FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2024

Investments, All Other Investments [Abstract]


NOTE 3. FINANCIAL INSTRUMENTS


Fair Value of Financial Instruments

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value hierarchy established under GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

•Level 1: quoted prices in active markets for identical assets or liabilities;

•Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We consider an active market as one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, we view an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our non-performance risk, or that of our counterparty, is considered in determining the fair values of liabilities and assets, respectively.

We classify our cash deposits and money market funds within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. We classify our investments as Level 2 instruments based on market pricing and other observable inputs. We did not classify any of our investments within Level 3 of the fair value hierarchy.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability.

The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities, current, approximate fair value due to their short maturities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis:


	December 31, 2024								December 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents:
Cash and money market funds	$	55,370	$	—	$	—	$	55,370	$	70,172	$	—	$	—	$	70,172
Commercial paper	—		—		—		—		—		—		—		—
U.S. government & agency securities	—		—		—		—		—		109,739		—		109,739
Total cash and cash equivalents	55,370		—		—		55,370		70,172		109,739		—		179,911
Investments:
Commercial paper	—		—		—		—		—		9,947		—		9,947
Corporate debt securities	—		46,905		—		46,905		—		88,579		—		88,579
U.S. government & agency securities	—		287,656		—		287,656		—		352,979		—		352,979
Total investments	—		334,561		—		334,561		—		451,505		—		451,505

Short-term restricted cash	690		—		—		690		300		—		—		300
Long-term restricted cash	1,532		—		—		1,532		2,422		—		—		2,422
Total assets measured at fair value	$	57,592	$	334,561	$	—	$	392,153	$	72,894	$	561,244	$	—	$	634,138

Liabilities
Contingent consideration - Apton acquisition	$	—	$	—	$	18,700	$	18,700	$	—	$	—	$	19,550	$	19,550
Total liabilities measured at fair value	$	—	$	—	$	18,700	$	18,700	$	—	$	—	$	19,550	$	19,550

For the year ended December 31, 2024, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

Contingent Consideration - Apton

We classify contingent consideration, which was incurred in connection with the acquisition of Apton, within Level 3 as factors used to develop the estimate of fair value include unobservable inputs that are not supported by market activity and are significant to the fair value. Estimates and assumptions used in the Monte Carlo simulation include risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an estimated credit spread.

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. As of December 31, 2024, the key input used in the determination of the fair value included projected revenues of the Company relating to the high-throughput short-read products and services leveraging Apton's technology. The assumptions used in our valuation are inherently subject to uncertainty. A decrease in the projected revenues would result in a decrease in the fair value of the liability. The discount rates used are the sum of the U.S. risk-free rate and the estimated subordinated credit spread for CCC+ credit rating, which ranges from 9.4% to 9.6%. Changes in our estimated subordinated credit spread can result in changes in the fair value of the contingent consideration liability, where a lower credit spread may result in an increased liability valuation.

Changes in the estimated fair value of the contingent consideration liability related to the Apton acquisition for the year ended December 31, 2024 were as follows:


(in thousands)	Level 3
Beginning balance as of December 31, 2023	$	19,550

Change in estimated fair value	(850)

Ending balance as of December 31, 2024	$	18,700

Changes to the fair value are recorded as the change in fair value of contingent consideration on our consolidated statement of operations and comprehensive loss.

Contingent Consideration - Omniome

On September 20, 2023, we achieved the commercial milestone in connection with the 2021 acquisition of Omniome. Consequently, former Omniome securityholders were entitled to receive as milestone consideration, among other things, an aggregate of approximately $100.9 million in cash and approximately 9.0 million shares of our common stock, representing $95.9 million divided by the volume-weighted average of the trading prices of our common stock for the twenty trading days ending with and including the trading day that was two days immediately prior to the achievement of the milestone. The $95.9 million represents the $100.0 million that was to be paid in shares of our common stock offset by $4.1 million attributable to stock options issued by PacBio in replacement of Omniome’s unvested options as part of the transaction, pursuant to the terms of the Omniome merger agreement.

Following the achievement of the commercial milestone, $101.3 million of the contingent consideration, which includes certain payroll taxes, was paid during the year ended December 31, 2023. Additionally, 8,988,391 shares were issued at a value of $84.8 million to the former Omniome securityholders.


Cash, Cash Equivalents, Restricted Cash, and Investments

The following table summarizes our cash, cash equivalents, restricted cash, and investments:


	December 31, 2024
(in thousands)	Amortized Cost		Gross unrealized gains		Gross unrealized losses		Fair Value
Cash and cash equivalents:
Cash and money market funds	$	55,370	$	—	$	—	$	55,370

U.S. government & agency securities	—		—		—		—
Total cash and cash equivalents	55,370		—		—		55,370
Investments:
Commercial paper	—		—		—		—
Corporate debt securities	46,746		184		(25)		46,905
U.S. government & agency securities	287,393		418		(155)		287,656
Total investments	334,139		602		(180)		334,561
Total cash, cash equivalents, and investments	$	389,509	$	602	$	(180)	$	389,931

Short-term restricted cash	$	690	$	—	$	—	$	690
Long-term restricted cash	$	1,532	$	—	$	—	$	1,532

	December 31, 2023
(in thousands)	Amortized Cost		Gross unrealized gains		Gross unrealized losses		Fair Value
Cash and cash equivalents:
Cash and money market funds	$	70,172	$	—	$	—	$	70,172
Commercial paper	—		—		—		—
U.S. government & agency securities	109,786		13		(60)		109,739
Total cash and cash equivalents	179,958		13		(60)		179,911
Investments:
Commercial paper	9,947		—		—		9,947
Corporate debt securities	88,263		373		(57)		88,579
U.S. government & agency securities	353,029		478		(528)		352,979
Total investments	451,239		851		(585)		451,505
Total cash, cash equivalents, and investments	$	631,197	$	864	$	(645)	$	631,416

Short-term restricted cash	$	300	$	—	$	—	$	300
Long-term restricted cash	$	2,422	$	—	$	—	$	2,422

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of December 31, 2024:


(in thousands)	Fair Value
Due in one year or less	$	238,957
Due after one year through 5 years	95,604
Total investments	$	334,561

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

Investment income included in other income, net on our consolidated statements of operations and comprehensive loss was $24.9 million and $32.8 million for the years ended December 31, 2024 and 2023, respectively.