Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Lean -
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.33pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
-0.33pp
Lean -
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
impairment+10
unable+2
disputed+2
restructuring+1
unpredictable+1
Positive rising
achieved+1
favorable+1
MD&A (Item 7)
5,914 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this Annual Report on Form 10-K titled “Risk Factors.” For a discussion related to the results of operations for 2022 compared to 2021, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K filed with the SEC on March 16, 2023.
Overview
We are a health technology company, and our mission is to empower people to live their healthiest lives. Our proprietary platform, the Cue Integrated Care Platform, which is comprised of our Cue Health Monitoring System, Cue Data and Innovation Layer, Cue Virtual Care Delivery Apps, Cue Ecosystem Integrations and Apps, and access to additional Cue-branded and third-party diagnostic products, lab-quality diagnostics-led care at home, at work or at the point of care. Our platform offers individuals and healthcare providers convenient and personalized access to lab-quality diagnostic tests at home and at the point-of-care, as well as on-demand telehealth consultations and treatment options for a wide range of health and wellness needs. We are helping pioneer a new continuous care model that we believe has the potential to significantly the user experience, provide measurable and actionable clinical insights, and increase within the healthcare ecosystem. We believe this model, powered by our platform, will allow users to actively manage their health, which we believe will lead to health outcomes and a more resilient, connected, and healthcare ecosystem for all stakeholders.
The Cue Integrated Care Platform consists of multiple hardware, software, and diagnostic components: (1) our revolutionary, proprietary Cue Health Monitoring System, made up of a portable, durable and reusable reader, or Cue Reader; a single-use test cartridge, or Cue Cartridge; and a sample collection wand, or Cue Wand; (2) our Cue Data and Innovation Layer, with cloud-based data and analytics capabilities; (3) our Cue Virtual Care Delivery Apps, including our consumer-friendly Cue Health App, the clinician-facing Cue Clinic, and our Cue Enterprise Dashboard; and (4) our Cue Ecosystem Integrations and Apps, including integration with: electronic medical record (“EMR”) systems (enabling seamless connection between a clinician, their EMR, and Cue’s diagnostics); pharmacies and last-mile delivery (enabling e-Rx and on-demand delivery), clinician networks (enabling virtual care and prescription) and laboratories (enabling mail-in panel testing).
Our Cue Health Monitoring System is designed to deliver a broad menu of tests through one system, enabling two major testing modalities, nucleic acid amplification, or NAAT, and immunoassays, in one device. Our system is designed to handle different sample types, including saliva, blood, urine and swabs, and can detect nucleic acids, small molecules, proteins and cells. We believe this will enable us to address many of the diagnostic tests conducted in clinical laboratories, such as tests addressing indications in respiratory health, sexual health, cardiac and metabolic health, women’s health, men’s health, and chronic disease management.
COVID-19 Impact
In December 2020, the FDA issued EUA for two COVID-19 vaccines and in February 2021, the FDA issued a third EUA for a COVID-19 vaccine. The widely-administered use of efficacious vaccines and the availability of therapeutic treatments for COVID-19 reduced the demand for our COVID-19 test and, as a result, the COVID-19 diagnostic testing market may not develop or grow substantially. Recent trends indicate a decline in testing frequency among the general population and a shift towards managing COVID-19 alongside other respiratory illnesses. Additionally, evolving public health guidelines and the potential for vaccine mandate relaxations contribute to a climate of uncertainty regarding future testing needs. We believe there is a need for ongoing detection and monitoring will continue even after effective vaccines have been widely distributed and administered. We also believe COVID-19 will remain endemic for the foreseeable future and demand for a fast and accurate test to confirm a diagnosis and seek timely and appropriate treatment may fluctuate based on COVID-19 infection rates and variants. However, given the unpredictable nature of the COVID-19 pandemic, the development and potential size of the COVID-19 diagnostic testing market is highly uncertain.
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We began selling and recording product revenue for our COVID-19 test in August 2020 after obtaining our first FDA EUA in June 2020. Currently, the majority of our product revenue is related to sales of our Cue COVID-19 test with a portion related to the sale of non-COVID-19 test kits, component parts, telehealth and other services.
