Q3 2022 IsoPlexis Corp Earnings Call

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Good day and thank you for standing by welcome to the ICU Black say third quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press.

Star one one on your telephone you within Huron message that your hand is raised please be advised that today's conference is being recorded I would now like to hand, the conference over to Kerry Mandeville with Investor Relations. Please go ahead.

Thank you.

Earlier today I spoke quite stiff released financial results for the quarter ended September 32022.

If you've not received this news release or if you'd like to be added to the company's distribution list. Please send an email to investors and I felt like with dotcom.

What do you mean today from Michael This is John Mccabe, Chief Executive Officer, and John <unk>, 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.

Additional information regarding these risks and uncertainties appears in the section entitled forward looking statements in the press release.

With me today.

A more complete list and description. Please see the risk factors section of our annual report on Form 10-K filed on March 30 of 2022 and in our other filings with Securities and Exchange Commission.

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

This conference call contains time sensitive information and is accurate only as of the live broadcast November 10, 2022 with that I'd like to turn the call over to Sean.

Thanks, Carrie good.

Morning, and thank you everyone for joining us for our third quarter 2022 earnings call on today's call I will provide an update on kind of the operational commercial and development progress. We've made to lay the foundation to lead the single cell and blood based bulk proteomics space.

With a focus on achieving profitable sustainable growth that I will turn the call over to John for a closer look at our financial results and outlook for the remainder of 2022 revs.

Revenue in the third quarter was $4 5 million up 7% from the prior year.

We reduced operating expenses down 37% in the first quarter of this year, given our commitment to conserving cash while difficult are clean proved resilient and responsive to increasing customer demand. Despite the challenging macro environment, specifically around difficult access in China and inflationary pressures in Europe .

Same time <unk> has established itself as the recognized authority and assessing proteomics cytokine signatures from single cells.

As the customer and existing early access users are getting increasingly excited that ICU spark will be able to offer both single cell Isa codes and the dynamic bulks here I am <unk> <unk> chips on the same system.

Together these solutions create critical value to our lab customers, an affordable lab system saves the customer time labor and provides differentiated full signature immune data.

The two in one solution provides a dynamic duo unmatched any other protein analysis system.

We'll start today with expense control and cash conservation Congrats on a critical focus while John will cover in greater depth. The team found a way to deliver growth.

Same time, as we reduced operating expenditure by 37%.

Total workforce by 40% from Q1.

This is testament to the resilience and hard work of the team and continued commitment to collaborating with our customers to find solutions.

We appreciate all of our team has done to make this happen. The shift also demonstrates our commitment to a path to generating positive EBITDA over the coming quarters.

We still have further expenses to reduce to align with the realities in the capital markets environment.

It will enable us to conserve cash at this critical time.

Looking more closely at our customer during the third quarter, we sold 23 instruments, bringing our total units sold of 277 instruments, providing an increased base of our recurring revenue consumable pull through as well as the service contracts associated with our system from which we saw an uptick in Q3 three.

35% of the units sold in Q3 of 25% of the total instrument purchases from customers who bought multiple instruments.

We also now have instrument placement, 79% of comprehensive cancer centers in the United States.

<unk> products and in the early stages, our code flex products are building momentum and playing a key role in a translational medicine ecosystem.

For the large swath of immunology researchers fighting cancer.

Code helps eliminate a critical buyers.

The spot inflow intracellular cytokines system, namely the fact that they can only search for limited were popular number of well known cytokines, which may not be the critical one for quality of immune response.

This critical limitation is setback researchers for years not only in finding potent cell therapies and antibody drugs, but also in creating potent vaccines against difficult targets.

I feel good sell through this bias by providing the full cytokines signature Permian, so detecting critical and unique aspects of what is termed in the field.

Quality of immune response for the first time.

Here, we highlight some of our hardworking customers who are leveraging our.

Full signature quality of immune response with recent customer publications.

Washington University in St. Louis highlights the importance of enhancing the long term goal of every cell therapy persistence through the addition of a novel genetically engineered interleukin seven.

In the journal Nature Communications <unk> provided a quote unquote quantitative marker of khaki functionality.

To confirm that the modified IL seven induces robust cell expansion without compromising functional potency.

The full signature on ICC code uniquely reveal these critical aspects of cell therapy response.

On the other end of the development spectrum Lonzo, leading contract manufacturer, who press release the collaboration with <unk> in 2021 highlights the impact of large immune signature polyfunctional T cells and functional cell behavior detected on our platform as a vital functional characteristic.

For allogeneic product development and for manufacturing this is publishing frontiers in medical technology.

While our ICC code is recognized in the SaaS growing cell therapy world as a critical solution, we view the translational cancer immunology market as key to our growth.

We have placed multiple units and many of the top pharma focus on cancer immunology.

And have been featured in a variety of leading large studies for checkpoint inhibitor therapeutics.

Get our pharma customers have pointed to our increase in cell throughput and surface markers per sample is critical for further expansion there.

<unk> product offering will be available in 2023, and our customers believe it to be an unlocking event for the next generation of ice liquid expansion in multi cell type analysis of quote unquote full signature quality of immune response.

This is critical to us proliferating with many units serving translational medicine at each of these farmers.

Our product development team is still on track to release co duplex Q in Q1 of 2023, which will be a game changer for the value proposition prices spark customers.

Tested and verified yearly access code flex with our customers and our core value proposition of the product along with strong fully walkaway, yet sensitive and quantitative large signature bulk readouts.

Our unique types of flex as necessary to the reality lab space today more than ever.

Our customers tend to ask two quick questions with their proteomics systems.

Immune cells performing.

High quality, aberrant or not and one of the quantitative protein circulating in the blood, indicating on the overall response high concentration low concentration in quantitative.

And revealing the large immune signature.

<unk> for cells coated <unk> for blood.

The same large signature as necessary in the blood to avoid the bias of focusing on too few protein and your customers had a critical challenge facing them any quantitative proteomics technology Leverages gold standard Elisa for large signature multiplexing.

Not in Mgs based solution.

Is it really expert oriented difficult to use work or they take full days of hands on time.

We couldnt predict that the pandemic would change labor as we know it but it has.

Our labs are finding it difficult to retain crane talent Cold-blood skews for those labs, much like someone who could detect quality immune response.

<unk> Q2 starts with quality quantitative and quick.

Both products have a fundamental commitment to quality to our customers could quite skews high throughput incomplete be walkaway.

<unk> and pipette and go with no training required.

Our co founders came up with the original signature for our proteomics Barcoding system, which leverage many protein analytes directly from a small amount of blood of evo to deleverage by any clinical lab.

<unk> is the product position of that vision. Furthermore, we conducted a 302 person survey of mostly existing blood bulk protein users and flow cytometry users, 46% of the survey takers found the coke like solution very compelling.

They all also pointed to what we see as obvious.

They would be much more for a system that delivered both the ICD code at <unk> in one system then they would pay for a system that offered either one or the other.

We are very excited for our users to leverage both products and one ice was parked instrument to a quicker lab top quality data covering large signature single selling bulk protein solutions at a reasonable cost.

Users like the Shanghai instituted hematology, which demonstrated with our code flex system that the cytokine IL seven enhanced persistent anti tumor immune response in cell therapies as published in scientific reports.

They answered a similar question now from the angle of the blood the wash U team highlighted for single cell solution.

While the WOMAC is slated for release in late 2023 and is operated by a very small team at this point.

We have made critical progress on increasing the matched barcode throughput to enable a greater number of cells that have both gene expression and the protium readout.

Customers still send us many requests for this product and we're still aiming for 2023 offering at the end of the year.

And to whom it will also be run on the ice with spark driving further value to our customers on one system.

Finally, I want to welcome home issue here as a member of our board of Directors Homey. Most recently served as the chair and Chief Executive Officer of <unk> Corporation for 2014 through its sale of <unk> in 2021.

We believe his insights into scaling larger businesses in the life science diagnostic and device fields.

He will be invaluable as we take the next stage of our journey.

I will now turn the call over to John for more detail on our financials.

Thanks, Sean.

Revenue for the third quarter of 2022 was $4 5 million up 7% from $4 2 million in the prior year period. We are encouraged by the progress. We have made following our reorganization and have started to see the impact of these changes.

