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BALANCE SHEET COMPONENTS
9 Months Ended
Sep. 30, 2023
Balance Sheet Components [Abstract]  
BALANCE SHEET COMPONENTS BALANCE SHEET COMPONENTS
Inventory, net
Our inventory, net, consisted of the following components (in thousands):
September 30,
2023
December 31,
2022
Purchased materials$23,333 $24,139 
Work in process27,883 14,062 
Finished goods17,040 12,180 
Inventory, net$68,256 $50,381 
Intangible Assets and Goodwill
Intangible assets include acquired in-process research and development ("IPR&D") of $53.0 million as a result of the Apton acquisition in August 2023. The IPR&D will remain on our Consolidated Balance Sheet as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development activities. During the development period following the acquisition, IPR&D will not be amortized, but instead will be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Upon completion of the development, we will begin to amortize the asset over the life of the product or record an impairment charge if the asset is determined to be impaired.
In addition to IPR&D, definite-lived intangible assets included the following (in thousands, except years):
As of September 30, 2023As of December 31, 2022
Estimated
Useful Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Developed technology15$411,179 $(2,341)$408,838 $11,179 $(1,039)$10,140 
Customer relationships2360 (360)— 360 (255)105 
Total$411,539 $(2,701)$408,838 $11,539 $(1,294)$10,245 
The developed technology as of September 30, 2023 includes the completed IPR&D from the Omniome acquisition that was completed in September 2023.
The estimated future amortization expense of intangible assets with definite lives is as follows (in thousands):
Remainder of 2023$6,854 
202427,412 
202527,412 
202627,412 
202727,412 
2028 and thereafter292,337 
Total$408,838 
Amortization of intangible assets is included within our cost of revenue if the costs and expenses related to the intangible assets are attributable to revenue generating activities. Amortization expense for intangible assets that are not directly related to sales generating activities are amortized to operating expenses. The definite-lived intangible assets are amortized using the straight-line method over their estimated useful lives.
We review definite-lived intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.
We had goodwill of $463.8 million as of September 30, 2023, which preliminarily increased by $53.9 million, due to the Apton acquisition, of which $10.9 million relates to a deferred income tax liability, as compared to $410.0 million as of December 31, 2022. Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment. We performed our annual assessment for goodwill impairment in the second quarter of 2023, noting no impairment.
Deferred Revenue
As of September 30, 2023, we had a total of $27.5 million of deferred revenue, $22.4 million of which was recorded as deferred revenue, current, and primarily relates to future performance obligations under the Amended and Restated Agreement with Invitae Corporation ("Invitae") and deferred service contract revenues. The deferred revenue, non-current balance of $5.1 million primarily relates to future performance obligations under the Amended and Restated Agreement with Invitae and deferred service contract revenues and is scheduled to be recognized in the next 5 years. The deferred revenue, non-current balance includes $3.0 million that was reclassified from deferred revenue, current to deferred revenue, non-current following receipt of a non-cancellable order from Invitae during the nine months ended September 30, 2023 for partial utilization of the available credits, which is expected to be recognized in revenue after 12 months from September 30, 2023. Revenue recorded in the three and nine months ended September 30, 2023 includes $3.7 million and $11.7 million, respectively, that was included in deferred revenue as of December 31, 2022, of which $2.1 million and $4.2 million was included in product revenue recognized from the partial utilization of available credits by Invitae during the three and nine months ended September 30, 2023, respectively. Refer to Note 3 – Invitae Collaboration, in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2022 for more information.
Product Warranties
We generally provide a one-year warranty on instruments. In addition, we provide a limited warranty on consumables. At the time revenue is recognized, an accrual is established for estimated warranty costs based on historical experience as well as anticipated product performance. We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranty expense is recorded as a component of cost of product revenue. There were no material changes in estimates for the periods presented below.
Changes in the reserve for product warranties were as follows for the periods indicated (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Balance at beginning of period$2,862 $1,609 $1,651 $594 
Additions charged to cost of product revenue2,825 779 5,675 2,644 
Repairs and replacements(1,722)(622)(3,361)(1,472)
Balance at end of period$3,965 $1,766 $3,965 $1,766 
Term loans
In connection with the acquisition of Omniome, we acquired $1.3 million in short-term debt and $3.0 million in long-term debt relating to a term loan facility that Omniome obtained in April 2020. Borrowings on the term loan facility were used to fund Omniome’s purchases of equipment, which serves as collateral. Each term loan has a term of 43 months and bears a fixed interest rate of approximately 17% annually. The fee for the elective option to prepay all, but not less than all, of the borrowed amounts at any time after the 24th month and before the 43rd month after the commencement date, is 4% of the outstanding loan balance. Payments are made in equal monthly installments including principal and interest.
As of September 30, 2023, the carrying value of term loans outstanding was $0.9 million, recorded as part of other liabilities, current on the Condensed Consolidated Balance Sheet. The interest expense was $0.1 million and $0.2 million for the three and nine months ended September 30, 2023, which was included as part of interest expense in the Condensed Consolidated Statement of Operations and Comprehensive Loss.
The following table presents the future principal payments on the term loans (in thousands):
Remainder of 2023$444 
2024490 
Total$934