PACIFIC BIOSCIENCES OF CALIFORNIA INC

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with the (i) unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and (ii) our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission, or the SEC, on February 28, 2024. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and you should not place undue reliance on our forward-looking statements. We do not assume any obligation to update any forward-looking statements. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with (i) the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and (ii) our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission, or the SEC, on February 28, 2024. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and you should not place undue reliance on our forward-looking statements. We do not assume any obligation to update any forward-looking statements. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.

Previous wording

Our focus is on creating some of the world's most advanced sequencing systems to provide our customers the most complete and accurate view of genomes, transcriptomes, and epigenomes.

Current wording

Our focus is on creating some of the world's most advanced sequencing systems to provide our customers with the most complete and accurate view of genomes, transcriptomes, and epigenomes.

Previous wording

•Improve commercial execution to drive adoption of both the Revio and Onso platforms;

Current wording

•Improve commercial execution to drive adoption of both the Revio® and Onso TM platforms;

Previous wording

•Continue the development of our benchtop long read and high throughput short-read platforms;

Current wording

•Continue the development of our Vega TM benchtop long-read and high throughput short-read platforms;

Previous wording

•Improve our gross margin and drive manufacturing efficiencies;

Current wording

•Improve our gross margin and drive manufacturing efficiencies; and

Previous wording

To increase the adoption of HiFi sequencing, we have various development programs in progress to expand our product portfolio, increase the throughput, and improve the usability of our existing sequencing solutions. We continue to focus on programs to accelerate new platform launches in the near to mid-term as well as increase applications for our technologies. We commenced commercial shipments of Revio, our new HiFi long-read sequencing system, in the first quarter of 2023. To address the oncology research markets with a highly differentiated alternative to existing third-party short-read sequencing products already on the market, we commenced customer shipments of the Onso short-read sequencing instrument in August 2023.

Current wording

To increase the adoption of HiFi sequencing, we have various development programs in progress to expand our product portfolio, increase the throughput, and improve the usability of our existing sequencing solutions. We continue to focus on programs to accelerate new platform launches in the near to mid-term as well as increase applications for our technologies. We commenced commercial shipments of Revio, our new HiFi long-read sequencing system, in the first quarter of 2023. To address the oncology research markets with a highly differentiated alternative to existing third-party short-read sequencing products already on the market, we commenced customer shipments of the Onso short-read sequencing instrument in August 2023. In November 2024, we announced the Vega system, our first benchtop long-read sequencing platform. We began taking orders in the fourth quarter of 2024 with shipments expected to commence in the first quarter of 2025.

Previous wording

We continue to believe that with the capabilities of our HiFi chemistry and SMRTTM technology, we can be a market leader in whole-genome clinical sequencing. Leading institutions have adopted our products to study rare and inherited disease. We believe the market opportunity for clinical sequencing is significant and could drive substantial revenue growth for us. We plan to continue to pursue collaborations where the technologies being developed or applications being considered extend beyond whole-genome clinical sequencing. Collaborative arrangements add to the awareness of our products and service offerings and may drive new applications for use of our technology.

Current wording

We continue to believe that with the capabilities of our HiFi chemistry and SMRT® technology, we can be a market leader in whole-genome clinical sequencing. Leading institutions have adopted our products to study rare and inherited disease. We believe the market opportunity for clinical sequencing is significant and could drive substantial revenue growth for us. We plan to continue to pursue collaborations where the technologies being developed or applications being considered extend beyond whole-genome clinical sequencing. Collaborative arrangements add to the awareness of our products and service offerings and may drive new applications for use of our technology.

