Q3 2022 Somalogic Inc Earnings Call
Good morning, and welcome to <unk> third quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
We will be facilitating a question and answer session towards the end of today's call.
As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Marisa bike with Gilmartin group Investor Relations for introductory comments.
Thank you today, so melodic released financial results for the quarter ended September 30.
Yeah.
A copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make forward looking statements. During this call within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.
All forward looking statements, including without limitation those relating to our market opportunity gross margin in future financial performance protein content and database growth customer base diagnostic pipeline expectations for hiring growth in our organization are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
You should not place undue reliance on these statements.
A list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent Form 10-Q filed with Securities and Exchange Commission in the section entitled Risk factors in our most recent annual report on Form 10-K.
This conference call contains time sensitive information and is accurate only as of the live broadcast today November 14 2022.
<unk> disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
I will turn the call over to voice My Chief Executive Officer.
Thank you Marissa.
Good morning, and welcome to our 2022 third quarter update call.
I'd like to start by thanking all of our investing in support somewhat because we continue to successfully transported.
Many years of innovation and to a more complete understanding of human biology safer more effective therapies better patient care by leveraging the power of proteomics in ways that no other platform.
Yes.
The commercial staff and structural reorganization, we have previously discussed for a life Sciences business.
As well as continued commercial growth are already bearing fruit.
We appointed a new leader for life Science commercial efforts.
From a centralized business unit structure to align all aspects of our life science commercial efforts, including sales marketing and product under one vertical and are putting much more emphasis on training for the large number of new sales staff hired over the past year.
I'm proud to share that we achieved $41 $7 million in revenue for this quarter.
As important we delivered army imperative to stabilize the lifestyle business and put that effort back on a growth track with $25 million in core revenue. In addition to licensing royalties of $21 2 million.
Yeah.
Shaun Blakeman, our Chief Financial Officer will discuss his comments.
Of our top line revenue as well as our ongoing cash management initiatives.
Gulfport plans to thoughtfully focus the bulk of our efforts.
Based on what our life sciences' commercial business and adjust expenditures.
On the other parts of our business accordingly.
We are executing well.
Business unit structure, and we plan to continue to do so.
Regarding our core business regarding our core business. The team has been acutely focused on the successful at achieving greater scale and customer diversity.
Important to both continue to see quarterly variability.
Five sequential revenue growth.
Tracking customers.
Existing customers.
Turning to smaller customers and Nomura.
Pursuant we've added 2040 customers using our products and services over the past 12 months.
Our biopharma customer revenue growth over the past two quarters I'm, sorry over the past two years another important fundamental building block to assure a progressive long term growth.
Comparing current year to date, excluding long term recurring contracts average quarterly revenue from Biopharma customers has increased more than 200% since during the 2020 fiscal year due both to the addition of new customers as well as the development of new project contracts with a large number of them.
This trend has continued customer diversification gives us a great deal of confidence in our ability to continue to substantially compound both financial and human value over the next several years.
Regarding the one time royalty payment of our revenue for this quarter I would like to remind everyone that developing a robust licensing component and associated revenue chart business has always been a part of our strategy.
No our thousands of proprietary reagents that potential application in a wide variety of life science use cases.
We previously shared that we hired Ken cast screen as our new senior Vice President of licensing and intellectual property strategy. This past March from Qualcomm, where he held a similar position.
He and his team are now working on new licensing opportunities and we are confident many of these will pay off over time.
The proteomics market as objectively grow.
Solutions like ours are being used more frequently by Biopharma and academic research customers for biologic discovery.
<unk> clinical trials and to improve patient care.
We are actively making it easier and more impactful for customers who work with us.
<unk>.
Expanding our current protein measurement identification product advantage and.
Deploying developing and launching sub service solutions.
Commercial team build out is a key area of focus, especially as we work to expand our international footprint in EMEA and APAC in order to capitalize on the substantial and largely untapped revenue opportunities in these geographies.
60% of the top 50 Biopharma companies in the World are located outside the United States as well as a number of important academic centers with specific interest in proteomics.
While we are still definitely a growth we have seen good progress with tenant talented new and experienced additions to our sales team in the third quarter.
