Q2 2021 Berkeley Lights Inc Earnings Call

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Ladies and gentlemen, thank you for standing behind much of the book the REIT second quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

So ask the question during the especially the press star one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the call over to your house Carrie Mendivil Investor Relations you may begin.

Thank you.

Earlier today for the lights for the financial results for the quarter ended June 30 of 2021.

If you have not received this news release.

Or if you'd like the added to the Companys distribution list. Please send an email to IR at Berkeley lights Dot com.

Joining me today from Berkeley Lights are Eric Hart, Chief Executive Officer, and Kurt Wood, Chief Financial Officer.

Before we begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated for more.

For information please refer to the risks uncertainties and other factors discussed in our SEC filings.

Except as required by law, Berkeley lights disclaims any intention or obligation to update or revise any financial projections of forward looking statements, whether because of the new information future events or otherwise.

This conference call contains time sensitive information.

The only as of the live broadcast August 11, 2021 that I'd like to turn the call over to Eric.

Thanks, Gary and thank you everyone for joining us this morning.

Today, we are going to provide an updated on our progress against our stated strategic objectives as well as an overview of our second quarter 2021 financial results.

Where do the lights continued to make important progress during the second quarter and I'm very encouraged by the increasing demand and enthusiasm for our platform.

Our team members across the globe continue to execute on our strategic initiatives and we are better positioned than ever to find the biology that cures disease.

Starting with our second quarter results, we generated $19.3 million in revenue, bringing our year to date revenue to $38 million.

Of 56% increase over the first half of 2020.

We successfully launched our new take access subscription offering tailored to the specific capacity needs of antibody discovery and cell line development customers.

We released after of plasma the discovery for pointed out on schedule customers.

Customers are now finding 10 times the hits at a 10th of the lead time and the 10th of the cost per validated sequence.

This quarter, we also officially announced our partnership with Thermo Fisher scientific in AAV, which successfully progressed in the phase two of the project.

And this morning, we announced the partnership with Bayer for high throughput functional screening to the.

Significantly accelerate their pipeline for agricultural product discovery and development.

This partnership along with the Federal Fisher partnership highlights the progress on our business development efforts.

Collectively these two non exclusive partnerships represent a revenue opportunity of more than $30 million.

With the potential for additional long term revenue for.

Related to the future milestones and commercialization of products.

Our Berkeley lights, our mission is to find the biology that curious disease. This starts with therapeutics for people, but our impact goes way beyond that.

Technology can help find cures for diseases and plants animals, and also provides a scalable and sustainable path for life on this planet.

To achieve this we are providing the most advanced.

This throughput functional characterization platform on the market today as a means to find the best biology.

To understand the full potential of our platform. It is helpful to place Berkeley lights in the context of the three main pillars that are the key to unlocking the full potential of biology.

The first pillar of sequencing, which enabled us to re biology.

Sequencing gives us the fundamental of code of life.

Today's sequencing is a huge industry.

And although the ability to read sequences is extremely important.

Sequences without correlated function have limited value.

Okay.

For the next pillar is gene editing.

Which allows us to right to biology.

Here, we attempt to REIT program biology by changing the genes and Michelle and modifying its code.

Gene editing is another massive industry.

And today, there is the potential tenant vast numbers of sales.

But without understanding which at it creates the needed product.

There is also a little value here.

And the third and final pillar is functional characterization, this is where sequences and edits come to life and gain true meeting.

Good day functional characterization of this fragmented highly manual and lack of standardization.

At the same time, there is an ever growing mountain of sequence data and the near infinite rate at which gene edited cells can be made.

This has created an enormous backlog of required functional characterization the.

The complexity in that backlog is growing exponentially.

Higher resolution and poly functional Readouts current manual processes simply won't scale.

First of all of that goal is to consolidate and standardize functional characterization.

We're bringing the first biological supercomputing platform to market, providing automated high throughput high resolution screening.

Access to rare precious samples.

Multifunctional resolution on live biology.

Export of an optimal live biology.

And digitization of multi parametric data.

To translate the multibillion dollar opportunity the functional characterization represents Berkeley lights must run of high volume part of our business.

Established high value service businesses, leveraging Berkeley lights, Biopharma and generate revenue.

Revenue from Berkeley lights on biological assets.

The Bayer deal is another step in to offering high throughput functional screening services upward for the lights.

Truly is digital cell biology, where we received DNA sequences from our customers expressed the proteins encoded in the DNA of.

The screen, each DNA sequence and of massively parallel fashion for the desired function.

The service business gives Berkeley lights full access to data, which is critical to our strategy.

Digitization of multi parametric data out of large scale linking function. The sequence is critical to enabling the future of in silica of design of biology.

The service business is the prerequisite towards of our ability to create Berkeley lights on biological assets.

As here where of Berkeley lights will run its own targets and partners targets with the goal to participate in downstream revenues, such as milestones and royalties.

The Thermo Fisher partnership is yet another example of deeper value capture throughout the technology.

The successful completion of this partnership will transform how viral vectors are developed and manufactured at industrial scale.

Mowing gene therapies to move from orphan diseases to mainstream therapies.

As previously announced the viral vector workflows developed in this partnership will only be available through a subscription model.

I would like to spend a little time to talk about high throughput functional screening on the Berkeley lights pipeline.

As sequencing of gene editing capabilities mature there is an increasingly large library of unveil the dated sequences, which require a high resolution functional readouts that scale.

Typically functional readouts of our performance scanning many lifestyle candidates against one common target.

We have developed a nano pen based cell free expression solution, which allows direct expression of DNA into proteins against thousands of target simultaneously for functional readout.

This provides one of two orders of magnitude improvement in speed and throughput while significantly reducing cost when compared to currently available methods.

We will offer our highest throughput functional screening services only via our <unk>.

We believe access to the services will accelerate the design build test cycles for our customers further reducing the time to find biology, the cures disease.

We expect that of cell free expression continues to evolve it we'll find the many applications in many markets.

With that I will now turn the call over to Curt for more detail on our financials Kurt.

Thanks, Eric revenue for the three months ended June 32021 increased 82% year over year to $19.3 million with $13 million coming from product revenue and $6.3 million from service revenue.

We received orders for three tech access subscriptions within the quarter.

Under the Tech access model, we do not recognize the revenue upfront and instead, we will recognize the subscription revenue over the subscription period, meaning a tradeoff of near term revenue for more rapid platform adoption and the ability to build backlog and predictable recurring revenue.

<unk> the subscription offering is designed to increase our served available market opportunity and drive incremental platform placements. Many smaller biotech customers run lower campaign volumes and want to run their own biology, our tech access subscription provides a financially attractive path for these customers to run antibody discovery <unk> work.

Close on the DLR platform, it's a renewing one year commitment inclusive of the platform software consumables service and support which provides a compelling ROI with the lower upfront cash commitment for the customer.

We added seven platforms to our installed base during the second quarter to end with 92 platforms in the field.

Further breaking down Q2, and looking at our three revenue streams direct platform sales totaled $11.4 million in the second quarter of 2021, increasing 51% over the prior year period.

Recurring revenues totaled $3.9 million in the second quarter of 2021 up 35% from $2.9 million versus the second quarter of 2020, our year to date pull through per instrument remains on track with our historical experience.

Revenue from joint development agreements and partnerships was $3.9 million from the second quarter of 2021 compared to $100000 in the second quarter of 2020 and up 26% sequentially versus Q1.

The sequential increase was the result of a full quarter of activity from our viral vector of partnership with Thermo Fisher scientific.

With the recent signing of the Bayer partnership revenue from joint development agreements and partnerships will increase as a percentage of total revenues in the second half of 2021.

Gross profit for the second quarter of 2021 was $12.7 million compared to $7 million in the prior year.

Gross margin for the second quarter of 2021 was 66% in line with the prior year period.

As we have discussed in previous calls our gross margin was negatively impacted by the cumulative impact of the ginkgo workflow by down.

Excluding the ginkgo impact gross margins for the second quarter would have been approximately 72%.

Line with our long term target of approximately 70 per cent.

Total operating expenses for the second quarter of 2021 by $30.6 million inclusive.