Previous wording

During the second quarter of 2024, we announced plans to reduce annualized run-rate operating expenses by the end of 2024, with the intent of better aligning our organizational structure and resources with our strategic initiatives. Our planned and ongoing expense reduction initiatives comprise, among other things, workforce reductions, facilities downsizing and a refined pipeline of development activities, with the majority of the expense reduction activities already initiated during the three months ended June 30, 2024. For the three months ended June 30, 2024, we incurred approximately $18.0 million of restructuring charges primarily related to employee separation costs, accelerated amortization and depreciation for right-of-use assets, leasehold improvements, and furniture and fixtures relating to the planned abandonment of the San Diego office, as well as charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives. We also anticipate incurring approximately $8.3 million in additional costs over the remainder of 2024. See Note 6. Restructuring in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

During the second quarter of 2024, we announced plans to reduce annualized run-rate operating expenses by the end of 2024, with the intent of better aligning our organizational structure and resources with our strategic initiatives. Our expense reduction initiatives include workforce reductions, facilities downsizing and a refined pipeline of development programs. For the nine months ended September 30, 2024, we incurred approximately $24.7 million of restructuring charges primarily related to employee separation costs, accelerated amortization and depreciation for right-of-use assets, leasehold improvements, and furniture and fixtures relating to the abandonment of the San Diego office, as well as charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives. We also expect to incur approximately $2.1 million in additional costs through 2025. See Note 6. Restructuring in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

Key highlights of the six months ended June 30, 2024 consolidated financial results include the following:

Current wording

Key highlights of the nine months ended September 30, 2024 consolidated financial results include the following:

Previous wording

•Revenue decreased to $74.8 million for the six months ended June 30, 2024, as compared to $86.5 million for the six months ended June 30, 2023. Revenue was comprised of $33.7 million in instrument revenue, $33.0 million in consumables revenue and $8.1 million in service and other revenue for the six months ended June 30, 2024. Revenue was comprised of $50.6 million in instrument revenue, $27.7 million in consumables revenue and $8.2 million in service and other revenue for the six months ended June 30, 2023. The decrease was primarily due to lower Revio unit sales, which was partially offset by higher consumable sales.

Current wording

•Revenue decreased to $114.8 million for the nine months ended September 30, 2024, as compared to $142.2 million for the nine months ended September 30, 2023. Revenue was comprised of $50.5 million in instrument revenue, $51.6 million in consumables revenue and $12.7 million in service and other revenue for the nine months ended September 30, 2024. Revenue was comprised of $85.3 million in instrument revenue, $44.6 million in consumables revenue and $12.3 million in service and other revenue for the nine months ended September 30, 2023. The decrease was primarily due to lower Revio unit sales, which was partially offset by higher consumable sales. While we do not expect Vega to meaningfully impact Revio sales, we are mindful that there may be some cases where potential customers take more time to assess our new offerings, which may prolong some sales cycles.

Previous wording

•Loss from operations increased $92.8 million to $257.2 million for the six months ended June 30, 2024, as compared to $164.4 million for the six months ended June 30, 2023, primarily driven by an increase in operating expenses and the decrease in revenue described above, partially offset by a decrease in cost of revenue. Operating expenses increased $84.7 million primarily driven by a $93.2 million goodwill impairment charge, $13.4 million of restructuring charges, and a $9.7 million increase in amortization of acquired intangible assets, partially offset by a $14.3 million decrease in the change in the fair value of the contingent consideration and a decrease in research and development expenses. We anticipate research and development expense and sales, general and administrative expense to continue to decrease for the remainder of 2024 as compared to the prior year driven by our expense reduction initiatives.

Current wording

•Loss from operations increased $74.4 million to $321.3 million for the nine months ended September 30, 2024, as compared to $246.9 million for the nine months ended September 30, 2023. Operating expenses increased $58.4 million primarily driven by a $93.2 million goodwill impairment charge, $20.3 million of restructuring charges, and a $12.6 million increase in amortization of acquired intangible assets, partially offset by a $12.9 million decrease in the change in the fair value of the contingent consideration and a decrease in research and development expenses.

Previous wording

•Cash, cash equivalents, and short-term investments were $509.8 million at June 30, 2024, which represents a 19% decrease compared to the balance at December 31, 2023.

Current wording

•Cash, cash equivalents, and short-term investments were $471.1 million at September 30, 2024, which represents a 25% decrease compared to the balance at December 31, 2023.