<unk> revenue was $3 6 million, an 8% decrease compared to $3 9 million in the prior year quarter. Our commercial team sold 23 instruments, bringing the total number of instruments sold for 277, notably this was our highest quarter of consumable revenue and we are encouraged by the continual usage we are seeing.

From our customers' service.

Service revenue for the third quarter was 851000 compared to 303000 for the prior year quarter, driven by two items an increase in our sample as a service business and a significant increase in the number of service contracts sold to customers, which is another recurring revenue stream.

We recently partnered with meta merchant and the center for cancer and blood disorders. We have started processing samples and generating revenue and we are actively working on this contract throughout Q4 and into 2023.

Regarding service contracts as our existing installed base matures. We are focused on continuing to increase our take rate of contracts that is the percentage of the installed instrument base paying for service contracts.

Gross profit for the third quarter of 2022 was $2 $3 million.

Compared to $2 million in the same period of 2021.

Gross margin was 50% in the third quarter compared to 47% during the third quarter of 2021.

As we expand and leverage our installed base of instruments with consumables contributing increasingly higher percentage of our total revenue. We continue to expect total gross margin to reach the mid 60% range in the near term and eventually settling into the mid 70% range. We also expect the launch of code Plex Q to be a positive.

Contributor to gross margin in the second half of 2023.

Total operating expenses were $19 2 million for the third quarter, representing a 12% decrease over the prior year and a 27% reduction from the second quarter of 2022. This.

This includes restructuring expenses of 574000 in the third quarter of 2022, and $3 7 million in the second quarter in line with what we discussed in the second quarter about our reorganization, we have reduced our operating expenses by $11 5 million, resulting in a 37% reduction in opex.

On the first quarter of the year.

As we have previously discussed we expect our quarterly operating expenses to be about $17 million by the end of this year, bringing our full year 2022 operating expenses, excluding restructuring charges to be in the $90 million range. This includes approximately $9 million of noncash expense for depreciation and amortization.

And stock based compensation.

Our net loss was $18 5 million for the third quarter of 2022 compared to $20 2 million.

In the third quarter of 2021.

We ended the quarter with $53 million in cash on the balance sheet. We believe that the cash we have on hand, now coupled with our continuing strategic initiatives provides us with cash runway into mid 2024.

Turning to our revenue outlook for the full year 2022.

Given our performance year to date, along with the current macro environment. We now expect annual revenue revenue growth for 2022 to be in the range of 11% to 15% translating to approximately $19 5 million of revenue at the midpoint. We are still seeing strong customer demand in the U S for our differentiated technologies.

And I will reiterate what Sean mentioned, we have we are very optimistic on our long term outlook based on what we hear from customers at this point I'd like to turn the call back to Sean for closing comments.

Thanks, Sean.

Overall, I am thankful to our team for working hard to drive growth, while we've been significantly reducing costs and resources throughout the organization.

None of the exciting solution for our customers will be possible without the team.

We believe our ico coating coop like Q solution delivered on the same ices Pax system.

Kind of really change your customers' life for the better ease of workflow for a changing lab environment large immune signatures to avoid the pitfalls.

<unk> inherent in typical low plex analysis.

Delivering quality and detection of the immune response, we look forward to continuing to create value for the translational medicine ecosystem as we move ahead.

That we will now open it up to questions.

Thank you and Thats a reminder to ask a question simply press star one one on your telephone.

Please stand by while we compile the Q&A roster.

Okay.

One moment for our first question and it comes from Vijay Kumar with Evercore ISI. Please go ahead.

Hey, guys. This is Jordan thanks for taking my question.

You were talking about strong customer demand in the United States I was wondering if you could.

Maybe talk about what Youre seeing.

Other parts of the world like China and Europe .

Kind of just what youre seeing from demand.

That's helpful.

Yes.

Hey, Jordan, it's Sean.

So so I think.

What youre asking is how is that.

How are we seeing demand distributed across the various regions. So yes, we did see strong demand in the U S.

The vast majority of what you saw in the growth from this quarter.

For us.

A lot of that comes from.

Essentially the differentiation of our immune signature.

You guys heard the numbers.

A lot of our existing customers repurchasing more purchasing more instruments.

So I think thats exciting from a validation perspective.

Europe was difficult for us I think theres, a number of reasons for that but.

I think as John alluded to.

There's just some.

Financial pressures, which I think it's across the board has made purchasing high.

High technology equipment.

Less of a priority.

Okay.

Pricewise.

First APAC I think.

Look our APAC team is working really hard and we're excited about there seems to be some light at the end of the tunnel in terms of.

Demand is obviously been.

More opportunity I think in.

Q4.

For.

People to sort of.

Travel around get to customers and to <unk>.

Alan instruments, frankly, right and I think from our perspective.

As well as.

Well, what we're seeing now is just a bit more.

Uh huh.

The ability to leverage the consumables and APAC just based on.

Having a more devoted Fas team out there so.

I hope that helps in sort of illustrating just distribution wise, what we're seeing across the world.

Definitely I appreciate it and maybe one more.

Can you talk about the.

Dynamic.

Kind of what Youre hearing from your customers the training.

Good luck.

Last earnings call you spoke about.

Difficult market competition.

Quick launch.

Kind of wanted to see where you guys are at.

As far as the genomic launch timeline.

And also what your margin assumptions are for one year.

The overall impact.

Great.

Yeah.

Okay, sorry, I missed.

Maybe it's our connection I think I heard most of that so I'm going to try to answer most of them will start with <unk>.

Right. So if you just think about.

Why code flex and flex Q as we're terming it.

<unk> is a focus for the organization. So maybe a couple of things I highlighted.

It became obvious to us.

Yes.

There was a really important need in the proteomics market for something we're turning to be a large signature readout multiplexed at that.

I think in the field they call it minimal, but let's call. It that large signature readout 2030, <unk> things like this.

With a fully really effortlessly automated workflow.

We have a lot of our own team.

Who was as they develop single cell assays over the years.

Essentially leveraging existing bead based multiplex systems out there like <unk> or other systems to essentially validate our understand how did your stimulations and basic things like this before we ran the ISO code.

It was just it's just difficult right, it's just difficult for them to do the workflow.

There's all these sort of.

Let's call it collateral damage when it is difficult to do workflow and there's heavy training involved and we started just using our barcoding system in the original Barcoding system. We brought in from these universities.

And they were just like Wow. This is like Super easy to use when put on alright existing systems sparkling the isolate and we just kept using it more internally, we're not that different from our own customers right like we just recognized.

Huge opportunity right and it was worthwhile to create its own product line for it.

What we did was we.

Validated it tremendously right over the.

A couple of years, we had an early access version.

The difference between the early access version.

The full fledged version is you can do about 30 30 wells 30 samples.

In single Kit and now with our complex Q, you're going to be able to do per run 80 wells or 80 samples in triplicate first product right sooner.

Soon thereafter, you're going to be able to do a 120 wells per run in triplicate, that's going to be probably in the middle of next year.

That's super exciting for not only us not only us to be able to do these optimization assays, but all of our customers who run supernatant tend to run.

And things like this.

Big market for that type of technology.

You just think about the state of affairs right now.

It's it's seamless from the customer's perspective.

It's hard to retain trained labor and if something is super difficult to use or just takes a full day of hands on time.

Free that up to something that's pipe petting go and still get quality data out of that that's super exciting proposition and we are the only company period and you can look at the landscape. It offers the largest signature multiplexing and the fully automated ease of use and Thats just the.

Totally being value prop.

The second thing that we share with our 302 persons survey, it's kind of obvious when you think about we're in more of a value world right now.

But people said they pay much more for our system and it's much easier to justify the purchase if you have the <unk>.

If you had to cope flex platform and <unk> platform in one.

What we are delivering on the spark right. So why are we excited about the launch.

We're excited about the launch because we've used it for forever right for a long time internally.

We love the data customers loved the data right it's sensitive.

Quality quantitative.

Quick.

And it's two in one it just helps honestly even customers knowing that this is coming is helpful for spark purchases because people realize they're going to get a lot more value out of it. So that's that's the deal on complex queuing.

How do we see that progressing.

So you touched on you won't make it look.

We've taken that genomic team now down too.

A very small we call it a skeleton crew for for developing development right and we still get a lot of customer calls on it.

We always want to reiterate when that data comes out people worked hard on the data we presented at three conferences, it's really cool. It's the first time, it's ever been seen right. There is there is nothing out there that's been able to still get the protein cytokines signatures from cells.

