Q2 2022 Standard BioTools Inc Earnings Call

Hello, and welcome to the standard bio tools incorporated second quarter 2022 financial results Conference call. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Peter Denardo Investor Relations. Thank you Mr. Dinardo, you may begin.

Thank you operator, good afternoon, everyone welcome to standard buyout tool second quarter 2022 earnings conference call.

Close of the market today standard buyout tools were released its financial results for the quarter ended June 32022.

During this call we will review our results and provide commentary on our financial and operational performance market trends and strategic initiatives.

Is there any per standard biofuels today will be Michael I called Phd, Chief Executive Officer, and President and Vikram Jog, our Chief Financial Officer. During the call. We will make forward looking statements about events and circumstances that have not yet occurred including plans and projections for our business future financial results and market trends and opportunities.

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Examples include statements about expected financial performance strategic initiatives acquisitions strategies market trends product releases customer demand collaborations and partnerships and revenue expectations.

These statements are subject to substantial risks and uncertainties that may cause actual results to differ materially from current expectations information on these risks and uncertainties and other information affecting our business and operating results is contained in our annual report on Form 10-K.

Ended December 31, 2021, as well as our other filings with the SEC. The forward looking statements on this call are based on information currently available to us in standard bio tools disclaims any obligation to update these forward looking statements, except as may be required by law.

During the call. We will also present some financial information on a non-GAAP basis non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U S. GAAP.

We encourage you to carefully consider our results under GAAP as well as our supplemental non-GAAP information and the reconciliation between these presentations.

Conciliations between GAAP and non-GAAP operating results are presented in a table accompanying our earnings release, which can be found in the investors section of our website.

Please note that management will be referring to a slide presentation, including updated supplemental financial information within the webcast today and this presentation is also posted on our website.

I would also like to note that the company will not be hosting a Q&A session. Following prepared remarks during today's conference call I will now turn the call over to Michael Holmes, Our Chief Executive Officer, and President Michael.

Thank you Peter.

I would like to start by thanking everyone. Joining us today for the standard biodiesel second quarter 'twenty to 'twenty two earnings call.

After four months with the company and into my second earnings call as President and CEO of <unk> bio tools I'm pleased to share my view on where the company is the work we need to do and the opportunity ahead.

For those new to the standard biotech story I will start with a brief overview of our company's strong thing that vision.

Then transition to the face restructuring announced earlier today and how these initial actions aligned with our previously disclosed strategic priorities.

Include my portion of the calls with a few words on our revitalized corporate structure and how we are embracing our process I ended mindset, but an attitude of continuous improvement to drive our organization forward.

Following my prepared remarks, I will hand, it over to Vikram jog standup, our CFO to go over our financial performance for the second quarter 'twenty to 'twenty two.

We are embarking on a long term value creation journey here spend a bio tools that begins with focused execution as we aligned the business and our product portfolio to weather pockets going in a way from where that's already been it begins today with 2022, serving as the floor and foundation that.

We spend a bio tools built upon to drive long term value creation initial space has not been easy involving many complex, but necessary decisions while were still early in the process I'm encouraged by our progress to date, turning now plans into execution.

Our second quarter financial results are disappointing, yes, but I view those as representative of our past and not a future. There is a vast opportunity in front of us for growth margin improvement and strategic inorganic scaling. This is why my team and I joined in April and we're glad.

We did hardwork doesn't scare us if the returns are there and we see them clearly.

Plenty of low hanging fruit here and yes, some high up a larger food photo off the tree as well.

Our vision that stand up our tools is to become a top quartile life Science research tools company in three to five years and a preferred partner for the life science industry offering and innovative portfolio of high quality.

And impactful technology is in a standardized and reliable way.

This thesis was built upon yes observation after innovation bottleneck, we have witnessed across the industry. While there had been incredible advances in the tool space. Many of the companies attempting to commercialize technologies. They have developed in house and often by the founding technologist himself.

So scared.

Specifically <unk>.

Scaling our manufacturing product development commercial discipline and customer support have been significant challenges that only a few select oil come with.

We plan to address this issue by creating a platform.