Previous wording

The median sales cycle for Revio instrument purchases continues to be longer than expected during 2024. We believe this has been caused by, among other reasons, the uncertainty surrounding the funding for new capital equipment, particularly in the U.S. and China; procurement delays, particularly in the Asia-Pacific and Europe regions; small-to-mid-size existing customers yet to increase their sample volumes to drive an upgrade to Revio; new customers, which have shown they have longer sales cycles compared to existing PacBio customers; and sample volumes materializing slower than expected for some potential Revio customers.

Current wording

The median sales cycle for Revio instrument purchases continues to be longer than expected. We believe this has been caused by, among other reasons, the uncertainty surrounding the funding for new capital equipment; procurement delays, particularly in the Asia-Pacific and Europe regions; small-to-mid-size existing customers yet to increase their sample volumes to drive an upgrade to Revio; new customers, which have shown they have longer sales cycles compared to existing PacBio customers; and sample volumes materializing slower than expected for some potential Revio customers.

Previous wording

We believe our consumables revenue was also impacted primarily by, among other reasons, slower-than-expected ramp-up in sequencing by our small- to mid-sized customers, many of whom are new to PacBio; sample delays impacting sequencing volume at certain large customers; and some service providers in China operating at lower utilization as a result of the difficult funding environment.

Current wording

We believe our consumables revenue was also impacted primarily by slower-than-expected ramp-up in sequencing by our small- to mid-sized customers, many of whom are new to PacBio; sample delays impacting sequencing volume at certain large customers; and some service providers in China operating at lower utilization as a result of the difficult funding environment.

Previous wording

On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of indefinite-lived and finite-lived assets. However, these estimates could change in future periods based on events or changes in circumstances, which could result in material impairment charges. We recorded a $93.2 million goodwill impairment charge for the three months ended June 30, 2024. See additional discussion below in Results of Operations, as well as Note 4. Balance Sheet Components in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Additionally, refer to the Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the Company's asset impairment assessments.

Current wording

On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of indefinite-lived and finite-lived assets. However, these estimates could change in future periods based on events or changes in circumstances, which could result in material impairment charges. We recorded a $93.2 million goodwill impairment charge in the nine months ended September 30, 2024. See additional discussion below in Results of Operations, as well as Note 4. Balance Sheet Components in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Additionally, refer to the Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the Company's asset impairment assessments.

Previous wording

Instrument revenue decreased $15.2 million, or 51%, to $14.7 million for the three months ended June 30, 2024, as compared to $29.9 million for the three months ended June 30, 2023, primarily due to the sale of 24 Revio systems during the three months ended June 30, 2024 compared to 45 Revio systems during the three months ended June 30, 2023.

Current wording

Instrument revenue decreased $17.9 million, or 52%, to $16.8 million for the three months ended September 30, 2024, as compared to $34.7 million for the three months ended September 30, 2023, primarily due to the sale of 22 Revio systems during the three months ended September 30, 2024 compared to 52 Revio systems during the three months ended September 30, 2023.

Previous wording

Consumables revenue increased $3.3 million, or 24%, to $17.0 million for the three months ended June 30, 2024, as compared to $13.7 million for the three months ended June 30, 2023. The increase in consumable sales was primarily due to higher Revio consumables sales attributable to the growth in the Revio instrument installed base, partially offset by a decline in Sequel II and IIe consumables as customers transition to Revio. We expect Revio consumable sales to increase as the installed base grows. While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Current wording

Consumables revenue increased $1.6 million, or 10%, to $18.5 million for the three months ended September 30, 2024, as compared to $16.9 million for the three months ended September 30, 2023. The increase was primarily due to higher Revio consumables sales attributable to the growth in the Revio instrument installed base, partially offset by a decline in Sequel® II and IIe consumables as customers transition to Revio. We expect Revio consumable sales to increase as the installed base grows. While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Previous wording

Revenue decreased $11.7 million, or 13%, to $74.8 million for the six months ended June 30, 2024, as compared to $86.5 million for the six months ended June 30, 2023.

