PACIFIC BIOSCIENCES OF CALIFORNIA, INC.
For the period ended Dec 31, 2025. Filed Feb 25, 2026.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Feb 25, 2026
PACB$2.26-7.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-03-17.
0001299130-25-000061
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsContingent ConsiderationCurrent report: 10-K
Period ended 2025-12-31; filed 2026-02-25.
0001299130-26-000034
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 152 previous paragraphs and 155 current paragraphs.
88 unchanged; 33 reworded; 34 added; 31 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 3 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (34)
Current report
Recent Developments
Current report
On January 30, 2026, we completed a disposition of assets to Buyer in accordance with the terms of the Asset Purchase Agreement, pursuant to which, among other matters, Buyer acquired certain intellectual property and other assets related to our short-read DNA sequencing technology and related clustering, sequencing reagent, and detection technologies. As consideration for the Asset Sale, Buyer paid us $50.0 million in cash and assumed certain liabilities. In addition, Buyer granted us a non-exclusive license to certain intellectual property included in the purchased assets. In connection with the Asset Sale, Buyer will pay at our direction 4% of the net proceeds from the Purchase Price to the former equity holders of Apton related to the waiver of all remaining milestone obligations associated with our purchase of Apton in August 2023, which payment is expected in the first quarter of 2026. As a result, we received approximately $48.1 million in net cash proceeds from the Asset Sale.
Current report
•Accelerate samples onto the Revio platform through SPRQ-Nx chemistry and application kits. SPRQ-Nx is designed to lower the cost of sequencing and improve sequencing efficiency, which we believe will support higher throughput, increased sample volumes, and broader adoption of HiFi sequencing in large-scale research studies and clinical applications.
Current report
•Expand the capabilities of the Vega benchtop platform to broaden our market reach. We plan to enable faster run times and enhanced user experience through software improvements, which are intended to support broader adoption and improve the overall economics of HiFi sequencing.
Current report
•Advance data-driven interpretation through scalable HiFi datasets and analytics. We are focused on leveraging the accuracy of HiFi sequencing and growing datasets to support advanced data analysis and AI-assisted interpretation approaches. Collaborative initiatives such as the HiFi Solves Global Consortium are designed to aggregate large, well-characterized HiFi datasets, which we believe can support improved understanding of complex genetic variation and disease biology while maintaining expert oversight.
Current report
•Gross profit increased for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily driven by higher consumable volumes, which drove a more favorable product mix. Gross margins may be affected by product mix, manufacturing efficiencies, changes in warranty costs, average selling price fluctuations, future product launches, changes to inventory reserves, costs of raw materials, and tariffs.
Current report
•Loss from operations increased for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to $383.1 million of restructuring-related costs. See Note 6. Restructuring in Part II, Item 8 of this Annual Report on Form 10-K for additional information about restructuring activities. These restructuring-related costs were partially offset by a $169.5 million decrease in impairment charges and a $17.9 million change in fair value of contingent consideration. As a result of the restructuring, core operating expenses, consisting of research and development and sales, general and administrative expenses, decreased by $71.1 million.
Current report
We believe that our sales cycles for Revio instruments continues to be elongated due to, among other reasons, continued capital funding constraints in academic and research markets, procurement timing considerations, and longer adoption cycles among new customers, which have affected the timing of certain instrument orders.
Current report
Total revenue increased $6.0 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024.
Current report
Product revenue decreased slightly compared to prior year. Instrument revenue decreased $12.0 million, or 18% and consumables revenue increased $11.6 million, or 16%.
Current report
Service and other revenue increased $6.4 million, or 36%, primarily driven by an increase in Revio service contracts.
Current report
The increase in consumables revenue for the year ended December 31, 2025 as compared to the year ended December 31, 2024 was primarily driven by higher Revio consumables sales, reflecting the continued expansion of the Revio instrument installed base.
Current report
Looking ahead, we expect consumables revenue to increase as we execute against our strategic objectives and expand utilization of our sequencing platforms. This growth is expected to be driven by a growing installed base of Revio and Vega instruments, enhancing platform economics that support higher throughput, and broader adoption across research and clinical research applications. In addition, continued investments in chemistry, application kits, and workflow enhancements are intended to expand addressable applications and increase consumables usage per instrument over time.
Current report
The decrease was partially offset by sales of Vega systems, with 140 units sold during the year ended December 31, 2025 following its commercial launch in the fourth quarter of 2024.
Current report
We expect that instrument revenue may fluctuate based on timing of customer purchasing decisions, sales mix, and funding dynamics.
Current report
Cost of Revenue and Gross Profit
Current report
Total cost of revenue decreased $2.5 million, or 2%, during the year ended December 31, 2025, compared to the year ended December 31, 2024 primarily due to more favorable product mix driven by higher consumable sales and a decrease in amortization of acquired intangible assets. These decreases were partially offset by $8.1 million of excess inventory charges resulting from reduced external demand and $3.9 million of estimated losses on purchase commitments associated with anticipated excess inventory in connection with the Company’s expense reduction and strategic initiatives. Excess inventory charges were $3.6 million for the year ended December 31, 2024. Total cost of revenue included share-based compensation expense of $3.8 million and $5.7 million during the years ended December 31, 2025 and 2024, respectively.
Current report
Gross profit increased $8.5 million, or 23%, for the year ended December 31, 2025, compared to the year ended December 31, 2024 driven by higher consumable volumes and the resulting improvement in product mix, partially offset by restructuring-related charges. See Note 6. Restructuring in Part II, Item 8 of this Annual Report on Form 10-K for additional information about restructuring activities. Gross margins may be affected by product mix, manufacturing efficiencies, changes in warranty costs, average selling price fluctuations, future product launches, changes to inventory reserves, costs of raw materials and tariffs.
Current report
Sales, general and administrative expense decreased by $33.5 million, or 19%, during the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease was primarily due to a decrease in personnel and related expenses, including share-based compensation expense, and lower restructuring-related charges. We recorded $6.1 million of restructuring-related charges during the year ended December 31, 2025 compared to $14.9 million for the year ended December 31, 2024. Sales, general, and administrative expense included share-based compensation expenses of $26.6 million and $46.2 million during the years ended December 31, 2025 and 2024, respectively.