Inclusive of $5.6 million of stock based compensation compared to $19.1 million in the second quarter of 2020 the.

The increase of $11.5 million was driven by an increase in stock based compensation.

G&A related expenses as we transitioned to become a public company and continued investment in our R&D and sales and marketing teams.

Net loss for Q2 was $18.2 million compared to the loss of $12.4 million for the second quarter of 2020.

All of net loss numbers are inclusive of stock based compensation.

Regarding capital and liquidity during the second quarter, we completed a refinancing of our $20 million debt facility.

Under the terms of the new agreement, we extended the non amortization period by up to 36 months with final maturity extended the 2025.

The interest rate was lowered by approximately 250 basis points to for one 7% in.

In addition, we added the revolving credit facility that provides access to $10 million of additional liquidity.

As of June 30, we had a cash balance of $215.1 million and available liquidity of $225.1 million inclusive of the Undrawn revolver.

Turning to our outlook for 2021, we continue to expect revenue to be in the range of $90 million to $100 million.

Stenting growth between 40 and 56% over the prior year.

As contemplated in this guidance range, we do expect a meaningful uptick in Q4, driven by normal seasonality as well as increases from our growing business development activity.

With that we will now open it up to questions operator.

Ladies and gentlemen of feel of a question of our comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered you assume of yourself from the queue. Please press the balance sheet. Our first question comes from Doug Schenkel of Cowen.

Good morning, and thank you for taking my questions.

My first is on the subscription model.

At a high but the important level I'm just wondering if the subscription model program.

Is impacting the funnel the way you anticipated.

And you know maybe maybe building off of that what what is the profile.

Of the typical profile of the subscription model customer.

I ask because you know part part of the intent here is not just the lower.

Barriers to entry here, but sort of by extension to potentially move you into some customer of Adjacencies that you.

You were having as much traction with the historically, so I guess beyond just getting an update on whether the funnel was tracking the way you would hope.

It would be interesting to hear what what what are the fate of the types of those customers that are moving forward with Berkeley lights and beacon with this with the financial structure.

Hey, Doug This is Curt maybe I'll take this and Eric you can chime in with it. The appreciate the question.

As we watch the if it was really geared towards that smaller customer that had lower campaign utilization rates than what the the beacon had capacity for so we tailor this to folks that need to run between five and 10 campaigns a year, which obviously is significantly less than what the the beacon is capable of.

And the intent there was to attract that customer.

Two of the Berkeley lights platform that otherwise would have went to an alternative solution, whether that's been the CRO or to build out the the lab space that they needed to do it manually in house with that so the design here was the price and all in package that included the tool the software the.

Service and the consumables and a very simple price per campaign.

The easy to sell goes through an opex budget versus the Capex budget type of a model now obviously the movie launch and as we mentioned on the call last quarter. There will be if you look at it in the extremes, where you've got some folks who clearly will the subscription make the 100% economic sense and then on the the high throughput customers such as your high throughput.

<unk> et cetera, we're buying of beacon on the Capex model makes sense.

Certain amount of folks that will fall in the and the intersection of those two circles, but we believe that's a relatively small percentage 25 per cent or less of the total customer base that will convert over from a capex sale into a subscription base and that's essentially what we saw in the the initial launch here.

Kind of what our pipeline is looking like as we see with whats in the funnel today. So it is attracting a new customer to us that we otherwise weren't able to get an increasing our serviceable available market.

The the other thing to note here is which we Didnt mentioned on the call, but those three tech access subscriptions that we took orders for Q2 were not included in the seven unit placements.

Those all three of those units have sure.

Shipped earlier in Q3 for this quarter. So it's tracking to what we saw in the phenotype specifically to your question of that smaller customer of the utilization who wants to run their own biology.

And we just provided a compelling reason for that and that's tracking as expected.

That's great and if I could just ask one more of that I'll, let others hop in.

The total revenue number was about what were expecting but the component for a little bit different.

Recurring revenue specifics it was a little lower than we expected.

I think it was down sequentially acknowledging that I'm in transit so not scrubbing of the model in front of me. So I apologize if I have that part wrong, but I know relative to what we were looking for you were a little bit light, but that can always just be a function of our model, but I want to make sure that there's nothing to untack there in terms of pacing.

Or any surprises that youre seeing in terms of cash.

Thank you.

Yeah. Good question, you're spot on it did decline sequentially quarter over quarter, $3.9 million this quarter versus $4 for in Q1, obviously, we saw you there's always the seasonality aspect, where we see.

The year end budget consumption from customers in the fourth quarter, we saw a little bit of that kind of trickle into Q1 as well we also had a.

The customer placed a fairly large order in Q1 as well.

But the bottom line is when we look at it.

Over the 12 month period, it's very much on track to what book reset historically.

Okay. Thank you again.

Okay.

Our next question comes from Brian Weinstein with William Blair.

Yes.

Hey, guys. Good morning, Thanks for taking the questions.

Starting on the Bayer deal can you just give us a little bit more specifically, how the technology is going to be used in.

Just a little bit more on the kind of.

In terms of the deal here in terms of the.

The duration and maybe some of the downstream opportunities that are there I think you mentioned that the two business development deals that you did or $30 million in total just not sure over what period that is and how we should be thinking about that so a little bit more on kind of.

Specifically of a tech is going to be used here and then anything that you can give us on kind of how to think about that $30 million.

Yes, Sir the good morning, good morning, Brian having job right as the.

As we discussed in the prepared remarks, right, we see hydro from functional screening is a huge opportunity and to translate that into multibillion dollars of revenues annually.

There were three things that we needed to do in in the first is of course here for a high volume platform business. The second is to establish high value services business, which leverage our <unk> and the third is to generate revenue for biological assets and and so the Bayer deal is is another step to achieving these goals.

The first in regards to our platform it expands our platform into the AG market right and so not only does this increase our Tam, which I think we all we all love, but it also.

Partnerships, they always expand our capabilities. So again as we expand our capabilities of that expands the value of our platform that helps drive of course of high volume platform because of so it really helps us in the first goal and objective.

The second was the verity of the sets.

The foundation for future high throughput of functional screening services, which is in this partnership they send desktop we we execute and run rate high throughput hyper growth functional screening and then we send them information of that.

And so and so that helps us on our second goal in the third non exclusive partnership provides us near term multiyear revenue opportunity followed by additional service revenue and backend milestone payments and so all of the deal. Although the deal is a multi year deal and driving I can't give you details because the the terms of course for <unk>.

Not disclosing at this time, but it is multiyear and on the deal side.

It also gives us access to the backend and miles.

Milestone payment opportunities, which is important for our third so so all three goals that help us achieve this multibillion dollar of revenue potential.

Potential of the future are tied into the Bayer deal. So.

And it's not just the Bayer deal if we talk about the thermal deal as well you know both of these deals really expand our market opportunities, but but the help us achieve our mission right by not only doing things like accelerating sell of gene therapy products into the clinic, but also helping our customers drive world class innovations in standard and sustainability.

For farmers consumers and the environment to what I'm, most excited about as debt on our mission.

To find the biology of the curious disease. This pushes pushes us beyond just therapeutics for human but but into working in the agriculture space.

As we move into the future.

That's great I appreciate the out of the answer on that.

And then one just on the guidance here the 90 to 100 and so you did wrong.

Roughly $38 million I think in the first half so.

For the midpoint of the guidance.

It is a decent step up.

In the second half and you've got this changing model a little bit going on here. So can you just give us some some thoughts on on the confidence in your ability to hit that guidance and how we should be thinking about things like that tech access model and as you. These new customers come online what package.

What that's going to bring in terms of the revenue and just how youre thinking about the broader mix within the within the different categories that sort of built into that guidance.

Yes perfect.

Appreciate the question I think first on the first half versus second half split that you talked about if you were to look historically over the last couple of years, it's been relatively that same profile first half and second half I will say that this year, we expect.

Q4 to be a slightly higher percentage than what it may have been and thats, primarily a function as you ramp up on some of these business development deals like the bear that we talked about as well as getting the.

For the tech access.

More rolled out and you get more kind of of that recurring revenue base on there.

So that's kind of what we're anticipating at this moment.