Six of whom will be working to EMEA and APAC.
Our unique ability to synthesize that reagents, rather than having to work in biologic systems to create them enables much faster development of new protein identification of investment content than other approaches.
Our development of proprietary <unk> for our new 10-K projects will be completed over the next few months and we anticipate launch of this new product in late 2023.
And it will widen even more our already substantial current globally and platform content.
Shifting to our distributed solutions, we expect full access launch for our site of service seven Kt Soma scanned array based case into more <unk> certified sites by the end of this year.
We believe there is substantial upside potential for our business as we make existing kit products more widely available and.
And developed and deployed additional distributed products.
These solutions not only provide augmented topline revenue and meet more customer needs, but also reduce service business turning to only buy unlimited and limited reliance on customer project completion sample batching and delivery to us.
In addition to our markets our work with Illumina to develop co branded distributed Ngls protein measurement and identification kit product continues to go very well.
We value our close relationship with Illumina as long as our unwavering commitment to create market itself <unk> application of Soma scan.
We'll change the commercial landscape for <unk> based assays and changed the landscape for proteomics in general.
Consistent with limited reporting we anticipate these co branded products to launch in 2024.
Both we and our partners at Illumina look forward to updating you with further details in coming quarters.
In addition to these new products sales of modular distributed sample prep solutions that we now have in development for the array of NGL service can formats as Todd.
In the 2024 months timeframe.
In addition to new rate base, and NGL product and solution development and commercialization. We are committed to the development of novel <unk> based approaches as evidenced by our recent acquisition of comp metrics.
Our San Diego based global leader in DNA nanotechnology were.
We are incredibly excited about the intermediate to longer term opportunities for this work and they have such a talented development group now and the team to accelerate.
Yes.
<unk> on our core customer growth and diversification as well as the provision of new products and solutions.
Also been working tirelessly to alleviate pressures experienced over the summer.
Notably supply chain dynamics and customer spending behavior.
Despite the continued unpredictable nature of international trade the impact of supply chain issues on our business or less pronounced at this time we.
We have been proactively dealing with this fluid environment by taking matters into our own hands.
Dissipating issues before they occur and offering sample shipping suppliers or other assistance where needed.
Like many others, we continue to see stress on Biopharma buckets in this market. While we are very optimistic about our fourth quarter performance due to continued customer growth our conservative assessment when shared by others as well is that we can generally see a more modest cadence than is typical for customers. We usually work of spin down remaining budgets.
<unk>.
And therefore less sequential growth in the fourth quarter <unk> seen a typical year.
As we have discussed we will adjust our spending commensurate eventualities needed.
Okay.
Regarding our efforts in procurement diagnostics. We have previously shared will be accreted 16 laboratory developed tests or <unk> on our platform.
Related we will be announcing soon the results of a very positive trial for one example of these products are secondary cardiovascular risk test, which is superior predicting the risk of heart attack stroke or death in individuals affected by diabetes and other cardiovascular risk factors.
This clinical study was performed.
Absolutely sure healthcare these virtual trial platforms deleveraged by others to facilitate third party coverage for new health care products.
We continue to pursue licensing and partnership opportunities for these novel assets.
Quick note on two recent manuscripts published by teams at the NIH and FDA.
Two organizations respected for unbiased scientific integrity and Rick.
DNA.
<unk> trends main script published in nature scientific reports represents the largest technical evaluation of our <unk> platform today.
Demonstrating.
This extensive coverage of the human proteome.
Remarkable sensitivity and consistent low variability.
The authors pointed out these characteristics are unique in comparison to other proteomics approaches.
The FDA manuscript promising clinical pharmacology reports.
Safety ability of <unk> to characterize biosimilar drugs and according to the FDA investigators <unk> represented in a quote sensitive dynamic and highly reproducible methods.
We are encouraged and confident and our recent progress and the improvements we've made in execution over a short period of time.
We have reset and stabilize our core service business supported by a growing list of Biopharma and academic research customers and we have proven technology and platform with tremendous runway ahead of it.
Against this backdrop and based on our current trends in our business as well as onetime licensing royalties, we are raising revenue guidance for the full year 2022.