Current report
We recorded impairment charges of $15.0 million during the first quarter of 2025, related to in-process research and development (“IPR&D”). These charges resulted from an interim impairment assessment performed in response to identified indicators of impairment during the period. The impairment test concluded that the fair value of our IPR&D assets was $0. See Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further details.
Current report
We recorded impairment charges of $184.5 million during the year ended December 31, 2024 including $144.5 million of goodwill and $40.0 million of IPR&D as a result of quantitative interim impairment tests.
Current report
Amortization of acquired intangible assets during the year ended December 31, 2025 included $359.3 million of accelerated amortization recorded during the first quarter of 2025 which was related to developed technology from the 2021 Omniome acquisition, reflecting our revised estimate that the asset will no longer generate economic benefit. We expect significantly lower amortization expense in future periods.
Current report
During the first quarter of 2025 we recognized a change in fair value of contingent consideration of $18.7 million, resulting in a contingent consideration liability of $0. This was primarily due to management's decision to cease development of the high-throughput short-read system, the associated changes in expected future revenues, and the requirement that the milestone event occur prior to the five-year anniversary of the acquisition closing date.
Current report
On January 30, 2026, we completed a disposition of assets to Buyer in accordance with the terms of the Asset Purchase Agreement. In connection with the Asset Sale, Buyer will pay at our direction 4% of the net proceeds from the Purchase Price to the former equity holders of Apton related to the waiver of all remaining milestone obligations associated with our purchase of Apton in August 2023, which payment is expected in the first quarter of 2026. See Note 12. Subsequent Events in Part II, Item 8 of this Annual Report on Form 10-K for further details.
Current report
Interest expense during the years ended December 31, 2025 and 2024 was primarily comprised of interest on the convertible senior notes. The decrease was due to lower convertible notes balances as a result of the notes exchange transaction in November 2024. See Note 5. Convertible Senior Notes in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
Current report
•As described in Note 7 - Commitments and Contingencies in Part II, Item 8 of this Annual Report on Form 10-K, we have a Supply Agreement, that includes minimum annual purchase commitments for certain products through 2031. To secure supply under the agreement, we paid deposits totaling $15.0 million, of which $4.0 million and $3.0 million were refunded in 2025 and 2024, respectively. The supplier may retain all or a portion of the deposit if we fail to meet our minimum purchase commitments.
Current report
•As described in Note 4 -Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K the Company entered into an agreement to acquire certain developed technology and related intellectual property from The Chinese University of Hong Kong for a total consideration of $9.7 million. In addition, the Company entered into a license agreement for complementary developed technology during the three months ended March 31, 2025. Both the acquired technology and license are classified as intangible assets and are being amortized over an estimated useful life of three years. As of December 31, 2025, $5.0 million of these intangible assets remained unpaid. This amount is included in accrued liabilities on the condensed consolidated balance sheets and is expected to be paid in 2026.
Current report
We recognized $144.5 million of impairment charges to goodwill during the year ended December 31, 2024, as a result of quantitative interim impairment tests.
Current report
Based primarily on the decline in our stock price and overall market capitalization during the first quarter of 2025, driven in part by macroeconomic uncertainties, as well as our updated strategic plans and restructuring initiatives that prioritize accelerating adoption of HiFi sequencing and ceasing development of our high-throughput short-read platform, we concluded that changes to the timing and amount of expected future cash flows, among other factors, indicated that it was more likely than not that the fair value of the reporting unit was less than its carrying amount, requiring an interim goodwill impairment assessment. As a result of the quantitative interim impairment test performed as of March 31, 2025, we concluded that there was no impairment, as the estimated fair value of the entity-level reporting unit exceeded the carrying value.
Current report
We performed our annual assessment for goodwill impairment in the second quarter of 2025, noting no impairment. See Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Current report
We recognized a $40.0 million impairment charge during the year ended December 31, 2024 as a result of a quantitative interim impairment test.
Current report
During the first quarter of 2025, based on our decision to cease development of the high-throughput short-read sequencing platform, which would utilize the IPR&D, and the resulting changes to the expected future cash flows, among other factors, we concluded that it was more likely than not that the fair value of the IPR&D was less than its carrying amount, requiring an interim impairment assessment. Using a discounted cash flow model under the income approach, we determined the fair value was $0 and recorded a $15.0 million impairment charge. The decline in the fair value of the IPR&D to $0 as of March 31, 2025 resulted primarily from changes in the timing of expected future cash flows as compared to the fair value as of December 31, 2024, driven by the restructuring initiatives that prioritize accelerating adoption of HiFi sequencing and resulted in ceasing development of our high-throughput short-read sequencing platform. The impairment charge is included on our consolidated statements of operations and comprehensive loss for the year ended December 31, 2025. Significant estimates and assumptions used in the income approach include timing of future cash flows, revenue growth assumptions, a selected discount rate of 14.0%, and a selected obsolescence factor of 11 years. The discount rate was based primarily on the weighted average cost of capital, determined using market, peer company, industry data, and related risk factors. The assessment is a level 3 measurement due to its reliance on certain unobservable inputs and management judgment. The assumptions used were inherently subject to uncertainty. See Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Current report
We estimate the fair value of the contingent consideration liability based on the simulated revenue of the Company through the five-year anniversary of the closing date of the acquisition. The key input used in the determination of the fair value included projected revenues of the high-throughput short-read products and services leveraging Apton's technology. Primarily due to management's decision to cease development of the high-throughput short-read system, and the resulting changes in the expected future revenues, among other factors, and as the milestone event must occur prior to the five-year anniversary of the closing date of the acquisition, the estimated fair value of the contingent consideration liability is $0. An increase in the fair value of the liability may result from changes in projected revenues, including accelerated timing or higher expected amounts, and from decreases in discount rates, including the risk-free rate and the estimated subordinated credit spread for a CCC credit rating. Refer to Note 3. Financial Instruments in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on valuation assumptions.
