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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
 
FORM 10-Q
 
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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: 001-34180
 
 
FLUIDIGM CORPORATION
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
77-0513190
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
7000 Shoreline Ct, Ste 100,
South San Francisco,
CA
 
94080
(Address of principal executive offices)
 
(Zip Code)

(650) 266-6000
(Registrant’s telephone number, including area code)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
FLDM
 
Nasdaq Global Select Market
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
  
Accelerated Filer
 
Non-accelerated filer
 
 
  
Smaller reporting company
 
Emerging growth company
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 
As of July 31, 2019, there were 69,403,581 shares of the Registrant’s common stock, $0.001 par value per share, outstanding.

1



FLUIDIGM CORPORATION
TABLE OF CONTENTS
 
 
Page
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

FLUIDIGM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
24,046

 
$
95,401

Short-term investments
44,815

 

Accounts receivable (net of allowances of $45 at June 30, 2019 and $126 at December 31, 2018)
19,262

 
16,651

Inventories
14,269

 
13,003

Prepaid expenses and other current assets
4,387

 
2,051

Total current assets
106,779

 
127,106

Property and equipment, net
8,298

 
8,825

Operating lease right-of-use asset, net
6,506

 

Other non-current assets
6,302

 
6,208

Developed technology, net
51,800

 
57,400

Goodwill
104,108

 
104,108

Total assets
$
283,793

 
$
303,647

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,075

 
$
4,027

Accrued compensation and related benefits
8,281

 
14,470

Operating lease liabilities, current
3,350

 

Other accrued liabilities
5,642

 
7,621

Deferred revenue, current
11,972

 
11,464

Total current liabilities
37,320

 
37,582

Convertible notes, net
49,833

 
172,058

Deferred tax liability, net
12,295

 
13,714

Operating lease liabilities, non-current
4,812

 

Deferred revenue, non-current
6,318

 
6,327

Other non-current liabilities
575

 
1,850

Total liabilities
111,153

 
231,531

Commitments and contingencies


 


Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding at June 30, 2019 and December 31, 2018

 

Common stock, $0.001 par value, 200,000 shares authorized at June 30, 2019 and December 31, 2018; 69,400 and 49,338 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
69

 
49

Additional paid-in capital
771,263

 
631,605

Accumulated other comprehensive loss
(623
)
 
(687
)
Accumulated deficit
(598,069
)
 
(558,851
)
Total stockholders’ equity
172,640

 
72,116

Total liabilities and stockholders’ equity
$
283,793

 
$
303,647

See accompanying notes

1



FLUIDIGM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Product revenue
$
23,235

 
$
21,777

 
$
48,062

 
$
42,254

Service revenue
4,961

 
4,651

 
10,245

 
9,422

Total revenue
28,196

 
26,428

 
58,307

 
51,676

Cost of revenue:
 
 
 
 
 
 
 
Cost of product revenue
11,100

 
11,160

 
22,489

 
21,382

Cost of service revenue
1,733

 
1,680

 
3,465

 
3,278

Total cost of revenue
12,833

 
12,840

 
25,954

 
24,660

Gross profit
15,363

 
13,588

 
32,353

 
27,016

Operating expenses:
 
 
 
 
 
 
 
Research and development
7,865

 
7,386

 
16,237

 
14,642

Selling, general and administrative
22,134

 
18,987

 
44,958

 
37,792

Total operating expenses
29,999

 
26,373

 
61,195

 
52,434

Loss from operations
(14,636
)
 
(12,785
)
 
(28,842
)
 
(25,418
)
Interest expense
(491
)
 
(3,916
)
 
(3,192
)
 
(5,805
)
Loss on extinguishment of debt

 

 
(9,000
)
 

Other income, net
231

 
256

 
715

 
348

Loss before income taxes
(14,896
)
 
(16,445
)
 
(40,319
)
 
(30,875
)
Income tax benefit
1,143

 
204

 
1,101

 
1,387

Net loss
$
(13,753
)
 
$
(16,241
)
 
$
(39,218
)
 
$
(29,488
)
Net loss per share, basic and diluted
$
(0.20
)
 
$
(0.42
)
 
$
(0.61
)
 
$
(0.76
)
Shares used in computing net loss per share, basic and diluted
69,158

 
39,003

 
63,923

 
38,930

See accompanying notes

2



FLUIDIGM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited) 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(13,753
)
 
$
(16,241
)
 
$
(39,218
)
 
$
(29,488
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
       Foreign currency translation adjustment
(9
)
 
26

 
(1
)
 
69

       Net change in unrealized gain on investments
63

 
2

 
65

 
1

Other comprehensive income, net of tax
54

 
28

 
64

 
70

Comprehensive loss
$
(13,699
)
 