And tell US why is that happening from the genes from the same single cell immune cells are very plastics are very different people want this type of data to connect the dots that have never been connected.

It was just.

Honestly, we didn't when we had to do a risk as we talked about which are down 37% of our opex.

We couldnt build.

Commercially to do sequencing sales required here and compete in that market. Even if we had an awesome differentiated product. So we're still going to release it.

Release planned for later 2023 years.

Exactly what we're talking about complex Isis Park does the Isa card system.

That system is becoming a mainstay, which we talked about during the earnings call. We have complex Q on top of that Super exciting to offer in one system genomics also going to come out of the ICU spark.

And based on some products with progress we made in this match Barcoding, which basically is the underlying way to increase sell through but we just we feel it's going to be an exciting product that is going to meet the sort of.

I guess some of the hype that came out during these conferences previously so that's how we're thinking about it we're just trying to like.

Deliver customer demand with the financial resources that we have so.

I hope that helps I think Jordan that.

Jordan on the line right.

Yes. Thank you that was helpful.

Thank you one moment for our next question. Please.

And it comes from the line of Max.

<unk> <unk> with Cowen.

Yeah.

Hi, This is Joe on for Max.

Can you just speak to the incremental headwinds youre seeing this quarter versus last that led to the latest revenue guide and what's giving you the confidence.

Revenue up in Q4 implied.

Okay.

Yes, I mean do we went over this last quarter a bit I think to your question.

And what our core response was as we continue to see.

Customers purchasing its course, I guess I think just to reiterate we grew revenue by 7% with Opex sort of down 37% right. So like obviously, that's being driven by the customer.

Because where we are.

Reducing operating expenditure.

Coming to the realities of what the capital markets are.

And.

That's also in the face of let's say a strong U S.

Some difficulties for emerging companies.

In Europe , especially but in the APAC, just because you don't have to.

The full benefits of.

Of of let's call it a larger for us than a larger distribution network of some of these larger companies.

And I.

I think we've always and you can look back process Q4s.

<unk> always seen what we see in the pipeline now is.

Biotech and Biopharma, who have budget.

Were considering purchasing and typically you get a lot of repeat users. During Q4 that helps I think we've already started to see.

A slew of purchase orders from.

The academic world right. So some of that pipeline building in Q3 that carried over to Q4.

And I think frankly like one initiatives that our finance team and our sales operations team really started in earnest at the end of Q2.

As we turn over a new leaf was getting more and more and more customers to pay for service contracts. So youre starting to see that and that's in the service contract annuity.

To see that play out in that service line.

I think all in.

Got that.

Sort of set of factors is why we feel confident in the numbers. We just put out if that's kind of the core.

<unk>.

John on the line.

Jeff Yes for sure.

Hey, Scott.

Then just maybe your latest thoughts around the 40% consumables growth on 2022 that you talked about last quarter.

So what I'll say for consumables growth is like this is our best consumable quarter ever I think.

Reiterating what John said on the call.

<unk>.

A lot of a lot of what we're seeing is maybe a few things right. So there is a concentration.

Where we have on an annualized basis customers that are spending.

No.

Over a couple of hundred count pull through right.

We see kind of 50% of our year to date consumable use concentrating in.

Maybe less than a quarter of our installed base.

So like there's a lot of concentration and ended up as you can guess being between pharma and biotech where we feel like we're pretty good at driving throughput at least in United States.

Maybe a couple of things we think about.

We have not been as we've expanded throughout the world and Theres been more and more and more customer interest in our systems just from a coverage perspective, and a resources perspective.

This year, obviously as you guys have seen like we've been able to hit in previous years like 38, 39 K pull through.

We've had trouble.

Keeping up with that installed base just coverage wise right and that's just a function of resources, it's not a function of.

The heavy demand we're seeing in a concentrated set of users in the United States. So you know.

What we're thinking about is one always trying to get out there and telling customers are stories in all of the high velocity of publications in all the key killer applications, we have on our system I think too.

We're going to really especially internationally, but just around the world continue to really think thoughtfully about partnering distribution wise to increase our coverage right to touch the customers.

Here are the customers.

On a more regular basis, but what I'd say is the.

Our team is working real hard with.

We have to make that happen. We're also going to continue to invest in sales and SaaS head count that's somewhere where we're going to you know.

Continue to invest because obviously it pays dividends. So I think that's kind of at least that indicates where we're where our heads are at and where our customers' heads are on consumables.

Great and then just lastly on Nebraska, there are some really nice expense reduction in the quarter are you feeling good about where the organization stands today in terms of numbers and we think that the level that you guys can start really humming and progressing going forward.

I'd say this one.

So the team worked hard right, taking those opex and head count, 37% down 40% down so.

<unk>.

Basically digest that is not an easy thing and then to be able to like progress code flex cute.

Progress some of these throughput tool I suppose.

Grow revenue, that's not easy stuff.

We feel look I mean, there's two things we we feel great about the team we have right.

We feel.

Honestly, just there's some confidence level going into pipeline building on the commercial side.

Yet at the same time, our finance team is working on any way to reduce basically ongoing opex.

While trying to preserve head count as much as possible, maybe what I can do is pass to John just a little bit on.

Ways that we're thinking about we've already actually implemented some of these operating expenditure reductions that you can't see in Q3 right.

Right away, but we are taking our base down so that we.

We can further reduce that opex and frankly like.

Focus with a focus on cash reduce cash opex because some of what you see in our Opex is obviously the large amount of DNA coming from our previous IP acquisition and some of these other things. So John you want to just sort of highlight some of the things we're thinking about sure and Joe maybe just segue from what our Opex was for Q3 into our.

Our expectation for the $17 million run rate by the end of this year and it's largely non payroll opex. So Sean talked about a couple of things. If you go back to that we continue to execute on it. If you go back to April when we talked about the re org and the reduction in force software licenses things like that we've continued to renew.

<unk> renew at lower rates.

And we'll start to see the benefit of some of that in Q4.

<unk> is one I'll throw out there we just went through renewals. So we were.

Have a substantial savings there so we'll start to see that.

In the fourth quarter and the other thing I'll mention is just the continued transition from more of a reliance on third party service providers to actually providing those services internally in tangshan talked about the talented team we have fulfilling those services internally. So all of that creates a more productive in.

Lean and efficient organization.

Great. Thanks for taking the questions.

Sure.

One moment for our next question.

And he comes from the line of Puneet <unk> with SBB Securities. Please go ahead.

Hi, you have Mike on for Puneet. Thank you for taking my question.

My first question has to do with the gross margin I'm just kind of wondering what the driver was for the.

The sequential step down and I know you mentioned the strength in consumables and obviously, we'd expect that.

Help lift margins I'm just wondering if there is any sort of other dynamics that we should keep in mind.

Yes, it's actually not it's actually not Cogs in this case I mean like I think John highlighted.

The strength in.

Let's keeping down that Cogs in boxes.

At the cost of building inventory, but when you look at that inventory as an asset.

I think.

Part of that was just a slight drop in ASP in Q3 I mean.

So if you think about where that came from.

A couple of those units were.

Really exciting partnerships that we're dealing with people for.

More collaborative partnerships, which I would call.

Testing the <unk>.

Our systems.

And various new places and with new applications that are I think you know.

Just exciting and I can't say much about it because it's confidential but.

I think the other side was.

Customers that are buying multiple systems right.

Someone who buys system it'll be for various sites in various labs, but.

We saw one enterprise order, where there was a discount to the asps across.

I believe it was 40 units and purchase orders from the same customer.

And I think that's a sure sign of strength while at the same time of course there is.

Negotiation and there is some.

Slide <unk> ESP, but if you think of.

Even small hits ESP.

Does drive that reduction.

<unk>.

And so we view that as just.

The nature of sort of the number of doors.

We sell across our installed base John do you want to add anything to that yes, maybe just to quantify a little bit I mean that ASP differential in Q3 accounted for about 200 basis points in margin. So just if you think about that.

<unk> is really accounting for that sequential decrease in just you know as we go forward so talked about asps.

Really maintaining a focus internally and in our daily sales activity across the commercial team and maintaining our targeted asps.

We've talked quite a bit about a reduction in Cogs, which will start to see incremental.

Incremental improvement next year from our consumable business and the last thing I'll say is we mentioned the service contracts you know.

We've we've increased our run rate going forward on those contracts.