Going in and that's all contemplated in our range of 90 to 100, and then you know as we talked about on the last call clearly as we launched the the tech access of the Navy responded a little bit of Doug's question. There are a few customers that'll be at the intersection of where it makes for a 100% sense to do of subscription financially from their sense versus the Capex model.

There's a few that fall kind of in the the middle of where those two circles of intercept and and in those cases, you'll do a tradeoff where they they might opt for instead of of Capex L of subscription and therefore, the more subscription we do as we talked about on the last call the closer to the the lower end of the range will be and that program is off to a good start with.

Getting three contract signed in the first.

Few months of that being launched.

Okay. Thank you guys.

Our next question comes from the hospital with Morgan Stanley.

Hey, guys.

So just a couple of quick follow ups for me.

The Bayer deal.

I just wanted to get a sense of can you walk us through the evaluation process.

In terms of whats the status of school in terms of credit design what are the approaches the bear was using originally and how does that stack up versus the beacon.

I know you mentioned sort of massively high throughput, but if you can perhaps put some numbers around debt or perhaps some timelines.

Like you've done with the other workflows that would be super helpful.

The video of course, you know a lot of the.

All of the terms are not not able to disclose but what I here's what I can tell you is that is that historically, we had been in discussions with bear and show them.

Capabilities that were actually quite interesting in terms of culturing, let of cells and other other plant sales on the platform.

Due to performance free discovery.

And so we developed a new capability internally the Berkeley lights.

The allowed us to to enable a much higher throughput functional screening.

And what we said in the prepared remarks of this is one of two orders of magnitude of improvement until.

In our previous in our previous work and the antibody discovery of Youre looking at workflows, where.

Where youre pulling sales from from animals and evaluating the sales to produce antibodies against that particular target.

And in and in the AG space Theres, a different need the need there is to screen is the screening many different variants of of bio.

Bioactive.

Advanced against the particular target and so it flips the problem on its head and so.

The the scientists and whether they are all of this and technologists of pretty light there over creative and so they came up with the way to do this because of ACA share with there.

And the embarrassed that hey, this was too good to be true.

And we said, okay, well you know if you could give us the challenge and until they created was like nine technology gains that we had to get through.

In order to move forward and do the steel and we completed it of nine weeks and they were they were very satisfied with our progress and doing things that they didn't stay for possible previously and so that was by the context for which we signed this deal and so.

Normally I am excited about the additional capabilities that were developed through the beginning parts and the challenge is always that are provided and in emerging industries, but also really looking forward to where he was there on an on moving the technology and the innovative capabilities of Berkeley lights into the AG space. So.

So that we can help them to accelerate the trait discovery to create that scalable and sustainable future leveraging cell based products.

Got it Super helpful.

And then a couple of quick ones from the new subscription model for me.

Are you seeing any impact on lightning sort of true.

The action given the subscription model now available for these.

The lower throughput lower capacity customize and then.

One for Kurt on subscription the Tech access units that you mentioned are the subscription units or are these sort of a third bucket essentially.

Alright, so I'll jump in on the IP question and then current you can jump in on the on the.

The subscription question on lending side of things this quarter, we had some excellent work done by our major medical University.

And the interesting thing that you'll find out is that when you are working with when you're working on cell therapies in particular.

For pediatric cancer patients there is a very it's a very precious set of sales that you get from the patients.

Sometimes theres only thousands tens of thousands of cells in and our customers are previously having to make tradeoffs in regard of not our customers, but in general outside of outside of her delights. Our customers are having to make tradeoffs in terms of what analyses day perform on these very precious samples. They can do of the five analysis of it can do that.

Can do one because all of those analyses of whether it's the fact base are woefully base.

And the of terminal terminal the.

Destroy the sales and that process.

But what we're finding is that even with this very very small number of cells our customers can perform things like.

Cytokines secretion of T cell cytotoxicity analyses right. They can capture the TCR that can do perforation. They can look at cereal cell killing.

And so what we're learning is that there is there is extreme value in using very small cell samples or.

Or by profiling very small cell samples with the lightning platform and so there's some of the work sets. The foundation for what will be QA QC activities in cell therapies and are critical of the <unk> I'm happy to see the progress there this quarter.

Kurt did you want to jump in now on the second question, which was subscription.

Yes Tejas.

Hey, just the the subscriptions that we did for tech access its only offered as a one year subscription and that's the they can choose between five or 10 campaigns that they want to run obviously two different pricing models for that and with the one year renewing subscription model for that so those three that we mentioned fell under that type of access the sceptre model.

Got it very helpful. And then one final one for me on the on the guide correct.

Are you are you seeing any impact from Covid in in July.

Clearly in terms of customer site access issues on new installs.

Yeah again COVID-19 it it's hard to see what the COVID-19 related versus what's the normal now, but we are.

With the emergence of Delta virus, we havent yet seen.

Restrictions to access to get the tools in.

Play.

You know I think we're still monitoring if with this new delta there and if theres going to be any type of customs delays or anything on that front, but so far we haven't run into.

Any issues and we still continue to reiterate the.

We'll place at least 45 units this year.

The fact that what we said last quarter, we don't see we don't see briskin debt as we stand here today.

Got it thanks guys.

Yeah.

Our next question comes from Julia Quinn with JP Morgan.

Hi, Good morning, first off just a couple of follow up on the partnership revenue I know you said that even though the amplitude of the Ssi.

And what's the timeframe that we should be thinking about for the thing I am and then specifically as you know during the quarter, how much of milestone payments due to ASP of fees and how much do you guys in that in your current guidance for second half.

Yeah, Eric maybe I can take that and then you can add color.

Our hands are somewhat tied with the financials.

Portions of the agreement are under confidential agreement, so we cant disclose but what I would say is if you remember what we talked about with the.

The Thermo Fisher scientific it with the new gene.

Gene therapy segments. So you can look at our Q and see how much is rolling through on that segment and then I'll give you an idea for what the thermo aspect is but it's.

Multiple quarters of each that deal and what we like about these type of business development deals obviously, there the good margin for us, but they are also similar to what the subscription of nice stable recurring revenue base for us and an established deep roots partnerships with each of those customers for longer term relationships as well in terms of milestone.

<unk> for the different for each each deal there obviously.

But typically the first couple of deals has a little bit less milestones.

And then the the latter part would have more so in the near term I'd say, there's very little of the milestone it's more of an upside we typically treat them.

For milestones in lieu of longer term royalty is just because of the debt the.

The greater certainty of getting those over.

Short of period of time, but as we look into <unk>.

This year, where the projects are we're not embedding the milestones.

And there it'll there'll be a little bit later out in 2021.

Got it that's helpful and then regarding the subscription versus the Capex next Oh, the assay you know 30 per.

The answer session. The AC this quarter I was just wondering what kind of the next you are expecting for the second half and going forward. I know you previously mentioned that you'll probably see expect to see of higher uptick from subscription next for our Q I think you know.

My time on the market should we be thinking about maybe it can reach of 50.50 mix or what's the right ballpark to think about.

Yeah, we're not giving the mix between the two right now.

The relatively new it's been out for just about a quarter. We think we made good progress with getting three three orders placed.

Placed in Q2, and then obviously shipped in Q3.

We will continue to give you updates throughout the.

This year on bookings that we do there and provide you color of that that materializes, but our guidance range of greater than 45. Obviously includes what we think is going to be placed on the subscription tech access model as well.

Got you.

And then maybe on the higher level, you're not taking a step back.

Is there any how you guys are comparing kind of the pros and cons of subscribe.

The model versus the center of Excellence model of our foundry service model and just not in a long time of of how should we think about the distribution of your potential customers across these different monetization models right. The current.

We I'm thinking about it.

We have partnership model for the <unk>.

High volume of all my key customers a subscription model for kind of the low volume users and then capital placement for Africa, and the metal is that the right way to think about it and.

Based on your current customer funnel and conversation of where are you seeing the greatest appetite in terms of the different models I'm, particularly interested about kind of the partnership versus capital sales model I do see one significantly increasing versus the other in the long term.

Yes.

It's a great question Julia and in regards to let the talk high level right. When we think about the biology markets right there.