Certain Key Factors Affecting Our Performance
Manufacturing Capacity
We manufacture all of our Cue Cartridges in our vertically integrated facilities in San Diego, California. We also produce all of our biochemistry in-house, including critical enzymes, antibodies and primers for our Cue Cartridges. Production of our Cue Readers is performed for us by third-party contract manufacturers and production of our Cue Wands is performed by third-party contract manufacturers. We continue to optimize our manufacturing capabilities, including our fully automated production pods. A production pod is a free standing, modular environmentally controlled structure containing an automated cartridge production line. Our performance will depend on our ability to manufacture products efficiently at the quantities required to meet customer demand and quality to meet our internal standards.
Investments in Our Growth
We expect to make continued investments as appropriate in our business to deliver our strategies. We plan to invest in research and development to enhance our platform and bring additional tests to market. In addition to continuing to develop our own test kits, we have also expanded the Cue Care experience to allow users of third-party test results to continue to receive the same virtual care and e-prescription process we offer to users of our Cue COVID-19 tests.
Expanding Our Customer Base
The future commercial success of our diagnostic products is dependent on our ability to continue to broaden our customer base beyond the U.S. government and public sector to include enterprise employers, healthcare providers and direct-to-consumer. As a result, our long-term growth depends on our ability to renew and acquire new customers. Current key strategic relationships include BARDA, Google LLC, or Google, the National Basketball Association, Major League Baseball, Henry Schein, Inc., McKesson Corporation, Cardinal Health, Inc., Medline Industries, LP and the Minnesota Department of Health. We intend to leverage our success with our COVID-19 test and the expansion of our manufacturing capabilities to enable broad distribution of our Cue Readers and awareness of our platform across different groups of customers and to enhance pull-through of our future tests.
Enhancing and Expanding Our Menu of Tests and Software Capabilities
We currently offer our molecular COVID-19 test, molecular mpox test, as well as other mail-in at-home test kits which address general health and wellness conditions across a wide range of health concerns, such as sexually transmitted infections, heart health and food sensitivities. In May 2023, we announced a new pharmacy offering with over-the-counter and prescription medication options for common health and wellness needs. A key part of our growth strategy is to continue to expand our menu of tests to include other diseases, ailments and general health markers, which we expect will support our growth and continue to contribute to the utility of our platform, including the Cue Health Monitoring System. We are currently developing tests in the fields of respiratory health, sexual health, cardiac and metabolic health, women's health, men's health, and chronic disease management. We have filed De Novo submission to the FDA for full clearance of our Flu A/B standalone molecular test and our Respiratory Syncytial Virus (“RSV”) molecular test and filed an EUA submission to the FDA for our Flu A/B + COVID molecular multiplex test. We have test kits in late stage technical development, covering Strep Throat, Chlamydia + Gonorrhea multiplex (swab collection method), Chlamydia + Gonorrhea multiplex (urine collection method) and HSV 1/2 + Mpox multiplex. In August 2022, we completed our launch of Cue Care, our test-to-treat solution for patients who test positive on any COVID-19 test, including at-home antigen tests and in February 2023 we further expanded our Cue Care capabilities to include other at-home test kits. In March 2023, the FDA issued an EUA for our molecular test to detect the mpox virus for use in a point-of-care setting. In June 2023, we received De Novo authorization for the Company's molecular test to detect COVID-19. In August 2023, we were awarded a new contract for $28.3 million by BARDA to develop an Influenza A/B, RSV, and COVID-19 molecular multiplex test for both over-the-counter and point-of-care use.
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Regulatory Clearance of Our Diagnostic Products
Our commercial success will depend upon a number of factors, some of which are beyond our control, including the receipt of regulatory clearances, approvals or authorizations for existing or new product offerings by us, product enhancements, or additions to our proprietary intellectual property portfolio. In March 2023, we received an EUA for our molecular test to detect the mpox virus and in June 2023, we received De Novo authorization for our molecular test to detect COVID-19. However, in December 2023, our EUA submission for our Flu A/B + COVID-19 molecular test was denied by the FDA. We will not be able to commercialize any other tests for our platform unless we obtain required regulatory clearances or other necessary approvals or authorizations. As such, our ability to navigate, obtain and maintain the required regulatory clearances, approvals or authorizations, as well as comply with other regulatory requirements, for our products will in part drive our results of operations and impact our business.