Current wording

Service and other revenue increased $0.5 million, or 13%, to $4.7 million for the three months ended September 30, 2024, as compared to $4.1 million for the three months ended September 30, 2023.

Previous wording

Cost of product revenue decreased $8.1 million, or 15%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023 primarily driven by the decrease in revenue described above, partially offset by restructuring charges of $4.6 million, including charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the six months ended June 30, 2024. Cost of product revenue for the six months ended June 30, 2023 included adjustments of approximately $3.5 million primarily relating to excess consumables inventory due to the product transition to Revio we recognized during the first quarter of 2023. Cost of revenue included amortization attributable to acquired intangible assets of $4.0 million that are related to sales generating activities. Cost of revenue included share-based compensation expense of $3.2 million and $3.1 million during the six months ended June 30, 2024 and 2023, respectively.

Current wording

Cost of product revenue decreased $10.3 million, or 31%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023 primarily driven by the decrease in revenue described above. Cost of revenue included amortization attributable to acquired intangible assets of $3.2 million that are related to sales generating activities. Cost of revenue included share-based compensation expense of $1.2 million and $1.1 million during the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Research and development expense decreased by $13.2 million, or 14%, to $81.9 million for the six months ended June 30, 2024, compared to $95.1 million for the six months ended June 30, 2023. The decrease was primarily driven by a decrease in personnel expenses due to restructuring activities and the transition of recently launched products from development to commercialization. We incurred restructuring charges of $5.9 million, primarily related to employee separation benefits during the six months ended June 30, 2024. Research and development expense included share-based compensation expense of $10.4 million and $12.1 million during the six months ended June 30, 2024 and 2023, respectively.

Current wording

Research and development expense decreased by $22.0 million, or 46%, to $25.5 million for the three months ended September 30, 2024, compared to $47.5 million for the three months ended September 30, 2023. The decrease was primarily driven by a decrease in personnel and related expenses due to restructuring activities, as well as the transition of launched products from development to commercialization. Research and development expense included share-based compensation expense of $4.7 million and $6.2 million during the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Sales, general and administrative expense increased by $9.2 million, or 11%, to $89.6 million for the six months ended June 30, 2024, compared to $80.4 million for the six months ended June 30, 2023. The increase was primarily driven by restructuring charges and higher personnel costs. We incurred restructuring charges of $7.5 million, primarily related to employee separation benefits and lease-related costs during the six months ended June 30, 2024. Sales, general, and administrative expense included share-based compensation expense of $23.1 million and $20.6 million during the six months ended June 30, 2024 and 2023, respectively. We expect to incur an additional $8.3 million of remaining estimated restructuring costs during the remainder of 2024.

Current wording

Sales, general and administrative expense increased by $0.3 million, or 1%, to $43.7 million for the three months ended September 30, 2024, compared to $43.4 million for the three months ended September 30, 2023. Restructuring charges of approximately $6.9 million were primarily offset by a decrease in personnel expenses. We expect to incur an additional $2.1 million of remaining estimated restructuring costs through 2025. Sales, general, and administrative expense included share-based compensation expense of $12.3 million and $12.4 million during the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Change in fair value of contingent consideration during the six months ended June 30, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone.

Current wording

Change in fair value of contingent consideration during the three months ended September 30, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone.

Previous wording

Change in fair value of contingent consideration of $2.0 million during the three months ended June 30, 2023, represents the remeasurement impact of the Omniome contingent consideration liability of approximately $200 million that was due upon the achievement of a milestone.

Current wording

Change in fair value of contingent consideration during the three months ended September 30, 2023, represents the remeasurement impact of the Omniome contingent consideration liability of approximately $200 million that was due upon the achievement of a milestone.

Previous wording

Amortization of acquired intangible assets included in operating expenses of $4.2 million during the three months ended June 30, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Current wording

Amortization of acquired intangible assets included in operating expenses of $3.6 million during the three months ended September 30, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Previous wording

Other income, net for the three months ended June 30, 2024, was $6.1 million compared to $8.9 million for the three months ended June 30, 2023. The decrease was primarily driven by lower investment income due to lower cash and investment balances.

