Q3 2019 Earnings Call
Leasing concerning teach for standby and welcome to lead time for your two telephone 19 financial whistle at this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time, if anyone should do courts distinct conference. Please.
Chris its start didn't get real on your Touchtone telephone as a reminder, discomfort school is being recorded I would know like the current comforts of with your host Ms. Agnes Lee Vice President Investor Relations. Please go ahead.
Thank you Charlie Good afternoon, everyone welcome to food on third quarter 2019 earnings Conference call.
Close to the market today Fluidigm released its financial results for the quarter ended September Thirtyth 2019.
During this call we will review our results and provide commentary on recent commercial activity market trends and our strategic business initiatives.
Presenting today will be Chris once weight.
Good day, and Chief Executive Officer, and Pickling Cho, our Chief Financial Officer.
During the call and subsequent acuity session. We will make forward looking statements about events and circumstances that have not yet occurred including plans and projections for our business future for the actual results and market trends and opportunity.
Examples include statements about expected revenue growth anticipated positive impact of various strategic and operational initiative.
Aspects for our products and technologies.
Potential customers in collaborators projected sales were recently introduced products and guidance for revenue operating expenses cash flow and consumable pull through for the fourth quarter of 29 team.
These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectation.
Information on these risks and uncertainties and other information affecting our business and operating result is contained in our annual report on Form 10-K for the year ended December 31, 2018, as well as our other filings with the FCC.
The forward looking statements in this call are based on information currently available to include aren't disclaims any obligation to update these forward looking statements, except as may be required by law.
During the call. We will also presents some financial information on a non-GAAP basis.
non-GAAP information not prepared under a comprehensive set of accounting rules and should only be used to supplement and understanding of the company's operating results as reported under you workout.
Kurt you to carefully consider our results under GAAP as was our supplemental non-GAAP information and the reconciliation between these presentation.
Reconciliations between GAAP and non-GAAP operating results are presented a table accompanying our earnings release, which can be found an investor section of our website I will now turn the call over to Chris our President and CEO .
Thank you Agnes good afternoon. Thank you for joining our third quarter 2019 earnings call.
Oh, you might expect we're deeply disappointed in the revenue results for Q3, which fell 500000 below our guidance range from 27 to 30 million.
We made excellent progress in consumables and services growth.
That's a bunch and that's cytometry unit placements in the Americas fell short of our projections.
So we did not achieve our expectations for the period, we remain optimistic and encouraged by the broad market is interest in our solutions.
I agree with your analysis of the quarter results, we observed in particular that within certain academic sub markets, some prospects or taking significantly longer to secure funding for equipment purchasing.
Belt tightening slows the release of grant institutional money and other capital sources in our price category.
In some instances sponsoring investigators are asking for more help from us to develop return on investment models for their management.
These are issues that we can address and this extended sales cycle is primarily impacting previously on penetrated a co accounts.
Building on this observation going to elaborate on our view overarching themes.
Starting with perspectives on our markets followed by our customer segments and then our products.
First for the mass cytometry business and then for micro floors.
As you will see we're confident that we can make adjustments and overcome the headwinds we faced.
First the cytometry markets.
Across all regions, our underlying major markets remain generally healthy.
Market demand for solutions and high parameter protein across tissue and so it's good.
Evidenced by the strength in our recurring revenue streams of consumables and services.
In the U.S. Marcon, we've observed the capital spending above $500000.
Seeing more scrutiny.
As a result sales cycles outside of the most well funded institution has extended as compared to a year ago.
We see similar dynamics in EMEA.
Well, we appear to be fair in a bit better there, which could be related to the fact that we have been integrated into the major grant cycle that some account for more than a year.
In a park, particularly Japan in greater China demand remains strong for immuno oncology and immune system related tools.
We anticipate providing more encouraging examples of our progress in this region shortly.
With new commercial leadership in place both globally and then the Americans over the last few months, we initiated a critical assessment of our gaps and opportunities during Q3.
We gained a number of insights and started taking action in the quarter.
These efforts, which are ongoing in Q4 include tweaks in sales coverage, particularly in the U.S. as well it adaptation for selling process.
And marketing approach to better address new segments.
The full benefit of these actions should produce results in 2020 and beyond.
Ondeck cytometry customer segments.
For some time, we've been talking about multiple customer segments for mass cytometry, with highlighting key wins and academic medical centers, particularly large ones like the comprehensive cancer centers.