Reimbursement and Insurance Coverage
The commercial success of our COVID-19 test, and any of our subsequently developed tests, is dependent on a customer’s ability to be able to pay for or otherwise be reimbursed for the purchase of a test, whether out-of-pocket, by insurance or from a governmental or other third-party payor. We believe payment for our products, including our Cue COVID-19 Test Kits, will be billable by a physician, reimbursable by government payors or insurance companies, paid for by a self-insured employer, or eligible under FSA and HSA guidelines. For example, most of our contemplated future tests that are currently offered by others through central labs are reimbursable by health plans and governmental payors if properly ordered by a physician. These third-party payors decide which products will be covered and establish reimbursement levels for those products. Coverage criteria and reimbursement rates for clinical laboratory tests are subject to adjustment by payors, and current reimbursement rates could be reduced, or coverage criteria restricted in the future. If the Cue Health Monitoring System, including any of our current or future tests, are not reimbursable or covered by insurance, our business may be materially and adversely impacted.
Seasonality
We anticipate demand for our respiratory tests to increase during the fall and winter seasons. Although our products will be available throughout the year, we anticipate that we may experience higher sales during the fall and winter seasons, relative to the spring and summer seasons. We also anticipate fluctuation in demand associated with the emergence of COVID-19 novel variants and the degree of severity of the existing and any new variants. However, as our portfolio of diagnostic offerings increases, we expect the impact of this seasonality on our results to decrease.
Components of Our Results of Operations
Revenue
Product Revenue. Our product revenue currently primarily relates to sales of our COVID-19 test, which began in August 2020 after we obtained our initial EUA in June 2020. We account for product revenue in accordance with the provisions of Accounting Standards Codifications, or ASC, Topic 606, Revenue from Contracts with Customers. Product revenue is recognized upon the transfer of control of our test kits to the customer, which occurs at a point in time, typically upon shipment to the customer, unless terms of contractual arrangements with customers state otherwise.
Grant and Other Revenue . Our grant and other revenue primarily relate to our cost reimbursement research and development agreements with BARDA. Income derived from reimbursement of direct out-of-pocket expenses, overhead allocations and fringe benefits for research costs associated with U.S. government contracts are recorded as grant revenue. We recognize revenue from our contracts and awards with BARDA at the gross amount of the reimbursement in the period during which the related costs are incurred, provided that the conditions under which the grants and contracts were provided have been met and only perfunctory performance obligations are outstanding. The direct costs associated with the contract is reflected as a component of research and development expense in our consolidated statements of operations.
Operating Costs and Expenses
Cost of Product Revenue . Our cost of product revenue includes the cost of materials, direct labor, and manufacturing overhead costs used in the manufacture of our Cue Cartridges as well as contract manufacturing costs associated with production of our Cue Readers, Cue Wands and Cue Control Swab Packs. Cost of product revenue also
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includes inventory reserve provisions and external-use software development costs. We expect our costs as a percentage of revenue to vary from period to period depending on the number of units produced and sold to satisfy demand.
Sales and Marketing Expense . Our sales and marketing expense consists primarily of salaries, commissions, and other related costs for personnel in sales and marketing, customer support and business development functions as well as advertising and marketing costs. We expect that our sales and marketing expense will vary from period to period as a percentage of revenue for the foreseeable future as we focus on an optimized sales and marketing infrastructure.
Research and Development Expense . Our research and development expenses consist of external and internal costs associated with our research and development activities, including costs associated with developing our platform, the individual tests we offer on our platform and clinical and regulatory costs associated with obtaining regulatory approval for those tests.
Our internal resources, employees and infrastructure are not directly tied to any one program or test and there is often significant overlap in research and development efforts between different programs and tests and we are often able to leverage the research and development of one test or program to help advance one or more other programs or tests. As such, we do not track internal costs on a test-by-test basis. The following table summarizes our external and internal costs for the periods presented:
Year Ended
December 31,
(dollars in thousands)
External costs
Internal costs
Salaries and benefits
Facilities and supplies
Total internal costs
Total research and development costs
We expect that our research and development expense will vary from period to period as a percentage of revenue for the foreseeable future as we continue to optimize investment in development activities related to our technology platform and our current and future test menus.
General and Administrative Expense . Our general and administrative expense consists primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate development and administrative functions. General and administrative expense also includes professional fees for legal, patent, accounting, information technology, auditing, tax and consulting services, insurance, costs to support our operations as a public company, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expect that our general and administrative expense will vary from period to period as a percentage of revenue for the foreseeable future as we focus on processes, systems and controls to enable our internal support functions.