$
(16,213
)
 
$
(39,154
)
 
$
(29,418
)
See accompanying notes


3



FLUIDIGM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

 
 
Common Stock Shares
 
Common Stock Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss)/Income
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
Balance as of December 31, 2018
 
49,338

 
$
49

 
$
631,605

 
$
(687
)
 
$
(558,851
)
 
$
72,116

Issuance of common stock on bond conversion
 
19,460

 
19

 
133,279

 

 

 
133,298

Issuance of restricted stock, net of shares withheld for taxes, and other
 
140

 
1

 
(177
)
 

 

 
(176
)
Issuance of common stock from option exercises
 
53

 

 
255

 

 

 
255

Stock-based compensation expense
 

 

 
2,207

 

 

 
2,207

Net loss
 

 

 

 

 
(25,465
)
 
(25,465
)
Other comprehensive income, net of tax
 

 

 

 
10

 

 
10

Balance as of March 31, 2019
 
68,991

 
69

 
767,169

 
(677
)
 
(584,316
)
 
182,245

Issuance of restricted stock, net of shares withheld for taxes, and other
 
183

 

 
(325
)
 

 

 
(325
)
Issuance of common stock from option exercises
 
130

 

 
793

 

 

 
793

Issuance of common stock under ESPP
 
96

 

 
641

 

 

 
641

Stock-based compensation expense
 

 

 
2,985

 

 

 
2,985

Net loss
 

 

 

 

 
(13,753
)
 
(13,753
)
Other comprehensive income, net of tax
 

 

 

 
54

 

 
54

Balance as of June 30, 2019
 
69,400

 
$
69

 
$
771,263

 
$
(623
)
 
$
(598,069
)
 
$
172,640


4



 
 
Common Stock Shares
 
Common Stock Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss)/Income
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
Balance as of December 31, 2017
 
38,787

 
$
39

 
$
531,666

 
$
(574
)
 
$
(500,196
)
 
$
30,935

Issuance of restricted stock, net of shares withheld for taxes, and other
 
105

 

 
(69
)
 

 

 
(69
)
Issuance of common stock from option exercises
 
16

 

 
72

 

 

 
72

Conversion option on convertible debt
 

 

 
29,292

 

 

 
29,292

Closing cost related to conversion option
 

 

 
(556
)
 

 

 
(556
)
Cumulative-effect of new accounting standard for Topic 606 Revenue
 

 

 

 

 
358

 
358

Stock-based compensation expense
 

 

 
1,747

 

 

 
1,747

Net loss
 

 

 

 

 
(13,247
)
 
(13,247
)
Other comprehensive income, net of tax
 

 

 

 
42

 

 
42

Balance as of March 31, 2018
 
38,908

 
39


562,152

 
(532
)
 
(513,085
)
 
48,574

Issuance of restricted stock, net of shares withheld for taxes, and other
 
125

 

 
(106
)
 

 

 
(106
)
Issuance of common stock from option exercises
 
3

 

 
7

 

 

 
7

Issuance of common stock under ESPP
 
119

 

 
562

 

 

 
562

Stock-based compensation expense
 

 

 
2,007

 

 

 
2,007

Net loss
 

 

 

 

 
(16,241
)
 
(16,241
)
Other comprehensive income, net of tax
 

 

 

 
28

 

 
28

Balance as of June 30, 2018
 
39,155

 
$
39

 
$
564,622

 
$
(504
)
 
$
(529,326
)
 
$
34,831

See accompanying notes

5



FLUIDIGM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(39,218
)
 
$
(29,488
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
2,351

 
2,932

Stock-based compensation expense
5,263

 
3,754

Amortization of developed technology
5,600

 
5,600

Amortization of debt discounts, premium and issuance costs
2,037

 
3,083

  Loss on extinguishment of debt
9,000

 

Loss on disposal of property and equipment
29

 

Other non-cash items
(88
)
 
(41
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(2,420
)
 
(1,814
)
Inventories
(1,486
)
 
(571
)
Prepaid expenses and other current assets
(1,269
)
 
(1,016
)
Other non-current assets
304

 
821

Accounts payable
3,439

 
2,445

Deferred revenue
476

 
368

Other current liabilities
(6,466
)
 
99

Other non-current liabilities
(2,695
)
 
(6,671
)
Net cash used in operating activities
(25,143
)
 
(20,499
)
Investing activities
 
 
 
Purchases of investments
(44,614
)
 
(1,451
)
Proceeds from maturities and sales of investments

 
5,541

Purchases of property and equipment
(685
)
 