Current report
On January 30, 2026, we completed a disposition of assets to Buyer in accordance with the terms of an Asset Purchase Agreement. In connection with the Asset Sale, Buyer will pay at our direction 4% of the net proceeds from the Purchase Price to the former equity holders of Apton related to the waiver of all remaining milestone obligations associated with our purchase of Apton in August 2023, which payment is expected in the first quarter of 2026. See Note 12. Subsequent Events in Part II, Item 8 of this Annual Report on Form 10-K for further details.
Removed paragraphs (31)
Previous report
Though challenging, 2024 was a productive year for PacBio as we launched products, improved our financial flexibility, and made progress in reducing cash burn.
Previous report
•Enabling the full-scale release of the Vega benchtop platform to broaden our market reach. We believe this platform broadens the long-read market opportunity.
Previous report
•Accelerating samples onto the Revio platform via SPRQ chemistry and application kits. The SPRQ chemistry enables the sub-$500 HiFi genome, improves methylation detection capabilities, and achieves a 75% reduction in DNA input requirements for human whole genome sequencing. These features can drive more samples onto HiFi sequencing than ever before.
Previous report
•Gross profit decreased for the year ended December 31, 2024, primarily due to the decrease in revenue described above, $4.4 million of restructuring charges, and an increase of $7.4 million in amortization of acquired intangible assets, partially offset by lower inventory adjustments. During the year ended December 31, 2023 we recognized an increase of approximately $4.6 million of inventory adjustments primarily related to excess consumables inventory resulting from faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system. Gross margins may also be affected by product mix, manufacturing efficiencies, warranty cost improvements, average selling price fluctuations, future product launches, changes to inventory reserves, and costs of raw materials.
Previous report
•Loss from operations increased $139.8 million or 42%, to $474.3 million for the year ended December 31, 2024, as compared to $334.5 million for the year ended December 31, 2023. Operating expenses increased $124.3 million primarily driven by $184.5 million of impairment charges, $20.8 million of restructuring charges, and an increase of $11.8 million in amortization of acquired intangible assets, partially offset by a $15.9 million decrease in the change in the fair value of the contingent consideration, a $9.0 million decrease in non-recurring merger-related costs, and a decrease in research and development expenses primarily driven by a decrease in personnel and related expenses due to restructuring activities.
Previous report
The median sales cycle for Revio instrument purchases continues to be elongated. We believe this has been caused by, among other reasons, the uncertainty surrounding the funding for new capital equipment, in particular, uncertainty in the United States related to NIH and academic funding; procurement delays; 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 report
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 report
Total revenue decreased $46.5 million, or 23%, to $154.0 million for the year ended December 31, 2024, as compared to $200.5 million for the year ended December 31, 2023.
Previous report
The decrease in product revenue resulted primarily from a decrease of $54.7 million in instrument revenue, partially offset by an increase of approximately $6.9 million in consumable revenue.
Previous report
Service and other revenue increased approximately $1.3 million to $17.9 million for the year ended December 31, 2024 as compared to $16.6 million for the year ended December 31, 2023.
Previous report
Consumables revenue increased approximately $6.9 million, or 11%, to $70.3 million for the year ended December 31, 2024, as compared to $63.4 million for the year ended December 31, 2023. The increase in consumable sales was primarily due to higher Revio consumables and library preparation 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 report
Cost of Revenue, Gross Profit, and Gross Margin
Previous report
Cost of product revenue decreased $35.3 million, or 28%, for the year ended December 31, 2024, compared to the year ended December 31, 2023 primarily driven by the decrease in revenue described above and lower inventory adjustments. During the year ended December 31, 2023, we recognized an increase of approximately $4.6 million of inventory adjustments primarily related to excess consumables inventory resulting from faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system. These decreases were partially offset by restructuring charges in cost of revenue of $4.4 million, including $3.6 million of charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the year ended December 31, 2024. Cost of revenue included amortization attributable to acquired intangible assets of $9.4 million and $2.0 million that are related to sales generating activities during the years ended December 31, 2024 and 2023, respectively. Cost of revenue included share-based compensation expense of $5.7 million and $5.4 million during the years ended December 31, 2024 and 2023, respectively.
Previous report
The loss on purchase commitment was $1.0 million and $3.4 million for the years ended December 31, 2024 and 2023, respectively. The purchase commitment loss is based on an estimate of future excess inventory related to supply agreements, for which we do not expect to have related sales.
Previous report
Gross profit decreased $15.5 million, or 29% to $37.3 million for the year ended December 31, 2024, compared to $52.8 million for the year ended December 31, 2023. Gross margin was 24% for the year ended December 31, 2024, compared to gross margin of 26% for the year ended December 31, 2023. The decrease was primarily due to the decrease in revenue described above, restructuring charges, and an increase of $7.4 million in amortization of acquired intangible assets, partially offset by lower inventory adjustments. Gross margins may also be affected by product mix, manufacturing efficiencies, warranty cost improvements, average selling price fluctuations, future product launches, changes to inventory reserves, and costs of raw materials.
Previous report
Sales, general and administrative expense increased by $5.2 million, or 3%, to $175.0 million for the year ended December 31, 2024, compared to $169.8 million for the year ended December 31, 2023. The increase was primarily driven by restructuring charges of $14.9 million, primarily related to employee separation benefits and lease-related costs during the year ended December 31, 2024, partially offset by a decrease in personnel expenses. We expect to incur an additional $0.9 million of remaining estimated restructuring costs through 2025 relating to the actions taken in 2024. Sales, general, and administrative expense included share-based compensation expenses of $46.2 million and $44.3 million during the years ended December 31, 2024 and 2023, respectively.
Previous report
We identified indicators of impairment primarily relating to significant declines in our stock price and market capitalization compared to net book value, increases in the carrying value of the reporting unit, and changes in the amount and timing of expected future cash flows due to macroeconomic headwinds, among others, and performed interim impairment tests during the year ended December 31, 2024. The impairment tests showed the carrying amounts of our goodwill and in-process research and development ("IPR&D") exceeded fair values. As a result, we recorded $184.5 million of impairment charges for the year ended December 31, 2024. See Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further details.