Highly profitable and gives us confidence about our gross margin expansion plans going forward.

Okay.

Okay, great. Thanks.

And then I was wondering if you could offer any color about.

What are you thinking about growth next year. So obviously with your kind of a phase III said Ah.

Any early thoughts on what 2023 might look.

Yes.

<unk>.

Think about it this way.

Like you said this year has been kind of a.

Eventful year for all of us for various reasons, but as we got leaner and as we got more conviction about our code Plex Q product.

We feel good about the early feedback on <unk>.

Now selling the <unk> systems with ISO code and complex Q really plays to our existing customers, but also to a range of new customers, who have been waiting for solutions like this.

We're not providing necessarily any guidance for 2023.

Kind of.

I know you guys want to adjust your models and things.

But it's not what we're doing on this call.

Theres still more to learn we're having lots of voice of customer around the product improvements that we have an ISO code as well as the.

Licensed park enhancement by now being able to sell it took like SKU anisocoria. The same system. So just more to learn from that.

And also just more to think about as we I think as we mentioned.

Specialty internationally continue to think through these distribution partnerships and what does that mean for us and I think from the Opex perspective, that's sort of the revenue side. We're excited about the year. We just don't want to give a number at this point.

I think from the Opex perspective.

We're really focused on.

I think as John mentioned.

Moving out throughout the year that we're on a path to EBITDA positive. That's just what we're thinking about right. So how do we do that it's the various levers we talked about was getting super efficient.

And productive with our commercial team.

Not.

Being very prudent about how we use expenditures.

As John said for software licenses and there's just a lot around the edges that we spend money on and really just again being efficient in development and in our operations as well to improve those gross margins while we.

At the same time, as we're improving productivity and we have to.

Tremendous amount of initiatives to increase automation improve automation.

And kind of like around our consumables. So that's how we look at it. It's like we're we're not prepared if theres going to be we think theres going to be some excitement around you all make at the end of the year, but again that.

Benefits to spark right and that benefit is something we kind of already know.

Alrighty Trust from the customer is already trust so.

That's the way we're looking at it right now.

Great.

One more about the service revenue I was wondering if you have any.

The analyses on service can be sort of a leading indicator to eventual instrument install adoption by customers you know you do.

Worked for them in your own lab, eventually, bringing conveyor line I'm not sure. If you have any comments there.

Service has always been.

Our service team and our applications team, which combine into the sort of service offerings.

Just always been an amazing funnel for us.

Produce instruments out there in the field even in Q4, it's been the same thing right.

And we expect that to continue.

What we've also seen historically.

One reason we.

Choosing to emphasize service businesses.

When a pharma right sort of invest in a service contract.

We had many with farmers a lot of times that cross pollinates right with other aspects of the pharma it art that arent as virtual in nature that do run their own labs, right and that you want instrumentation.

Relatively easy to use but also delivers is different and differentiated.

Large signature immune data from single cells now from bulk so we're always going to use that has.

As a driver.

To help drive instrumentation purchases.

Great. Thank you very much.

Thank you one moment for our next question.

And it comes from the line of Savant with Morgan Stanley . Please proceed.

Hey, Good morning, guys. This is edmund on for patients. Thank you for the question.

Hey, good morning.

Just wanted to circle back on your strong consumable performance in the quarter are some of the peers in the space have noted industry inventory stocking and destocking trends at the customer site as a supply chain pressures start easing slightly I was wondering if youre starting to see that trend and whether or not you have good visibility there with the connectivity on the instruments.

Yeah. So.

It's a little bit probably just based on.

Area of use translational medicine versus like bio processing and things like this this is just.

I'm not the world's expert on bio processing businesses, but for translational medicine the customers are really.

I would term them more buying us if that makes sense.

That produces basically.

It's how we drive our consumable strategy more visibility and when people have let's say a blanket order, they're using real time, we leverage our SaaS team to understand whether that users are not has occurred and we know when let's say up.

Our full blanket order is going to be fulfilled we have a lot of those going into Q4.

And or whether or not it may not be if for example, there is no usage. So I would say we are.

It's a little bit of a different model for us as far as consumable usage and that helps us get visibility.

So we do understand that sort of destocking issue or stocking destocking issue that may or may not be having and sort of other areas.

Got it and then just to circle back on your 'twenty, two guidance and how you're thinking about 'twenty three understanding that you guys don't want to give numbers just yet but previously you guys had said that you expect 'twenty two sorry, 'twenty two 'twenty three growth to be substantially higher than growth rates.

20% this year.

In the streets.

So 60% year over year growth of 23, so how should we juxtapose. These two comments given the new guidance for 'twenty two.

I missed a little bit of that there was some background noise just California.

Thank you Carmen.

So thats substantially higher growth rates in 23 versus the 20% and probably this year, which was your last guidance.

I think the street took that as about 60% year over year growth in 'twenty three so now that in light of your new guidance, how should we juxtapose. These two things.

Yes.

Good question right I think if you think about where we go in 2023, a lot of it comes down to.

Frankly.

Understanding of the voice of customer the conviction on this is the first time, we're offering just a home run product second home run product on the ice of spark with the ISO code. So a lot of it base ended just we think it's the perfect timing to release something like this were not seized and focused approach as well.

You already know a bunch of customers that highlights the spark systems.

The robustness with.

That's been proven in throughput like all these things are just right.

We have a set universe in Q1, where we know they're going to want to use coke pledged Q.

And I think the phased approach for us.

As we work with them as we demo or <unk> as they use that system, we're going to be focused on people's honestly.

Like large signature data, but they don't have an easy to use automated pipe that ecosystem and that's hurting their sort of lab operations and will be focused on those guys in Q2, and Q3, which are largest starting with ISO gard firsthand complex, but as Q3 progresses with people that are complex first they like the idea of getting ISO coat.

The spot price.

It's the same immune monitoring type customer base, but it's a slightly different viewpoint from the customer and we said, we think thats going to drive a lot of growth rate and we think that also if you think about what happened. This year you guys knew about this.

It was difficult to digest basically a large.

Large reduction in force.

And on the commercial teams, especially and then be able to turn around and drive growth in the same year, which we largely have done so far so.

I think look I think.

Next year, we're just going to be in a better position, we're ready for the ready to sort of increase the.

The value that we deliver on the <unk> system. The Isa spark is robust and ready to go right.

We use it all the time that your teeth.

Obviously, becoming a flagship insurance for us so.

We feel feel pretty good but I just can't comment on the exact 2023 numbers I think as adjusted position you talked about it.

The potential slight decrease in the end of year number relative to where we see a launch we don't see the because we are not launching coke life Q at the end of this year and we're obviously not launching do I'll make at the end of this year like we don't see those.

I don't see those two can counting each other.

I hope I'm being sort of helpful.

No I got it. Thank you and then I was wondering if you guys could provide some more detail on your partnership with many merchants and the CCTV it sounds like.

Some of the sample processing will go into the service line and that situation, how should we be thinking about the growth of the service line going forward.

Okay.

I think we tried to be conservative on the growth of the service line I think.

<unk>.

This this work together has been great right with the contracts you just mentioned and the team over there are emerging.

Over at various.

Curious collaborators involved.

We have a pipeline of service contracts. It is not historically been the number one focus of our sales team.

It actually became more of a focus of our sales team as you can imagine right.

And so we.

And compensate based on service sales now.

So we're seeing really an increase of the pipeline in Q4.

I again.

I always want to help but I can't comment on the growth rate of service line for 2023, I just think I told you some qualitative things that.

Yes.

We focused on and we recognize if we can compensated.

In a fair way to a sale.

We can see some real.

Services impact in the future.

Got it Super helpful. Thank you for your time today.

Thank you and with that I will conclude the Q&A session and program for today. Thank you for your participation you may now disconnect good day.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Yes.

Okay.

[music].

Okay.

Thank you.

Yes.

Okay.

Okay.

Yes.

Yes.

[music].

Yes.

Sure.

Okay.

Yes.

Great.

Yes.

Thanks.

Okay.

Yes.

Thank you.

Yes.

Okay.

Okay.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Yes.

Sure.

Okay.

Yes.

Okay.

Okay.

Okay.

Yes.

Okay.

[music].

Okay.

Thank you.

Okay.

[music].

Okay.

[music].

Okay.

Okay.

Okay.

Okay.

Sure.

[music].

Okay.

Yes.