Impairment of Long-lived Assets. Impairment of long-lived assets consists of non-cash impairment charges relating to long-lived assets. Impairments are determined using management’s judgment about our anticipated ability to continue to use fixed assets in-service and under development, current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. See Note 6. Property and Equipment, net , for more information.
Restructuring Expense . Our restructuring expense consists primarily of actions taken in order to reduce costs and improve operations and manufacturing efficiency. Restructuring expense was accounted for as a one-time terminationbenefit without an additional service component.
Interest Income . Interest and dividend income on U.S Treasury securities and money market funds are recorded in interest income.
Interest Expense . On June 30, 2022, we entered into a loan and security agreement (the “2022 Revolving Facility Agreement”) among us, the lenders from time to time party thereto and East West Bank, as collateral agent and
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administrative agent (the “Agent”). The 2022 Revolving Facility Agreement provides for a $100.0 million secured revolving credit facility. See “Liquidity and Capital Resources” below. Our interest expense consists primarily of expense related to our 2022 Revolving Facility Agreement.
Tax Credits . Tax credits within the accompanying consolidated statement of operations is attributable to the one-time receipt of the Employee Retention Tax Credit from the Internal Revenue Service (the "IRS").
Results of Operations
Compar ison of the Years Ended December 31, 2023 and 2022
The following table sets forth a summary of our results of operations for the years ended December 31, 2023 and 2022, and the changes between periods:
Year Ended December 31,
$ Change
% Change
(dollars in thousands)
Revenue:
Product revenue
Grant and other revenue
Total revenue
Operating costs and expenses:
Cost of product revenue
Sales and marketing
Research and development
General and administrative
Impairment of long-lived assets
Restructuring expense
Total operating costs and expenses
Loss from operations
Interest income
Interest expense
Tax credits
Other income (expense), net
Net loss before income taxes
Income tax expense (benefit)
Net loss
Net loss per share attributable to common stockholders – diluted
n.m. = not meaningful
Revenue was $70.9 million for the year ended December 31, 2023, from $483.5 million for the year ended December 31, 2022. The decrease was primarily volume related due to the tempering of COVID-19 testing during 2022 which continued into 2023. Revenue during the year ended December 31, 2023 was primarily driven by sales to private sector customers of $63.0 million.
Cost o f product revenue was $127.1 million for the year ended December 31, 2023 compared to $330.0 million for the year ended December 31, 2022. This decrease was primarily due to lower material costs of $110.6 million and lower labor and overhead costs of $38.2 million associated with decreased revenue volume as well as the absence of a prior year charge of $92.8 million related to an overbuild and over purchase of inventory and, in addition an identification of certain products which were not expected to perform in line with our quality standards. These decreases were offset by a disputed payment charge of $12.0 million as well as current year inventory charges of $15.7 million associated with the FDA denial of our Flu A/B + COVID multiplex test. Our product gross profit margin, or product gross profit as a
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percentage of product revenue was a loss of 98% for the year ended December 31, 2023 compared to 30% for the year ended December 31, 2022. The decrease in product gross profit margin was primarily due to the aforementioned inventory charges which had an impact of 24%, the disputed payment charge which had an impact of 19% and an increase in excess inventory reserves and scrap which had an impact of 21%. In addition, a reduction in overall production volume relative to our manufacturing capacity had an impact of 84%. These decreases were offset by the prior year excess and obsolescent inventory charge which had an impact of 20%.
Sales and marketing expense was $32.6 million for the year ended December 31, 2023 compared to $88.6 million for the year ended December 31, 2022 . This decrease was primarily due to decreased digital and marketing costs of $39.5 million as we shifted marketing strategies, a decrease in sales and marketing personnel costs of $11.7 million related to the 2023 CRP, workforce realignment and optimization efforts, and a decrease in professional services costs of $6.4 million from additional efforts in cost reduction.
Research and development expense was $150.6 million for the year ended December 31, 2023 compared to $171.5 million for the year ended December 31, 2022 . This decrease was primarily driven by decreased personnel costs of $18.0 million and decreased materials and supplies costs of $9.3 million from additional efforts in cost reduction. These decreases were offset by increased regulatory and clinical costs of $6.0 million related to investment in test menu related to Flu A/B standalone, RSV standalone, and Flu A/B + COVID multiplex molecular tests.