(154
)
Net cash provided by (used in) investing activities
(45,299
)
 
3,936

Financing activities
 
 
 
Payment of debt issuance costs
(15
)
 
(2,638
)
Proceeds from exercise of stock options
1,048

 
79

  Proceeds from stock issuance from ESPP
641

 
562

Payments for taxes related to net share settlement of equity awards
(487
)
 
(155
)
Net cash provided by (used in) financing activities
1,187

 
(2,152
)
Effect of foreign exchange rate fluctuations on cash and cash equivalents
(25
)
 
83

Net decrease in cash, cash equivalents and restricted cash
(69,280
)
 
(18,632
)
Cash, cash equivalents and restricted cash at beginning of period
95,401

 
58,056

Cash, cash equivalents and restricted cash at end of period
$
26,121

 
$
39,424

See accompanying notes

6



FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. Description of Business
Fluidigm Corporation (we, our, or us) was incorporated in the State of California in May 1999 to commercialize microfluidic technology initially developed at the California Institute of Technology. In July 2007, we were reincorporated in Delaware. Our headquarters are located in South San Francisco, California.
We create, manufacture, and market innovative technologies and life science tools, including preparatory and analytical instruments for Mass Cytometry, PCR, Library Prep, Single Cell Genomics, and consumables, including integrated fluidic circuits (IFCs), assays, and reagents. Our focus is on the most pressing needs in translational and clinical research, including cancer, immunology and immunotherapy. We use proprietary CyTOF® and microfluidics technologies to develop innovative end-to-end solutions that have the flexibility required to meet the needs of translational research and the robustness to support high-impact clinical research studies. We sell our instruments to leading academic research institutions, translational research and medicine centers, cancer centers, clinical research laboratories, and biopharmaceutical, biotechnology and plant and animal research companies.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) and include the accounts of our wholly owned subsidiaries. As of June 30, 2019, we had wholly owned subsidiaries in Singapore, Canada, the Netherlands, Japan, France, the United Kingdom, China, and Germany. All subsidiaries, except for Singapore, use their local currency as their functional currency. The Singapore subsidiary uses the U.S. dollar as its functional currency. All intercompany transactions and balances have been eliminated in consolidation.
Certain prior period amounts in the condensed consolidated statements of cash flows were reclassified to conform with the current period presentation. These reclassifications were immaterial and did not affect prior period total assets, total liabilities, stockholders' equity, total revenue, total costs and expenses, loss from operations or net loss.
Net Loss per Share
Our basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Restricted stock units, options to purchase common stock, and shares associated with the potential conversion of our convertible notes are considered to be potentially dilutive common shares but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive for all periods presented.
The following potentially dilutive common shares were excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2019, and 2018 because including them would have been anti-dilutive (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Stock options, restricted stock units and performance awards
4,541

 
4,586

 
4,541

 
4,586

2018 Convertible Notes

 
19,036

 

 
19,036

2018 Convertible Notes potential make-whole shares

 
1,204

 

 
1,204

2014 Convertible Notes
916

 
916

 
916

 
916

Total
5,457

 
25,742

 
5,457

 
25,742



7

Table of Contents
FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, for the three and six months ended June 30, 2019, are as follows (in thousands):
 
Foreign Currency Translation Adjustment
 
Net Unrealized Gain on Securities
 
Accumulated Other Comprehensive Loss
Balance at December 31, 2018
$
(687
)
 
$

 
$
(687
)
Other comprehensive income
8


2

 
10

Balance at March 31, 2019
(679
)
 
2

 
(677
)
Other comprehensive income (loss)
(9
)

63

 
54

Balance at June 30, 2019
$
(688
)
 
$
65

 
$
(623
)