Yes.

Okay.

Okay.

Thank you.

Yes.

[music].

Yes.

[music].

[music].

Yes.

Okay.

[music].

Yes.

[music].

Okay.

[music].

Yes.

Yes.

Okay.

Yes.

[music].

Sure.

Sure.

Thank you.

[music].

Okay.

Okay.

Okay.

Yes.

Yes.

[music].

Okay.

[music].

Sure.

Okay.

[music].

Okay.

Okay.

[music].

Okay.

Yes.

Yes.

Okay.

Okay.

Yes.

Yes.

[music] there.

Good day, and thank you for standing by and welcome to the ICU <unk> third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star.

One one on your telephone you will then hear your message today Johan <unk> please be advised.

Today's conference is being recorded I would now like to hand, the conference over to Gary Mandel with Investor Relations. Please go ahead.

Thank you.

Earlier today I saw question released financial results for the quarter ended September 32022.

If you've not received this news release or if you'd like to be added to the Companys distribution list. Please send an email to investors I felt like with dotcom.

Joining me today from Michael Blackman, John Mccabe, Chief Executive Officer, and John <unk>, 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.

Just one for me regarding the risks and uncertainties appears in the section entitled forward looking statements.

This release issued.

Thank you today.

A more complete listen this session. Please see the risk factors section of our annual report on Form 10-K filed on March 30 of 2022 and in our other filings with Securities and Exchange Commission.

Except as required by law I have no question disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

This conference call contains time sensitive information and is accurate only as of the live broadcast November 10, 2022 with that I'd like to turn the call over to Sean.

Thanks, Gary.

Morning, and thank you everyone for joining us for our third quarter 2022 earnings call on today's call I will provide an update on kind of the operational and commercial and development progress. We've made to lay the foundation to lead the single cell and blood based bulk proteomics space.

With a focus on achieving profitable sustainable growth then I will turn the call over to John for a closer look at our financial results and outlook for the remainder of 2020 to.

Revenue in the third quarter was $4 5 million up 7% from the prior year.

We reduced the operating expenses down 37% from the first quarter of this year.

Our commitment to conserving cash while difficult our team proved resilient and responsive to increasing customer demand. Despite the challenging macro environment visibly around difficult access in China and inflationary pressures in Europe at the same time LIFO Places ICU code.

<unk> itself is a recognized authority and assessing proteomics cytokine signatures from single cells.

Voice of customer and existing early access users are getting increasingly excited at ICU spark will be able to offer both single cell ISO code and the dynamic Bulks hear him Kurt <unk> chips on the same system.

Together these solutions create critical value to our lab customers, an affordable lab system saves the customer time labor and provide differentiated full signature immune data.

The two in one solution provides the dynamic duo unmatched on any other protein analysis system.

We'll start today with expense control and cash conservation Congrats on a critical focus.

John will cover in greater depth. The team found a way to deliver growth at the same time as we reduced operating expenditure by 37% and the total workforce by 40% from Q1.

This is testament to the resilience and hard work of the team and continued commitment to collaborating with our customers to find solutions.

We appreciate all of our team has done to make this happen. The shift also demonstrates our commitment to a path to generating positive EBITDA over the coming quarters.

We still have further expense has been reduced to align with the realities in the capital markets environment.

It will enable us to conserve cash at this critical time.

Looking more closely at our customer during the third quarter, we sold 23 instruments, bringing our total units sold of 277 instruments provided an increased base of our recurring revenue consumable pull through as well as the service contracts associated with our system from which we saw an uptick in Q3.

35% of the units sold in Q3 at 25% of the total instrument purchases to date custom.

Customers, who bought multiple instruments.

We also now have instrument placement, 79% of comprehensive cancer centers in the United States.

And our <unk> product and an early stages, our coated <unk> products are building momentum and playing a key role in the translational medicine ecosystem.

For the large swath of immunology researchers fighting cancer, our ICC code helps eliminate a critical bias on the stock and flow intracellular cytokines systems, namely the fact that they can only search for a limited were popular a number of well known cytokines.

Which may not be the critical one for quality of immune response.

Critical limitation has setback researchers per year, not only in finding potent cell therapies and antibody drugs, but also in creating potent vaccines against difficult target.

I feel good Salford is biased by providing the full cytokines signature Permian, so detecting critical and unique aspects of what is termed in the field.

Quality of immune response for the first time.

Here, we highlight some of our hardworking customers who are leveraging our.

Full signature quality of immune response with recent customer publications.

Washington University in St. Louis highlights the importance of enhancing what is the long term goal of every cell therapy persistence through the addition of a novel genetically engineered interleukin seven.

In the journal Nature Communications Icicle provided a quote unquote quantitative marker of khaki functionality.

To confirm that the modified IL seven induces robust cell expansion without compromising functional potency.

The full signature on Iqos uniquely revealed these critical aspects of cell therapy response.

On the other end of the development spectrum Monza, leading contract manufacturer press release, the collaboration with <unk> in 2021 highlights the impact of large immune signature Holly functional T cells and functional cell behavior.

On our platform as a vital functional characteristic.

Generic product development and for manufacturing. This is published in frontiers in medical technology.

While our ICC code is recognized in the SaaS growing cell therapy world as a critical solution, we view the translational cancer immunology market as key to our growth.

We have placed multiple units and many of the top pharma focus on cancer immunology.

And have been featured in a variety of leading large studies for checkpoint inhibitor therapeutics.

Our pharma customers have pointed to our increase in cell throughput.

Surface markers per sale is critical for further expansion.

That product offering will be available in 2023.

We believe it to be an unlocking event for the next generation of ice liquid expansion in multi cell type analysis of quote unquote full signature quality of immune response.

This is critical to us proliferating with many units serving translational medicine at each of these farmers.

Our product development team is still on track to release code Flex Q in Q1 of 2023, which will be a game changer for the value proposition prices for our customers.

We tested and verified yearly access code flex with our customers and our core value proposition of the product along with strong fully walkaway, yet sensitive and quantitative large signature bulk readout.

You guys duplexes necessary reality lab space today more than ever.

Our customers tend to ask two quick questions with their proteomics systems.

Howard immune self performing.

High quality, aberrant or not and one of the quantitative protein circulating in the blood, indicating on the overall response high concentration low concentration in quantitative.

Revealing the large immune signature.

Accordingly for cells co duplex <unk> for blood.

The same large signature as necessary in the blood to avoid the bias of focusing on too few protein.

And your customers have a critical challenge facing them any quantitative proteomics technology Leverages gold standard Elisa for large signature multiplexing.

Not an NGL based solution.

Is it really expert oriented difficult to use work or they take full days of hands on time.

We couldnt predict the pandemic with change labor as we know it but it has.

Labs are finding it difficult to retain crane talent.

Q as for those labs, much like Zion detects quality immune response code.

<unk> Q2 starts with quality quantitative and quick.

Both products have a fundamental commitment to quality to our customers could quite skews high throughput incomplete be walk away.

By Pet and go with no training required.

Our co founder he came up with the original signature for our proteomics Barcoding system, which leverage many protein analyte directly from a small amount of blood is able to be leveraged by any clinical lab codewords Q as the product position of that vision. Furthermore, we conducted a 302 person survey are mostly existing blood.

Bulk protein users and flow cytometry users, 46% of the survey takers down the Coke light solution very compelling.

They all also pointed to what we see as obvious.

They would pay much more for a system that delivered both the Isa curve at <unk> in one system and they would pay for a system that offer either one or the other.

We are very excited for our users to leverage both products and one is with Barclays instrument to a quicker lap top quality data covering large signature single cell and bulk protein solutions at a reasonable cost.

Users like the Shanghai instituted hematology, which demonstrated with our code flex system did the cytokine IL seven enhanced.

<unk> anti tumor immune response in cell therapies as published in scientific reports.

They answered a similar question now from the angle of the blood that the Washington team highlighted for single cell solution.

Well the I'll make is slated for release in late 2023 and is operated by a very small team at this point, we have made critical progress on increasing the matched barcode throughput.

A greater number of cells that have both gene expression and the protium readout.

Customers still send us many request for this product and we're still aiming for 2023 offering at the end of the year.

And do homework will also be run on the ISO spark driving further value to our customers on one system.

Finally, I want to welcome home mission here as a member of our board of Directors Homey. Most recently served as the chair and Chief Executive Officer of <unk> Corporation from 2014 to a sale of <unk> in 2021.