Rogerson that segment was critical for us to better target mid tier academic centers, CR Rosen, CRL and pharma biotech with both data and proof points.
Demanded large academic medical centers remain strong we have penetrated more than half of the targeted U.S. and EMEA counts in the segment.
And in many situations, we have sold multiple systems with the largest accounts approaching 10 or more installed units.
Consumables are trending in line with our expectations.
And we materially increased our clinical trial participation.
We have good sales coverage at the segment and we're very pleased with the continued progress.
We see incremental placement opportunities new demand emerging from these institutions.
In contrast for the mid tier academics sales cycles have extended primarily due to capital constraints and a reticence to commit to purchases and advance a broader demand from investigators.
Our coverage is not as strong as this segment and we believe we're not investing enough time on site to facilitate stakeholder alignment and progress in the purchasing process.
We've analyzed our tactics for this segment that are making adjustments.
Moving on to see our ROE CRL segment is very interest is a very interesting category.
Interest is markedly higher than a year prior.
Smaller specialty CR roads are looking to build differentiated offerings.
And then best based on anticipated outsourced service demand from pharma biotech.
Largely arose build capabilities via acquisition or organic build out with a bias towards seeing established clinical trial demand before making commitments.
Our clinical trial traction is having a favorable impact we have accounts in every major geography, and there was a large market opportunity we're nimble in our tactics.
Finally for the pharma biotech segment.
Unlike a few other groups there's ample capital.
The speed to market for the therapeutic pipelines at the top priority.
We believe this segment is more focused on accessing our technology via academic and CRM service partners in the near term versus organic build out of new labs.
We have good penetration to discover groups across the top 10 pharma, but more work is required to bridge into their translational groups as well as the potentially lucrative biotech sub segment of the market.
The success of our recent menu expansion and new tools is addressing critical unmet needs. We have penetrated more than 100 accounts with our immune profiling solution.
Our first in class immune profiling panels provides simple end to end workflows in suspension based cytometry.
The initial sampling is leading to larger and larger reorders.
These solutions are key part of our clinical trials penetration strategy. We will continue innovation along these lines and overtime will drive new unit placements.
In software, we released an enhanced version of our Cytof product suite that addresses many customer pain points.
Uptake is robust ease of use and post experiment that interpretation is a critical part of our broader accessibility value proposition and is especially important to the new segments. We are targeting.
New metals.
At the end of the quarter, we released southern new metals, which establishes us as the first technology platform to unlock high resolution analysis of more than 50 protein signatures simultaneously.
We had excellent uptake in the first weeks of the release.
These new metals unlock larger panel sizes enhanced customer satisfaction, an incremental revenue per system from our installed base.
More metals in development and they are scheduled for release in the first top 20 Twond.
Turning to an analysis of our mass cytometry product performance.
Our solutions provide a market leading capability and high parameter cytometry.
Magnetometers simplifies high parameter panel design in comparison to other methods.
In addition, no other platform enables both high plex suspension system cytometry and highly multiplexed imaging.
As of the end of September we had 275 active installed mass cytometry instruments with more than 70 that are enabled for imaging.
Our worldwide year to date imaging mass cytometry instrument growth has been phenomenal.
Customer usage of our platforms has been strong.
Proof points are demonstrated through publications clinical trials and customer adoption to study a broader range of diseases.
At this point there are more than 945 publications using our mass cytometry platforms.
To date, there have been 280, new publications using healios with concentrations immunology immune function immuno oncology and infectious disease.
And since its commercial launch there have been 43 publications using our imaging platform.
We are at over 60 clinical trials across a broad range of disease areas, including immune.
College.
This represents an increase of 20% since Q2.
At our third annual imaging user group meeting Zurich earlier this quarter, we saw exciting new data from ongoing translational and clinical trials work enabled by our technology.
We look forward to providing updates on these clinical trials as they publish their results.
In the U.S. Government Research Hospital has selected imaging mass cytometry for the study of traumatic brain injury.
So we see user expansion beyond immuno oncology as well as opportunities to expand to the government research segment.
Turning now to Microfluidics.
The Microfluidics business performance has lagged our expectations over the course of the year.
We have discussed it in each earnings call this year.
The microfluidics narrative the different from mass cytometry, as we navigate a near term dependency on a relatively constant kit concentrated group of legacy customers, while the market the new products, we recently commercialized.