Darts in an R&D space it moves in and then two of discovery development space and then and then moved back out into clinical trials manufacturing et cetera. So if we think about that continuing for a moment right at the upfront side. There is a there is a very large market of very high volume business associated with the R&D.

Or is it the academic institutions and translational centers around the world. So there's a very high volume there than you can.

Net into discovery and development, which represent the funnel right you start with a lot of candidates that come in they get a little down a little down a little down until you find the one and then you enter into any of clinical trials, we can start scaling up the volume.

In terms of manufacturing and quality control and then back into the yeah and for virtual items, we look at it and Thats the ties back into kind of the the three items that I mentioned in the prepared remarks, and I referred to in terms of.

There is a large very large multibillion dollars per year revenue opportunity in hydro for functional screening that.

Of that exist in a high volume platform business and the other stage of that pipeline that I talked about.

Very high value service business that exist in the Middle of then it comes back from a high volume platform business in manufacturing and QA QC right and so and so we see all free.

All three components the.

Have a high volume platform business.

The high value service business, which then generates revenue, which which leads to revenue for for Brinci for.

For biological assets the person that has some level of ownership in.

All of our critically important now.

Now all of the question is what does the transition and how do you go is the function of time and of course as you've seen the through the history of merchandise. We started in the platform business. The platform business really through these R&D partnerships, we're able to understand the reach and develop the meaningful workflows and applications that can execute on our platform and it further increases the value.

Of our platform and the reach of our platform into the R&D activities and into interest of discovery and development and its manufacturing and all of these different markets and I think.

I think a standard question of all of which one is most important well theyre all important at different time points and right now building up the workflow platform capabilities and partnering with additional customers of the R&D space are critically important and those leads for the downstream revenue. So all of this folds into our overall strategy.

As to how we see things is I think what you can see right now what are one of the what does the market thing in regards to.

The value of for today's platform with the thermo deal and the Bayer deal I think you are seeing an increasing appetite for the level of capabilities that Berkeley lights to perform the other other platforms just can't perform.

So as we continue to further develop our business development team.

We'll see more of these partnerships, which will add additional ham and Sam through all of our opportunity, which will lead to that future multibillion dollar revenue opportunity does that help provide some color as of the.

The question is true yes.

Very helpful. Thank you.

And Julia I would say kind of our go to market strategy. When you look at the caps capital sale program a.

Ascription type program and then now what we're announcing here is that high throughput functional screening service business.

They are all key pillars of it and I think that service business is pretty exciting is what we're doing is we're innovating new things with customers and we're having that roll through what we describe as our bio foundry, where we have access to the data and everything else and then ultimately as we've always said.

There will be some workflows that we deem so valuable that we've created that we will only offer as a service of only offer us the subscription because it's the best way for us to monetize the.

The value of the work flow that comes off of that you just simply can't do that in the Capex sale. So I think when you look at the data that comes off of that as well as our ability to.

Control of greater portion of the economics for.

From the value that we're creating on that the <unk>.

Service business is of great foothold into that.

Pretty excited with that and couldn't be more excited to be working with there on this as well.

Yes, thanks for all of the call.

Our next question comes from Mark Massaro of BTG.

Hey, guys. Thanks, so much for taking the question.

I had a chance to speak with one of your customers on the cell line development side.

And I'm curious if you can just comment about the cell line development to one workflow.

Anyway, one of the one of the customers indicated that their workflow went from about three months or more to about one week using your platform. I guess can you just speak to how the new workflows going and maybe just talk about how.

Whether or not this is sort of indicative of other customers you're working with.

Yeah, Mark I'll jump in here. Thanks for the question and great to talk to you again.

In the frontline the violent market.

Is this is pretty typical of the.

The three months to one weekend and so.

We're really the savings are is is that <unk>.

Leveraging leveraging the microfluidic capabilities with our assays.

But actually there.

There's additional savings in there that the.

That has to do with the cloning and commodity that we provide so.

The selling of element to point out of two point to point of and $2. One continue to to move for our customers continue to leverage them in and transition everybody's most most of our customers of transition to from selling the value of one point out of two point of at this time.

Terrific and I guess I didn't hear you guys talk about.

Your development work, specifically in Sym bio and your work with ginkgo.

Can you just talk about workflow development there are needs in bacteria, specifically E. Coli are you still on track to deliver workflows to kimco likely later this year.

Yes, so we're still on track we're still on track and the Tech teams are of course in contact and working on how do we transfer where flow develops here to where for those of out there. We continue to make great progress with the ginkgo team and at the Great partnership.

And in this world right.

We're just we're super happy to be working with one of the most innovative and forward looking companies as the biologic of our fan and we're happy to leverage our high throughput of functional screening to help them.

Not only accelerate their overall throughput.

The overall cost to do the screen, which were developed an antibody therapeutics market for moving the basic capability into the <unk> space.

Okay, and maybe a clarification question Eric did.

Did I hear that the <unk>.

Oral vector.

<unk> is only available on a subscription model. So I guess can you just maybe help us think about what.

What workflows are available subscription only versus.

Taking a of beacon.

For lightning.

Yes, so it's a bit of of transition.

We start to understand occurred alluded to this earlier is we're understanding of the value we create.

Theres, a significant value in creating a stable cell lines for viral vector manufacturing.

And.

That workflow.

Can't sell of Beacon for a high enough price to actually capture the value that's created and so the business model is that this will therefore only available through subscription.

And there will be the other workflows, which will only be available in our buyback.

And so and so as we continue to add high value capabilities, we will limit access to to some of these things to the whether it's just by our foundry or just subscription and that's how we will.

And that's how we'll take those to market.

Excellent and then maybe last one for me I guess another clarification question.

This is the first time, you've done a deal with the company in the AG sector, obviously I'm talking about there can.

Can you talk about whether or not debt consists of capital placements of either of the beacon or the lightning or if that is also it's sort of in a subscription model and then you know.

So I think you already answered my question on Thermo it sounds like that is on the subscription model.

But I think it would be helpful. I know that's the question that's been asked but as we think about your business over the next year or two how should we think about the mix between.

Subscription model versus capital placements of the workflows.

Yeah, I think when we Oh go ahead, sorry go ahead go ahead Eric.

Okay on the on the on the platform places versus versus service. Great question. This is this is an R&D service engagement, meaning that bear with on the stuff. We will perform high the heights of of functional screening here and we will send the information and stuff back. So that is that is on the service side of things.

<unk>, Mark and Curt you were going to jump in on the other side of it I would just say the same thing.

They're not going to have beacons running at their location theyre going to the utilizing our bio foundry and we're providing the service that Eric described there.

Okay. Thanks, guys congrats on the quarter.

Thank you.

Our next question comes from Paul Knight with Keybanc.

Okay.

Yeah.

Hey, guys could you talk where you are with your business development team I know the goal was to add this year, but could you frame that up please.

Yes.

So not disclosing the exact number in each segment, but we more than double of that team.

And size and you can see we've made some.

The tremendous progress in terms of you know in.

This year of signing.

Thermo and signing there and you can see that in the business development of partnership line, whether Thats went from about $100000 in Q2 of last year, the $3.9 million in Q2 of this year.

And.

I guess when you expect to be done with that what mid year.

We look at it.

When you say done with in terms of growing the business <unk> or.

The development.

We're always looking for for talent and to the extent that we bring more people on them, we can cultivate new business and new partnerships and then there's the partnership Alliance and thereafter, we will continue to add as the pipeline what's the fit there so.

I think we'll always be looking for good talent at that Sam and the team.

The team is reaching the critical mass of if that's what you're asking.

Yeah, and then in the installed base is what right now.

We're at 92 at the end of.

Q2, and that does not include the three subscriptions that we took orders for but had not yet shipped until early on this quarter in Q3.

It doesn't seem like any of units are coming offline at customer locations.

That's correct we're seeing.

Customers are utilizing the tools.

They have not the commission them.

Yes, it's kind of historical pace of the pull through is that correct.

Correct.

Okay. Thank you.

Thank you.

And I'm not showing any further questions of this current like turn the call back over to our host.

Okay appreciate everybody for joining the call and we'll talk to you next quarter at this time. Thank you.

<unk>.

Thanks, so much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Yeah.