We believe his insights into scaling larger businesses in the life science diagnostic and device fields.

He will be invaluable as we take the next stage of our journey.

I will now turn the call over to John for more detail on our financials.

Thanks, Sean.

Total revenue for the third quarter of 2022 with $4 5 million up 7% from $4 2 million in the prior year period. We are encouraged by the progress. We have made following our reorganization and have started to see the impact of these changes.

Product revenue was $3 6 million, an 8% decrease compared to $3 9 million in the prior year quarter.

Commercial team sold 23 instruments, bringing the total number of instruments sold the 277.

Notably this was our highest quarter of consumable revenue and we are encouraged by the continual usage, we are seeing from our customers.

<unk> revenue for the third quarter was 851000 compared to 303000 for the prior year quarter, driven by two items an increase in our sample as a service business and a significant increase in the number of service contracts sold to customers, which is another recurring revenue stream.

We recently partnered with met emergent and the center for cancer and blood disorders. We have started processing samples and generating revenue and we are actively working on this contract throughout Q4 and into 2023.

Regarding service contract as our existing installed base matures. We are focused on continuing to increase our take rate of contract that is the percentage of the installed instrument base paying for service contracts.

Gross profit for the third quarter of 2022 with $2 3 million.

Compared to $2 million in the same period of 2021.

Gross margin was 50% in the third quarter compared to 47% during the third quarter of 2021.

As we expand and leverage our installed base of instruments with consumables contributing increasingly higher percentage of our total revenue. We continue to expect total gross margin to reach the mid 60% range in the near term and eventually settling into the mid 70% range. We also expect the launch of <unk> Q2 be a positive.

Contributor to gross margin in the second half of 2023.

Total operating expenses were $19 2 million for the third quarter, representing a 12% decrease over the prior year and a 27% reduction from the second quarter of 2022.

This includes restructuring expenses of 574000 in the third quarter of 2022, and $3 7 million in the second quarter in line with what we discussed in the second quarter about our reorganization, we've reduced our operating expenses by $11 5 million, resulting in a 37% reduction in opex.

From the first quarter of the year.

As we have previously discussed we expect our quarterly operating expenses to be about $17 million by the end of this year, bringing our full year 2022 operating expenses, excluding restructuring charges to be in the $90 million range. This includes approximately $9 million of noncash expense for depreciation and amortization.

And stock based compensation.

Our net loss was $18 5 million for the third quarter of 2022 compared to $20 2 million in.

In the third quarter of 2021.

We ended the quarter with $53 million in cash on the balance sheet. We believe that the cash we have on hand, now coupled with our continuing strategic initiatives provides us with cash runway into mid 2024.

Turning to our revenue outlook for the full year 2022.

Given our performance year to date, along with the current macro environment. We now expect annual revenue growth for 2022 to be in the range of 11% to 15% translating to approximately $19 5 million of revenue at the midpoint.

We are still seeing strong customer demand in the U S for our differentiated technologies and I'll reiterate what Sean mentioned, we have we are very optimistic on our long term outlook based on what we hear from customers at this point I'd like to turn the call back to Sean for closing comments.

Thanks, Sean.

Overall, I am thankful to our team for working hard to drive growth, while we've been significantly reducing costs and resources throughout the organization.

None of the exciting solution for our customers would be possible without the team.

We believe our IP coating <unk> solutions delivered on the same ice's box system.

Kind of really change our customers' life for the better.

He is a workflow for changing lab environment.

Immune signatures to avoid the pitfalls.

Inherent in typical low plex analysis.

Delivering quality and detection of the immune response, we look forward to continuing to create value for the translational medicine ecosystem as we move ahead.

We will now open it up to questions.

Thank you and Thats a reminder to ask a question simply press star one on your telephone.

Please standby, while we compile the Q&A roster.

Okay.

No moment for our first question any comes from Vijay Kumar with Evercore ISI. Please go ahead.

Hey, guys. This is Jordan thanks for taking my question.

You were talking about strong customer demand in the United States I was wondering if you could.

Maybe talk about what youre seeing in.

The other parts of the world like China and Europe .

Kind of just what youre seeing from demand.

That's all I've got.

Yes.

Hey, Jordan, it's Sean.

So so I think.

What youre asking is how is that.

How are we seeing demand distributed across the various regions. So yes, we did see strong demand in the U S.

The vast majority of what you saw in the growth from this quarter.

For us.

A lot of that comes from.

Essentially the differentiation of our immune signature I know you guys heard the numbers.

A lot of our existing customers repurchasing or purchasing more instruments.

So I think thats exciting from a validation perspective.

Europe was difficult for us I think theres, a number of reasons for that but.

I think as <unk>.

John alluded to.

There's just some.

Financial pressures, which I think across the board have made purchasing high.

High technology equipment.

Less of a priority.

Dan.

Pricewise.

For us APAC I think.

Look our APAC team is working really hard and we're excited about there seems to be some light at the end of the tunnel in terms of.

Demand there is obviously been.

More opportunity I think in.

Q4.

For.

People to sort of track.

Travel around get to customers and to.

So instruments, frankly, right and I think from our perspective.

As well as.

As well what we're seeing now is just a bit more.

Uh huh.

Ability to leverage the consumables dominate back just based on.

Having a more devoted Fas team out there so.

I hope that helps in sort of illustrating just distribution wise, what we're seeing across the world.

Definitely I appreciate it and maybe one more.

Can you talk about the.

Dynamic.

What youre hearing from your customers between two Aamac cookbook.

Last earnings call you spoke about.

Colt market timing and competition.

Raj just kind of wanted to see where you guys are at.

But doing the launch timeline.

And also what your margin assumptions are for one year.

We're expecting the overall impact of a couple of module.

Yeah.

Okay, sorry, I missed maybe it's our connection I think I heard most of that so I'm going to try to answer most of it will start with.

Right. So if you're just thinking about.

Why code Plex and complex Q as we're terming it.

Is a focus for the organization. So maybe a couple of things I highlighted.

No.

It became obvious to us.

Net.

There was a really important need in the proteomics market for something we're trying to be a large signature readout multiplexed at that figure.

I think in the field at call it mid multiplex, but let's call. It that large signature readout 2030, <unk> things like this but with a fully really effortlessly automated workflow.

We have.

A lot of our own team.

Who was as they develop single cell assays over the years.

Does.

Essentially leveraging existing bead based multiplex systems out there like <unk> or other systems to essentially validate our understand how did your stimulations and basic things like this before we ran the ISO quote.

It was just it's just difficult right its difficult for them to do the workflow.

There's all these sort of.

Let's call it collateral damage when it is difficult to do workflow and there's heavy training involved.

We started just using our barcoding system. The original Barcoding system, we brought in from these universities.

And they were just like Wow. This is like Super easy to use when put on our existing systems sparkling the isolate and we just.

Kept using it more internally and we're not that different from our own customers right. Like we just recognized there is a huge opportunity right and it was worthwhile to create its own product line for it and.

What we did was we.

Validated it tremendously right over the let's call. It a couple of years, we had an early access version.

The difference between the early access version.

The full fledged version is you can do about 30 30 wells 30 samples.

In single Kit and now with our complex Q, you're going to be able to do per run 80 wells or 80 samples in triplicate first product right too soon thereafter, you're going to be able to do a 120 wells per run in triplicate, that's going to be probably in the middle of next year.

And that's super exciting for not only us not only to be able to do these optimization assays, but all of our customers who run supernatant tend to run CRM and things like this so it's a.

Big market for that type of technology. If you just think about the state of affairs right now.

It's C. Both from the customer perspective it.

It's hard to retain trained labor and if something is super difficult to use or just takes a full day of hands on time, you can free that up just something that's pipe petting go and still get quality data out of that.

That's super exciting proposition and we're the only company period, you can look at the landscape that offers the largest signature multiplexing and the fully automated ease of use and Thats just.

Totally big value prop I think the second thing that we share with our 302 first survey, it's kind of obvious when you think about we're in more of a value world right now.

But people said they pay much more for our system and it's much easier to justify the purchase if you have the <unk> and <unk>.

If you had the complex platform and the <unk> platform in one and Thats, what we are delivering on the spark right. So why are we excited about the launch.

I think we're excited about the launch because we've used it for forever right for a long time internally.