The relative markets for our Microfluidics products is somewhat unique as our platform offers a unique value proposition, we provide traditional genomic solutions as well as power a novel approach to collecting proteomic information using a hybrid antibody Pcr approach.
The broad genomics market continues to grow in the mid single digits, but we believe we have increasing opportunities to take share from competing genomics technologies and some protein detection platforms.
The market health is unchanged from our prior quarter.
In terms of customers and customer segments, we see a broad range, including academic contract research and reference labs Biopharma AG bio.
Our legacy activities concentrated the AG bio academic and CRL with CRL is representing the fastest growing subsegment.
These customers prioritize cost reduction and increased sample throughput.
In addition, there developing new service lines to attract incremental business.
We can be very helpful. In these areas.
Our underperformance compared to Q3 of last year reflects the loss of significant revenue at a Chinese base CRL that shifted technology platforms for a portion of their business.
We continue to see softness in AG bio.
We offset some of this weakness from strong sales to a leading proteomics solutions provider.
With more selling focused on the CRL segment, we can drive incremental revenue and reduce our dependency on legacy customers.
We have added commercial heft in this area to generate more traction.
In terms of product updates, we are seeing green shoots from our R&D programs. We have initial sales in all geographies at an impressive pipeline for our new aren't AC rig Ngs Library prep solution.
The product with showcase with a well attended customer event at the A.H. GE meeting in Houston.
Our opportunity funnel for kids and new Juno systems continues to grow daily and after just six weeks, we have more than $2 million and opportunities.
We project Q4 sales in the range of 250 to 400000 with acceleration headed into 2020.
These new products and initiatives should drive increased pull through stimulate demand for new instruments and attract more interest for partnerships.
I am confident we're moving in the right direction.
And I look forward to providing updates on the execution of these market and commercial strategies.
I'll now turn the call over to Vikram, our CFO for complete review of our financial results. Thanks, Chris and good afternoon total revenue was $26.5 million in Q3, 2019, a decrease of 8.5% year over year.
On a year to date basis revenue grew 5% to 84.8 million in 2019.
Changes in foreign exchange rates had a minimal net impact on revenues for the third quarter of 2019 and negatively impacted revenues by 1% for the year to date period.
Mass cytometry revenue of $15.6 million into third quarter decreased 13% year over year.
As you May remember my cytometry revenue experienced a significant sequential increase between Q2 in Q3 2018.
The year over year decline in mass cytometry revenue was due to lower instrument revenues, primarily in the United States offset by strong growth in consumables and service revenues.
We continue to experience delays in mass cytometry instrument orders into third quarter similar to the previous quarter, primarily due to longer sales cycles.
Year to date mass cytometry instrument growth has been strong inline with the year to date growth in total methodology revenue.
And over a third of our instrument placements this quarter represented incremental units to existing customers.
Mass cytometry consumables and service revenue delivered strong double digit year over year growth in the third quarter, including solid revenue growth from our Max broad direct immune profiling assay that does launched at the end of March 2019.
We also saw good initial orders for labeling kits for seven new metals that were launched in mid September .
Consumable pull through in the third quarter was in line with Q2, but still below our 2019 guidance.
Also notably we had strong growth in service revenue in the quarter.
We expect mass cytometry pulled through to be close to our guidance range in the fourth quarter of 2019 as customers ramp up usage of their instruments.
Micro fluidics revenue of $10.9 million decreased 2% year over year, driven by a decline in instrument sales.
We saw very strong performance for me talk key account and we signed a new key CRL account for a different microfluidics product during the quarter.
As Chris mentioned R&D seek has had a good initial uptake, but it was a small contributor to the quarter given its launch in mid September 2019.
As a reminder is significant portion of our Microfluidics consumables revenue is tied to a small number of customers.
Consequently, we continue to expect quarter over quarter variability in Microfluidics revenue.
We are beginning to develop a good pipeline for R&D seek as we execute in our strategy to focus a new key accounts and grow the business with new applications.
Consumable pull through for a micro fluidics instruments systems was slightly higher than in Q2, but continued to be lower than our guidance ranges.
Turning now to a regional perspective.
Compared to Q3, 2018, EMEA revenue grew 4% to $9.1 million, primarily driven by higher Microfluidics consumables and overall service revenues.
Actually offset by lower mass cytometry instrument sales.
Foreign exchange rates had a negative two percentage point impact on sales.