Okay.

[music].

[music].

[music].

Ladies and gentlemen, thank you for standing by and walked through the Berkeley lights second quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question during the session need the press star one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the call over to your house carry Mandeville of Investor Relations you may be.

Ken.

Thank you.

Earlier today for the light for the.

The financial results for the quarter ended June 30 of 2021.

You have not received the news release or if you'd like the added to the Companys distribution list. Please send an email to IR at Berkeley lights Dot com.

Joining me today from Berkeley lights are Eric hubs, Chief Executive Officer, and Kurt what Chief Financial Officer.

Before we begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws. These.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

For more information please refer to the risks uncertainties and other factors discussed in our SEC filings.

Except as required by law, Berkeley lights disclaims any intention or obligation to update or revise any financial projections of forward looking statements, whether because of the new information future events or otherwise.

This conference call contains time sensitive information and accurate only as of the live broadcast August 11, 2021 that I'd like to turn the call over to Eric.

Thanks, Gary and thank you everyone for joining us this morning.

Today, we are going to provide an updated on our progress against our stated strategic objectives as well as an overview of our second quarter 2021 financial results.

Where do the lights continued to make important progress during the second quarter and I'm very encouraged by the increasing demand and enthusiasm for our platform.

Our team members across the globe continue to execute on our strategic initiatives and we are better positioned than ever to find the biology that cures disease.

Starting with our second quarter results, we generated $19.3 million in revenue, bringing our year to date revenue to $38 million.

Of 56% increase over the first half of 2020.

We successfully launched our new take access subscription offering tailored to the specific capacity needs of antibody discovery and cell line development customers.

We released the auto parts of the <unk> discovery for pointed out on schedule.

Customers are now finding 10 times the hits at a 10th of the lead time and the 10th of the cost per validated sequence.

This quarter, we also officially announced our partnership with Thermo Fisher scientific in AAV, which successfully progressed in the phase two of the project.

And this morning, we announced the partnership with there for high throughput functional screening.

The significantly accelerate their pipeline for agricultural product discovery and development.

This partnership along with the Federal Fisher partnership highlights the progress on our business development efforts.

Collectively these two non exclusive partnerships represent a revenue opportunity of more than $30 million with the potential for additional long term revenue.

Related to the future milestones and commercialization of products.

Our Berkeley lights, our mission is to find the biology of that curious disease. The.

It starts with therapeutics for people, but our impact goes way beyond that.

Our technology can help find cures for diseases and plants animals, and also provides a scalable and sustainable path for life on this planet.

To achieve this we are providing the most advanced.

The as throughput functional characterization platform on the market today as a means to find the best biology.

To understand the full potential of our platform. It is helpful to place Berkeley lights in the context of the three main pillars that are the key to unlocking the full potential of biology.

The first pillar of sequencing, which enables us to re biology.

Sequencing gives us the fundamental of code of life.

Today's sequencing is a huge industry.

And although the ability to read sequences is extremely important sequences without correlated function have limited value.

Okay.

For the next pillar is gene editing.

Which allows us to rates of biology.

Here, we attempt to REIT program biology by changing the genes in the cell and modifying its code.

Gene editing is another massive industry.

And today, there is the potential tenant vast numbers of sales.

But without understanding which at it creates the needed product. There is also little value here.

And the third and final pillar is functional characterization, this is where sequences and edits come to life and gain true meeting.

Good day functional characterization of this fragmented highly manual and lack of standardization.

At the same time, there is an ever growing amount of sequence data and the near incident rate at which gene edited cells can be made.

This has created an enormous backlog of required functional characterization.

The complexity in that backlog is growing exponentially.

The higher resolution and poly functional readouts current manual processes simply won't scale.

First of all of that goal is to consolidate and standardize functional characterization.

We are bringing the first biological supercomputing platform to market, providing automated high throughput high resolution screening.

Access to rare precious samples.

All the functional resolution on <unk> biology, the <unk>.

Export of an optimal live biology.

And digitization of multi parametric data.

To translate the multibillion dollar opportunity the functional characterization represents Berkeley lights must run of high volume path for business.

Established high value service businesses, leveraging Berkeley lights, bio foundry and generate revenue from Berkeley lights on biological assets.

The Bayer deal is another step in to offering high throughput the functional screening services at Berkeley lights.

This truly is digital cell biology, where we received DNA sequences from our customers Express the proteins encoded in the DNA and screen each DNA sequence and of massively parallel fashion for the desired function.

The service business gives Berkeley lights full access to data, which is critical to our strategy.

Digitization of multi parametric data out of large scale linking function to sequence is critical to enabling the future of in silica the design of biology.

The service business is the prerequisite towards our ability to create Berkeley lights on biological assets.

It is here, where our book lights will run its own targets and partners targets with the goal to participate in downstream revenues such as milestones for <unk> royalties.

The Thermo Fisher partnership is yet another example of deeper value capture throughout the technology the.

Successful completion of this partnership will transform how viral vectors are developed and manufactured at industrial scale, allowing gene therapies to move from orphan diseases to mainstream therapies.

The previously announced the viral vector workflows developed in this partnership will only be available through a subscription model.

I would like to spend a little time to talk about high throughput functional screening on the Berkeley lights pipeline.

As sequencing of gene editing capabilities mature there is an increasingly large library of unvaccinated sequences, which require high resolution functional readouts that scale.

Typically functional readouts of our performance scanning many live cell candidates against one common target.

We have developed a national pen based cell free expression solution, which allows direct expression of DNA into proteins against thousands of target simultaneously for functional readout.

This provides one of two orders of magnitude improvement in speed and throughput while significantly reducing cost when compared to currently available methods.

We will offer our highest throughput functional screening services only the our biopharma.

We believe access to the services will accelerate the design build test cycles for our customers further reducing the time to find biology of the cures disease.

We expect that of cell free expression continues to evolve it will find the many applications in many markets.

With that I will now turn the call over to Curt for more detail on our financials Kurt.

Thanks, Eric revenue for the three months ended June 32021 increased 82% year over year to $19.3 million with $13 million coming from product revenue and $6.3 million from service revenue.

We received orders for three tech access subscriptions within the quarter.

For the Tech access model, we do not recognize the revenue upfront and instead, we'll recognize the subscription revenue over the subscription period, meaning a tradeoff of near term revenue for more rapid platform adoption and the ability to build backlog and predictable recurring revenue.

Our Tech Act the subscription offering is designed to increase our served available market opportunity and drive incremental platform placements. Many smaller biotech customers run lower campaign volumes and want to run their own biology, our tech access subscription provides the financially attractive path for these customers to run antibody discovery and <unk>.

Workflows on the DLR platform, it's a renewing one year commitment inclusive of the platform software consumables service and support which provides a compelling ROI with the lower upfront cash commitment for the customer.

We added seven platforms to our installed base during the second quarter to end with 92 platforms in the field for.

Further breaking down Q2, and looking at our three revenue streams direct platform sales totaled $11.4 million in the second quarter of 2021, increasing 51% over the prior year period.

Recurring revenues totaled $3.9 million in the second quarter of 2021 up 35% from $2.9 million versus the second quarter of 2020, our year to date pull through per instrument remains on track with our historical experience.

Revenue from joint development agreements and partnerships was $3.9 million from the second quarter of 2021 compared to $100000 in the second quarter of 2020 and up 26% sequentially versus Q1.

The sequential increase was the result of a full quarter of activity from our viral vector of partnership with Thermo Fisher scientific.

With the recent signing of the Bayer partnership revenue from joint development agreements and partnerships will increase as a percentage of total revenues in the second half of 2021.

Gross profit for the second quarter of 2021 was $12.7 million compared to $7 million in the prior year.

Gross margin for the second quarter of 2021 was 66% in line with the prior year period.

As we have discussed in previous calls our gross margin was negatively impacted by the cumulative impact of the ginkgo workflow by down.

Excluding the ginkgo impact gross margins for the second quarter would have been approximately 72% in line with our long term target of approximately 70%.

Total operating expenses for the second quarter of 2021 were $30.6 million inclusive.

Inclusive of $5.6 million of stock based compensation compared to $19.1 million in the second quarter of 2020 the.