We love the data customers loved the data right. It's sensitive it's as we've termed it quality quantitative and quick.

And it's two in one right. It just helps honestly even.

Knowing that this is coming.

Is helpful for spark purchases because people realize they're going to get a lot more value out of it so.

That's the deal on complex Q, and how we see that progressing.

So you touched on general make it look.

We've taken that genomic team now down too.

A very small we call it a skeleton crew for for developing do all that great and we still get a lot of customer calls on it.

We always want to reiterate when that data comes out people worked hard on the data we presented at three conferences, it's really cool. It's the first time, it's ever been seen right. There is there is nothing out there that's been able to still get the protein cytokines signatures from cells and then tell US why is that happening from the genes from the same single cells immune cells.

We're very plastics are very different people want this type of data to connect the dots that have never been connected.

It was just.

Honestly, we didn't when we had to do a risk we had as we talked about which are down 37% of our opex.

We couldnt build a whole are commercially to do sequencing sales required here.

In that market, even if we had an awesome differentiated products. So we're still going to release it.

Product release plan for later 2023 years.

Exactly what we're talking about Coke Flex Isis Park does the Isa <unk> system.

System is becoming a mainstay, which we talked about during the earnings call. We have complex Q on top of that Super exciting right to offer in one system genomics also going to come out of the ICU spark.

And based on some products with progress we made in this match Barcoding, which basically is the underlying way to increase sell throughput. We just we feel it's going to be an exciting product and it's going to be.

Is this sort of I.

I guess some of the hype that came out during these conferences previously so that's how we're thinking about it we're just trying to like.

Deliver customer demand with the financial resources that we have so.

I hope that helps I think Jordan that Jordan on the line right.

Yes. Thank you.

Paul.

Thank you one moment for our next question. Please.

And it comes from the line of Max Masucci with Cowen.

Hi, This is Joe on for Max.

Can you just speak to the incremental headwinds youre seeing this quarter versus last that led to the latest revenue guide and what's giving you the confidence.

Revenue up in Q4.

Right.

Yes, I mean do we went over this last quarter a bit I think to your question.

What our core response was as we continue to see our customers purchasing its course like US I think just to reiterate.

We grew revenue by 7% with Opex sort of down 37% right. So like obviously, that's being driven by the customer.

Because we're.

Were still reducing operating expenditure.

Coming to the realities of what the capital markets are.

And that's also in the face of let's say a strong U S.

Some difficulties for emerging companies and.

Europe , especially but in APAC, just because you don't have.

The full benefits of.

Of.

Let's call it a larger force in a larger distribution network of some of these larger companies.

And.

I think we've always and you can look back across our Q4 as we've always seen what we see in the pipeline now is.

<unk> Biopharma, who have budget.

Were considering purchasing and typically you get a lot of repeat users. During Q4 that helps I think we've already started to see.

That's a slew of purchase orders from.

The academic world right. So some of that pipeline building into Q3 that carried over to Q4.

And I think frankly like one initiatives that our finance team and our sales operations team really started in earnest at the end of Q2.

As we turn over a new leaf was getting more and more and more customers to pay for service contracts. So youre starting to see that and that's in the service contract annuity.

Sorry to see that play out in that service line. So I think all in.

Got that.

Sort of set of factors is why we feel confident in the numbers. We just put out if that's kind of the core.

Question.

John on the line.

Jeff Yes for sure.

Hey, Scott.

And then just maybe your latest thoughts around the 40% consumables growth on 2022 that you talked about last quarter.

So what I'll say for consumables growth is like this is our best consumable quarter ever I think I am reiterating what John said on the call.

<unk>.

A lot of a lot of what we're seeing is maybe a few things right. So there is a concentration.

We have on an annualized basis customers that are spending.

Over a couple of hundred K, our pull through rate.

We see kind of 50% of our year to date consumable use concentrating in.

Maybe less than a quarter of our installed base.

So there's a lot of concentration and ended up as you can guess being between pharma and biotech where we feel like we're pretty good at driving throughput at least in the United States.

Maybe a couple of things we think about.

We have not been as we've expanded throughout the world and there has been more more and more customer interest in our systems just from a coverage perspective, and a resources perspective.

This year, obviously as you guys have seen like we've been able to hit in previous years like 38, 39 K pull through.

We've had trouble.

Keeping up with that installed base just coverage wise right and that's just a function of resources, it's not a function of.

The heavy demand we're seeing in a concentrated set of users in the United States.

No.

What we're thinking about is one always trying to get out there and tell customers are stories in all of the high velocity of publications in all the key killer applications, we have on our system I think too.

We're going to really especially internationally, but just around the world continue to really think thoughtfully about partnering distribution wise to increase our coverage right touch the customers and really hear the customers.

On a more regular basis, but what I'd say is that.

Our team is working real hard with weather.

We have to make that happen. We're also going to compete and invest in sales and SaaS head count that's somewhere where we're going to.

Continue to invest because obviously you pay the dividend.

That's kind of it.

Lease that indicates where our heads are at and where our customers' heads are on consumables.

Great and then just lastly on the there are some really nice expense reduction in the quarter.

Are you feeling good about where the organization stands today in terms of numbers.

You guys can start really humming.

Progressing going forward.

I'd say this one.

So the team worked hard right taking those off.

Thanks, and head count, 37% down 40% down so.

That basically digest that is not an easy thing and then to be able to like progress code <unk> cute.

Progress some of these throughput tool <unk> to grow revenue, that's not easy stuff.

We feel look I mean, there is two things we feel great about the team we have right.

We feel.

Honestly, there is some confidence level going into pipeline building on the commercial side.

Yet at the same time, our finance team is working on any way to reduce basically ongoing opex.

While trying to preserve head count as much as possible, maybe what I can do is pass to John just a little bit on.

Ways that we're thinking about we've already actually implemented some of these operating expenditure reductions that you can't see in Q3 right away, but we are taking our base down so that.

We can further reduce that opex and frankly like.

Focus with a focus on cash reduce cash opex because some of what you see in our Opex is obviously, a large amount of DNA coming from our previous IP acquisition and some of these other things. So John you want to just sort of highlight some of the things we're thinking about sure and Joe maybe to segue from what our Opex was for Q3 into our.

Our expectation for the $17 million run rate by the end of this year and it's largely non payroll opex. So Sean talked about a couple of things. If you go back to that we continue to execute on and if you go back to April when we talked about the re org and the reduction in force software licenses things like that we've continued to renegotiate.

Renew at lower rates and will start to see the benefit of some of that in Q4.

GNL is one I'll throw out there you know we just went through renewal so we have.

The substantial savings there so we'll start to see that.

In the fourth quarter and the other thing I'll mention is just the continued transition from more of a reliance on third party service providers to actually providing those services internally in tangshan talked about the talented team we have fulfilling those services internally. So all of that creates a more productive in.

Lean and efficient organization.

Great. Thanks for taking the questions.

Sure.

One moment for our next question.

And it comes from the line of Puneet <unk> with SBB Securities. Please go ahead.

If you have Mike on for Puneet. Thank you for taking my question.

My first question has to do with the gross margin.

Im just kind of wondering what the driver was for the.

The sequential step down and I know you mentioned.

And consumables and obviously, we'd expect that.

Help lift margins I'm just wondering if there is any sort of other dynamics that we should keep in mind.

Yes, it's actually not it's actually not Cogs in this case I mean, I think Jon highlighted.

The strength.

Let's keeping down that Cogs at box is at the core.

The building inventory, but we look at that inventory as an asset.

I think.

Part of that was just a slight drop in ASP in Q3 I mean.

So if you think about where that came from.

A couple of those units were.

Really exciting partnerships that we're dealing with people for more.

More collaborative partnerships, which I would call.

Testing the <unk>.

Our systems.

Sure.

And various new places and with new applications that are I think you know.

Just exciting and I can't say much about it because it's confidential but.

I think the other side was.

Customers that are buying multiple systems right for someone to buy a system it'll be for various sites in various labs, but.

We saw one enterprise order, where there was a discount to the ASP across.

I believe it was 40 units and purchase orders from the same customer.

And I think that's a sure sign of strength while at the same time of course, there is a negotiation and there is some.

Slight ASP, but if you think of.

Even small his CSP.

Does drive that reduction in GM.

And so we view that as just.

The nature of sort of the number of doors.