Purpose built for consolidation.

Imaging, our global infrastructure to live our portfolio of life science tools to have an overlap in customer base across pharma and biotech in turn we expect this to lead to greater market penetration higher customer satisfaction and sustainable growth.

Beyond she had infrastructure expert operations and execution are mission critical to successfully achieving this goal.

We assembled a team of seasoned operators with a proven track record of successfully developing and commercializing innovative tools.

Many of US have worked a lot and successful companies we have witnessed firsthand the scale up challenge says early commercial stage companies face we apply a systematic approach to building best in class operations, which we call standard power tools business system adjust SBS.

And we know what it takes to scale for growth, while thoughtfully managing expenses.

Continue to recruit World class talent to our organization, which I will discuss later in my prepared remark.

Access to capital, it's almost an essential piece of the equation and especially important for the current environment in April we announced the successful closure of $250 million capital infusion from leading life science investors catch them capital and Viking Global.

This was a truly transformative and catalytic event for your organization at more than sufficiently capitalized the company, which we believe will bring us to cash flow break even in our existing businesses, while allowing our team focused on running the company and executing on our M&A strategy with that.

Context in mind, let me take a brief moment to revisit or underlying rationale for the transaction and why we're so excited about this opportunity in.

In short fluid I'm offered an attractive enterprise as the chassis.

As a public entity with a global infrastructure.

Third a have you showed us a company that would benefit enormously from the new cheap and refreshed strategic mission streamline operations and sufficient capital we felt strongly that accretive assets already existed within the company, which support the overarching thesis extend the bio tools, which include.

And the existing brands and products across Microfluidics and mass cytometry that are proven utility to an existing customer base, we plan to transform existing product offerings to accelerate growth in mass cytometry, while focusing microfluidics towards profitability.

I'll cover this in more detail momentarily.

And established global infrastructure, a cross sales and legal as well as instrument design, which we can leverage for future acquisition.

State of the art manufacturing capabilities offering more capacity it can pull through existing product all as we layer in additional technologies. It also provides the optionality to bring instrumentation manufacturing in house, which translate into higher margins and increasing quality and allow us to.

Our own destiny I cannot stress this enough manufacturing is a core capability that's essential for success.

Reliability customer satisfaction and it cannot be developed a one night. There is also a boss IP estate with an incredible amount of IP, including deep know how across mass cytometry and microfluidics.

Despite having these desirable attributes and technologies fluid I'm was exhibit a and b in our underlying thesis is that both businesses have struggled to scale.

And didn't realize operational no cost synergies. However, we were and continue to be convinced about the growth potential for the mass cytometry business and believe Microfluidics is a niche business capable of modest growth.

We've also shortened that the company could be want Bob better to unlock value and that is priority number one for us as I speak to you today.

To build out our talent, we have added several highly experienced executives, including Alex Kim as Chief operating Officer, Jeremy Davies as Chief Commercial Officer, Mona Appaloosa, yet as senior Vice President of S. P. S.

And our status as senior Vice President of global operations and more recently met Witchy as Vice President Global sales operation.

OTA as vice president customer and user experience as well as David pencil Rattler as Vice President commercial operations Americas, and finally, Kathy Harold as Vice President and controller.

These are tough great professionals with significant sector and operational expense in the areas of process improvement operational excellence sales and finance. This team will lead by example, and is committed to taking the organization to the next level, including myself five of the 10, most senior officers have joined <unk>.

Stand up Biofuels post transaction with most of the incoming team being tied together by shared experience that then.

In connection with our strategic capital infusion, we have added highly experienced members with life science and cabot's of markets.

Ts to our board of directors, including Dr. Martin Matthaus, Dr. Frank Whitney and Eli cast and they have been an incredible resource to me and will help guide us on our mission to become a category leader in our space as we reinvigorate growth throughout the company.

Today, we commenced a phase restructuring plan that is focused and deliberate all as the saying goes measure twice and cut once we are four months in to creating long term value through operational focus.

<unk> C with a clear strategic vision. We're currently underway with the goal of achieving significant operating expense reduction, which we expect will lead to a dramatic reduction in cash burn beginning in the second half of 2022 as part of the restructuring the following steps are being taken to right size our business.