The increase of $11.5 million was driven by an increase in stock based compensation.

G&A related expenses as we transitioned to become a public company and continued investment in our R&D and sales and marketing teams.

Net loss for Q2 was $18.2 million compared to the loss of $12.4 million for the second quarter of 2020.

All of net loss numbers are inclusive of stock based compensation.

Regarding capital and liquidity during the second quarter, we completed a refinancing of our $20 million debt facility.

Under the terms of the new agreement, we extended the non amortization period by up to 36 months with final maturity extended the 2025.

The interest rate was lowered by approximately 250 basis points the $4 one 7% in.

In addition, we added the revolving credit facility that provides access to $10 million of additional liquidity.

As of June 30, we had a cash balance of $215.1 million and available liquidity of $225.1 million inclusive of the Undrawn revolver.

Turning to our outlook for 2021, we continue to expect revenue to be in the range of $90 million to $100 million representing growth between 40 and 56% over the prior year.

As contemplated in this guidance range, we do expect a meaningful uptick in Q4, driven by normal seasonality as well as increases from our growing business development activity.

With that we will now open it up to questions operator.

Ladies and gentlemen of the feel of a question of retirement at this time. Please press. The Star then the one key on your Touchtone telephone for your question has been answered or you wish to move yourself from the queue. Please press the balance sheet for.

First question comes from Doug Schenkel of Cowen.

Good morning, and thank you for taking my questions.

My first is on the subscription model.

At a high but the important level I'm just wondering if the subscription model program.

Is impacting the funnel the way you anticipated.

And maybe building off of that what is the profile of the typical profile of the subscription model customer.

I ask because part part of the intent here is not just the lower.

Barriers to entry here, but sort of by extension to potentially move you into some customer of Adjacencies that you.

You Werent, having as much traction with the historically, so I guess beyond just getting an update on whether the funnel is tracking the way you would hope.

It would be interesting to hear what what are the fate of the types of those customers that are moving forward with Berkeley lights and beacon with this with the financial structure.

Hey, Doug This is Curt maybe I'll take this and Eric you can chime in with it. The appreciate the question.

As we launch the if it was really geared towards that smaller customer that had lower campaign utilization rates than what the the beacon had capacity for so we tailor this to folks that need to run between five and 10 campaigns a year, which obviously is significantly less than what the the beacon is capable of.

And the intent there was to attract that customer.

Two of the Berkeley lights platform that otherwise would have went to an alternative solution, whether thats been the CRO or to build out the the lab space that they needed to do it manually in house with that so the design here was the price and all in package that included the tool the software the.

Service and the consumables and a very simple price per campaign.

Easy to sell goes through an opex budget versus the Capex budget type of a model now obviously, when we launched that and as we mentioned on the call last quarter. There will be if you look at it in the extremes, where you've got some folks who clearly will the subscription make the 100% economic sense and then on the the high throughput customers such as your high throughput.

<unk> et cetera, we're buying of beacon on the Capex model makes sense.

Certain amount of folks that will fall in the and the intersection of those two circles, but we believe that's a relatively small percentage, 25% or less of the total customer base that will convert over from a capex sale into a subscription base and thats essentially what we saw in the the initial launch here.

Kind of what our pipeline is looking like.

See with whats in the funnel today. So it is attracting a new customer to us that we otherwise weren't able to get an increasing our serviceable available market.

The the other thing to note here is.

Which we Didnt mentioned on the call, but those three tech access subscriptions that we took orders for Q2 were not included in the seven unit placements.

All three of those units have shipped earlier in Q3 for this quarter. So it's tracking to what we saw in the phenotype of specifically to your question of that smaller customer of the utilization who wants to run their own biology.

And we just provided a compelling reason for that and.

It's tracking as expected.

That's great and if I could just ask one more and then I'll, let others hop in.

The total revenue number was about what we were expecting but of the component for a little bit different.

Recurring revenue specifically.

A little lower than we expected net.

I think it was down sequentially of acknowledging that the trends that are not scrubbing of the model in front of me. So I apologize if I have that part wrong, but I know relative to what we were looking for you were a little bit light.

That can always just be a function of our model, but I want to make sure that there's nothing to unpack there in terms of pacing.

Any surprises that youre seeing in terms of customer activity. Thank you.

Yeah. Good question, you're spot on it did decline sequentially quarter over quarter, $3.9 million this quarter versus $4 for in Q1, obviously, we saw.

As always the seasonality aspect, where we see.

The year end budget consumption from customers in the fourth quarter, we saw a little bit of that kind of trickle into Q1 as well we also had.

The customer placed a fairly large order in Q1 as well.

But the bottom line is when we look at it.

Over the 12 month period, it's very much on track for but book reset historically.

Okay. Thank you again.

Yeah.

Our next question comes from Brian Weinstein with William Blair.

Hey, guys. Good morning, Thanks for taking the questions.

Starting on the Bayer deal can you just give us a little bit more specifically, how the technology is going to be used in.

Just a little bit more on the kind of.

In terms of the deal here in terms of the.

The duration and maybe some of the downstream opportunities that are there I think you mentioned that the two business development deals that you did $30 million in total just not sure over what period that is and how we should be thinking about that so a little bit more on kind of.

Specifically of a tech is gonna be used here and then anything that you can give us on kind of how to think about that $30 million.

Yes, Sir the good morning, good morning, Brian jump in here right.

As we discussed in the prepared remarks range, we see hydro from functional screening is a huge opportunity and to translate that into multibillion dollars of revenues annually.

There were three things that we needed to do in in the first is of course, you have to run a high volume platform business. The second is to establish high value services business, which leverage our <unk> and the third is to generate revenue from biological assets and and so the Bayer deal is is another step to achieving these goals.

The first in regards to our platform it expands our platform into the AG market right and so not only does this increase our Tam, which I think we all we all are but it also.

These partnerships they always expand our capabilities. So again as we expand our capabilities of that expands the value of our platform that helps drive of course of high volume platform as the so it really helps us from that first goal and objective.

The second was the verity of the sets.

The foundation for future high throughput of functional screening services, which is in this partnership they send us stuff.

We execute and run rate high throughput high for good functional screening and then we send them information of that.

And so and so that helps us on our second goal in the third non exclusive partnership provides us near term multiyear revenue of opportunity followed by additional service revenue and backend milestone payments and so all of the deal. Although the deal as you know a multiyear deal and Brian I can't give you details because of the terms of course for.

Not disclosing at this time, but it is multiyear and on the deal side.

It also gives us access to the backend and mile.

Milestone payment opportunities, which is important for our third so so all three goals.

The us achieve this multibillion dollar revenue potential.

Potential of the future growth are tied into the Bayer deal. So.

And it's not just the Bayer deal if we talk about the thermal deal as well both of these deals really expand our market opportunities, but but the helped us achieve our mission right, but not only doing things like accelerating sell of gene therapy products into the clinic, but also helping our customers drive world class innovations in standard and sustainability.

<unk> for farmers consumers and the environment to what I'm, most excited about as debt on our mission.

To find the biology of the curious disease. This this pushes pushes us beyond just the therapeutics for human but but into working in the agriculture space.

As we move into the future.

That's great I appreciate the out of the answer on that.

And then one just on the guidance here the 90 to 100 and so you did wrong.

Awfully $38 million I think in the first half so.

For the midpoint of the guidance.

It is a decent step up.

In the second half and you've got this changing model a little bit going on here. So can you just give us some some thoughts on on the confidence in your ability to take the hit that guidance and how we should be thinking about things like that tech access model and as these new customers come online.

What that's going to bring in terms of the revenue and just how youre thinking about the broader mix within the within the different categories that sort of built into that guidance.

Yes perfect.

Appreciate the question I think first on the first half versus second half split that you talked about if you were to look historically over the last couple of years, it's been relatively that same profile first half and second half I will say that this year, we expect.

Q4 to be a slightly higher percentage than what it may have been and thats, primarily a function as you ramp up on some of these business development deals like the bear that we talked about as well as getting the the.

The tech access.

The more rolled out and you get more kind of of that recurring revenue base on there.

So that's kind of what we're anticipating at this moment.