General and administrative expense was $57.4 million for the year ended December 31, 2023 compared to $97.1 million for the year ended December 31, 2022 . This decrease was primarily related to decreased personnel costs of $19.5 million related to the 2023 CRP and a decrease in professional services, consulting-related and other support costs of $15.0 million as we invested in our central team to support our operations as a public company in order to reduce consulting and external-related costs as well as from additional efforts in cost reduction.
Impairment of long-lived assets was $83.6 million for the year ended December 31, 2023 compared to $0 for the year ended December 31, 2022, driven by management’s judgment about our anticipated ability to continue to use fixed assets in-service and under development, current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements.
Interest income was $6.2 million for the year ended December 31, 2023 compared to $3.3 million for the year ended December 31, 2022. The increase was due to an increase in rates in interest bearing securities.
Interest expense was $1.2 million for the year ended December 31, 2023 compared to $0.6 million for the year ended December 31, 2022 .
Tax credits was $20.9 million in the year ended December 31, 2023 , compared to $0 in the year ended December 31, 2022 . This increase was related to the receipt of employee retention credits of $20.9 million.
Income tax expense (benefit) was $4.8 million for the year ended December 31, 2023 compared to $(9.7) million for the year ended December 31, 2022, and our effective tax rate was 1.3% for the year ended December 31, 2023, compared to a benefit of 4.8% for the year ended December 31, 2022. The increase in our provision and effective tax rate was primarily impacted by the tax liability associated with the Employee Retention Credit and the expected recapture of the California Competes state income tax credit.
Liquidity and Capital Resources
Overview
As of December 31, 2023, we held $80.9 million of cash and cash equivalents. Our primary cash needs are for the funding of day-to-day operations and to address our working capital needs. Our largest source of operating cash generation is from sales to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, material and supply costs for manufacturing, direct costs to deliver our products, and research and development initiatives.
On June 30, 2022, we entered into the 2022 Revolving Facility Agreement. The 2022 Revolving Facility Agreement provides for a $100.0 million secured revolving credit facility, with a $20.0 million letter of credit subfacility. As of December 31, 2023, there were no revolving loans outstanding and $0.5 million aggregate face amount of letters of credit outstanding under the 2022 Revolving Facility Agreement. As of December 31, 2023, we have $78.2 million of availability to borrow under the revolving credit facility. We recorded $0.6 million in deferred financings costs in
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connection with the 2022 Revolving Facility Agreement. This balance is over two years and is classified in other non-current assets on the consolidated balance sheet since no funds were drawn on the 2022 Revolving Facility Agreement. The revolving commitments terminate and the principal amount of outstanding revolving loans, together with accrued and unpaid interest, is due and payable on June 30, 2024.
On August 9, 2023, in connection with the launch of an “at the market” offering program (the “Offering Program), we entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (the “Sales Agent”). Under the Sales Agreement, we may offer and sell its common stock from time to time having an aggregate offering price of up to $50.0 million during the term of the Sales Agreement through the Sales Agent. We did not issue any shares of common stock under the Offering Program during the year ended December 31, 2023.
Our operations have been primarily financed through a combination of our IPO proceeds, other financing activities, product sales and grant revenue. Prior to August 2020, we had never generated any revenue from the commercial sale of products, and we had devoted substantially all of our resources to the research and development of our Cue Health Monitoring System. We only first started realizing revenue from commercial product sales in August 2020 following receipt of our first EUA from the FDA, in June 2020 for our COVID-19 test. Since receiving our first FDA EUA, we have incurred significant additional expenses in connection with the commercial scale up of our business, including costs associated with scaling up our manufacturing operations, costs associated with the production of our COVID-19 test, sales and marketing expenses, and costs associated with the hiring of new employees, the growth of our business and building out our corporate infrastructure.
We expect that our near and longer-term liquidity requirements will consist of working capital and general corporate expenses associated with the growth of our business, including, without limitation, expenses associated with sales and marketing expense associated with increasing market awareness of our platform and brand generally to individual consumers, enterprises and other target customers, and additional research and development expenses associated with expanding our care offerings. Our short-term capital expenditure needs relate primarily to the expansion of our research and development capabilities and optimization of existing business processes.