Previous report
Merger-Related Expenses
Previous report
Merger-related expenses of $9.0 million during the year ended December 31, 2023, consist of $4.9 million of transaction costs arising from the acquisition of Apton, $2.8 million of compensation expense resulting from the liquidity event bonus plan in connection with the Apton acquisition, and $1.3 million of share-based compensation expense resulting from the acceleration of certain equity awards in connection with the Apton acquisition. We recognized $1.3 million of share-based compensation expense for the acceleration that was not attributable to pre-combination services.
Previous report
Amortization of acquired intangible assets of $18.0 million and $6.2 million during the years ended December 31, 2024 and 2023, respectively, consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.
Previous report
Change in fair value of contingent consideration during the year ended December 31, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone.
Previous report
Change in fair value of contingent consideration during the year ended December 31, 2023, represents the remeasurement impact of the Omniome and Apton contingent consideration liability due upon the achievement of the respective milestone. The Omniome milestone was achieved in September 2023.
Previous report
Loss on Extinguishment of Debt
Previous report
Loss on extinguishment of debt of $2.0 million during the year ended December 31, 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 year ended December 31, 2023.
Previous report
Interest expense for the year ended December 31, 2024 was $13.4 million compared to $14.3 million for the year ended December 31, 2023 and was primarily comprised of interest on the Notes.
Previous report
Income Tax Provision (Benefit)
Previous report
We recorded an income tax provision of $0.3 million for the year ended December 31, 2024. A deferred income tax benefit of $11.4 million for the year ended December 31, 2023, is related to the release of the valuation allowance for deferred tax assets due to the recognition of deferred tax liabilities in connection with the Apton acquisition. Accordingly, this benefit from income taxes is reflected on our consolidated statements of operations and comprehensive loss for the year ended December 31, 2023. We maintain a valuation allowance on the net deferred tax assets of our U.S. entities as we have concluded that it is more likely than not that we will not realize our deferred tax assets.
Previous report
•As described in more detail in Note 7 - Commitments and Contingencies in Part II, Item 8 of this Annual Report on Form 10-K we signed a Supply Agreement, which was most recently amended in September 2024, with a supplier for the purchase of certain products over the period of 2023 through 2027. As part of the Supply Agreement, we made a $9.0 million deposit during the year ended December 31, 2022, and an additional deposit of $6.0 million in 2023, to secure the supply of certain products through the term of the contract. $3.0 million was refunded to us during the year ended December 31, 2024. If we breach the minimum volume purchase commitment during any applicable year, the supplier is entitled to retain a portion or all of the deposit corresponding to that year. If we terminate the Supply Agreement before January 15, 2027, Supplier will refund the remaining balance of the Deposit. If the supplier breaches its minimum volume supply commitment during any applicable year or portions thereof, our remedies include termination, pursuit of damages, or pursuit of specific performance.
Previous report
•Payments related to acquisitions. See “—Contingent Consideration” below for further details on potential payments related to our recent acquisitions.
Previous report
Significant estimates and assumptions used in the income approach during the fourth quarter of 2024, included revenue growth assumptions, a discount rate of 14.0%, and an obsolescence factor of 13 years. The carrying value of the IPR&D exceeded its estimated fair value, and we recorded an impairment of $40.0 million in the fourth quarter of 2024, primarily due to a decrease in projected cash flows. An increase of 100 basis points to the discount rate used in our analysis would have resulted in additional IPR&D impairment of approximately $5 million. A decrease ofone year to the obsolescence factor used in our analysis would have resulted in additional IPR&D impairment of approximately $5 million. See Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Previous report
The contingent consideration liability was measured at fair value as of the acquisition date and is remeasured periodically at each reporting date, with changes in fair value recorded as change in fair value of contingent consideration on our consolidated statements of operations and comprehensive loss. For the Apton contingent consideration, the initial measurement and post-acquisition remeasurement required estimates and assumptions using a Monte Carlo simulation to estimate the volatility and systematic relative risk of revenues subject to sales milestone payments and discounting the associated cash payment amounts to their present values using a credit-risk-adjusted interest rate to determine the total fair value of the contingent consideration payment as of each reporting period. This method requires significant management judgment, including risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an estimated credit spread. Assumptions and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Future changes in our estimates could result in expenses or gains. For the Omniome contingent consideration, the initial measurement and post-acquisition remeasurement required estimates and assumptions using a scenario-based method that considers a range of potential outcomes of milestone achievement dates and assigned probabilities of occurrence for each outcome. Outcomes were discounted to present value, which was then weighted by the probability of each scenario to determine the total fair value of the contingent consideration payment as of each reporting period. This method requires significant management judgment, including the probability of achieving certain future milestones and discount rates. Refer to Note 3. Financial Instruments for further discussion on valuation assumptions.
Reworded paragraphs (33)
Previous wording
Our products and technology under development stem from two highly differentiated core technologies focused on accuracy, quality, and completeness, which include our HiFi long-read sequencing technology and our Sequencing by Binding (SBB) short-read sequencing technology. Our products address solutions across a broad set of applications including human genetics, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications. Long-read sequencing was recognized by the journal Nature Methods as its “method of the year” for 2022 for its contributions to biological understanding and future potential. Long-read sequencing has been applied to produce telomere-to-telomere genomes of humans, pangenome references, and has been recognized for its ability to provide more complete views of human variation.
Current wording
Our products and technology, which include our HiFi long-read sequencing technology, address a broad set of applications including human germline sequencing, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.
Previous wording
Looking ahead to 2025, our main objectives are to grow revenue and expand gross margins through the following four activities:
Current wording
Looking ahead to 2026, our main objectives are to grow revenue and expand gross margins through the following five activities. These initiatives are designed to improve the economics of HiFi sequencing, expand adoption across clinical and research markets, and drive durable growth across our platform portfolio.
Previous wording
•Progressing our clinical strategy to improve outcomes and create durability. In 2024 Revio was increasingly being used in LDT and clinical research settings to consolidate multiple tests and address complex genetic challenges.
Current wording
•Progress our clinical strategy to improve outcomes and create durability. Revio is increasingly being adopted in laboratory-developed test ("LDT") and clinical research settings, supporting consolidation of multiple tests, addressing complex genetic challenges, and driving sustained utilization of HiFi sequencing.