And could be broken out into three buckets number one G&A expense reduction number to microfluidics business rationalization.

And number three portfolio rationalization.

While we are taking immediate action and rapidly moving these initiatives forward in parallel it restructuring is complex and does take time.

Through these actions, we expect to return the business to growth with the goal of achieving 7% to 10% what was margin improvement by the end of 'twenty to 'twenty, three significantly reducing operating cash burn and generating positive free cash flow by the end of 'twenty to 'twenty, four while allowing for strategic.

We look forward to sharing more details as we take the necessary and long overdue steps to create a leaner optimized high performance organization.

Now turning to our three strategic priorities that I laid out during our Q1 call.

Priority number one is revenue growth, which has been lacking and as evidenced by the Q2 results that do not meet our standards.

We wish we had been here earlier, but we're here now and will drive for better results in the future I highlighted a number of key attributes about our core business that attracted me to this opportunity, but it was also acutely aware of the significant challenges with MTO organization, and what was going to be needed to.

Addressed them once on board was subpar quarterly performance is unacceptable our ambition is to build and last thing I'm going to say isn't that commenced true staying power within the life science interest rate workflow.

In this world of uncertainty and in light of a challenging market environment macro backdrop. Our focus is on what we can control and how to close gaps in our business. We are in an execution phase and as we systematically address the underlying causes for under performance, we expect to become a high quote comeback.

Any with high margin products at one time.

Yeah.

As we look for potential revenue grow and important strategy, we have applied to send a bi tools is the outside point of view historically, we've been two technologies focused whats happens too often in this interest rate what is the belief a particular technology consult.

Else problems, what's important to take away from this new perspective is that we're not focusing on our customers.

Looking at where they have gaps in understanding what solutions, we can provide to help all carcinoma close those gaps. This customer focused approach was embodied over the past few months by our team, which conducted a 175 customer interviews truly making voice of customer.

Mythical element in our strategy and to inform our sales approach going forward.

Ultimately, we believe the core business can be optimized with stop burning money and eventually U S. We'll look to accelerate growth in mass cytometry, why focusing microfluidics towards profitable growth.

I am confident and have complete trust in a new leadership team, who have a proven track record in development and commercialization to execute on this mission a key factor in our success will be the implementation of the Sps.

This takes me to priority number two improving operating discipline.

I'll take this opportunity to provide an update on D. S. P. S rollout and training as a reminder, we view S. P. S is an essential building block of our company and can be that can be applied to every facet of our business. It is designed to promote connectivity a question organization. So that we work together.

And drive our corporate strategy forward, we've been rolling out S. P. S training across the organization and I'm excited.

About how our team has embraced the new approach lean, it's our way of thinking designed to simplify business processes by eliminating waste.

<unk> as we say with a focus on shortening lead times, reducing costs, improving quality and create highly flexible processes all to deliver value to our customers.

Lastly, our third priority is strategic capital allocation to be clear consolidation will be the engine that drives future growth in the longer term value proposition.

And our bio tools.

Our vision is to become a preferred partner in the life science industry, bringing researches to industry best innovations on the shared infrastructure to become integrated into the workflow constructing a portfolio of products to meet all customer needs would be imperative.

Our approach to M&A will be disciplined in our focus will be on acquisitions that are technologically de risk have immediate revenue potential and have synergies with our existing infrastructure.

Want to strengthen our connection to pharma.

Partnering with translational and clinical researchers thematic areas, where we have high conviction include but not limited to single cell high parameter solution and biomarker discovery and application.

We are agnostic to where a technology or product originated as our innovation will be and how we solve customer problems and our ability to provide a suite of technologies in a reliable way. This brings me back to a critical point around voice of customers being in constant communication with our existing customer base.

But also help inform our approach to M&A and use to further validate market demands.

The management team, we have assembled has deep experience in consolidating and integrating businesses.

Combined with our strengthened balance sheet, we now have the necessary pieces in place to add color.

Cultivated over decades, we have developed a robust funnel of potential assets and are currently evaluating numerous opportunities.

