss) | $ | | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss): | ||||||||||||
Cumulative translation adjustment | | ( | | ( | ||||||||
Total other comprehensive income (loss) | | ( | | ( | ||||||||
Comprehensive income (loss) | $ | | $ | ( | $ | ( | $ | ( | ||||
See accompanying notes
6
Quanterix Corporation
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||
2020 |
| 2019 | ||||
Operating activities |
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Net income (loss) | $ | ( | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization expense |
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Inventory step-up amortization | | — | ||||
Reduction in the carrying amounts of right-of-use assets | | — | ||||
Stock-based compensation expense |
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Non-cash interest expense |
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Loss on disposal of fixed assets |
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Changes in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Prepaid expenses and other assets |
| ( |
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Inventory |
| ( |
| ( | ||
Other non-current assets |
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| ( | ||
Accounts payable |
| ( |
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Accrued compensation and benefits, other accrued expenses and other current liabilities |
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Contract acquisition costs | ( | | ||||
Operating lease liabilities | | — | ||||
Other non-current liabilities | ( | | ||||
Deferred revenue |
| ( |
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Net cash used in operating activities | ( | ( | ||||
Investing activities |
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Purchases of property and equipment |
| ( |
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Acquisition of UmanDiagnostics AB, net of cash acquired |
| — |
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Net cash used in investing activities | ( | ( | ||||
Financing activities |
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Proceeds from stock options exercised |
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Sale of common stock in at-the-market offering, net | — | | ||||
Sale of common stock in underwritten public offering, net | | | ||||
Proceeds from ESPP purchase |
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Payments on notes payable |
| ( |
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Net cash provided by financing activities | | | ||||
Net increase in cash and cash equivalents |
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Effect of foreign currency exchange rate on cash | ( | ( | ||||
Cash, restricted cash, and cash equivalents at beginning of period |
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Cash, restricted cash, and cash equivalents at end of period | $ | | $ | | ||
Supplemental cash flow information |
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Cash paid for interest | $ | | $ | | ||
Purchases of property and equipment included in accounts payable | $ | | $ | | ||
Purchases of property and equipment included in other non-current liabilities | $ | — | $ | | ||
$ | — | $ | | |||
Reconciliation of cash, cash equivalents, and restricted cash: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | $ | | $ | | ||
Total cash, cash equivalents, and restricted cash | $ | | $ | | ||
See accompanying notes
7
Quanterix Corporation
Condensed Consolidated Statements of Stockholders’ Equity
(amounts in thousands, except share data)
(Unaudited)
Accumulated | |||||||||||||||||
Additional | other | Total | |||||||||||||||
Common | Common | paid-in | comprehensive | Accumulated | stockholders’ | ||||||||||||
| stock shares |
| stock value |
| capital |
| income (loss) | deficit |
| equity | |||||||
Balance at June 30, 2020 | |
| $ | |
| $ | |
| $ | ( | $ | ( |
| $ | | ||
Exercise of common stock options and vesting of restricted stock | | | | — | — | | |||||||||||
Sale of common stock in underwritten public offering, net |
| | | | — | — |
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ESPP stock purchase |
| | — | | — | — |
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Stock-based compensation expense |
| — | — | | — | — |
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Cumulative translation adjustment | — | — | — | | — | | |||||||||||
Net income (loss) | — | — | — | — | | | |||||||||||
Balance at September 30, 2020 |
| |
| $ | |
| $ | |
| $ | | $ | ( |
| $ | | |
Accumulated | |||||||||||||||||
Additional | other | Total | |||||||||||||||
Common | Common | paid-in | comprehensive | Accumulated | stockholders’ | ||||||||||||
| stock shares |
| stock value |
| capital |
| income (loss) | deficit |
| equity | |||||||
Balance at June 30, 2019 |
| | $ | | $ | | $ | — | $ | ( |
| $ | | ||||
Exercise of common stock warrants | | — | — | — | — | — | |||||||||||
Exercise of common stock options and vesting of restricted stock |
| | — | | — | — |
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Sale of common stock in underwritten public offering, net | | | | — | — |
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Issuance of shares for acquisition of Umandiagnostics AB | | — | | — | — | | |||||||||||
ESPP stock purchase | | — | | — | — | | |||||||||||
Stock-based compensation expense | — | — | | — | — | | |||||||||||