Without that negative impact EMEA grew 6% year on year.
Americas revenue declined 19% to $11.1 million, primarily driven by lower sales of mass cytometry instruments, partially offset by higher mass cytometry consumables and service revenues.
Similar to Q2, 2019 third quarter mass cytometry consumable pull through in the Americas was significantly higher than our worldwide pulled through guidance range of 73 to $78000.
Asia Pacific revenue declined 4% to $6.3 million, primarily driven by lower Microfluidic sales.
Sure the offset by higher service and mass cytometry instrument sales.
This comparison was impacted by a very strong third quarter in Asia Pacific last year.
Asia Pacific business continues to perform well and year to date has grown 22%.
Moving on now to our operating performance GAAP gross margin was 53% in the third quarter compared to 54.6 presented the year ago period, and 54.5% in the second quarter of 2019.
non-GAAP gross margin was 65.5% in the third quarter of 2019 compared to 66.4% in both the year ago period and in Q2 2019.
The year over year decrease in non-GAAP gross margin was primarily due to lower production capacity utilization lower service margins any reserve for excess inventories, partially offset by favorable product mix.
Sequentially. The decrease in non-GAAP gross margin was primarily due to unfavorable product mix and the excess inventory reserve.
In the case of GAAP gross margin the year over year and sequential decreases were coupled with fixed amortization over lower revenue.
Operating expenses on a GAAP basis in the 2019 third quarter increased approximately 1% year over year to $27.9 million.
And on a non-GAAP basis decreased 1% year over year to $24.2 million.
The increase in GAAP operating expenses, the due primarily to higher stock based compensation, partially offset by lower variable compensation accruals.
The decrease in non-GAAP operating expenses was primarily driven by the absence of expense related to a retention bonus program that ended at year end 2018.
GAAP net loss for the third quarter was $12.9 million compared to 14.8 million for the same period last year and 13.8 million in Q2 2019.
The year over year decrease in GAAP net loss was primarily due to lower interest expense offset by lower gross profit.
The decrease in net loss versus Q2, 2019 was driven by lower operating expenses.
Offset by lower gross profit.
The non-GAAP net loss for the third quarter was $6.2 million compared to 5.2 million for the year ago period, primarily driven by lower gross profit, partially offset by lower operating expenses.
Reconciliation tables between our GAAP and non-GAAP measures provided at the end of our earnings press release that was issued earlier today.
Now moving onto the balance sheet and cash flow.
Accounts receivable were $14 million at the end of the third quarter compared to 19.3 million at the end of the second quarter of 2019.
DSO was 48 days at the end of Q3 compared to 62 days at the end of the second quarter.
Cash and cash equivalents short term investments and restricted cash at the end of the third quarter of 2019 totaled $64.8 million, including 36.9 million of short term investments that are readily available for sale.
And 2.1 million in restricted cash this compares to $70.9 million at the end of the second quarter of 2019 in net decrease of 6.1 million, including a semiannual interest payment of approximately $700000.
At the end of Q3, the borrowing base under our asset base revolving credit facility was $9 million, none of which was utilized.
And finally onto guidance for the fourth quarter of 2019.
Total revenue is projected to be between 29 million and $32 million GAAP operating expenses are projected to be $29 million to $30 million non-GAAP operating expenses are projected to be $25 million to $26 million, excluding stock based compensation of approximately 3 million.
And depreciation and amortization expense of approximately 1 million.
Total cash outflow is projected to be between six and $8 million for the fourth quarter of 2019, we expect total cash outflow in the first quarter of 2020 to be a little higher than our projected outflow for the fourth quarter, primarily driven by annual bonus payments the approximately $700000 of semiannual interest paid.
Payment on our convertible debt and increases in payroll taxes. However, cash outflow in Q1 2020 is not expected to be as high as in Q1, 2019, which included higher interest in bonus payments and the retention bonus payment that is not expected to recur in Q1 of 2000.
20, and with that I will turn the call back to Chris for closing remarks.
Thank you Vic.
We executed well on our innovation strategy in the period, and we've taken steps forward and driving market expansion.
We must improve our commercial execution and agility in response to the feedback of the new market segments, we are targeting.
Overall, the mass cytometry business has grown.
For Microfluidics, we must close funnel opportunities or not and untether ourselves from the dynamics of our legacy business.
Success on these doctors will drive enterprise wide revenue growth.
In summary, we are increasing our installed base and we see headroom for growth around the world for all of our platforms.