Current wording

Other income, net for the three months ended September 30, 2024, was $6.9 million compared to $8.5 million for the three months ended September 30, 2023. The decrease was primarily driven by lower investment income due to lower cash and investment balances.

Previous wording

Instrument revenue decreased $16.9 million, or 33%, to $33.7 million for the six months ended June 30, 2024, as compared to $50.6 million for the six months ended June 30, 2023, primarily due to the sale of 52 Revio systems during the six months ended June 30, 2024 compared to 77 Revio systems during the six months ended June 30, 2023.

Current wording

Instrument revenue decreased $34.8 million, or 41%, to $50.5 million for the nine months ended September 30, 2024, as compared to $85.3 million for the nine months ended September 30, 2023, primarily due to the sale of 74 Revio systems during the nine months ended September 30, 2024 compared to 129 Revio systems during the nine months ended September 30, 2023.

Previous wording

Consumables revenue increased $5.4 million, or 19%, to $33.0 million for the six months ended June 30, 2024, as compared to $27.7 million for the six months ended June 30, 2023. The increase in consumable sales was primarily due to higher Revio consumables sales attributable to the growth in the Revio instrument installed base, partially offset by a decline in Sequel II and IIe consumables as customers transition to Revio. We expect Revio consumable sales to increase as the installed base grows. While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Current wording

Consumables revenue increased $7.0 million, or 16%, to $51.6 million for the nine months ended September 30, 2024, as compared to $44.6 million for the nine months ended September 30, 2023. The increase in consumable sales was primarily due to higher Revio consumables sales attributable to the growth in the Revio instrument installed base, partially offset by a decline in Sequel II and IIe consumables as customers transition to Revio. We expect Revio consumable sales to increase as the installed base grows. While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Previous wording

Cost of product revenue decreased $5.3 million, or 19%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 primarily driven by the decrease in revenue described above, partially offset by restructuring charges of $4.6 million, including charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the three months ended June 30, 2024. Cost of revenue included amortization attributable to acquired intangible assets of $2.6 million that are related to sales generating activities. Cost of revenue included share-based compensation expense of $1.1 million and $1.2 million during the three months ended June 30, 2024 and 2023, respectively.

Current wording

Cost of product revenue decreased $18.3 million, or 21%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 primarily driven by the decrease in revenue described above and lower inventory adjustments, partially offset by restructuring charges of $4.4 million, including charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the nine months ended September 30, 2024. Cost of revenue included amortization attributable to acquired intangible assets of $7.2 million and $0.6 million that are related to sales generating activities during the nine months ended September 30, 2024 and 2023, respectively. Cost of revenue included share-based compensation expense of $4.5 million and $4.3 million during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Research and development expense decreased by $7.7 million, or 17%, to $38.5 million for the three months ended June 30, 2024, compared to $46.2 million for the three months ended June 30, 2023. The decrease was primarily driven by a decrease in personnel expenses due to restructuring activities and the transition of recently launched products from development to commercialization. We incurred restructuring charges of $5.9 million, primarily related to employee separation benefits during the three months ended June 30, 2024. Research and development expense included share-based compensation expense of $4.6 million and $5.4 million during the three months ended June 30, 2024 and 2023, respectively.

Current wording

Research and development expense decreased by $35.2 million, or 25%, to $107.5 million for the nine months ended September 30, 2024, compared to $142.6 million for the nine months ended September 30, 2023. The decrease was primarily driven by a decrease in personnel and related expenses due to restructuring activities, as well as the transition of products from development to commercialization. We incurred restructuring charges of $5.9 million, primarily related to employee separation benefits during the nine months ended September 30, 2024. Research and development expense included share-based compensation expense of $15.1 million and $18.3 million during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Sales, general and administrative expense increased by $5.3 million, or 13%, to $45.9 million for the three months ended June 30, 2024, compared to $40.6 million for the three months ended June 30, 2023. The increase was primarily driven by restructuring charges partially offset by lower personnel expense. We incurred restructuring charges of $7.5 million, primarily related to employee separation benefits and lease-related costs during the three months ended June 30, 2024. Sales, general, and administrative expense included share-based compensation expense of $11.5 million and $11.3 million during the three months ended June 30, 2024 and 2023, respectively. We expect to incur an additional $8.3 million of remaining estimated restructuring costs during the remainder of 2024.