Cumulative translation adjustment | — | — | — | ( | — | ( | |||||||||||
Net income (loss) | — | — | — | — | ( | ( | |||||||||||
Balance at September 30, 2019 |
| |
| $ | |
| $ | |
| $ | ( | $ | ( |
| $ | | |
Accumulated | |||||||||||||||||
Additional | other | Total | |||||||||||||||
Common | Common | paid-in | comprehensive | Accumulated | stockholders’ | ||||||||||||
| stock shares |
| stock value |
| capital |
| income (loss) | deficit |
| equity | |||||||
Balance at December 31, 2019 |
| | $ | | $ | | $ | ( | $ | ( |
| $ | | ||||
Exercise of common stock options and vesting of restricted stock |
| | | | — | — |
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Sale of common stock in underwritten public offering, net | | | | — | — | | |||||||||||
ESPP stock purchase | | — | | — | — |
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Stock-based compensation expense | — | — | | — | — | | |||||||||||
Cumulative translation adjustment | — | — | — | | — | | |||||||||||
Net income (loss) | — | — | — | — | ( | ( | |||||||||||
Balance at September 30, 2020 |
| |
| $ | |
| $ | |
| $ | | $ | ( |
| $ | | |
Accumulated | |||||||||||||||||
Additional | other | Total | |||||||||||||||
Common | Common | paid-in | comprehensive | Accumulated | stockholders’ | ||||||||||||
| stock shares |
| stock value |
| capital |
| income (loss) | deficit |
| equity | |||||||
Balance at December 31, 2018 |
| | $ | | $ | | $ | — | $ | ( |
| $ | | ||||
Cumulative-effect adjustment for the adoption of ASC 606 | — | — | — | — | | | |||||||||||
Exercise of common stock warrants | | — | — | — | — | — | |||||||||||
Exercise of common stock options and vesting of restricted stock |
| | | | — | — |
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Sale of common stock in at-the-market offering, net | | | | — | — | | |||||||||||
Sale of common stock in underwritten public offering, net | | | | — | — | | |||||||||||
Issuance of shares for acquisition of Umandiagnostics AB | | — | | — | — | | |||||||||||
ESPP stock purchase | | — | | — | — |
| | ||||||||||
Stock-based compensation expense | — | — | | — | — | | |||||||||||
Cumulative translation adjustment | — | — | — | ( | — | ( | |||||||||||
Net income (loss) | — | — | — | — | ( | ( | |||||||||||
Balance at September 30, 2019 |
| |
| $ | |
| $ | |
| $ | ( | $ | ( |
| $ | | |
See accompanying notes
8
Quanterix Corporation
Notes to condensed consolidated financial statements
(Unaudited)
1. Organization and operations
Quanterix Corporation (Nasdaq: QTRX) (the Company) is a life sciences company that has developed next generation, ultra-sensitive digital immunoassay platforms that advance precision health for life sciences research and diagnostics. The Company's platforms are based on its proprietary digital "Simoa" detection technology. The Company's Simoa bead-based and planar array platforms enable customers to reliably detect protein biomarkers in extremely low concentrations in blood, serum and other fluids that, in many cases, are undetectable using conventional, analog immunoassay technologies, and also allow researchers to define and validate the function of novel protein biomarkers that are only present in very low concentrations and have been discovered using technologies such as mass spectrometry. These capabilities provide the Company's customers with insight into the role of protein biomarkers in human health that has not been possible with other existing technologies and enable researchers to unlock unique insights into the continuum between health and disease. The Company is currently focusing on protein detection, which it believes is an area of significant unmet need and where it has significant competitive advantages. However, in addition to enabling new applications and insights in protein analysis, the Company’s Simoa platforms have also demonstrated applicability across other testing applications, including detection of nucleic acids and small molecules.
The Company launched its first immunoassay platform, the Simoa HD-1, in 2014. The HD-1 is a fully automated immunoassay bead-based platform with multiplexing and custom assay capability, and related assay test kits and consumable materials. The Company launched a second bead-based immunoassay platform (SR-X) in the fourth quarter of 2017 with a more compact footprint than the Simoa HD-1 and less automation designed for lower volume requirements while still allowing multiplexing and custom assay capability. The Company initiated an early-access program for its third instrument (SP-X) on the new Simoa planar array platform in January 2019, with the full commercial launch commencing in April 2019. In July 2019, the Company launched the Simoa HD-X, an upgraded version of the Simoa HD-1 which replaces the HD-1. The HD-X has been designed to deliver significant productivity and operational efficiency improvements, as well as greater user flexibility. The Company began shipping and installing HD-X instruments at customer locations in the third quarter of 2019. The Company also performs research services on behalf of customers to apply the Simoa technology to specific customer needs. The Company's customers are primarily in the research use only market, which includes academic and governmental research institutions, the research and development laboratories of pharmaceutical manufacturers, contract research organizations, and specialty research laboratories.