Options of our workflows and instruments for clinical trial work is growing and we're seeing excellent uptake of our mass cytometry consumables as well as customers signing up for two and three year long service contracts.
Yes, we have work to do to expand Americas suspension mass cytometry instrument adoption, we're already executing on that strategy, while scaling up selling efforts and our sizable microfluidics franchise.
From an investor perspective, I know, we are asking for more patients, but I remain absolutely confident the fluidigm management team and our ability to deliver more innovation and more revenue growth, while maintaining financial discipline and demonstrating operational improvements.
These activities will drive sustained growth and tremendous long term value.
As always I. Thank our over 500 employees for their contributions this past quarter as we delivered on a number of significant product launches in parallel across our portfolio.
We now need to convert these launches in a meaningful meaningful new revenue streams.
We are healthier today than three years ago. When I arrived our aspirations are growing along with your increase expectations and shifting our gaze from quarterly updates to the longer term vision of success. We are confident we're going to have a major impact on health care and health care research.
With that I'd like to open the line for questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then to number one key on your Touchtone telephone. If your question has been answered all you wish to be moved yourself from the Q Chris.
Our first question comes from the line up sung Ji Nam will be T. G. Your line is now open.
Hi, Thanks for taking my question, maybe starting out with the irony speak Library prep kit that you guys launch talked about at the final building out nicely. There was curious are you seeing demand globally or are there certain regions, where you're seeing as greater demand and then also what kind.
Of the split between.
On your existing customers versus new customers that might change.
Thank you very much for the question sung Ji, so with regards to aren't I see yes. Overall, we're extremely pleased with the early pipeline development, the now exceeds more than $2 million.
The from a geographic perspective, we did prioritize more of our market development activities in the Americas in the first few weeks. So theres a heavy skewing of that funnel for now that sits in the U.S.. Although we see no reason why that market won't expand into other regions and as we stated earlier in that maybe the comp.
It's the prepared comments, we've already had us placements and sales of kits into all major geographies. So I think it's early days, but the balance of the funnel right. At this moment is more biased towards the American market.
I think overall from a mix of new customers, we're actually seeing significant number of new customers for this so it's as you may recall that we talked about we have a relatively small market share and microfluidics and genomics as compared to the a total addressable market for next generation sequencing.
The next generation sequencing. So we think this is going to represent significant new opportunities in terms of incremental Juno placements overtime as well as strong consoles pull through.
And then just on the mass cytometry side, you talked about from the suspension side of suspension platform I'm seeing delays in terms of purchasing decisions et cetera was curious are there any competitive dynamics at play recognizing obviously.
There might not be direct competitors are customers also taking longer to evaluate platforms just given there potentially.
Other alternative options out there.
From a from a jump. So the question obviously relates to suspension of the dynamics related to suspension and I think as we kind of made a comment in our prepared remarks.
We have seen a shift in the last few quarters in particular and more scrutiny of expenses above or a capital equipment investments above the 500000 dollar Mark I think as we've been reflecting on some of the other prints that are coming out it seems to be there may be other animal analytical instrument providers different categories, the kind of in similar price.
Points, maybe seeing some similar dynamics overall in their placements.
So I think we can attribute it more overall to the general higher scrutiny across all categories for spend in this area of versus direct competitive.
Influences.
And then just lastly, I guess looking I had was curious between the suspension cytometry versus the imaging.
Hi platform, where do you see kind of the greater demand going forward based on kind of to publications that are coming out as follows where the customer demand might be.
So I guess is your question on which markets are going to be the larger markets and so over what time and I couldn't quite follow exactly how you juxtapose not against publications did you mean by application or questions that are being asked or customer segment.
Yes, just in terms of applications and just in terms of customer interest the types of.
Search I guess projects that are getting funded et cetera, driving potential growth into feature for discussion first this imaging.
I think it's a contrast, so in the suspension side. It's a much suspension cytometry has a much larger and as you will know a much more established market.
What as you may reflect when we've been sharing our market evolution kind of growing from an early discovery based tool that was an early proof of principle to enabling our unlocking the potential redo 20 or more to the parameters of simultaneous analysis, we expanded that competitiveness into the 30 mid Thirtys and now we've pushed those up into 50, an established ourselves as the.
First purveyor of Holly multiplex suspension based analysis.
And more than 50 parameters.