Previous wording
•Investing in future product launches to diversify our offerings. We continue to develop sequencing systems designed to increase throughput and lower the cost to sequence a genome, which we believe will allow us to address an even larger part of the market. Additionally, we continue to develop kitted-solutions, like our Kinnex Full-length RNA kits and PureTarget, and enhance our on-market sequencers with products like SPRQ chemistry to drive more sequencing volume.
Current wording
•Invest in future product launches to drive platform innovation. We continue to develop sequencing solutions designed to increase throughput, simplify workflows, lower the cost to sequence a genome, and enhance downstream data analysis and interpretation capabilities, which we believe will allow us to address a larger portion of the market.
Previous 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 the company. We plan to continue to pursue partner 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 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 the company. We plan to continue to pursue partner 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
•Revenue decreased $46.5 million, or 23%, to $154.0 million for the year ended December 31, 2024, as compared to $200.5 million for the year ended December 31, 2023. Revenue was comprised of $65.8 million in instrument revenue, approximately $70.3 million in consumables revenue and $17.9 million in service and other revenue for the year ended December 31, 2024. The decrease was primarily due to lower Revio unit sales and lower average selling prices, 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. We ended the year with cumulative shipments of 270 Revio systems.
Current wording
•Revenue was comprised of approximately $82.0 million in consumables revenue, $53.8 million in instrument revenue, and $24.2 million in service and other revenue for the year ended December 31, 2025. Revenue was comprised $70.3 million in consumables revenue, $65.8 million in instrument revenue, and $17.9 million in service and other revenue for the year ended December 31, 2024. The increase in total revenue was primarily due to higher consumable sales, Vega instrument sales, and service and other revenue, partially offset by lower Revio instrument sales as compared to the prior year.
Previous wording
•Cash, cash equivalents, and investments were $389.9 million at December 31, 2024, which represents a 38% decrease compared to the balance of $631.4 million at December 31, 2023. The decrease in cash includes approximately $50.2 million of payments made in conjunction with the convertible notes exchange transaction in November 2024.
Current wording
•Cash, cash equivalents, and investments were $279.5 million at December 31, 2025, which represents a 28% decrease compared to the balance of $389.9 million at December 31, 2024.
Previous wording
Macroeconomic dynamics impacting the Company in the future may include rising inflation, geopolitical tensions, volatile capital markets, tariffs, uncertainty in the United States related to NIH and academic funding, and fluctuating exchange rates. These factors could continue to impact our revenues and results of operations in future periods; however, the magnitude and duration of these impacts is uncertain and inherently unpredictable.
Current wording
Macroeconomic dynamics impacting the Company in the future may include rising inflation, geopolitical tensions, volatile capital markets, tariffs, uncertainty in the United States related to NIH and academic funding, and fluctuating exchange rates. These factors could continue to impact our revenues and results of operations in future periods; however, the magnitude and duration of these impacts is highly uncertain and inherently unpredictable.
Previous wording
On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of goodwill, 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 future impairment charges. We recorded $184.5 million of impairment charges during the year ended December 31, 2024. See additional discussion below in Results of Operations, as well as Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information. Additionally, refer to the Critical Accounting Policies and Estimates section later in this Item 7 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 goodwill, 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 future impairment charges. We recorded $15.0 million of impairment charges during the first quarter of 2025. See additional discussion below in Results of Operations, as well as Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information. Additionally, refer to the Critical Accounting Policies and Estimates section later in this Item 7 for further discussion on the Company's asset impairment assessments.
Previous wording
Instrument revenue decreased $54.7 million, or 45%, to $65.8 million for the year ended December 31, 2024, as compared to $120.5 million for the year ended December 31, 2023, primarily due to the sale of 97 Revio systems during the year ended December 31, 2024 compared to 173 Revio systems during the year ended December 31, 2023.
Current wording
Instrument revenue decreased for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a lower number of Revio systems sold—61 units during the year ended December 31, 2025 compared to 97 Revio systems during the year ended December 31, 2024. This decline primarily reflects variability in customer purchasing behavior resulting from uncertainty surrounding the funding for new capital equipment, particularly among academic and research institutions.
Previous wording
Research and development expense decreased by $52.2 million, or 28%, to $134.9 million for the year ended December 31, 2024, compared to $187.2 million for the year ended December 31, 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 year ended December 31, 2024. Research and development expense included share-based compensation of $19.2 million and $22.4 million during the years ended December 31, 2024 and 2023, respectively.
Current wording
Research and development expense decreased by $37.6 million, or 28%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease was primarily driven by a decrease in personnel and related expenses, including share-based compensation expense, lower product development costs due to the transition of launched products from development to commercialization, and lower restructuring-related charges, partially offset by an increase in future product development activities. We recorded $2.8 million of restructuring-related charges during the year ended December 31, 2025 compared to $5.9 million for the year ended December 31, 2024. Research and development expense included share-based compensation of $11.2 million and $19.2 million during the years ended December 31, 2025 and 2024, respectively.
Previous wording
We approved and implemented certain efficiency and expense reduction initiatives during 2024. These expense reduction initiatives included workforce reductions, facilities downsizing and a refined pipeline of development programs.
Current wording
We approved and implemented certain efficiency and expense reduction initiatives during 2025 and 2024. These expense reduction initiatives included workforce reductions, facilities downsizing and a refined pipeline of development programs.
Previous wording
As of December 31, 2024, we had $389.9 million in cash, cash equivalents, and investments, compared to $631.4 million at December 31, 2023. The decrease was primarily attributable to $206.1 million cash used in operating activities during the year ended December 31, 2024 and an additional $50.2 million of payments made in conjunction with the convertible notes exchange transaction in November 2024.
Current wording
As of December 31, 2025, we had $279.5 million in cash, cash equivalents, and investments, compared to $389.9 million at December 31, 2024. The decrease was primarily attributable to $111.2 million cash used in operating activities during the year ended December 31, 2025.