Sean will provide more detail on that guidance shortly.
In closing it's important to note that we continue to maintain an enviable balance sheet and all the optionality that comes with that resource.
However, in this market environment, its absolutely prudent to preserve as much capital as possible, while still aggressively capitalizing and executing effectively on topline revenue opportunities.
While some of our recent uptick in spending has been necessary to put information technology structure in place to support lifestyle commercial growth as well as public company operating structures in place we have previously announced our intent to make significant operational expense reductions moving forward.
By focusing on life sciences, commercial needs and opportunities and continuing to invest in them. We will do this while still growing the scale and success of that business.
Sean will discuss how we're executing and are on track for the initial stages of that plan.
Before I turn it over to Sean I would like to reemphasize, what we're building and some water.
Insights garnered from the use of our platform and already improved the landscape for customers and our important work in discovery clinical trials and patient care.
It's no longer debatable proteomics is a rapidly expanding market and our unique technology is the right one to capture a significant and increasing share of its value.
While we are still building our commercial capabilities, we are confident that tremendous opportunity objectively in front of us will unlock growth.
Deepen relationships with existing and new customers and create significant financial returns and human benefits.
As I've shared there is a great deal more to come in the near term and beyond.
I would now like to turn it over to Shaun for a review of our financial results Shawn.
Thanks, Greg.
Revenue for the third quarter of 2022 was $41 7 billion.
Compared to $20 million in the same period of the prior year.
We are pleased with the improvement in our as a services business and we are excited about the work our commercial team is doing.
All the ingredients to grow our platform are intact and in Q3, we saw the results of improved commercial execution.
And bill in the amount of licensing revenue recognized this quarter with unexpected have always point. This is just one example of licensing opportunities. We hope to proceed in the future.
Given the amount of license revenue this quarter I would like to provide additional clarity on our revenue breakdowns to help you understand our underlying business performance.
Breaking down the $41 7 million.
We recognized $17 6 million from our part as a services business.
0.4% increase from our third quarter 2021 assay services revenue of $17 5 million and a 68% increase for the $10 $9 million of Etsy services revenue, we recognized last quarter.
We also recognize $2 $9 million in revenue for our other core businesses, including kits licensing and collaboration revenue.
And then we recognized $21 2 million onetime licensing revenue that we mentioned.
Is $21 2 million was comprised of an $8 million upfront payment, which we received from <unk> as part of the terms of our Dubai Sabine agreement.
And $13 2 million recognized under GAAP of future guaranteed minimums.
$5 million that we paid to <unk> over the next three years from 2003 to 2025 for a total of $15 million.
Due to that we account for this arrangement as a financing type arrangement with $1 $8 million allocated to interest income that will be recognized over the next three years.
So this means that each year, we will be receiving $5 million that will not be recognized in those future years other than the small interest component I just described.
Gross margin for the third quarter of 2022, with 72% compared to 56, 1% in the third quarter of the prior year.
Gross margins were primarily driven by the large amount of licensing royalty revenues of 100% margins.
If you back that out.
Our margins ex royalties would be 39, 7%, which is due to lower biomass margin samples are lower margin biobank samples as I've discussed we will be running in Q2.
We'll continue to process those samples in Q4.
I would reiterate that our current volumes are core summit scan margins without biotech and large customer mix remained in the low to mid 50% range.
We signaled last quarter, and our Q2 earnings call that due to the impact of those low margin samples are second half margins would be overall fairly flat compared to the first half of 2022.
Given the additional warranty revenue this quarter, we anticipate gross margin for the second half of the year to improve the low 60% range.
Total operating expenses for the third quarter of 2022 were $70 7 million.
Compared to $36 2 million in the third quarter of 2021.
R&D expenses for the third quarter of 2020 to $19 4 million compared.
Compared to $15 6 million in the third quarter of 2021.
Sales general and administrative expenses for the third quarter of 2022, with $51 2 million compared to $26 million in the third quarter of 2021.
G&A included one time charges this quarter for stock based compensation and lease termination, adding approximately $15 million.
Adjusted EBITDA for the third quarter of 2022 with a loss of $31 9 million.