Revenue Recognition
We generate revenue primarily from the sale of our products and services. Product revenue is derived from the sale of instruments and consumables, including IFCs, assays and reagents. Service revenue is derived from the sale of instrument service contracts, repairs, installation, training and other specialized product support services. Revenue is reported net of any sales, use and value-added taxes we collect from customers as required by government authorities.
We recognize revenue based on the amount of consideration we expect to receive in exchange for the goods and services we transfer to the customer. Our commercial arrangements typically include multiple distinct products and services, and we allocate revenue to these performance obligations based on their relative standalone selling prices. Standalone selling prices (SSP) are generally determined using observable data from recent transactions. In cases where sufficient data is not available, we estimate a product’s SSP using a cost plus a margin approach or by applying a discount to the product’s list price.
Product Revenue
We recognize product revenue at the point in time when control of the goods passes to the customer and we have an enforceable right to payment. This generally occurs either when the product is shipped from one of our facilities or when it arrives at the customer’s facility, based on the contractual terms. Customers generally do not have a unilateral right to return products after delivery. Invoices are generally issued at shipment and generally become due in 30 to 60 days.
We sometimes perform shipping and handling activities after control of the product passes to the customer. We have made an accounting policy election to account for these activities as product fulfillment activities rather than as separate performance obligations.
Service Revenue
We recognize revenue from repairs, installation, training and other specialized product support services at the point in time the work is completed. Installation and training services are generally billed in advance of service. Repairs and other services are generally billed at the point the work is completed.
Revenue associated with instrument service contracts is recognized on a straight-line basis over the life of the agreement, which is generally one to three years. We believe this time-elapsed approach is appropriate for service contracts because we provide services on demand throughout the term of the agreement. Invoices are generally issued in advance of service on a monthly, quarterly, annual or multi-year basis. Payments made in advance of service are reported on our consolidated balance sheet as deferred revenue.
Contract Costs
Incremental sales commission costs incurred to obtain instrument service contracts are capitalized and amortized to selling, general and administrative expense over the life of the contract, which is generally one to three years. As a practical expedient, we expense sales commissions associated with product support services that are delivered in less than one year as they are incurred. Sales commissions associated with the sale of products are expensed as they are incurred.

8

Table of Contents
FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




Product Warranties
We generally provide a one-year warranty on our instruments. We accrue for estimated warranty obligations at the time of product shipment. We periodically review our warranty liability and record adjustments based on the terms of warranties provided to customers, and historical and anticipated warranty claim experience. This expense is recorded as a component of cost of product revenue in the condensed consolidated statements of operations.
Significant Judgments
Applying the revenue recognition practices discussed above often requires significant judgment. Judgment is required when identifying performance obligations, estimating SSP and allocating purchasing consideration in multi-element arrangements and estimating the future amount of our warranty obligations. Moreover, significant judgment is required when interpreting commercial terms and determining when control of goods and services passes to the customer. Any material changes created by errors in judgment could have a material effect on our operating results and overall financial condition.
Goodwill, Intangible Assets, and Other Long-lived Assets
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Our intangible assets include developed technology, patents and licenses. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives.
Goodwill and intangible assets with indefinite lives are not subject to amortization but are tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. We first conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we then conduct a two-step test for impairment of goodwill. In the first step, we compare the fair value of our reporting unit to its carrying value. If the fair value of our reporting unit exceeds its carrying value, goodwill is not considered impaired and no further analysis is required. If the carrying value of the reporting unit exceeds its fair value, then the second step of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds its implied fair value, then an impairment loss equal to the difference would be recorded.
We evaluate our long-lived assets, including finite-lived intangibles, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If any indicator of impairment exists, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of the asset can be recovered through undiscounted future operating cash flows. If impairment is indicated, we estimate the asset’s fair value using future discounted cash flows associated with the use of the asset and adjust the carrying value of the asset accordingly. We did not recognize any impairment of long-lived assets for any of the periods presented herein.
Convertible Notes
In February 2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034 (2014 Notes). In March 2018, we entered into separate privately negotiated transactions with certain holders of our 2014 Notes to exchange $150.0 million in aggregate principal amount of the 2014 Notes for our new 2.75% Exchange Convertible Senior Notes due 2034 (2018 Notes). Following the exchange, approximately $51.3 million in aggregate principal amount of the 2014 Notes was outstanding in addition to $150.0 million in aggregate principal amount of the 2018 Notes. In the first quarter of 2019, the 2018 Notes were converted into 19.5 million shares of common stock and the 2018 Notes were retired. We recorded a loss of $9.0 million on the retirement of the 2018 Notes.
See Note 6 Convertible Notes and Credit Facility for the accounting treatment of the transactions and additional information about the exchange.
Recent Accounting Changes and Accounting Pronouncements
Adoption of New Accounting Guidance
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize operating leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to