We sell across our installed base John do you want to add anything to that yes, maybe just to quantify a little bit of a net ASP differential in Q3 accounted for about 200 basis points in margin. So just if you think about that.

<unk> is really accounting for that sequential decrease in just you know as we go forward so talked about asps really maintaining a focus internally and in our daily sales activity across the commercial team and maintaining our targeted ASP.

We've talked quite a bit about a reduction in Cogs, which will start to see inc.

Incremental improvement next year from our consumable business and the last thing I'll say is we mentioned the service contracts.

We have we've increased our run rate going forward on those contracts.

Highly profitable and gives us confidence about our gross margin expansion plan going forward.

Okay, great. Thanks.

And then I was wondering if you could offer any color about.

What are you thinking about growth next year. So obviously this year kind of a.

Phase III said.

Any early thoughts on what 2023 might look.

Yes.

<unk>.

Think about it this way.

Like you said this year has been kind of a.

And eventful year for all of us.

Aureus reasons, but as we got leaner and as we got more conviction about our core flex Q product.

We feel good about the early feedback on.

How selling the <unk> systems with ISO code and complex Q really plays to our existing customers, but also to a range of new customers, who then wait for solutions like this.

We're not providing necessarily any guidance for 2023.

Kind of.

I know you guys want to adjust your models and things.

But it's not what we're doing on this call I think there's still more to learn we're having lots of voice of customer around the product improvements that we have on iqos as well as.

Licensed park enhancement by now being able to sell <unk> and ISO coated the same system. So just more to learn from that.

And also just more to think about as we I think as we mentioned.

Specialty internationally continue to think through these distribution partnerships and what does that mean for us and I think from the Opex perspective.

The revenue side, we're excited about the year, we just don't want to give a number at this point.

I think from the Opex perspective.

We're really focused on.

I think as John mentioned.

Proving out throughout the year that we're on a path to <unk>.

Our positive that's just what we're thinking about right. So how do we do that it's the various levers we talked about is getting super efficient.

And productive with our commercial team.

Yeah.

Not.

Being very prudent about how we use expenditures.

As John said for software licenses and Theres, just a lot around the edges that we spend money on and.

Really just again being efficient in development and in our operations as well to improve those gross margins while we.

At the same time, as we're improving productivity and we have to.

This amount of initiatives to increase automation improve automation.

And the like around our consumables. So that's how we look at it. It's like we're we're not prepared if theres going to be we think theres going to be some excitement around you all make at the end of the year, but again.

Benefits to spark right and that benefit is something we kind of already know.

Already trust from the customer is already trusts so.

That's the way we're looking at it right now.

Great and then I guess.

One more about the service revenue I was wondering if you have any.

The analyses on service can be sort of a leading indicator to eventual instrument install adoption by customers.

<unk>.

Worked for them in your own lab eventually, bringing it to their lab I'm not sure. If you have any comments there.

Service has always been.

Our service team and our applications team, which combine into the sort of service offerings.

It's just always been an amazing funnel for us.

Produce instruments out there in the field even in Q4, it's been the same thing right Mike.

And we expect that to continue we well we've also seen historically.

One reason.

Choosing to emphasize service businesses.

When a pharma right sort of invest in a service contract.

We had many with farmers a lot of times that cross pollinates right with other aspects of the pharma and art.

And arent as virtual in nature that do run their own labs, right and that you want instrumentation.

Relatively easy to use but also delivers is different and differentiated.

Large signature immune data from single cells now from bulk so we're always going to use that as.

As a driver.

To help drive instrumentation purchases.

Great. Thank you very much.

Thank you for a moment for our next question.

And it comes from the line of Savant with Morgan Stanley . Please proceed.

Hey, Good morning, guys. This is edmund on for patients. Thank you for the question.

Hey, good morning.

Just wanted to circle back on your strong consumable performance in the quarter.

Peers in this space have noted industry inventory stocking and destocking trends at a customer site as a supply chain pressures start easing slightly I was wondering if you're starting to see that trend and whether or not you have good visibility there with the connectivity on the instruments.

Yeah. So.

It's a little bit probably just based on.

Area of use translational medicine versus like bio processing and things like this this is just.

I'm not the world's expert on bio processing businesses, but for translational medicine.

Customers are really.

I would turn that more buying us if that makes sense.

Producers basically.

It's how we drive our consumable strategy more visibility and when people have let's say a blanket order, they're using real time, we leverage our SaaS team to understand whether that users are not has occurred and we know when let's say up.

Our full blanket order is going to be fulfilled we have a lot of those going into Q4.

And or whether or not it may not be if for example, there is no usage. So I would say we are.

It's a little bit of a different model for us as far as consumable usage and that helps us get visibility.

So we do understand this sort of destocking issue or stocking destocking issue that may or may not be having in sort of other areas.

Got it and then just to circle back on your 'twenty, two guidance and how you're thinking about 'twenty three understanding that you guys don't want to give numbers just yet but previously you guys had said that you expect 'twenty two sorry, 'twenty two 'twenty three growth to be substantially higher than growth rates.

The 20% plus this year.

And the streets of that added about 60% year over year growth of 23, So how should we juxtapose. These two comments given the new guidance for 'twenty two.

I missed a little bit of that there was some background noise and then just sorry go ahead.

[laughter].

Thank you Carmen.

That's substantially higher growth rates in 23 versus the 20% implied this year, which was your last guidance.

I think the street took that as about 60% year over year growth in 'twenty three so now that in light of the new guidance, how should we juxtapose. These two things.

Yes.

Good question right I think if you think about where we go in 2023, a lot of it comes down to.

Frankly, the understanding of the voice of customer.

<unk>. This is the first time, we're offering just a home run product second home run product on the ice spark with the ISO code. So a lot of it base into just.

We think it's the perfect timing to release something like this we're not done.

Seized and focused approach as well.

We already know a bunch of customers that highlights the spark systems.

With the robustness with the vast improvement in throughput all of these things are just like.

We have a set of universe in Q1, where we know they're going to want to use coke like SKU.

And I think the phased approach for us is as.

As we work, but then as we demo or coke like SKU as they use that system, we're going to be focused on people that honestly.

Like large signature data, but they don't have an easy to use automated pipette ecosystem and that's hurting their sort of lab operations and will be focused on those guys in Q2, and Q3, which are largest starting with iusacell and <unk> complex, but as Q3 progressed with people that are complex first they like the idea of getting ISO coat.

And the spot price.

It's the same immune monitoring type customer base, but it's a slightly different viewpoint from the customer and we said, we think thats going to drive a lot of growth rate and we think that also if you think about what happened. This year you guys knew about this.

It was difficult to digest basically a large.

Large reduction in force.

And on the commercial teams, especially and then be able to turn around and drive growth in the same year, which we largely have done so far so.

I think look I think.

Next year, we'll they're just going to be in a better position, we're ready for the ready to sort of increase the.

The value that we deliver on the <unk> system. The Isa spark is robust and ready to go right.

We use it all the time, it's her teeth.

Obviously, becoming the flagship instrument for us So I'd say, we feel feel pretty good but I just can't comment on the exact 2023 numbers I think is just the position you talked about it.

The potential slight decrease in the end of year number relative to where we see it launch we don't see the because we are not launching coke life Q at the end of this year and we're obviously not launching do I'll make at the end of this year like we don't see those.

I don't see those two can count on each other.

I hope I'm being sort of helpful.

No I got it. Thank you and then I was wondering if you guys could provide some more detail on your partnership with many merchant in the CBB It sounds like.

Some of the sample processing will go into the service line and that situation, how should we be thinking about the growth of the service line going forward.

Sure.

Sure.

I think we tried to be conservative on the growth of the service line I think.

<unk>.

This this work together has been great right with the contracts you just mentioned and the team over there are emerging.

Team over at various.

Curious collaborators involved.

Yeah.

We have a pipeline of service contracts. It is not historically been the number one focus of our sales team.

It actually became more of a focus of our sales team as you can imagine right in Q3, and so we compensate based on service sales now.

So we're seeing really an increase of the pipeline in Q4.

Again.

I always want to help but I can't comment on the growth rate of service line for 2023, I just think I told you some qualitative things that.

Yes.

We focused on and we recognize if we can compensated.

In a fair way to a sale.

We can see some real.

Sources impact in the future.

Got it Super helpful. Thank you for your time today.

Thank you and with that I will conclude the Q&A session and program for today. Thank you for your participation you may now disconnect good day.