Previous wording
In November 2024, we entered into an exchange agreement with SBN, pursuant to which we agreed to exchange the remaining approximately $459.0 million in aggregate principal amount of 2028 Notes outstanding for (i) $200.0 million aggregate principal amount of the 2029 Notes, (ii) 20,451,570 shares of common stock (the “Exchange Shares”) and (iii) $50.0 million of cash. The exchange and issuances closed on November 21, 2024 (the “Closing Date”). The 2029 Notes, the Exchange Shares, and shares of common stock issuable upon conversion of the 2029 Notes are subject to certain lock-up restrictions for a six-month period (the “Lock-Up Period”) beginning on the Closing Date of the Exchange Transaction; the lock-up restrictions will terminate immediately prior to the consummation of any change in control of the Company. The 2029 Notes bear interest at a rate of 1.50% per annum. Interest on the 2029 Notes is payable semi-annually in arrears on February 15 and August 15 and commencing on February 15, 2025. The 2029 Notes will mature on August 15, 2029, subject to earlier conversion, redemption or repurchase.
Current wording
In November 2024, we entered into an exchange agreement with SBN, pursuant to which we agreed to exchange the remaining approximately $459.0 million in aggregate principal amount of 2028 Notes outstanding for (i) $200.0 million aggregate principal amount of the 2029 Notes, (ii) 20,451,570 shares of common stock (the “Exchange Shares”) and (iii) $50.0 million of cash. The exchange and issuances closed on November 21, 2024 (the “Closing Date”). The 2029 Notes, the Exchange Shares, and shares of common stock issuable upon conversion of the 2029 Notes were subject to certain lock-up restrictions for a six-month period (the “Lock-Up Period”) beginning on the Closing Date of the Exchange Transaction; the lock-up restrictions will terminate immediately prior to the consummation of any change in control of the Company. The 2029 Notes bear interest at a rate of 1.50% per annum. Interest on the 2029 Notes is payable semi-annually in arrears on February 15 and August 15 and commencing on February 15, 2025. The 2029 Notes will mature on August 15, 2029, subject to earlier conversion, redemption or repurchase.
Previous wording
•Our purchase orders and contractual obligations of approximately $57.6 million as of December 31, 2024, which consist of open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers for which we have not received the goods or services. A majority of these purchase obligations are due within a year. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.
Current wording
•Our purchase orders and contractual obligations of approximately $71.3 million as of December 31, 2025, which consist of open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers for which we have not received the goods or services. A majority of these purchase obligations are due within a year. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.
Previous wording
•Our research and development expenditures of $134.9 million in 2024 and $187.2 million in 2023. While we expect to continue our investment in research and development in 2025, including enhancements of our existing products, and continued development of other new technology and products, we expect research and development expenses to decline in 2025 as compared to the year ended December 31, 2024 due to recent product transitions.
Current wording
•Our research and development expenditures of $97.3 million in 2025 and $134.9 million in 2024. We expect to continue our investment in research and development in 2026, including enhancements of our existing products, and continued development of other new technology and products.
Previous wording
•Cash outflows for capital expenditures of $6.2 million in 2024 and $8.8 million in 2023. We expect to continue to invest in capital expenditures in fiscal 2025 to continue to support manufacturing and expansion of our business.
Current wording
•Cash outflows for capital expenditures of $2.7 million in 2025 and $6.2 million in 2024. We expect to continue to invest in capital expenditures in fiscal 2026 to continue to support manufacturing and expansion of our business.
Previous wording
•Amounts related to future lease payments for operating lease obligations at December 31, 2024, totaling $27.4 million, with $11.5 million expected to be paid within the next 12 months. See Note 12. Subsequent Events in Part II, Item 8 of this Annual Report on Form 10-K for further details on our lease amendment entered into on March 7, 2025.
Current wording
•Amounts related to future lease payments for operating lease obligations at December 31, 2025, totaling $98.2 million, with $4.0 million expected to be paid within the next 12 months.
Previous wording
If economic, financial, business, or other factors adversely affect our ability to fund our projected operating cash requirements, we may be required to obtain funding through traditional or alternative sources of financing. We cannot be certain that funds will be available on favorable terms, or at all. If we are required and unable to raise additional capital when desired, our business, operating results, and financial condition may be adversely affected. See our risk factor captioned “We are not cash flow positive and may not have sufficient cash to make required payments under the terms of our debt or fund our long-term planned operations” for more information.
Current wording
If economic, financial, business, or other factors adversely affect our ability to fund our projected operating cash requirements, we may be required to obtain funding through traditional or alternative sources of financing. Raising additional funds may result in dilution to existing shareholders. We cannot be certain that funds will be available on favorable terms, or at all. If we are required and unable to raise additional capital when desired, our business, operating results, and financial condition may be adversely affected. See our risk factor captioned “We are not cash flow positive and may not have sufficient cash to make required payments under the terms of our debt or fund our long-term planned operations” for more information.
Previous wording
Cash used in operating activities for the year ended December 31, 2023, of $259.2 million was due primarily to a $306.7 million net loss that was partially offset by non-cash items such as share-based compensation of $72.1 million, a change in the estimated fair value of contingent consideration of $15.1 million, depreciation of $11.5 million, inventory provision of $10.6 million, amortization of intangible assets of $8.3 million, and amortization of right-of-use assets of $6.8 million, offset by accretion of discount and amortization of premium on marketable securities, net of $12.8 million, and deferred income taxes of $11.4 million. Cash flow impact from changes in net operating assets and liabilities of $59.0 million, was primarily attributable to increases of $17.8 million in accounts receivable, net, $13.8 million in inventory, net, $9.0 million in prepaid expenses and other assets, and decreases of $14.9 million in contingent consideration liability, $10.4 million in deferred revenue, and $8.8 million in operating lease liabilities, partially offset by increases of $13.1 million in accrued expenses, and $2.4 million in other liabilities.
Current wording
Cash used in operating activities for the year ended December 31, 2025, of $111.2 million was due primarily to a $546.4 million net loss that included non-cash items such as impairment charges of $15.0 million, share-based compensation of $41.7 million, amortization of intangible assets of $369.4 million, depreciation of $13.0 million, amortization of right-of-use assets of $4.0 million, and $4.4 million from changes in net operating assets and liabilities primarily driven by a decrease in prepaid expenses and other assets as well as increases in accrued expenses and accounts payable partially offset by increases in accounts receivable and inventory. These changes in non-cash items were partially offset by an $18.7 million decrease in the change in the fair value of the contingent consideration and accretion of discount and amortization of premium on marketable securities, net of $4.4 million.
Previous wording
Cash provided by investing activities for the year ended December 31, 2023, was due primarily to maturities of investments of $769.5 million partially offset by purchases of investments of $756.6 million and capital expenditures of $8.8 million.
Current wording
Cash provided by investing activities for the year ended December 31, 2025, was due primarily to maturities of investments of $340.1 million partially offset by purchases of investments of $216.9 million, $5.0 million in purchases of intangible assets, and capital expenditures of $2.7 million.
Previous wording
Cash provided by financing activities during the year ended December 31, 2023, resulted from net proceeds from issuance of common stock under equity offerings of $189.2 million, proceeds of $15.3 million from the issuance of common stock through our equity compensation plans, partially offset by $86.4 million due to the payment of contingent consideration, $7.4 million due to the payment of debt issuance costs, and $1.8 million due to the payment of notes payable.
Current wording
Cash provided by financing activities during the year ended December 31, 2025 resulted from $3.4 million of proceeds from the issuance of common stock through our equity compensation plans.
Previous wording
We account for a contract with a customer when there is a legally enforceable contract between us and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Revenues are recognized when control of the promised goods are transferred to our customers, or services are performed, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Invoicing typically occurs upon shipment, or delivery in the case of an instrument, and payment is typically due within 30 days from invoice. In instances where the right to payment or transfer of title is contingent upon customer acceptance of the product, revenue is deferred until the acceptance criteria has been met. Revenue from instrument service contracts is recognized as the services are rendered, typically evenly over the contract term. Revenue from development agreements generally includes upfront and milestone payments. Revenue for these agreements is recognized when each distinct performance obligation is satisfied.
Current wording
We account for a contract with a customer when there is a legally enforceable contract between us and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Revenues are recognized when control of the promised goods is transferred to our customers, or services are performed, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Invoicing typically occurs upon shipment, or delivery in the case of an instrument, and payment is typically due within 30 days from invoice. In instances where the right to payment or transfer of title is contingent upon customer acceptance of the product, revenue is deferred until the acceptance criteria has been met. Revenue from instrument service contracts is recognized as the services are rendered, typically evenly over the contract term. Revenue from development agreements generally includes upfront and milestone payments. Revenue for these agreements is recognized when each separate performance obligation is satisfied.
Previous wording
We may enter into, or periodically modify, contracts with customers that include a combination of promised products and services, resulting in arrangements containing multiple performance obligations. We determine whether each product or service is distinct, in order to identify the performance obligations in the contract and allocate the contract transaction price among the distinct performance obligations. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Therefore, instrument revenue is recognized upon transfer of control of the asset to the customer, which is generally upon delivery for sales made to our non-distributor customers and upon shipment for sales made to our distributor customers.
Current wording
We may enter into, or periodically modify, contracts with customers that include a combination of promised products and services, resulting in arrangements containing multiple performance obligations. We determine whether each product or service is distinct, in order to identify the performance obligations in the contract and allocate the contract transaction price among the separate performance obligations. A product or service is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Therefore, instrument revenue is recognized upon transfer of control of the asset to the customer, which is generally upon delivery for sales made to our non-distributor customers and upon shipment for sales made to our distributor customers.
Previous wording
The consideration for contracts with multiple performance obligations is allocated between separate performance obligations based on their individual standalone selling price. We determine the best estimate of standalone selling price using historical average selling prices combined with an assessment of current market conditions. If the standalone selling price is not directly observable, we rely on estimates by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, internal costs, profit objectives, pricing practices, and other observable inputs. We recognize revenues as performance obligations are satisfied by transferring control of the product or service to the customer or over the term of a product maintenance agreement with a customer. Our revenue arrangements generally do not provide a right of return. Revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities. We update the transaction price for expected consideration, subject to constraint. Where we expect, at contract inception, the timing of payments to be consistent with the transfer of goods or services or the contract duration to be one year or less, we do not adjust the transaction price for the effects of a significant financing component.
Current wording
The consideration for contracts with multiple performance obligations is allocated between separate performance obligations based on their individual standalone selling price. We determine the best estimate of standalone selling price primarily using historical average selling prices combined with an assessment of current market conditions. If the standalone selling price is not directly observable, we rely on estimates by considering multiple factors including, but not limited to, overall market conditions, including geographic or regional specific factors, internal costs, profit objectives, pricing practices, and other observable inputs. We recognize revenues as performance obligations are satisfied by transferring control of the product or service to the customer or over the term of a product maintenance agreement with a customer. Our revenue arrangements generally do not provide a right of return. Revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities. We update the transaction price for expected consideration, subject to constraint. Where we expect, at contract inception, the timing of payments to be consistent with the transfer of goods or services or the contract duration to be one year or less, we do not adjust the transaction price for the effects of a significant financing component.
Previous wording
We periodically modify existing contracts with customers, which could change the scope or the price of the contract, or both. When a contract modification occurs, we exercise judgment to determine if the modification should be accounted for as: (i) a separate contract, (ii) the termination of the original contract and creation of a new contract, (iii) a cumulative catch-up adjustment to the original contract, or a combination thereof. Further, contract modifications require the identification and evaluation of the performance obligations of the modified contract, allocation of revenue to the remaining performance obligations and determination of the period of recognition for each identified performance obligation.
Current wording
Modification of existing contracts with customers could change the scope or the price of the contract, or both. When a contract modification occurs, we exercise judgment to determine if the modification should be accounted for as: (i) a separate contract, (ii) the termination of the original contract and creation of a new contract, (iii) a cumulative catch-up adjustment to the original contract, or a combination thereof. Further, contract modifications require the identification and evaluation of the performance obligations of the modified contract, allocation of revenue to the remaining performance obligations and determination of the period of recognition for each identified performance obligation.
Previous wording
Certain of our agreements provide options to customers which can be exercised at a future date, such as the option to purchase our product at discounted prices, among others. In accounting for customer options, we determine whether an option is a material right and this may require us to exercise judgment. If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right and, therefore, a performance obligation. If the contract gives the customer the option to acquire additional goods or services at their normal standalone selling prices, we would likely determine that the option is not a material right and, therefore, account for it when the customer exercises the option. If the standalone selling price of the option is not directly observable, an estimated standalone selling price is utilized which considers adjustments for discounts that the customer could receive without exercising the option and the likelihood that the option will be exercised.
Current wording
Certain of our agreements provide options to customers which can be exercised at a future date, such as the option to purchase our product at discounted prices, among others. In accounting for customer options, we determine whether an option is a material right and this may require us to exercise judgment. If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option is considered a material right and, therefore, a performance obligation. If the standalone selling price of the option is not directly observable, an estimated standalone selling price is utilized which considers adjustments for discounts that the customer could receive without exercising the option and the likelihood that the option will be exercised.
Previous wording
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess or obsolete balances. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves numerous judgements, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories.
Current wording
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess or obsolete balances. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves judgements, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories.
Previous wording
We typically use the discounted cash flow method to value our acquired intangible assets. This method requires significant management judgment to forecast future operating results and utilizes significant assumptions such as assumed revenue projections, discount rates and obsolescence factors. The estimates we use to value and amortize intangible assets are consistent with the plans and estimates that we use to manage our business and are based on available historical information and industry estimates and averages. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expense could be accelerated or extended. We capitalize in-process research and development ("IPR&D"), which is considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon reaching the end of the relevant research and development project (i.e., upon commercialization), the IPR&D asset is amortized over its estimated useful life. If the relevant research and development project is abandoned, the IPR&D asset is expensed in the period of abandonment.
Current wording
We typically use the discounted cash flow method to value our acquired intangible assets. This method requires significant management judgment to forecast future operating results and utilizes significant assumptions such as assumed revenue projections, discount rates and obsolescence factors. The estimates we use to value and amortize intangible assets are consistent with the plans and estimates that we use to manage our business and are based on available historical information and industry estimates and averages. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expense could be accelerated or extended. We capitalize IPR&D, which is considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon reaching the end of the relevant research and development project (i.e., upon commercialization), the IPR&D asset is amortized over its estimated useful life. If the relevant research and development project is abandoned, the IPR&D asset is expensed in the period of abandonment.
Previous wording
Goodwill and other intangible assets with indefinite useful lives (i.e., IPR&D) are not amortized, however they are tested annually for impairment, as of the first day of the second and third quarter of our fiscal year, respectively, and whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than the carrying value. Events that would indicate impairment and trigger an interim impairment test include, but are not limited to, unexpected adverse business conditions, weak demand for a specific product line or business, economic factors, shifting focus to certain lines of business, unanticipated technological changes or competitive activities, loss of key personnel, changes in business strategy and acts by governments or courts.
Current wording
Goodwill and other intangible assets with indefinite useful lives (i.e., IPR&D) are not amortized, however they are tested annually for impairment, as of the first day of the second and third quarter of our fiscal year, respectively, and whenever events or changes in circumstances indicate that it is more likely than not that the fair value is less than the carrying value. Events that could indicate impairment and trigger an interim impairment test include, but are not limited to, adverse changes in business or economic conditions, lower-than-expected performance of a product line or business, changes in strategic direction, unanticipated technological or competitive developments, loss of key personnel, and actions by governments or courts.
Previous wording
Significant estimates and assumptions used in the income approach during the fourth quarter of 2024, included revenue growth expectations and a discount rate of 12.0%. The discount rate was based on the weighted average cost of capital, determined using market, peer company, industry data, and related risk factors. The assumptions used were inherently subject to uncertainty and small changes in these assumptions could have had a significant impact on the concluded value. An increase of 100 basis points to the discount rate used in our assessment would have resulted in additional goodwill impairment of approximately $95 million. The assessed fair value was deemed reasonable based on a market capitalization reconciliation. See Note 4. Balance Sheet Components in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Current wording
To determine the fair value of the entity-level reporting unit as of March 31, 2025, we performed our impairment test using a combination of an income approach and a market approach to determine the fair value of the reporting unit. The income approach utilized estimated discounted cash flows, while the market approach utilized comparable company information. Significant assumptions used in the income approach included revenue growth expectations and a selected discount rate of 12.0%. The discount rate was based on the weighted average cost of capital, determined using market, industry data, and related risk factors. The assumptions used were inherently subject to uncertainty. The assessment is a level 3 measurement due to its reliance on certain unobservable inputs and management judgment. The assessed fair value was deemed reasonable based on a market capitalization reconciliation and a supportable control premium.
Previous wording
Assumptions and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit, or if there is a delay in development of the IPR&D or lower projected sales, we may be required to record future impairment charges for goodwill and intangible assets with indefinite lives. Impairment charges could materially decrease our future results of operations and result in lower asset values on our balance sheet.
Current wording
Assumptions and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit, we may be required to record future impairment charges for goodwill. Impairment charges could materially decrease our future results of operations and result in lower asset values on our balance sheet.
Previous wording
We capitalize finite-lived intangibles assets and generally amortize them on a straight-line basis over the estimated useful lives. We review intangible assets with finite lives and other finite-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. We assess the recoverability of assets based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If the undiscounted future cash flows are less than the carrying amount, we estimate the fair value of the assets and record an impairment loss if the carrying value exceeds the fair value. In light of the changes in circumstances that led to the recoverability assessment, we also assess the remaining estimated useful life of the assets. Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to net book value, significant changes in the ability of an asset to generate positive cash flows for our strategic business objectives, and the pattern of utilization of a particular asset.
Current wording
We capitalize finite-lived intangible assets and generally amortize such assets on a straight-line basis over their estimated useful lives. We review intangible assets with finite lives and other finite-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. We assess the recoverability of assets based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If the undiscounted future cash flows are less than the carrying amount, we estimate the fair value of the assets and record an impairment loss if the carrying value exceeds the fair value. In light of the changes in circumstances that led to the recoverability assessment, we also assess the remaining estimated useful life of the assets. Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to net book value, significant changes in the ability of an asset to generate positive cash flows for our strategic business objectives, and the pattern of utilization of a particular asset.