9

Table of Contents
FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. 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 are classified as finance or operating; the classification will impact the expense recognition in the income statement.
Modified Retrospective Transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We adopted the new standard on January 1, 2019 and used the effective date of the standard as our date of initial application. Consequently, previously presented financial information has not been updated, and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019. For dates and periods prior to January 1, 2019, the original disclosures under ASC 840 are disclosed.
The new standard provides several optional practical expedients in transition. We elected the ‘package of practical expedients,’ which permits us to not reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.
On adoption, we recognized $9.2 million of lease liabilities, based on the present value of the current minimum lease payments over the lease term, discounted using our collateralized incremental borrowing rate, with corresponding ROU assets of $7.4 million. The difference between the initial lease liability and ROU asset is attributable to deferred rent. There was no impact to retained earnings from the adoption of ASC 842.
The new standard also provides certain accounting elections for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities for leases with an initial lease term of one year or less. We have also elected to not separate lease and nonlease components for our building leases. The nonlease components are generally variable in nature and are expected to comprise most of our variable lease costs. Variable costs are expensed as incurred. We have taken a portfolio approach for our vehicle leases by country.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15 Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) which establishes new guidance on the accounting for costs incurred to implement a cloud computing arrangement that is considered a service arrangement. The new guidance requires the capitalization of such costs, aligning it with the accounting for costs associated with developing or obtaining internal-use software. The new guidance is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of adoption on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity performs its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. The ASU will be effective for annual and interim goodwill impairment testing performed for our fiscal year beginning January 1, 2020, with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements.
The FASB issued two ASUs related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and (2) in November 2018, ASU 2018-19 Codification Improvements to Topic 326, Financial Instruments—Credit Losses. ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leasing standard. These ASUs are effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2016‑13 and ASU 2018-19 will have on our consolidated financial statements and related disclosures.

10

Table of Contents
FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




3. Revenue
Disaggregation of Revenues
The following table disaggregates our revenue for the three and six months ended June 30, 2019, and 2018, respectively, by geographic area and by product and service (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2019
 
2018
 
2019
 
2018
Geographic Markets:
 
 
 
 
 
 
 
Americas
$
11,120

 
$
12,520

 
$
24,091

 
$
23,354

Europe
11,217

 
9,109

 
19,373

 
17,582

Asia Pacific
5,859

 
4,799

 
14,843

 
10,740

Total revenue
$
28,196

 
$
26,428

 
$
58,307

 
$
51,676

 
 
 
 
 
 
 
 
Product and Service:
 
 
 
 
 
 
 
Instruments
$
12,201

 
$
10,421

 
$
25,041

 
$
17,941

Consumables
11,034

 
11,356

 
23,021

 
24,313

Product revenue
23,235

 
21,777

 
48,062

 
42,254

Service
4,961

 
4,651

 
10,245

 
9,422

Total revenue
$
28,196

 
$
26,428

 
$
58,307

 
$
51,676

 
 
 
 
 
 
 
 

Performance Obligations
We reported $17.8 million of deferred revenue on our December 31, 2018 consolidated balance sheet. During the six months ended June 30, 2019, $6.8 million of the opening balance was recognized as revenue and $7.3 million of net additional advance payments were received from customers, primarily associated with instrument service contracts. At June 30, 2019, we reported $18.3 million of deferred revenue.
The following table summarizes the expected timing of revenue recognition for unfulfilled performance obligations associated with instrument service contracts that were partially completed at June 30, 2019 (in thousands):

 
Expected Revenue (1)
2019 (remainder of the year)
 
$
6,344

2020
 
6,764

2021
 
3,917

Thereafter
 
2,479


 
$
19,504

_______
(1) Expected revenue includes both billed amounts included in deferred revenue and unbilled amounts that are not reflected in our consolidated financial statements and are subject to change if our customers decide to cancel or modify their contracts. Purchase orders for instrument service contracts can generally be canceled before the service period begins without penalty.
We apply the practical expedient that permits us to not disclose information about unsatisfied performance obligations that are expected to be delivered within one year.
Contract Costs
We reported $0.4 million of capitalized commission costs from instrument service contracts at June 30, 2019 and December 31, 2018 in the condensed consolidated balance sheets.

11

Table of Contents
FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




4. Goodwill and Intangible Assets, net
In connection with our acquisition of DVS in February 2014, we recognized goodwill of $104.1 million. Intangible assets include developed technology related to the DVS acquisition and other intangible assets included in other non-current assets.
Intangible assets, net, were as follows (in thousands):
 
June 30, 2019
 
Gross Amount
 
Accumulated Amortization
 
Net
 
Weighted-Average Amortization Period
Developed technology
$
112,000

 
$
(60,200
)
 
$
51,800

 
10.0 years
Patents and licenses
$
11,274

 
$
(7,378
)
 
$
3,896

 
7.8 years

 
December 31, 2018
 
Gross Amount
 
Accumulated Amortization
 
Net
 
Weighted-Average Amortization Period
Developed technology
$
112,000

 
$
(54,600
)
 
$
57,400

 
10.0 years
Patents and licenses
$
11,274

 
$
(6,861
)
 
$
4,413

 
7.8 years

Amortization of intangibles was $3.1 million for each of the three months ended June 30, 2019, and 2018, respectively. Amortization of intangibles was $6.2 million and $6.2 million for the six months ended June 30, 2019, and 2018, respectively.
Based on the carrying value of intangible assets, net, as of June 30, 2019, the annual amortization expense is expected to be as follows (in thousands):
Fiscal Year
 