The Company acquired Aushon Biosystems, Inc. (Aushon) in January 2018. With the acquisition of Aushon, the Company acquired a CLIA certified laboratory, as well as Aushon's proprietary sensitive planar array detection technology. Leveraging its proprietary sophisticated Simoa image analysis and data analysis algorithms, the Company further refined this planar array technology to develop the SP-X instrument to provide the same Simoa sensitivity found in its bead-based platform.
The Company completed the acquisition of UmanDiagnostics AB (Uman), a Swedish company located in Umea, Sweden, in August 2019. The acquisition closed with respect to
“At-the-market offering”
On March 19, 2019, the Company entered into a Sales Agreement (the Sales Agreement) with Cowen and Company, LLC (Cowen) with respect to an “at-the-market” offering program under which the Company may offer and
9
sell, from time to time at its sole discretion, shares of its common stock, par value $
On June 5, 2019, the Company issued approximately
On August 6, 2020, the Company delivered written notice to Cowen to terminate the Sales Agreement, which termination the parties agreed to make immediately effective.
Underwritten public offerings
On August 8, 2019, the Company entered into an underwriting agreement with J.P. Morgan Securities LLC and SVB Leerink LLC, as representatives of the several underwriters, relating to an underwritten public offering of approximately
On August 6, 2020, the Company entered into an underwriting agreement with SVB Leerink LLC and Cowen, as representatives of the several underwriters, relating to an underwritten public offering of approximately
Basis of presentation
The interim condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of financial position, results of operations, comprehensive loss and cash flows for each period presented in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 13, 2020 (the 2019 Annual Report on Form 10-K). The consolidated financial information as of December 31, 2019 has been derived from the audited 2019 consolidated financial statements included in the 2019 Annual Report on Form 10-K.
2. Significant accounting policies
Principles of consolidation
The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of Quanterix Corporation and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. In making those estimates and assumptions, the Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. The Company’s significant estimates included in
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the preparation of the consolidated financial statements are related to revenue recognition, fair value of equity instruments and notes receivable, fair value of assets acquired and liabilities assumed in acquisitions, valuation allowances recorded against deferred tax assets, right-of-use assets and lease liabilities, and stock-based compensation. Actual results could differ from those estimates.
Foreign currency
The Company translates assets and liabilities of its foreign subsidiaries at rates in effect at the end of the reporting period. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments are included in accumulated other comprehensive loss.
Income taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the consolidated financial statement carrying amounts and the tax bases of the assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740). When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of September 30, 2020 the Company did not have any significant uncertain tax positions.
Business combinations
Under the acquisition method of accounting, the Company generally recognizes the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. The excess consideration over the aggregate value of tangible and intangible assets, net of liabilities assumed, is recorded as goodwill. These valuations require significant estimates and assumptions, especially with respect to intangible assets.
The Company typically uses the discounted cash flow method to value acquired intangible assets. This method requires significant management judgment to forecast future operating results and establish residual growth rates and discount factors. The estimates used to value and amortize intangible assets are consistent with the plans and estimates that are used to manage the business and are based on available historical information and industry estimates and averages. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Company could experience impairment charges. In addition, the Company has estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.
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Restricted cash
Restricted cash primarily represents collateral for a letter of credit issued as security for the lease for the Company’s headquarters in Billerica, Massachusetts. The restricted cash is long term in nature as the Company will not have access to the funds until more than one year from September 30, 2020.
Recent accounting pronouncements
The Company is considered to be an “emerging growth company” (EGC) as defined in the Jumpstart Our Business Startups Act of 2012, as amended (JOBS Act). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company may remain an EGC until the last day of the fiscal year in which the fifth anniversary of the closing of the initial public offering occurs, although if the market value the Company’s common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if the Company has annual gross revenues of $1.07 billion or more in any fiscal year, the Company would cease to be an EGC as of December 31 of the applicable year. The Company also would cease to be an EGC if it issues more than $1 billion of non-convertible debt over a three-year period. The Company has elected to avail itself of this extended transition period and, as a result, the Company will not be required to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies so long as the Company remains an EGC.
Recently Adopted
In February 2016, the Financial Accounting Standards Board (FASB) established Topic 842, Leases (ASC 842), by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. ASC 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements (ASU 2018-11). The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. An optional transition approach is permitted under ASU 2018-11, applying the new standard to all leases existing at the date of initial application.