Compared to the loss of $18 million in the third quarter of 2021. Please.
Please see our press release on file with the SEC. This afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA.
We ended the quarter with $566 $3 million of cash cash equivalents and short term investments.
Our strong capital position is an important differentiator for our business in the current market environment and allows us increased flexibility to evaluate and act upon both organic and inorganic opportunities accretive to our current growth prospects.
And as part of our focus on reducing cash burn we are successfully implementing our plan to reduce operational expenses by $75 million from last quarter's operate exceeded consensus through 2023, which we announced last quarter, we have implemented over $10 million of savings. This year net of onetime items in Q3 and Q4.
Related to business optimization, and we are finalizing our plans with over 85% of the operating expense improvements through 2023 now identified.
We are appropriately pointing resources toward our highest revenue generating activities focused on life Sciences and fully supported the commercial growth of that business.
As Lloyd mentioned in his comments, while we do not anticipate the larger year end volume influx from our Biopharma customers. We Nevertheless, expect and look forward to continuing to build our commercial execution to end the year and going into 2023.
So turning to guidance based on our year to date progress and including this third quarter. So I think the revenue the current trends in our end of the current trends in our business. We now expect 2022 revenue.
At the end of the range of <unk> $93 million to $98 million.
At this point I would like to turn the call back to Barry.
Thank you Sean.
Again, thanks to everyone for joining us for this third quarter 2020 to report.
As a result of continuing to put the fundamental building blocks in place our business is gaining momentum.
There is ongoing and more commercial infrastructure growth and differentiation.
As well as the development of diversification and launch of new products, leveraging our unique core technology when that partners collaborators and customers, both want and need to deliver on our shared goals of the prevention of human suffering and the prolongation of meaningful life.
We look forward to sharing more with you in the coming months and with that.
I'll turn it back over to the operator for Q&A operator.
Thank you.
As a reminder to ask a question. Please press star one one.
Once again, if you would like to ask a question. Please press star one one.
Please standby, while we compile the Q&A roster.
Okay.
And our first question will come from Brandon courtyard from Jefferies. Your line is open.
Thanks. This is Matt on for Brandon Sean quick one for you on the prior $80 million to $90 million guide was there any of the various pieces.
Bio labs royalty baked into that number.
We did anticipate we knew that we were in negotiations. So we did anticipate getting some element of that certainly the exact amount was unknown at that time and some of the recognition around the minimums was unexpected going into the quarter. So the answer is yes, but I would also point out that our core business is also performing as we head into.
The data going into the second half. So we're trying to put out a reasonable guide based on all of that.
These things right now.
Okay. Thanks, and then for the fourth quarter, you guys noted more modest scale to spend at customers.
Sit here kind of halfway through the quarter now is that actually what you're seeing show up in order trends or is it more kind of.
Anecdotal and so taking a more conservative approach until maybe.
More traditional year end budget flush.
Yes. This is Roy.
I think we're on target.
Compared to where we would hope to be for the fourth quarter.
We're just anticipating again.
Based on the signals that we're inheriting and others are doing as well and this rush in the fourth quarter, especially for Biopharma customers.
To spin down their budgets in this market may be less pronounced.
But we do feel good about the upcoming quarter.
I would also point out this is the beyond that or do you think about the guide.
If you recall, what I said with.
Regarding the licensing revenue.
Not going to be recognized now in future quarters at the same way. So as you typically might see one or $2 million historically come in we're not going to see that next quarter for the reasons I explained.
Super Thank you.
Thank you one on that for our next question. Please.
And our next question will come from Kyle Nixon from Canaccord Genuity. Your line is open.
Hey, Thanks, So just want to go back to the fourth quarter I know.
You talked about.
Some of the puts and takes just wanted to dive into it a bit more of a it's pretty important. So this updated guidance I think it implies like $15 million and services revenue of 15% quarter to quarter decline.
Maybe just talk about like what that assumes for the macro headwinds maybe physically navy each factor and then elaborate on these biopharma trends.
Specifically wondering if that is applicable to both small biotech and large pharma and is there any catch up from prior quarters and the fourth quarter guidance as well I'm, just trying to kind of figure out the conservatism baked in there.