We have an accumulated deficit of $591.5 million as of December 31, 2023. During the year ended December 31, 2023, we incurred negative cash flows. A tempering of COVID-19 testing demand resulted in a loss from operations. Currently, the majority of our product revenue is related to sales of our Cue COVID-19 test, and while we have a number of tests submitted to the FDA for regulatory approval and in late stage technical development, the receipt of such approvals is outside the Company’s control. These factors, underscored by the inherent uncertainty in timing of regulatory approvals, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern.
If we are unable to achieve and maintain profitability, we will need additional financing to support our continuing operations and pursue our strategic objectives. Additional financing may be achieved through a combination of equity offerings, debt financing and strategic partnerships. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended
December 31,
(dollars in thousands)
Net cash, cash equivalents and restricted cash used in operating activities
Net cash, cash equivalents and restricted cash used in investing activities
Net cash, cash equivalents and restricted cash used in financing activities
Net decrease in cash, cash equivalents and restricted cash
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Cash Flows from Operating Activities
Net cash, cash equivalents and restricted cash used in operating activities was $137.8 million for the year ended December 31, 2022, primarily reflecting our net loss of $373.5 million, net of non-cash cost items and changes in operating working capital. Non-cash cost adjustments were primarily driven by long-lived asset impairment of $83.6 million, stock-based compensation expense of $48.7 million and depreciation and amortization expenses of $56.3 million. The timing of our revenue and collections decreased our accounts receivable. The fluctuations in inventories and accounts payable, accrued liabilities and other current liabilities was driven by inventory charges and our efforts related to cost reduction and spend optimization.
Cash Flows from Investing Activities
Net cash, cash equivalents and restricted cash used in investing activities was $19.8 million for the year ended December 31, 2023, reflecting purchases of property and equipment of $9.2 million and investments of $10.6 million primarily related to the development of internal-use software.
Cash Flows from Financing Activities
Net cash, cash equivalents and restricted cash used in financing activities was $3.0 million for the year ended December 31, 2023, reflecting $1.7 million in tax withholding on stock option exercises and RSU vesting and $2.1 million in payments for finance leases. These cash outflows were offset by proceeds of $0.7 million from the employee stock purchase plan and $0.1 million from stock options exercised.
Commitments and Contingencies
See Note 16, Commitments and Contingencies , to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a summary of our commitments as of December 31, 2023.
Our material cash commitments at December 31, 2023 related to real estate leases under non-cancelable operating lease agreements in the amount of $46.8 million, that expire at various dates through 2031 and finance leases of manufacturing equipment totaling $1.2 million. If we are unable to achieve and maintain sufficient operating cash flows, we will need additional financing to support our commitments. Additional financing may be achieved through a combination of equity offerings, debt financing and strategic partnerships. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all.
Critical Accounting Estimates
Our management’s discussion and analysis of our consolidated financial condition and results of operations is based on our consolidated financial statements included elsewhere in this Form 10-K that have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported income generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements, included elsewhere in this Annual Report on Form 10-K, we believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Long-lived Asset Impairment
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the assets. If the carrying amount of an asset group exceeds its estimated undiscounted net future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value.
Based on management’s judgment about our anticipated ability to continue to use fixed assets in-service and under development, current economic and market conditions and their effects based on information available as of the date of
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these consolidated financial statements, we recorded an impairment charge of $83.6 million during the year ended December 31, 2023.
See Note 6. Property and Equipment, net , for more information.
Inventories Reserve
Inventories are valued at lower of cost or net realizable value on a first in, first out basis. Provisions for excess and obsolete inventory are primarily based on our estimates of forecasted sales, usage levels, and expiration dates, as applicable for certain disposable products, and assumptions about obsolescence. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the carrying value of our inventories and reported operating results.
The forecasted sales estimate is subject to uncertainty given the unpredictable nature of the COVID-19 pandemic, and the development and potential size of the COVID-19 diagnostic testing market is highly uncertain.
A 10% increase or decrease in our forecasted sales rate estimate during 2023, holding all other assumptions constant, would increase or decrease the provision by approximately $2.2 million.
Recently Adopted and Issued Accounting Pronouncements
Recently issued and adopted accounting pronouncements are described in Note 2 to our consolidated financial statements included elsewhere in this document.
Emerging Growth Company Status
We are an “emerging growth company” (as defined in the JOBS Act). Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies who have adopted new or revised accounting pronouncements.