Developed Technology Amortization Expense
 
Patents and Licenses Amortization Expense
 
Total
2019 (remainder of the year)
 
$
5,600

 
$
522

 
$
6,122

2020
 
11,200

 
1,042

 
12,242

2021
 
11,200

 
887

 
12,087

2022
 
11,200

 
804

 
12,004

2023
 
11,200

 
634

 
11,834

Thereafter
 
1,400

 
7

 
1,407

Total
 
$
51,800

 
$
3,896

 
$
55,696


5. Balance Sheet Details
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Cash and cash equivalents
$
24,046

 
$
95,401

Restricted cash
2,075

 

Cash, cash equivalents and restricted cash
$
26,121

 
$
95,401


Short-term restricted cash of approximately $1.1 million is included in prepaid expenses and other current assets, and $1.0 million of non-current restricted cash is included in other non-current assets in the condensed consolidated balance sheet.

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FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




Inventories
Inventories consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Raw materials
$
7,023

 
$
5,996

Work-in-process
553

 
650

Finished goods
6,693

 
6,357

Total inventories, net
$
14,269

 
$
13,003


Property and Equipment, net
Property and equipment, net, consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Computer equipment and software
$
4,322

 
$
4,201

Laboratory and manufacturing equipment
19,391

 
18,780

Leasehold improvements
7,526

 
7,173

Office furniture and fixtures
1,810

 
1,506

Property and equipment, gross
33,049

 
31,660

Less accumulated depreciation and amortization
(24,845
)
 
(22,855
)
Construction-in-progress
94

 
20

Property and equipment, net
$
8,298

 
$
8,825


Warranty
We accrue for estimated warranty obligations once revenue is recognized. Management periodically reviews the estimated fair value of its warranty liability and records adjustments based on the terms of warranties provided to customers, as well as historical and anticipated warranty claim experience. Activity for our warranty accrual for the three and six months ended June 30, 2019, and 2018, which is included in other accrued liabilities, is summarized below (in thousands): 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Beginning balance
$
930

 
$
591

 
$
863

 
$
699

Accrual for warranties
371

 
401

 
657

 
738

Warranty costs incurred
(210
)
 
(383
)
 
(429
)
 
(828
)
Ending balance
$
1,091

 
$
609

 
$
1,091

 
$
609


6. Convertible Notes and Credit Facility
2014 Senior Convertible Notes (2014 Notes)
In February 2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034 (2014 Notes), pursuant to an underwriting agreement dated January 29, 2014. The 2014 Notes accrue interest at a rate of 2.75% per year, payable semi-annually in arrears on February 1 and August 1 of each year. Interest on the 2014 Notes accrued from February 4, 2014. The 2014 Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2014 Notes.
The initial conversion rate of the 2014 Notes is 17.8750 shares of our common stock, par value $0.001 per share, per $1,000 principal amount of 2014 Notes (which is equivalent to an initial conversion price of approximately $55.94 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events, including upon a conversion in connection with a fundamental change, as defined in the indenture governing the 2014 Notes or, subject to certain conditions, redemption of the 2014 Notes by the Company.

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FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