On January 1, 2020, the Company adopted ASC 842 using the optional transition method allowing entities to recognize a cumulative effect adjustment to the opening balance sheet without restating comparative prior periods presented. ASC 842 requires a lessee to recognize assets and liabilities on the balance sheet for most leases and changes many key definitions, including the definition of a lease. Lessees will continue to differentiate between finance leases and operating, and classification will impact expense recognition.
The Company elected the following practical expedients for all lease asset classes, which must be elected as a package and applied consistently to all of its leases at the transition date: i) the Company did not reassess whether any expired or existing contracts are or contain leases; ii) the Company did not reassess the lease classification for any expired or existing leases (that is, all existing leases that were classified as operating leases in accordance with ASC 840, Leases (ASC 840), are classified as operating leases); and iii) the Company did not reassess initial direct costs for any existing leases.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company has elected the practical expedient not to recognize leases on the balance sheet with a term of twelve months or less. The Company’s leases consist of office and lab space and office equipment. All of the Company’s leases are classified as operating, and options to renew a lease are only included in the lease term to the extent those options are reasonably
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certain to be exercised. Additionally, the Company elected to apply the practical expedient not to separate lease and nonlease components for all leases.
Operating lease liabilities and their corresponding ROU assets are initially recorded based on the present value of lease payments over the expected remaining lease term. The rate implicit in lease contracts is typically not readily determinable and, as a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments, for a similar term, in a similar economic environment. To estimate its incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating.
The adoption of ASC 842 resulted in the recognition of operating lease ROU assets and operating lease liabilities of $
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted this ASU on January 1, 2020 with no material effect to its financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). This ASU removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company adopted this ASU on January 1, 2020 with no material effect to its financial statements.
Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective for the Company beginning in the first quarter of 2022, with early adoption permitted. The Company is currently evaluating the expected impact of ASU 2016-13 on its financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). This ASU addresses the accounting for implementation, setup and other upfront costs paid by a customer in a cloud computing or hosting arrangement. The guidance aligns the accounting treatment of these costs incurred in a hosting arrangement treated as a service contract with the requirements for capitalization and
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amortization costs to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The guidance can be adopted either retrospectively or prospectively. The Company is currently evaluating the expected impact of ASU 2018-15 on its financial statements.
There have been no other material changes to the significant accounting policies and recent accounting pronouncements previously disclosed in the 2019 Annual Report on Form 10-K.
3. Revenue recognition
The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects consideration that the Company expects to be entitled to receive in exchange for these goods and services, incentives and taxes collected from customers, that are subsequently remitted to governmental authorities.
The Company adopted Topic 606, Revenue from Contracts with Customers (ASC 606) on January 1, 2019, using the modified retrospective method for all contracts not completed as of the date of adoption.
Customers
The Company’s customers primarily consist of entities engaged in the life sciences research market that pursue the discovery and development of new drugs for a variety of neurologic, cardiovascular, oncologic and other protein biomarkers associated with diseases. The Company’s customer base includes several of the largest biopharmaceutical companies, academic research organizations and distributors who serve certain geographic markets.
Product revenue
The Company’s products are composed of analyzer instruments, assay kits and other consumables such as reagents. Products are sold directly to biopharmaceutical and academic research organizations or are sold through distributors in EMEA and Asia Pacific regions. The sales of instruments are generally accompanied by an initial year of implied service-type warranties and may be bundled with assays and other consumables and may also include other items such as training and installation of the instrument and/or an extended service warranty. Revenues from the sale of products are recognized at a point in time when the Company transfers control of the product to the customer, which is upon installation for instruments sold to direct customers, and based upon shipping terms for assay kits and other consumables. Revenue for instruments sold to distributors is generally recognized based upon shipping terms (either upon shipment or delivery).
Service and other revenue
Service revenues are composed of contract research services, initial implied one-year service-type warranties, extended services contracts and other services such as training. Contract research services are provided through the Company’s Accelerator Laboratory and generally consist of fixed fee contracts. Revenues from contract research services are recognized at a point in time when the Company completes and delivers its research report on each individually completed study, or over time if the contractual provisions allow for the collection of transaction consideration for costs incurred plus a reasonable margin through the period of performance of the services. Revenues from service-type warranties are recognized ratably over the contract service period. Revenues from other services are immaterial.
Collaboration and license revenue
The Company may enter into agreements to license the intellectual property and know-how associated with its instruments in exchange for license fees and future royalties (as described below). The license agreements provide the licensee with a right to use the intellectual property with the license fee revenues recognized at a point in time as the underlying license is considered functional intellectual property. The Company recognized revenues from a sales- or usage- based royalties related to the licensing of the Company’s technology and intellectual property.
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