Okay.
Okay, Great Hey, guys. This is Shawn I'll actually just clarify something I think in that outlet Roy talk about some of the trends in further detail.
Think about the guide again.
Just tell Brandon.
<unk>.
We're not going to see that typical maybe a million or five $2 million at any revenue. So if you actually back that out and you are seeing.
At the midpoint, our App based services remaining relatively flat, which would again as we described a reflection.
Our anticipation that the biopharma volumes are going to be somewhat subdued compared to previous fourth quarters and also I'm just trying to account for.
Typical risks that might happen around the holidays and things like that which again can you samples and but we don't see or anticipate you're calling out any kind of deterioration in that business.
Third quarter.
Thank you Anne Marie.
No not really.
Anything to add again, just just that in this market.
We're not anticipating a huge spend down.
In previous fourth quarters.
In the last month of the quarter, we've often seen large drop in projects sort of in our biopharma customers can spin done our budgets and we're just not hearing that thats going to be the philosophy this year, but again.
We felt we feel really good about the guidance.
Yes.
Okay. Okay, guys. Thanks, but just like in Biopharma physically is that going to be the small companies. The big companies just kind of wondering.
And then kind of dynamic there and then also the catch up.
You talked about this in the past is there any of that in the fourth quarter as well could that be upside may be.
Sure.
There is possibility that some of the business that got pushed in the second quarter, we will we'll be able to close that out in the fourth quarter. There is a knock on effects.
With our larger biopharma customers and that they usually are doing projects sequentially.
So some of that takes longer to catch up in two quarters.
They have to finish a project it wasn't finished in the second quarter.
In the third quarter, maybe look at that data and then.
Over a quarter or so up the next project on our docket settlement, there should be some of that coming into the fourth quarter.
In regards to.
The difference between large biopharma and small biopharma.
Yes.
It's fairly idiosyncratic.
It really depends.
Mainly on not only the market context.
Well those companies are faring in this market context, we bought.
Sure.
Some are doing well and some are having in a massive way off so.
But theres no real pattern there it really varies from from customer to.
Customer and again, we're not talking about something dramatic here, we're just saying as we mentioned that we do believe there'll be a modest.
A decrease in that rush to spend down budgets at the end of the year This space and we're not the only one.
Seeing this or or predicting us from the fourth quarter.
Right it's been common.
Currently what we're hearing from companies that have it that was helpful. I appreciate that and then Sean.
Gross margins I appreciate the commentary that product with service gross margin decline to like high <unk> compared to the normalized kind of low to mid fifties.
I just wanted to know if you can kind of break down what you think services and product margins like have been or could be services. It looks like it's been high thirty's products have been slide 29% to 61% it looks like the past three quarters I mean, what do you think that gets to what kind of normalized just you talked to the <unk> I'm just kind of curious when you break it out for services in cats.
Just curious for that thanks.
Well I mean.
I would not I think what we're seeing early on in the kids margin no I wouldn't use that as the yard stick because there's a lot of ins and outs in terms of.
Equipment placement et cetera that and quite frankly also in that product category doesn't is not just kids, although certainly that's the bulk of it.
This quarter, so again I would anticipate that to be progressed and really expand our franchise that that would be over 50% margin business.
Looking at the core.
As a services.
What we said kind of baseline we started that people really take out some of the noise at the mid fifties, sorry mid to high Fifty's type business.
Right now with volumes just in the core Etsy services being a little below 20 that keeps it in the low to mid fifties that if we continue to expand.
As we continue to expand volume day or expect but again normalized margins just on our current cost structure would go back to the high Fifty's with volume leverage but again, it's really just the the biobank samples that are really driving that down this quarter.
August is running I would add that as well.
As we've discussed in past quarters.
These large population based studies are important for our business.
Based on the potential creation.
One or two measurement standards in the market.
Yes.
We obviously want to be.
One of those one or two if not the one so these large population based studies are important.
Sean referred to that we're running now as the human <unk> Technical Institute.
From Italy and.
These biobank projects are usually public private partnerships where governments.
Apply some of their resources to running the bio banks and we have to.
No.
<unk> some of our own resources as well there is top line.