<unk> has its own time frame and older. We are laser focused on optimizing our core businesses.

We recognize the current market environment offers a unique window for strategic M&A and.

We intend to capitalize on this opportunity.

In closing.

We're excited to be here and the journey is going well.

We are taking immediate action to further optimize the business and are laying the foundation for future growth.

Furthermore, culture has been a focus of mine from day, one and over the past quarter. We introduced several guiding principles representative of how we plan to operate going forward I've been pleased with how well they have been received and I'm confident that when put into action standard biotech.

Those would be the adhering to the highest standards of business practices driven by this winning culture.

And I look forward to reporting on our progress in this future.

I'll now turn the call over to Vikram jog, our Chief Financial Officer Vikram.

Thanks, Michael and good afternoon, everyone.

As noted in our earnings release today, we are simplifying our product offerings and discontinuing a laser capture micro dissection or LCM and flow conductor products, and deemphasizing or diagnostics or COVID-19 activities.

These changes negatively affected microfluidics revenue by $1 6 million and total product and service gross profit by $4 7 million.

And contributed $8 2 million to the GAAP operating loss for the second quarter from 22.

Let me now begin with a business review of revenue for the second quarter of 2022.

Total revenue for the quarter was $18 $8 million as compared to 31 million for Q2 'twenty one.

The stronger dollar reduced reported revenues by approximately 4%.

Based product and service revenue, which exclude COVID-19 testing revenue and other revenue of $17 5 million was approximately 35% lower compared to $26 9 million in the year ago period, primarily driven by lower instrument revenue.

During the quarter, we experienced continuing disruptions in our North American sales force macro headwinds and related funding challenges in Europe , and Covid related shutdowns in the Asia Pacific region.

Mass cytometry product and service revenue of $10 $1 million for the quarter was down from $16 6 million in the year ago period.

Base, Microfluidics product and service revenue, which exclude COVID-19 testing revenue was $8 9 million down from $10 2 million for the second quarter of 2021.

Other revenue, which includes product development license in grant revenue for the second quarter are pretty true was approximately $750000 or $1 1 million lower than the $1 8 million reported for the same period a year ago.

Primarily driven by the completion of certain development and grandeur agreements in 2021.

For additional commentary on our revenue, including geographic breakdown.

Refer to our second quarter Form 10-Q filings.

Moving now to our operating performance I will focus my comments, primarily on non-GAAP results, which exclude certain non operating and non cash items. Please note that the reconciliation tables between our GAAP and non-GAAP measures are provided at the end of our earnings press release that was issued earlier today and in this person.

Jason.

non-GAAP net loss was $25 $7 million compared to non-GAAP net loss of $9 3 million for the second quarter of 2021.

GAAP net loss for the quarter ended June 30th 22 was $63 5 million compared to a GAAP net loss of $17 1 million for the second quarter of 2021.

non-GAAP product and service margin was 37, 7% for the second quarter down from 61, 5% for the same period a year ago.

The decline in margin was significantly driven by inventory write offs, resulting from the portfolio rationalization actions.

non-GAAP operating expenses were 34 $1 million compared to 29 $4 million for the second quarter or do you try to you on the.

The increase was primarily driven by expenses that are not expected to recur in 2023, including retention and severance expenses and legal and consulting fees, including expenses for SBS related activities investments to generate performance improvements and the company name change and rebranding activities.

Moving on now to cash flow and the balance sheet cash and cash equivalents and short term investments were $211 $2 million.

<unk>, the 225 million strategic cash infusion in April .

Impaired with $30 million as of March 31, 2022.

During the quarter, our operating cash burn was approximately $30 million compared to approximately $15 million for the same period, a year ago, primarily resulting from higher losses from operations.

The phased restructuring plan that we announced today is expected to significantly reduce cash burn beginning in the second half of 2022.

This concludes my remarks in the quarter I'll now turn the call over to Peter.

Thank you Vikram. This concludes our second quarter 2022 financial results call, we'd like to thank everyone for attending our call today, a replay of this call will be available on the investors section of our website good afternoon everyone.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Okay.

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