Current wording

Sales, general and administrative expense increased by $9.6 million, or 8%, to $133.4 million for the nine months ended September 30, 2024, compared to $123.8 million for the nine months ended September 30, 2023. The increase was primarily driven by restructuring charges of $14.4 million, primarily related to employee separation benefits and lease-related costs during the nine months ended September 30, 2024, partially offset by a decrease in personnel expenses. We expect to incur an additional $2.1 million of remaining estimated restructuring costs through 2025. Sales, general, and administrative expense included share-based compensation expense of $35.4 million and $33.0 million during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Based primarily on the sustained decrease in our stock price during the second quarter and overall market capitalization as of the end of the second quarter of 2024, as well as other factors, we concluded that there was an indication that the fair value of the reporting unit might be less than it’s carrying amount and performed an interim impairment test on goodwill. The interim impairment test showed the reporting unit's carrying amount exceeded fair value. As a result, we recorded a $93.2 million goodwill impairment charge for the three months ended June 30, 2024, mainly due to the decline in the stock price and changes in the timing of expected future cash flows as compared to our initial long-term plan due to continued impact of longer than expected median sales cycles resulting from various factors.

Current wording

Based primarily on the sustained decrease in our stock price during the second quarter and overall market capitalization as of the end of the second quarter of 2024, as well as other factors, we concluded that there was an indication that the fair value of the reporting unit might be less than it’s carrying amount and performed an interim impairment test on goodwill. The interim impairment test showed the reporting unit's carrying amount exceeded fair value. As a result, we recorded a $93.2 million goodwill impairment charge for the nine months ended September 30, 2024, mainly due to the decline in the stock price and changes in the timing of expected future cash flows as compared to our initial long-term plan due to continued impact of longer than expected median sales cycles resulting from various factors.

Previous wording

Amortization of acquired intangible assets included in operating expenses of $9.7 million during the six months ended June 30, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Current wording

Amortization of acquired intangible assets included in operating expenses of $13.4 million and $0.7 million during the nine months ended September 30, 2024 and 2023, respectively consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Previous wording

Change in fair value of contingent consideration of $14.3 million during the six months ended June 30, 2023, represents the remeasurement impact of the Omniome contingent consideration liability of approximately $200 million that was due upon the achievement of a milestone.

Current wording

Change in fair value of contingent consideration during the nine months ended September 30, 2023, represents the remeasurement impact of the Omniome contingent consideration liability of approximately $200 million that was due upon the achievement of a milestone.

Previous wording

Loss on extinguishment of debt of $2.0 million during the three months ended June 30, 2023, represents the loss resulting from the difference in the fair value of the 2030 Notes and the principal, in addition to the write-off of the unamortized debt issuance costs on the portion of the 2028 Notes that were exchanged as part of the debt modification during the three months ended June 30, 2023.

Current wording

Loss on extinguishment of debt of $2.0 million during the nine months ended September 30, 2023, represents the loss resulting from the difference in the fair value of the 2030 Notes and the principal, in addition to the write-off of the unamortized debt issuance costs on the portion of the 2028 Notes that were exchanged as part of the debt modification during the nine months ended September 30, 2023.

Previous wording

Interest expense for the six months ended June 30, 2024, was $7.1 million compared to $7.2 million for the six months ended June 30, 2023 and was primarily comprised of interest on the convertible senior notes.

Current wording

Interest expense for the nine months ended September 30, 2024, was $10.7 million compared to $10.8 million for the nine months ended September 30, 2023 and was primarily comprised of interest on the convertible senior notes.