As debt markets, a larger market. We're also driving a shift from some of the lower measurements the lower parameter analysis more towards shifting dollars. Both the higher parameter were probably participating overall, yeah that markets, probably a high single digit grower for all cytometry flow cytometry, and we believe or were in a faster the fastest growing segment of that so.
I think theres plenty of opportunity for us to take additional market share from the mid flex market and also to see the market moving in our favor towards higher flexing dynamics and overall, it's a larger marketable in a more established market and certainly our publications momentum already reflects the larger installed base in the larger as more established demand dynamics.
Imaging as newer and so we were the first commercial player enter this market three years ago. We're very pleased with the both in terms of our clinical trials penetration as well as the number of new publications that are being shared by researchers on this as well as our installed base, which now expands or extends beyond 70 70 units.
So I think it's very early days I think imaging could be very very big.
In the coming years, it's just more special to for us because of what dimension. It will grow on will grow on parameters will grow on DNA versus aren't eight versus proteomic simultaneous detection. There are many other dynamics of will influence the emerging market.
So is the first mover, we need to be prepared to adapt or as we see more market opportunities in here. The interest from a scientific perspective are incredibly hot right now and they're very broad, but oncology and I mean oncology or the type primary focus and the primary drivers of demand for both both segments for lease from our perspective.
Great. Thank you.
Thank you thanks.
Your next question comes from the line Dan Brendan like GBS. Your line is now open.
Great. Thanks for thanks for taking the questions I guess first one is just on Christmas on the mass cytometry.
I know you mentioned others have kind of cited some maybe some capex pressure, although we haven't heard it too broadly so I guess what data points can you share that indicates a shortfall is basically at the market opportunities maybe smaller than you expected.
So I guess, if I'm going to try to make sure I understand the question. So I think what you're trying to.
Say that the market the addressable market overall shrunken the period no just space Yeah, no yeah no.
Your your base it seems commercial and funding and I'm just wondering.
Possibly that as you look at kind of replacement opportunity, maybe the placement opportunity isn't as big as you expect it to maybe you can just speak to whatever kind of color on backlog or funnel or anything like that that might give us some visibility towards kind of.
The lack of getting something over the goal line, but but that the demand is there.
I think we'd need to look at market size across each of the segments and I know, we don't breakout market sizing at least today, we have not by unit placements I think that we're still a relatively small percentage of the total number of placements that occur in the marketplace.
In the academic medical centers in the larger centers as I commented, we've had extremely good penetration in that area and we continue to radiate inside of those accounts, we will see strong consumables dynamics meeting, we're attracting more more users inside those those institutions getting more instrument placements.
Or try to compare as the academic medical centers in the mid tier we're an area that we were shifting some focus too as we were moving further down in the funnel between from the top part of them of the richest academic medical centers, that's an area, where we saw more challenges through either some combination of the intensity that we need to spend inside of those accounts more proof points that are.
Acquired.
I don't know if that means that the market size is smaller than we think or afford us going to take a little bit longer to have to unlock that full market potential and the ciro and CRL segments. I think this is new new for us. So we have some initial toll holds in each one of the major geographies in this area, but I think theres, a very significant amount of in the unit placements that were only seeing a trickle of at the moment and in pharma biotech.
Over the long term are probably the largest single market segment potential, but as we've been moving into those segments beyond the discovery groups, we have seen that there.
Speed to an answer meaning they want to have a system already in place today in order to get are up and running them to try to drive towards service providers and because we havent fully penetrated.
Adequately penetrated the Crs segment, that's inhibiting our ability to participate fully in the dollars that available in the pharma and biotech market. So I think there's plenty of unit placement opportunities out there, but we've got to work through the series of gates to get ourselves to getting those those those larger more addressable segments.
Great. Thank you for that and then maybe related to it. So can you share any color on.
Backlog or funnel or any metrics that might give us a viewpoint towards it.
Kind of the demand that's there, but yet you need to get kind of funding over the goal line as you kind of indicated in the prepared remarks.
I may but we'll do it was we'll try to give you. Some qualitative we obviously don't share quantitative information related to backlog.
From our perspective of course, the largest backlog easier will be for us to forecast for periods and clearly have not had at least the prior period, a significant or substantive enough backlog.
I'll shut the for this.
So we're sitting in our funnel overall, we havent seen a diminishment in demand or interest in the technology, what we have seen as some.