Revenue coming from most of these it's just that we have to accept lower margins in exchange for the ability to run. These large population based biotech studies.
To participate in the development of measurement standard.
Okay that was great one more for me.
Just like <unk>.
As we prepare for the co branded kits rollout just kind of wanted to get an update on the NGL market, how you're kind of viewing that are sort of interacting with that how are you serving that market today Roy to ensure that you and your partner hit the ground running for the launch in 'twenty four.
So you got that Ace HG like are you going to be attending <unk> things like that.
Yes.
Okay.
Yes Carlo the partnership.
Alumina.
It has gone exceedingly well, so far and the development of the above.
<unk> product is on track.
From a timeline perspective.
<unk>.
Illumina is already out talking too punitive customers.
And as they have discussed in the past.
There's a big opportunity too.
Convert potentially large throughput genomic centers that they are very familiar with and have great relationships with.
And it's a proteomics customers as well we also felt like over the next year as we.
Increase.
Our kids business and decided to knock on effect.
For the co branded.
From a limiter as well.
Okay, that's great looking forward to thanks, guys.
Okay.
Thank you.
To ask a question. Please press star one one.
Okay.
Our next question will come from Evan sampler from Stifel. Your line is open.
Hey, guys How's it going into <unk> here on for Dan.
I just wanted to go back to his question about the fourth quarter.
Due to doing quick math it looks like.
Expectations came down by about 5 million Bucks and I know you referenced kind of 152 million.
<unk>.
Royalty revenue that you.
Are not going to see in the quarter is that kind of leaves another $3 million or so is that kind of the way to think about it and is that all because of lack of budget flush that maybe you're contemplating previously or are there other things that we should be.
About that caused you guys to bring down the number.
Hi can you give me just as Sean you mean relative to <unk>.
Fourth quarter consensus coming out of the last quarters call.
So again, yes.
Yes.
So it's really more of a reflection of just Brian I mean, I think the consensus models logically assumes.
A ramp up.
And we really are as we've always said, we really look at this as a full year type game and typically historically, we have seen Q4.
Exhibit some seasonality around biopharma budgets.
<unk> talked about that what types of data.
That's been more subdued this year.
That's really all you're seeing there if you look at the core services business.
We show in our sorry adds would be implied in our guide at the midpoint, you're really not seeing a degradation. We expect it to be fairly consistent with what we're doing this quarter and we're continuing to build out.
No.
That pipeline from our Q2 and the claw back out of that and Thats really simple of that there is not really any.
Eddie.
Anticipated.
Degradation again like I said previously it's just.
And to put out a guide we can rely on taking all the factors into account and we look forward to being able to continue to improve upon that in the future.
Yes, I would add this is roy.
No.
This quarter's core business.
As a 45% sequential increase compared to the second quarter.
And.
We certainly have no reason to believe that.
Going to have.
Any diversification from our current.
Execution progress in the fourth quarter, we feel pretty good about the fourth quarter.
Gotcha, and I mean I guess.
Alright, maybe theres no degradation, but it sounds like <unk> year on year, I think it's going to be about flat.
I guess, yes.
A big.
That's been in your commercial team has grown our losses last year.
Are these is the credit team just kind of getting up to speed where are you in that process relative to expectations.
Well first thing I would say is.
74% of our sales staff has been hired in the last year. It takes about nine months to get people.
Fully productive in a new territory.
And we're making good progress on bringing more people to that group and getting those people trained up and productive.
The fourth quarter last year.
It was an unusual quarter, we had a large drop in deal in the fourth quarter. In addition to the fourth quarter spend down.
The <unk> normally see.
So I wouldn't put much weight on.
This year's fourth quarter performance compared to last year's fourth quarter performance as we stated repeatedly.
This stage of our business and the fact that we're mainly a service business are still but we're obviously moving away from that rapidly with.
A very strong plan for distributed products.
There is a fair bit of variability and unpredictability quarter to quarter and fourth quarter last year with a large drop in deal is an example of that so.
I, certainly wouldn't say that comparing to fourth quarter last year to fourth quarter of this year implies anything of significance.
Thanks, and just one last question if I can.