Previous wording

Other income, net for the six months ended June 30, 2024, was $12.8 million compared to $15.8 million for the six months ended June 30, 2023. The decrease was primarily driven by lower investment income due to lower cash and investment balances.

Current wording

Other income, net for the nine months ended September 30, 2024, was $19.7 million compared to $24.3 million for the nine months ended September 30, 2023. The decrease was primarily driven by lower investment income due to lower cash and investment balances.

Previous wording

As of June 30, 2024, we had cash, cash equivalents and investments of $509.8 million compared to $631.4 million as of December 31, 2023. We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements beyond the next 12 months from the date of filing of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024.

Current wording

As of September 30, 2024, we had cash, cash equivalents and investments of $471.1 million compared to $631.4 million as of December 31, 2023. We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements beyond the next 12 months from the date of filing of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024.

Previous wording

We approved and began implementing certain efficiency and expense reduction initiatives in the second quarter of 2024. These expense reduction initiatives include workforce reductions, facilities downsizing and a refined pipeline of development activities and are expected to reduce annualized run-rate operating expenses by the end of 2024.

Current wording

We approved and began implementing certain efficiency and expense reduction initiatives in the second quarter of 2024. These expense reduction initiatives include workforce reductions, facilities downsizing and a refined pipeline of development programs and are expected to reduce annualized run-rate operating expenses by the end of 2024.

Previous wording

Cash used in operating activities for the six months ended June 30, 2024 of $129.9 million was due primarily to a $251.5 million net loss that included non-cash items such as a goodwill impairment charge of $93.2 million, share-based compensation of $36.7 million, amortization of acquired intangible assets of $13.7 million, depreciation expense of $6.7 million and amortization of right-of-use assets of $5.9 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $7.6 million and $31.7 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by an increase in inventory, as well as decreases in accrued expenses and operating lease liabilities. These uses of cash were partially offset by decreases in accounts receivable and prepaid expenses and other assets and increases in accounts payable and deferred revenue.

Current wording

Cash used in operating activities for the nine months ended September 30, 2024 of $175.4 million was due primarily to a $312.2 million net loss that included non-cash items such as a goodwill impairment charge of $93.2 million, share-based compensation of $55.0 million, amortization of acquired intangible assets of $20.6 million, depreciation expense of $10.9 million and amortization of right-of-use assets of $10.9 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $10.7 million and $48.9 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by an increase in inventory, as well as decreases in accrued expenses and operating lease liabilities. These uses of cash were partially offset by a decrease in accounts receivable.

Previous wording

Cash used in operating activities for the six months ended June 30, 2023 of $136.4 million was due primarily to a $157.8 million net loss that included non-cash items such as share-based compensation of $35.8 million, change in estimated fair value of contingent consideration of $14.2 million, depreciation expense of $5.6 million, inventory provisions of $4.3 million, amortization of right-of-use assets of $3.3 million, and loss on extinguishment of debt of $2.0 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $6.1 million and $38.6 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by increases in inventory, accounts receivable and prepaid and other assets, as well as decreases in accrued expenses, operating lease liabilities and deferred revenue. These uses of cash were partially offset by an increase in accounts payable.

Current wording

Cash used in operating activities for the nine months ended September 30, 2023 of $201.6 million was due primarily to a $224.7 million net loss that included non-cash items such as share-based compensation of $55.5 million, change in estimated fair value of contingent consideration of $14.0 million, depreciation expense of $8.5 million, amortization of right-of-use assets of $4.9 million, inventory provisions of $4.7 million, merger-related compensation expense of $3.4 million, and loss on extinguishment of debt of $2.0 million. This was offset by deferred income taxes of $10.7 million, the accretion of discount and amortization of premium on marketable securities, net of $10.1 million, and $51.2 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by increases in inventory, accounts receivable and prepaid and other assets, as well as decreases in operating lease liabilities, deferred revenue, other liabilities and the contingent consideration liability. These uses of cash were partially offset by an increase in accrued expenses and accounts payable.