Going in and that's all contemplated in our range of 90 to 100, and then as we talked about in the last call clearly as we launched the tech access of the Navy responded a little bit of Doug's question there.

Our of few customers that'll be at the intersection of.

Where it makes for a 100% sense to do of subscription financially from their sense versus the Capex model. There's a few that fall kind of in the the middle of where those two circles intersect.

And in those cases, you'll do a tradeoff, where they they might opt for instead of a capex out of subscription and therefore, the more subscription we do as we talked about on the last call the <unk>.

Most of the the lower end of the range will be and that program is off to a good start with getting three contracts signed in the first few.

A few months of that being launched.

Okay. Thank you guys.

Our next question comes from payoffs of aren't with Morgan Stanley.

Hey, guys.

Good morning, So just a couple of quick follow ups for me.

On the Bayer deal.

I just wanted to get a sense of can you walk us through the evaluation process.

In terms of whats the status of school in terms of credit design.

Of the approaches the bear was using of Italy, and how does that stack up versus the beacon.

I know you mentioned sort of massively high throughput, but if you can perhaps put some numbers around debt or perhaps some timelines.

Like you've done with the other workflows that would be super helpful.

Yes, the of air deal of course, a lot of it.

A lot of the terms are not not able to be disclosed, but here's what I can tell you is that is that historically, we had been in discussions with there and show them the capabilities that we're actually quite interesting in terms of culturing, let of cells and other other plant sales on the platform to do two per foreign trade discovery.

And so we developed a new capability internal the Berkeley lights.

The allowed us to to enable a much higher throughput functional screening.

And what we said in the prepared remarks is this is one of two orders of magnitude of improvement and so.

The previous in our previous work in the antibody discovery, we are looking at workflows, where.

Where youre pulling sales from from animals and evaluating the sales to produce antibodies against that particular target.

And in and in the AG space Theres, a different need the need there is to screen is the screening many different variants of of.

Bioactive.

Advanced against the particular target and so it flips the problem on its head and so.

The the scientists and whether the Valassis and technologists at pretty lights, there over creative and so the came up with the way to do this we went back and share with there.

And the embarrassed that hey, this was too good to be true.

And we said, okay, well you know if you could give us the challenge and until they created was like nine technology gains that we had to get for it.

In order to move forward and do the steel that we completed at the nine weeks and they were they were very satisfied with our progress and doing things that they didn't stay for possible previously.

So that was by the context for which we signed this deal and so.

Normally I am excited about the additional capabilities that were.

The developed through the beginning parts and the challenge is always that are provided and in emerging industries, but also really looking forward to where he was there on an on moving the technology and the innovative capabilities of briskly lights into the AG space.

So that we can help them to accelerate the trait discovery to create that scalable and sustainable future leveraging cell based products.

Got it Super helpful.

And then a couple of quick ones from the new subscription model for me.

Are you seeing any impact on lightning sort of traction given the subscription model now available for these lower lower throughput lower capacity customers and then.

One for Kurt on subscription the Tech access units said you mentioned all of these subscription units are the sort of a third bucket essentially.

Alright, so I'll jump in on the IP question and then current you can jump in on the on the on.

On the subscription question on lending side of things this quarter, we had some excellent work done by our major medical University.

And the interesting thing that you'll find out is that when you were getting when you are working on cell therapies in particular for pediatric cancer patients. There is a very it's a very precious set of sales that you get from the patient.

Sometimes theres only thousands tens of thousands of cells and our customers are previously having to make tradeoffs in regard of not our customers, but in general outside outside of Berkeley lights, our customers are having to make tradeoffs in terms of what analysis day perform on these very precious samples. They can do of the five analysis of it can do the.

You can do one because all of those analyses of whether it's the fact base are woefully base.

And the of terminal our terminal.

Destroy the sales in that process.

But what we're finding is that even with this very very small number of cells are customers can perform things like.

Cytokines of accretion T cell cytotoxicity analyses right. They can capture the TCR that can do proliferation. They can look at cereal cell killing.

So in total we're learning is that there is there is extreme value of using very small cell samples.

Or by profiling very small cell samples with the lightning platform and so there's some of the works Thats. The foundation for what will be QA QC activities in cell therapies and are critical of the <unk> I'm happy to see the progress there this quarter.

Kurt did you want to jump in now on the second question, which was subscription.

Yes.

The the subscriptions that we did for tech access its only offered as a one year of subscription and that's the they can choose between five or 10 campaigns that they want to run obviously two different pricing models for that with the one year renewing subscription model for that so those three that we mentioned fell under that type of access subscription model.

Got it very helpful.

And then one final one for me on the on the guidance correct.

Are you seeing any impact from Covid in in July I mean, particularly in terms of customer site access issues on new installs.

E.

Again COVID-19 it it's hard to see what the COVID-19 related versus what's the normal now, but we are.

With the emergence of Delta virus, we havent yet seen Reese.

The restrictions to access to get the tools.

Play.

I think we're still monitoring it.

With this new Delta, there and if theres going to be any type of customs delays or anything on that front, but so far we haven't run into.

Any issues and we still continue to reiterate that we will place at least 45 units of this year.

Perfect that what we said last quarter, we don't see we don't see risk in that as we stand here today.

Got it thanks guys.

Yeah.

Our next question comes from Julia Quinn with JP Morgan.

Hi, Good morning, first off just a couple of follow up on the partnership revenue.

I know you said that even though the amplitude of deals with them all and what's the timeframe that we should be thinking about for the $30 million and then specifically during the quarter, how much milestone payments to cash proceeds and how much do you guys in that current.

Guidance for the second half.

Yeah, Eric maybe I can take that and then you can add color.

Our hands of somewhat tied with the financials.

Portions of the agreement are under confidential agreements, we cannot disclose but what I would say is if you remember what we talked about with the.

Thermo Fisher scientific it with the new.

Gene therapy segments. So you can look at our Q and see how much is rolling through on that segment and then I'll give you an idea for what the thermo aspect is but it's.

Multiple quarters of each that deal and what we like about these type of business development deals. Obviously, there the good margin for us, but there were also similar to what the subscription of nice stable recurring revenue base for us and it established deep roots partnerships with each of those customers for longer term relationships as well in terms of milestone.

<unk> for the different for each each deal there obviously.

Typically the first couple of deals has a little bit less milestones.

And then the the latter part would have more so in the near term I'd say, there's very little of the milestone it's more of an upside we typically treat them.

Prefer milestones in lieu of longer term royalty is just because of the the the.

The greater certainty of getting those over.

Short of period of time, but as we look into the.

This year, where the projects are we're not embedding the milestones.

And there will be a little bit later out in 2021.

Got it that's helpful and then regarding the subscription versus the Capex next I'll answer you know 30 per cent for session that you see in this quarter I was just wondering what kind of mix you are expecting for the second half and going forward. I know you previously mentioned that Youll, probably see expect to see of higher uptick from.

The next for Q1.

All of my time on the market should we be thinking about maybe it can reach of 50.50 mix or what's the right ballpark to think about.

Yeah, we're not giving the mix between the two right now.

Still relatively new it's been out for just about a quarter. We think we made good progress with getting three three orders.

Placed in Q2, and then obviously shipped in Q3 we.

We will continue to give you updates throughout the.

This year on bookings that we do there and provide you color of that that materializes, but our guidance range of greater than 45. Obviously includes what we think is going to be placed on the subscription tech access model as well.

Gotcha.

And then maybe on a high level, you know taking a step back.

Is there any how you guys are comparing kind of you know the pros and cons of the subscription model versus the center of Excellence model about foundry service model and just not in a long time of of how should we think about the distribution of your potential customers across these different monetization models right. The current.

We I'm thinking about it.

We have partnership model for the high volume of my key customers.

Christian model for kind of the low volume users and then capital placement for for that was in the middle is that the right way to think about it and.

Based on your current customer funnel in conversation from where are you seeing the greatest appetite in terms of the different models I'm, particularly interested about kind of of the partnership versus capital sales model and I do see one significantly increasing versus the other in the long term.

Yes.

It's a great question Julia and in regards to lets talk high level right. When we think about the biology markets right there.