Holders may surrender their 2014 Notes for conversion at any time prior to the stated maturity date. On or after February 6, 2018, and prior to February 6, 2021, we may redeem any or all of the 2014 Notes in cash if the closing price of our common stock exceeds 130% of the conversion price for a specified number of days, and on or after February 6, 2021, we may redeem any or all of the 2014 Notes in cash without any such condition. The redemption price of the 2014 Notes will equal 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. Holders may require us to repurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024, and February 6, 2029, at a repurchase price in cash equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. If we undergo a fundamental change, as defined in the indenture governing the 2014 Notes, holders may require us to repurchase the 2014 Notes in whole or in part for cash at a repurchase price equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest.
In February 2014, we received $195.2 million, net of underwriting discounts, from the issuance of the 2014 Notes and incurred approximately $1.1 million in offering-related expenses. The underwriting discount of $6.0 million and the debt issuance costs of $1.1 million were recorded as offsets to the proceeds.
2018 Senior Convertible Notes (2018 Notes)
In March 2018, we entered into separate privately negotiated transactions with certain holders of our 2014 Notes to exchange $150.0 million in aggregate principal amount of the 2014 Notes for new convertible notes (2018 Notes). The 2018 Notes were subsequently retired in the first quarter of 2019 as discussed below.
As of the closing of the 2018 Notes on March 12, 2018, the estimated fair value was $145.5 million. The difference between the $150.0 million aggregate principal amount of the 2018 Notes and its fair value was amortized over the expected term of the 2018 Notes using the effective interest method through the first note holder put date of February 6, 2023.
We accounted for the exchange transaction as an extinguishment of debt due to the significance of the change in value of the embedded conversion option, resulting in a $0.1 million gain. The gain on extinguishment of the 2014 Notes exchanged was calculated as the difference between the reacquisition price (i.e., the fair value of the principal amount of 2018 Notes) and the net carrying value of the 2014 Notes exchanged, net of unamortized debt discount and debt issuance cost write-offs.
The 2018 Notes accrued interest at a rate of 2.75%, payable semi-annually in arrears on February 1 and August 1 of each year. Interest on the 2018 Notes accrued from February 1, 2018. The 2018 Notes were set to mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the indenture governing the 2018 Notes. The initial conversion rate of the 2018 Notes was 126.9438 shares of our common stock, par value $0.001 per share, per $1,000 principal amount of the 2018 Notes (which is equivalent to an initial conversion price of approximately $7.88 per share). The conversion rate was subject to adjustment upon the occurrence of certain specified events. One of those specified events was that Holders who converted their 2018 Notes voluntarily prior to our exercise of the Issuer's Conversion Option were entitled, under certain circumstances, to a make-whole premium in the form of an increase in the conversion rate determined by reference to a make-whole table set forth in the indenture governing the 2018 Notes. Any time prior to the maturity of the 2018 Notes, we had the ability to convert the 2018 Notes, in whole but not in part, into cash, shares of our common stock, or combination thereof, if the closing price of our common stock equaled or exceeded 110% of the conversion price then in effect for a specified number of days (Issuer’s Conversion Option). On or after February 6, 2022, we would have been able to elect to redeem all or any portion of the 2018 Notes at a redemption price equal to 100% of the accreted principal amount of the 2018 Notes on the redemption date of the 2018 Notes, plus accrued and unpaid interest.
Holders of the 2018 Notes had the right, at their option, to require us to purchase all or a portion of the 2018 Notes (i) on February 6, 2023, February 6, 2026, and February 6, 2029, or (ii) in the event of a fundamental change, as defined in the indenture governing the 2018 Notes, in each case, at a repurchase price equal to 100% of the accreted principal amount (i.e., up to 120% of the outstanding principal amount) of the 2018 Notes on the fundamental change repurchase date, plus accrued and unpaid interest.
As the 2018 Notes were convertible, at our election, into cash, shares of our common stock, or a combination of cash and shares of our common stock, we accounted for the 2018 Notes under the cash conversion guidance in ASC 470, whereby the embedded conversion option in the 2018 Notes was separated and accounted for in equity. The embedded conversion option value was calculated as the difference between (i) the total fair value of the 2018 Notes and (ii) the fair value of a similar debt instrument excluding the embedded conversion option. We determined an embedded conversion option value of $29.3 million, which was recorded in additional paid-in-capital and reduced the carrying value of the 2018 Notes. The resulting discount on the 2018 Notes was amortized over the expected term of the 2018 Notes, using the effective interest method through the first note holder put date, of February 6, 2023.

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FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




Offering-related costs for the 2018 Notes were approximately $2.8 million and were paid in the first and second quarters of 2018. Offering-related costs of $2.2 million were capitalized as debt issuance costs, recorded as an offset to the carrying value of the 2018 Notes, and are amortized over the expected term of the 2018 Notes using the effective interest method through the first note holder put date of February 6, 2023. Offering-related costs of $0.6 million were accounted for as equity issuance costs, recorded as an offset to additional paid-in capital, and are not subject to amortization. Offering-related costs were allocated between debt and equity in the same proportion as the allocation of the 2018 Notes between debt and equity.
In the first quarter of 2019, we received notices from holders of the 2018 Notes electing to voluntarily convert approximately $138.1 million in aggregate principal amount of the 2018 Notes. In February 2019, we notified the Trustee of our intention to exercise our Issuer’s Conversion Option with respect to the remaining approximately $11.9 million in aggregate principal amount of 2018 Notes. In total, $150.0 million of the 2018 Notes were converted into 19.5 million shares of our common stock and the bonds were retired. We recognized a loss of $9.0 million, which represents the difference between the fair value of the bonds retired and their carrying costs. The net impact on equity was $133.3 million and represents the fair value of the bonds retired.
The carrying values of the components of the 2014 Notes and the 2018 Notes are as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
     2.75% 2014 Notes due 2034
 
 
 
Principal amount
$
51,250

 
$
51,250

Unamortized debt discount
(1,199
)
 
(1,232
)
Unamortized debt issuance cost
(218
)
 