As we've seen kind of in our stage gate process deals that have not moved across the finish lines. We continue to add opportunities into there and we need to get more through the funnel or we need to dramatically expand the size of overall funnel in order to get the yield we need.
Deliver more sustained growth period to period. So we think there's things that we can do.
Theres some tweaks like I talked about in terms of coverage model also even tweaking our value proposition in some cases to help get across some or get over some of those hurdles that we've seen or some obstacles over the top but some of those accounts. So I think there's things that we can do we got a significant enough or large enough opportunity funnel, we need to get more yield out of it and of course, we'd love to see if we can't.
It more yield that we need to make sure we get a larger funnel overall amenable to generate more leads more opportunities in our marketing operations as well as perhaps at a few additional salespeople to help in the coverage of these key segments that were trying to online.
So unfortunately will share kind of substantive details on backlog or the funnel that I hope that helps from a qualitative perspective.
And then sorry to be kind of ask if you said then related to that comment.
The comments.
You just made so.
Sounds like it's really tweaks at this point, we're at a few salespeople. So there isn't really a plan yet too.
Either have X number of new salespeople or new commercial go to market strategy or maybe more discounting I'm. Just wondering where are you in the evolution of your like plan to attack this kind of market that seems to have.
Slowed a lot more than you expected.
Well, what I'd say as did I think it's it's we've been the rate limiting step in some cases in here and I think that we probably have run a little too lean in terms of coverage and the Americas in particular, and so that's why I think that we're seeing more yield any other regions in the us in particular were more at the leading edge of unlocking new customer segments vis-a-vis the other.
The regions around the world. So we've already started efforts in this area. We didnt weight. We started in Q3 in this area. It's also somewhere in a related with our modest scale up that was occurring and microfluidics. So as we have a clear we think in a very clear winner in terms of a new product, that's giving us confidence that weekend shifts we can.
Subdivide our resources have one group, it's going to work more clearly a microfluidics. Another group, it's going to work more clearly a mass cytometry and I think that will drive effectiveness for both segments.
So we actually have already been underway with those efforts into this quarter.
Let me be last one would be.
What's baked into the fourth quarter could you give us some color on.
Either instrument placements and pull for just kind of break it down given the shortfall. This quarter I'm, just wondering kind of what you're baking into that $29 million to $32 million revenue outlook.
Well as we I think vikram shared in his prepared comments some commentary on pull through so I think he will take words out of his mouth, but I think he generally guided towards that we think will be entering the range of very nearly into the range for pull through with regards to mass cytometry not sure.
Great color comments on the other area on Microfluidics off to clear up anything that I am saying.
Want to head and go for second there, Yeah, Hey, Dan we don't normally break down our.
Guidance, but I think it to be safe to say given the implied sequential increase.
In revenues from Q3 to Q4 that we do expect recovery in the mass cytometry business, we definitely increase expect to see growth in R&D seek be pointed to the pipeline developing and be able to a given a number.
Related to our an AC but the caution that Mike micro fluidics, which we.
Have again repeated this time is that is subject to volatility until we get.
Traction on the new the new applications. So I think would qualitatively add in generic termed it would be safe to say that the Q4 guidance bakes in recovery on in methodology and we've also made comments that we do expect to reach the pull through.
Our guidance.
That we had outlined for the year, albeit.
At the in Q4.
Great. Okay that gives you some color on what's baked into the Q4 guidance great. Thank you sure.
Again, ladies and gentlemen, if you'd have a question at this time. Please press Star then to number one key on a touch to until the Sir. Your next question comes from the line to build quick the Piper Jaffray. Your line.
Great. Thanks, Good afternoon, I guess, the first question I want to go back to two a couple of Daniels was talking about and I guess, when we think about the order funnel. Chris you had mentioned on the two to call that the funnel was really quite strong.
I think at the time, you guys didn't Miss I want to commit to it for the third quarter button.
It does look like it's going to be come into fruition into force and so and I. Appreciate that this ties in with some of your earlier comments, but that seems like quite a push out for some deals that seemingly were in hand.
Presumably actually originally expected to close in second quarter. So maybe you can help kind of unpack that and help us think about have any followed by the wayside everything still in the funnel, but it has everything to do with what you said in your prepared comments just give us additional color. Thanks.
Sure Bill Thanks for the question.
So the best we can help I think on this is as Vikram just amplifying with Vikram said, we do see sequential improvement in unit placements from Q3 into Q4, which will also represents sequential improvement from Q2 in terms of unit placements.