And in an R&D space it moves in and then two of discovery development space and then and then moves back out into clinical trials manufacturing et cetera. So if we think about that continuing for a moment right at the upfront side. There is a there is a very large market of very high volume business associated with the R&D.

For it.

Good day with institutions and translational centers around the world. So there's a very high volume there didn't you.

Net into discovery and development, which represent the funnel right you start with a lot of candidates that come in they get a little down a little down a little down until you find the one and then you enter into these clinical trials when we started scaling of volume.

In terms of manufacturing and quality control and then back into the yeah and preferred the lights as we look at it and that ties back into kind of the the.

The three items that I mentioned in the prepared remarks, and I referred to in terms of.

There is a large very large multibillion dollars per year revenue opportunity in hydro the functional screening.

Of that exist in a high volume platform business and the other stages of that pipeline that I talked about.

The very high value service business that exists in the mill and then it comes back from a high volume part.

For business in manufacturing and QA QC, right and so and so we see all free.

All three components the.

Have a high volume platform business.

The high value service business, which then generates revenue, which which leads to revenue for for Bristow for <unk>.

Biological assets the person that has some level of ownership in.

All of our critically important.

Now the question is what does the transition and how do you go as a function of time and of course as you've seen the through the history of Berkeley lights, we started in the platform business. The platform business really through these R&D partnerships, we're able to understand the reach and develop the meaningful workflows and applications that can execute on our platform and it further increases the value.

Of our platform and the reach of our platform into the R&D activities and into interest of discovery and development and its manufacturing and all of these different markets.

Inc.

Think of standard question of which one is most important well theyre all important at different time points and right now building up the workflow platform capabilities and partnering with additional customers of the R&D space are critically important and those leads for the downstream revenue. So all of this folds into our overall strategy.

As to how we see things is I think what you can see right now what are one of the what does the market thing in regards to the.

Of the value of for today's platform with the thermo deal on the Bayer deal I think youre seeing an increasing appetite for the level of capabilities that Berkeley lights to perform that other other platforms just can't perform.

So as we continue to further develop our business development team.

We'll see more of these partnerships, which will add additional ham and Sam for all of our opportunity, which will lead to that future multibillion dollar revenue opportunity does that help provide some color as of the.

For the question for sure yes.

Very helpful. Thank you.

And Julia I would say kind of our go to market strategy. When you look at the caps capital sale program a.

Subscription type program and then now what we're announcing here is that high throughput functional screening service business.

They are all key pillars of it and I think that service business. That's pretty exciting is what we're doing is we're innovating new things with customers and we're having that roll through what we describe as our bio foundry, where we have access to the data and everything else and then ultimately as we've always said.

There will be some workflows that we deem so valuable that we've created that we will only offer as a service of only offer us the subscription because that's the best way for us to monetize.

The value of the workflow of that comes off of that you just simply can't do that in the Capex sale. So I think when you look at the data that comes off of that as well as our ability to.

Control of greater portion of the economics for.

The value of that we're creating on that the <unk>.

<unk> business is of great foothold into that and we're pretty excited with that and couldn't be more excited to be working with there on those as well.

Yeah, Thanks for all of the call.

Our next question comes from Mark Massaro of BTG.

Hey, guys. Thanks, so much for taking the question.

I had a chance to speak with one of your customers on the cell line development side.

And I'm curious if you can just comment about the cell line development to one workflow.

Anyway, one of the one of the customers indicated that their workflow went from about three months or more to about one week using your platform. I guess can you just speak to how the new workflows going and maybe just talk about how.

Whether or not this is sort of indicative of other customers you're working with.

Yeah, Mark I'll jump in here. Thanks for the question and great to talk to you again.

Of the front line of our dominant market. This is this is pretty typical of the.

The three months to one weekend and so.

We're really the savings are is is that <unk>.

Leveraging leveraging the microfluidic capabilities with our assay.

But actually.

There's additional savings in there that debt.

That has to do with the cloning and quality that we provide so.

The selling of them at the two point out of two point to point of and $2. One continue to move for our customers continue to leverage them and transition everybody's most most of our customers of transition to from selling the value of one point out of the two point of at this time.

Terrific and I guess I didn't hear you guys talk about.

Your development work, specifically in Sym bio and your work with ginkgo.

Can you just talk about workflow development there are needs in bacteria, specifically E. Coli are you still on track to deliver workflows to kimco likely later this year.

Yes, so we're still on track we're still on track in the in the Tech teams are of course, the in contact and working on how do we transfer workloads develops here to where flows of out there. We continue to make great progress with the ginkgo team and at the Great partnership.

And in this world right.

We're super happy to be working with one of the most innovative and forward looking company income by the week of our fans and we're happy to leverage our high throughput of functional screening to help them.

Not only accelerate their overall throughput.

The overall cost to do the screen, which were developed an antibody therapeutics market for moving the basic capability into the <unk> space.

Okay, and maybe a clarification question Eric did.

Did I hear that the <unk>.

Oral vector.

<unk> is only available on a subscription model. So I guess can you just maybe.

Help us think about what what workflows are available subscription only versus.

Through taking of a beacon.

For lighting.

Yes, so it's a bit of of transition.

We start to understand occurred alluded to this earlier right as we're understanding of the value we create.

Theres, a significant value in creating a stable cell lines for viral vector manufacturing.

And.

That workflow.

Can't sell of Beacon for a high enough price to actually capture the value that's created and so the business model is that this will therefore only be available through subscription.

And there will be the other workflows, which will only be available in our biopharma.

And so and so as we continue to add high value capabilities, we will limit access to to some of these things do whether it's the final foundry or just subscription and that's how we will.

And that's how we'll take those to market.

Excellent and then maybe last one for me I guess another clarification question.

This is the first time, you've done a deal with the company in the AG sector, obviously I'm talking about there.

Can you talk about whether or not debt consists of capital placements of either of the beacon or the lightning or if that is also it's sort.

In a subscription model and then.

So I think you already answered my question on Thermo it sounds like that is on the subscription model.

But I think it would be helpful. I know that's the question that's been asked but as we think about your business over the next year or two how should we think about the mix between.

Subscription model versus capital placements of the workflows.

Yes, I think when we Oh go ahead, sorry go ahead go ahead Eric.

Okay on the on.

On the platform places versus versus service. Great question. This is this is an R&D service engagement, meaning that bear with on the stuff. We will perform the heights of the functional screening here and we will send them information and stuff back. So that is that is on the service side of things Mark.

And current Youre going to jump in on the other side of it I would just say the same thing.

They're not going to have beacons running at their location theyre going to the utilizing our bio foundry and we're providing the service that Eric described there.

Okay. Thanks, guys congrats on the quarter.

Thank you.

Our next question comes from Paul Knight with Keybanc.

Okay.

Hey, guys could you talk where you are with your business development team I know the goal was to add this year, but could you frame that up please.

Yeah, we were obviously not disclosing the exact number in each segment, but we more than double of that team.

In size and you can see we've made some tremendous progress in terms of you know in this year signing thermo.

Thermo and signing there and you can see that in the business development of partnership line, whether Thats went from about $100000 in Q2 of last year, the $3.9 million in Q2 of this year.

And.

I guess, what you expect to be done without what mid year.

We look at it.

What did you say done with in terms of growing the <unk> or.

The development.

We're always looking for for talent and to the extent that we bring more people on and we can cultivate new business and new partnerships and then there's the partnership Alliance and thereafter, we will continue to add as the pipeline what's the fit there so.

I think we'll always be looking for good talent at that Sam and the debt.

The team is reaching the critical mass if thats, what youre asking yes.

Yeah, and then in the installed base is what right now.

We're at 92 at the end of.

Q2, and that does not include the three subscriptions that we took orders for but had not yet shipped until early on this quarter in Q3.

It doesn't seem like any of units are coming offline at customer locations.

That's correct we're seeing.

Customers are utilizing the tools.

They have not the commission them.

Yeah, it's kind of historical pieces of the pull through is that correct.

Correct.

Okay. Thank you.

Thank you.

And I'm not showing any further questions of this kind of I'd like to turn the call back over to our host.

Okay appreciate everybody for joining the call and we'll talk to you next quarter at this time. Thank you.

<unk>.

Thanks, so much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.