Are there any additional like licensing deals that are maybe in the pipeline. Maybe you can't talk specifics where are these kind of things that we.
I should anticipate.
Down the road.
Okay.
Yes, as I said we.
We believe this will be an important part of our business moving forward this year.
New England lapses, one legacy deal.
We have not had the.
Talent or the focus that we need to put on this.
On the ground here until recently and we are in discussions with a number of other potential licensees.
It may not be next quarter to quarter after that.
Depending on how things go, but we feel very confident that the use cases for <unk>.
Of which we now have thousands and thousands.
That we've created.
And are capable of distributing the others. The use cases for these in life Sciences contexts.
Are fairly similar to the use cases for antibiotics.
With some added these cases as well as the new England bio.
Neil.
Exemplifies so yes, we are in discussions with some other licensees I do believe rather than over the next year that we will we will win some additional deals.
Mr. Sandler Please make sure your line is not on mute.
That was all I had thank you.
Thank you one moment for our next question. Please.
And our next question.
Will come from Dan Brennan from Cowen Your line is open.
Great. Thanks, Thanks, guys for taking the question.
Maybe just a few more on the fourth quarter and then we can go bigger picture just on <unk>.
Sean I think you mentioned.
The guide reflects flat quarter to quarter on arrays I mean, if you take the 93 to 98.
An implied $14 two to $19 two for the fourth quarter to about $16 7 million at the bid.
$17 6 million a raised I just wanted to square the circle on the comment that the guide implies flat rate, you're just saying like within the range. Although the midpoint below maybe just give me some color on that first.
Yes, Hi, Dan.
Well, let me be clear no I wasn't trying to put out.
The exact number for Q4, because that's obviously why we're giving a range, but I just was trying to clarify exactly the question put it at the low end just trying to clarify that if you really look at the core assay service businesses.
<unk> of that is.
It's relatively flattish it could be a little bit more or less than that given the range youre right, but I am not specifically, implying a number with that comment other than just that if you go to the low end.
<unk>.
Thank you.
Tried.
Tried to point more towards the mid range of that being relatively flattish with all I meant by that.
Got it and then and then does the guidance assume that.
<unk> business in the fourth quarter I would assume I mean, you've been getting a million or so roughly a quarter.
The Kid business, while the full length and the full launches, yes, maybe you can clarify what the philosophy going to occur I heard in the prepared remarks, but just give us some sense of what's expected in the fourth quarter for that.
Well wed actually particularly breaking out.
Categories in the guide, but again the guide is all inclusive. So that's all of the core components with the exception of again.
The typical licensing revenue, which is primarily <unk> that previously would have been recognized each quarter and historically has kind of been a $1 $2 million in the last year each quarter.
It's not going to be recognized due to the new range digit arrangement.
Hey, Dan This is mark we had a successful beta program for kits.
We do plan to add.
Some of our certified sites in the fourth quarter to that beta program.
And for full access to really kick off right at the end of the year. We do have a number of sites in the pipeline for that full access as well.
Got it got it okay. So you had basically Sean.
Thanks for that right. So basically in the fourth quarter, you would have anticipated in the prior guy to have basically gotten the $1 billion or $2.
From this royalty in the fourth quarter, and then you wind up getting a much much bigger amount, obviously with the ups deal, but part of the fourth quarter. The prior way we thought about the fourth quarter was that <unk> was coming in now it's not going to come is that fair.
Yes, I mean, certainly as of last quarter before we signed the agreement and went through all the proper accounting on it yes, we had anticipated quarterly revenues from that to be analogous to what we've seen previously so yes that is a change going forward for us certainly from our previous expectations.
This is Robert.
Again, we're trying to be mindful of all of the context in the fourth quarter.
<unk> revenues.
Being obviously paid into this quarter instead of next quarter.
The likelihood that some of our large biopharma customers are not going to rush to spin down their budgets in the fourth quarter I don't want to be clear about that.
Reset of stabilization of our core <unk> business.
We believe will continue into the fourth quarter.
Got it and back it <unk> when you were providing guidance and I think the way you articulated the language very conservative. So basically what you are seeing from pharma back then and you thought it was a conservative element to it I guess things just have gotten worse on the overall end markets or is it just the <unk>.