(224
)
 
$
49,833

 
$
49,794

     2.75% 2018 Notes due 2034
 
 
 
Principal amount
$

 
$
149,999

Premium accretion

 
3,755

Unamortized debt discount

 
(29,558
)
Unamortized debt issuance cost

 
(1,932
)
 
$

 
$
122,264

 
$
49,833

 
$
172,058


2018 Revolving Credit Facility
In August 2018, the Company entered into a revolving credit facility with Silicon Valley Bank (Revolving Credit Facility) in an aggregate principal amount of up to the lesser of (i) $15.0 million (Maximum Amount) or (ii) the sum of (a) 85% of our eligible receivables and (b) 50% of our eligible inventory, in each case, subject to certain limitations (Borrowing Base), provided that the amount of eligible inventory that may be counted towards the Borrowing Base shall be subject to a cap as set forth in the Revolving Credit Facility. Subject to the level of this borrowing base, the Company may make and repay borrowings from time to time until the maturity of the revolving credit facility. As of June 30, 2019, availability under the revolving credit facility was $12.5 million. There were no borrowings outstanding under the Revolving Credit Facility at June 30, 2019.
The Revolving Credit Facility matures on August 2, 2020 and is collateralized by substantially all the Company’s property, other than intellectual property. Loans under the Revolving Credit Facility will bear interest, at the greater of (i) prime rate plus 0.50% or (ii) 5.50%. Interest on any outstanding loans is due and payable monthly and the principal balance is due at maturity though loans can be prepaid at any time without penalty. In addition, the Company pays a quarterly unused revolving line facility fee of .75% per annum on the average unused facility.
Subject to certain exceptions, the Company must pay a prepayment fee equal to (i) 2.00% of the Maximum Amount if it prepays all advances and terminates the Loan Agreement prior to August 2, 2019, or (ii) 1.00% of the Maximum Amount if it prepays all advances and terminates the Loan Agreement on or after August 2, 2019, and prior to the maturity date.
The Company incurred approximately $335,000 of debt issuance costs in connection with the facility, including $225,000 in commitment fees. Half of the commitment fee was paid at the inception of the facility with the remainder due on the earliest of (i) August 2, 2019, (ii) the date on which the Company terminates this Agreement or (iii) the occurrence and continuance of an event of default. Debt issuance costs were capitalized and are being amortized to interest expense over the life of the Revolving Credit Facility.

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FLUIDIGM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)




The Revolving Credit Facility contains customary affirmative and negative covenants which, unless waived by the bank, limit the Company’s ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, enter into affiliate transactions, undergo a change of control, or engage in merger and acquisition activity, including merging or consolidating with a third party. The Revolving Credit Facility also contains customary events of default, subject to customary cure periods for certain defaults, that include, among other things, non-payment defaults, covenant defaults, material judgment defaults, bankruptcy and insolvency defaults, cross-defaults to certain other material indebtedness, and defaults due to inaccuracy of representation and warranties. Upon an event of default, the lender may declare all or a portion of the outstanding obligations payable by the Company to be immediately due and payable and exercise other rights and remedies provided for under the Revolving Credit Facility. During the existence of an event of default, interest on the obligations under the Revolving Credit Facility could be increased to 5.0% above the otherwise applicable rate of interest. The Company was in compliance with all the terms and conditions of the Revolving Credit Facility at June 30, 2019.
7. Leases
We have operating leases for buildings, equipment and vehicles. Existing leases have remaining terms of less than 1 year to 8 years. Some leases contain options to extend the lease, usually for up to 5 years, and termination options.
Operating lease right-of-use assets, net, consisted of the following (in thousands):
 
 
 
 
June 30, 2019
 
 
 
 
Gross Amount
 
Accumulated Amortization
 
Net
Operating lease right-of-use buildings
 
$
7,600

 
$
(1,438
)
 
$
6,162

Operating lease right-of-use equipment
 
76

 
(21
)
 
55

Operating lease right-of-use vehicles
 
357

 
(68
)
 
289

Total
 
$
8,033

 
$
(1,527
)
 
$
6,506


In the first half of 2019, we entered into a new operating lease for our corporate headquarters in South San Francisco, California which is expected to commence in late 2019 or early 2020. The lease term is 10.25 years. We expect to recognize a right-of-use asset and lease liabilities of approximately $46.7 million, based on our current incremental collateralized borrowing rate, as a result of this lease.
(in thousands)
 
 
Six Months Ended June 30, 2019
Operating lease cost (including variable costs)
 
 
$
3,056

Variable costs including non-lease component
 
 
$
1,303

 
 
 
 
Supplemental information: