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BALANCE SHEET COMPONENTS | 9 Months Ended
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Sep. 30, 2024
Balance Sheet Components [Abstract] |
BALANCE SHEET COMPONENTS | BALANCE SHEET COMPONENTS Inventory, net Our inventory, net, consisted of the following components:
(in thousands) | September 30, 2024 |  | December 31, 2023
Purchased materials | $ | 30,697 |  |  | $ | 20,168 |
Work in process | 18,292 |  |  | 23,436 |
Finished goods | 16,748 |  |  | 13,072 |
Inventory, net | $ | 65,737 |  |  | $ | 56,676 |
Goodwill and Intangible Assets Goodwill Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment. We performed our annual assessment for goodwill impairment in the second quarter of 2024, as of the beginning of April 2024, noting no impairment. 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 indicator that it was more likely than not that the fair value of the reporting unit was less than its carrying amount that required an interim impairment test be performed on goodwill. As a result of the interim impairment test performed as of June 30, 2024, we concluded that the carrying amount of the entity-level reporting unit exceeded fair value and recorded a $93.2 million goodwill impairment charge. The impairment charge is included in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2024. The decline in the fair value of the reporting unit below its carrying value in the second quarter of 2024 resulted primarily from the decline in our 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. We performed our impairment test using a combination of an income and a market approach to determine the fair value of goodwill. 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 assessment is a level 3 measurement due to its reliance on certain unobservable inputs and significant management judgment. 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 $85 million. The assessed fair value was deemed reasonable based on a market capitalization reconciliation and a supportable control premium. As a result of the impairment, the carrying value of goodwill now approximates fair value. Changes in our future operating results, cash flows, share price, market capitalization or discount rates used when conducting future goodwill impairment tests could affect the estimated fair value of goodwill and may result in additional impairment charges in the future. Changes to goodwill during the nine months ended September 30, 2024 were as follows:
(in thousands) |  |
Balance as of December 31, 2023 |  | $ | 462,261 |
Impairment |  | (93,200) |
Balance as of September 30, 2024 |  | $ | 369,061 |
Intangible Assets Intangible assets include acquired IPR&D of $55.0 million as a result of the Apton acquisition in August 2023. The IPR&D will remain on our Consolidated Balance Sheet as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development activities. During the development period following the acquisition, IPR&D is not amortized, but instead is tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Upon completion of the development, we will amortize the asset over the life of the product or record an impairment charge if the asset is determined to be impaired. We performed our annual assessment of IPR&D in the third quarter of 2024 noting no impairment. In addition to IPR&D, finite-lived intangible assets included the following:
|  |  | As of September 30, 2024 |  | As of December 31, 2023
(in thousands, except years) | Estimated Useful Life (in years) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount
Developed technology | 15 |  | $ | 411,179 |  |  | $ | (29,753) |  |  | $ | 381,426 |  |  | $ | 411,179 |  |  | $ | (9,195) |  |  | $ | 401,984 |
Customer relationships | 2 |  | 360 |  |  | (360) |  |  | — |  |  | 360 |  |  | (360) |  |  | — |
Total |  |  | $ | 411,539 |  |  | $ | (30,113) |  |  | $ | 381,426 |  |  | $ | 411,539 |  |  | $ | (9,555) |  |  | $ | 401,984 |
The estimated future amortization expense of intangible assets with definite lives is as follows:
(in thousands) |
Remainder of 2024 | $ | 6,853 |
2025 | 27,412 |
2026 | 27,412 |
2027 | 27,412 |
2028 | 27,412 |
2029 and thereafter | 264,925 |
Total | $ | 381,426 |
Amortization of acquired intangible assets is included within our cost of revenue if the costs and expenses related to the intangible assets are attributable to revenue generating activities. Amortization expense for intangible assets that are not directly related to sales generating activities are amortized to operating expenses. For developed technology intangible assets that are utilized in both revenue generating activities and in research and development activities, we allocate the amortization expense between cost of revenue and operating expenses. The finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives. We review finite-lived intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Deferred Revenue As of September 30, 2024, we had a total of $22.8 million of deferred revenue, $17.3 million of which was recorded as deferred revenue, current, and $5.5 million of which was recorded as deferred revenue, non-current, which primarily relates to deferred service contract revenues and is scheduled to be recognized in the next five years. Revenue recorded in the three and nine months ended September 30, 2024 includes $4.8 million and $10.2 million, respectively, that was included in deferred revenue as of December 31, 2023. Product Warranties We generally provide a one-year warranty on instruments. In addition, we provide a limited warranty on consumables. At the time revenue is recognized, an accrual is established for estimated warranty costs based on historical experience as well as anticipated product performance. We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranties are recorded as part of accrued expenses on the Condensed Consolidated Balance Sheets and warranty expense is recorded as a component of cost of product revenue in the Condensed Consolidated Statements of Operations and Comprehensive Loss. There were no material changes in estimates for the periods presented below. Changes in the reserve for product warranties were as follows for the periods indicated:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2024 |  | 2023 |  | 2024 |  | 2023
Balance at beginning of period | $ | 3,462 |  |  | $ | 2,862 |  |  | $ | 4,681 |  |  | $ | 1,651 |
Additions charged to cost of product revenue | 1,414 |  |  | 2,825 |  |  | 4,787 |  |  | 5,675 |
Repairs and replacements | (1,610) |  |  | (1,722) |  |  | (6,202) |  |  | (3,361) |
Balance at end of period | $ | 3,266 |  |  | $ | 3,965 |  |  | $ | 3,266 |  |  | $ | 3,965 |
Term loans In connection with the acquisition of Omniome, we acquired $1.3 million in short-term debt and $3.0 million in long-term debt relating to a term loan facility that Omniome obtained in April 2020. As of September 30, 2024, no amounts were outstanding on the term loans. Interest expense was not material for the three and nine months ended September 30, 2024, and was included as part of interest expense in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

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