Much bigger degree of conservatism that you're baking in just trying to think through what transpired because they know what Q2 you guys had seen obviously this pause in pharma spending.
And I thought that you guys have tried to incorporate kind of that pause persisting into the fourth quarter.
Yes data.
Yes.
Second quarter slowdown in contracting was.
Was fairly idiosyncratic.
Certainly not seeing a slowdown in contracting now things are moving along.
I think we like everybody else and at the beginning of the year hope to this market.
Would already be much better, but it's just not and so again, we're just trying to be.
It's not a conservative pragmatic.
The spinning behavior in this market in the fourth quarter, but we're not.
Supply chain issues that we saw earlier in the year that mostly aggregated in large part due to our proactive activities.
And contracts are moving along.
That's sort of the usual pace now.
We're just again trying to be pragmatic about the prolongation of this.
This tough market and the impact that could have on our biopharma customers.
The fourth quarter, it's really nothing more than that.
And what's happening on the academic front.
Spending pretty consistent there or is there any choppiness just from kind of a global macro.
Spending has been pretty consistent on the academic.
Not surprising right because.
Must be academic spending is driven by grants.
And the impact of the economy on on grant funding.
A couple of years in arrears so.
But based on what the federal government outlays for Federal Grant support program. So we really haven't seen much of a.
What changed there.
And a significant percentage.
Our growth over the last year or year and a half has been.
Adding more academic sites in addition to biopharma customers as well.
Got it.
Okay.
Trying to think if there was one more I could go to here.
And in terms of.
The ongoing licensing strategy. So obviously this is a.
Royalty deal is the truth.
Notable one right.
You wanted to exit 'twenty two with the view that you have got multiple drivers of your business. Obviously this.
Notable.
Royalty there was a big one what's the pipeline look on that front in terms of additional licensing deals whether.
Before year end or over call. It over the course of the next say 12 months.
Yes, we don't anticipate any large licensing deals before the end of the year although.
We certainly are going to turn it down if we get one over the finish line before before the end of this fiscal year, we just hired our head of licensing this past March.
Really I would say just now coming fully up to speed as a small team working with them and has a number of conversations ongoing.
<unk>.
While I don't see any large licensing deals before the end of this quarter.
There there could be some licensing deals signed in the next year.
We have a lot of opportunities again.
Use cases for some of them are Jacobs from the life Sciences context.
Large and the conversations we're having now.
Sort of span the spectrum of those use cases.
And maybe last one I know I know, we're not going to talk about 2003 today, but the consensus models have revenues up 35% year on year, obviously, you're talking about is still.
Pharma.
Spending environment.
Having some pauses in it right now.
Any any lead indicators about that lifting.
As we exit 'twenty, two without giving numbers, how you feel about the trajectory of the business going into 'twenty three.
We felt good about trajectory of the business, obviously, we can only control.
What we can control.
Sure.
We feel good about expanding into EMEA and APAC.
I mentioned that we put six individuals' into those regions just last quarter, probably more important to notice that we hired are market leaders for both of those regions, which should accelerate our success.
Creating a full contingent of folks on the ground there we're looking at some partnerships.
U S as well.
And obviously, the large new customer growth that we've experienced over the last year.
We will begin to bear fruit.
As those customers complete their first projects and move onto the second and third larger projects and we get more projects under each of those umbrella, we certainly can't control the market context in 2023.
Great if we could.
We can only control what we can control the things that we can control.
Finishing out the growth of the commercial team expanding our geographic reach.
Putting our distributed solutions more effectively and more heavily into the market are all things we anticipate happening in 2023. In addition to beginning to hopefully capitalize more on our significant customer growth we've had over the past 18 months.
Okay.
Got it okay.
Okay.
Alright, Thank you very much.
Thanks.
You and I am showing no further questions from our phone lines I would now like to turn the conference back over to Raj <unk> for any closing remarks.
Great.
Thank you operator.
Okay.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Okay.
Yes.
Thank you Christina.
The conference will begin shortly.
Raise your hand during Q&A, you can dial star one one.
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Yeah.
Okay.
Yes.
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