So I understand the sentiment of your question, but I think in reality, we are going to see a step up in unit placements in Q4 I.
I guess, the easiest way to kind of qualify as we had stated at the end of Q2 coming into the Q3 was that we had a lot of uncertainty about where the timing of the funds would come from in which sources of fundings that they would have to come through with and we saw that uncertainty play out throughout Q3.
For a couple of the deals that fell out of the quarter and so we did our best to handicap that we built our consensus or built our guidance model for Q3 to model a percentage of those hitting in Q3, and we were clearly incorrect on our modeling assumption.
So for Q4, we've done our best to kind of revisit our lessons from from Q3, and we think we've done the best we can as far as handicapping. The overall funnel I think the size, it's really not a question of the size, it's about progression through the stage gates and.
Even what a 75% mean, when we still see a check in hand, or we don't see a clear PEO being released their stating the pie is may be saying, it's coming but it does it come out through administration or waiting on federal leases of funding and it didn't release.
We had a number of these sorts of situations occur and they're still playing out here in Q4, and we're to the point, where we're not sure until we actually to the money come through that we should count on those coming into this time this quarter. So I don't know the best Best I can say is just re amplify what would become set as we tried to look at lessons learned from our Q3 experience.
We tried to.
Make some modeling assumptions based upon our lessons learned in that period and then.
Do you see a significant funnel size and we're not seeing direct competitive losses attribute into this so I do expect that this will snap into place, but I, but we're.
Having trouble forecasting when these larger orders are going to land.
Hey, Chris do you think that the interest outside of your traditional customer base in mass cytometry is contributing at all to the.
How should we say uncertainty of timing and some of these deal deals closing and if that's the case is something that you guys are taking into consideration as as you're looking at indications of interest in kind of early.
Interest from parties outside of your traditional kind of academia landscape cyto. Thanks.
Yeah, I think actually the point is really really insightful question Bill overall, I think as we have seen a shift and our call patterns and focus and less less need to focus on those high end academic medical centers, because we have more established dynamics. They fill up capacity and then they lead to the next order. The other segments are we're back to doing more business.
Development activities and I think we're using some of those segments and perhaps even our selling motions didnt fully reflect all the decision makers that we're going to be involved in those days and that does considerations that come into making decisions on technology in those other segments I gave a flavor of some of those insights and that was part of the reason why.
I tried to breakout or we tried to breakout on this call a little more color on markets a little more color on segments since that of putting them altogether and a one can this we're trying to break them out for you and as you might as you've read into it we are having learnings in each one of these segments and we've been shifting our tactics. We started that work already shifting our tactics on this segment.
Okay got it and then too I think pretty quick ones from me.
First is victim can you elaborate on the inventory reserve that you took it in micro Fluidics and then secondly, with respect to the comment in the.
In the press release, but the active installed mass cytometry based range systems de commissioned in the quarter just to make sure I wouldn't want to make sure my model.
Record as possible. Thanks.
Yes, So let me dig the second question first.
We always have an active base measurement based on a service attachment and.
This is over a certain look back period, and so we constantly are updating and refreshing the active base based on those two metrics I can't speak to the delta in the quarter itself, but that's an ongoing phenomenon, but it certainly has played a role in terms of if you.
And to reconcile your model of how many units we placed in 2019 with the active base that we disclosed today there is a netting.
The systems that went dead.
Not active based on our definition.
Okay got it. Thank you let me just to comment on the inventory reserve victim.
Yeah, nothing I mean that is.
A.
Accounting.
Exercise, we go through every quarter.
Based on a judgment on the reliability of inventory valuation.
And that's the reserve would be but it wasn't a significant amount, but it played a role in the roughly one to one and half percentage point.
And does that be we're trying to explain in gross profit, but it was one among the three explanations I think the bigger one would.
Production capacity utilization and product mix.
Okay got it thank you.
We have no further questions at this time I will now turn call back to Mr. Agnes Lee. Please go ahead.
Thank you Charlie.
We'd like to thank everyone for attending our call today, a replay of it the call will be available on the Investor section of our website.
Conclude the call we look forward to the next update following the close of the fourth quarter of 2019, please reach out to US. If there are further questions. Good evening everyone.
Charlie you May now close call.
Thank you mean, ladies and gentlemen.
Today's conference. Thank you for your participation you may now disconnect.