Q3 2022 Standard BioTools Inc Earnings Call

Hello, and welcome to the standard financial incorporated third quarter 2022 financial results Conference call.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host.

Peter Denardo Investor relations. Thank.

Thank you Mr. Bernardo you may begin.

Thank you operator, good afternoon, everyone welcome to standard buyout tools third quarter 2022 earnings conference call at the close of the market today dinner bio tools released its financial results for the quarter ended September 32022. During this call. We will review our results provide comp.

Terry on our financial and operational performance market trends and strategic initiatives presenting for standard Biofuels today will be Michael egg home ph D. G.

Chief Executive Officer, President and become Joe our CFO during the call. We will make forward looking statements about events and circumstances that have not yet occurred including plans and projections for our business future financial results and market trends and opportunities. These statements are subject to substantial risks and uncertainties that may cause actual.

That's a result to differ materially from current expectations.

We're looking statements in this call are based on information currently available to us and we disclaim any obligation to update these statements except as may be required by law. During the call. We will also present some financial information on a non-GAAP basis. We encourage you to carefully consider our results under GAAP as well as our supplemental non-GAAP information.

And the reconciliation between these presentations, which are disclosed in a table accompanying our earnings release.

Please note that management will be referring to a slide presentation, including updated supplemental financial information within the west cap today and this presentation is also posted on our website I would also like to note that the company will not be hosting a Q&A session. Following prepared remarks during today's conference call I will now turn the call over to Michael Egg home Archie.

Executive Officer, and President Michael.

Good afternoon, and welcome to spend about two third quarter 2022 conference call and the first full quarter with our new executive leadership team in place.

The standup pouches Copa transformation of this company begins with stabilizing what we now call our core commercial business.

We'll assess holistically on the basis of instrument growth.

Super Bowls and service revenue.

<unk> two was interest rate broadly is built on our well established razor razor blade business model and that is how we view. This business. Further success is based on a focused as we continued to streamline the Siemens products.

As well as raise the bar on growth profitability and overall corporate execution.

It remains work to do but this quarter shows encouraging green shoots of that process with a 30% sequential growth in cold products and service revenue.

While we stabilize the commercialization as we must do so in the context of improved corporate profitability to this end, we are well underway focusing on gross margin and operational expense improvement and iterate here. So.

So stated financial goals.

Achieved 700 to 1000 basis points improvement in gross margin by year end 2023.

Significantly reduce operating cash burn in 2023 and achieved positive free cash flow by year end 2020.

Finally, having spent nearly 30 years in the lifetimes towards interest rate. It has never been more clear to me that there is a strategic need for consolidation in our industry. It's our belief that the portfolio approach is to only validate the business model that is capable of delivering consistent compounding.

Long term returns to shareholders. It's also the only business model to release, the obvious innovation bottleneck, keeping investors entrepreneurs and scientists disappointed and frustrated today what.

What do I mean by innovation bottleneck today also prolific period of investment and innovation and next generation life Science tools, almost all businesses are stumbling with the scaling of product development manufacturing and commercial discipline and execution customer support and basic fiscal discipline.

These are not technology problems per se, but business issues Luckily.

Well one business solutions to those challenges that is if you have the right mix of operating and technical talent.

These are naturally is different skill sets to master and from my experience launching successful companies have many of the former and unsuccessful small players had too many of the latter.

I built the team here with proven players across those disciplines and more are joining monthly we're confident that this team co platform.

And capital to expand we have all the required components to address the industry wide challenge executed on validation and realize the full potential of our platform.

Create a diversified innovation focused life science tools companies, serving the pharma and research market. It has been done before and we're on our way to doing it again.

A key element of our strategy is to grow through M&A, and we're methodically advancing conversations with chocolate companies using a disciplined approach and an eye and not just on the core promise, but how we successfully integrating businesses and performance of those businesses over time.

On revenue growth, we're beginning to see pop question that fund with core product and service revenue for the third quarter of $28 million, representing a 30% sequential growth.

So the second quarter of 2022.

This was favorable compared to coal product and service revenue in the third quarter 2021, 3% year over year growth in constant currency, despite macro weakness in EMEA.

Forward, we continue to focus on our core product and service revenue and its sequential growth to track our progress.

Underpinning the sequential growth in the quota.

Sales funds Madison man and a renewed discipline, that's synonymous with Sds. The approach is beginning to work and wildly identifying untapped demand in won't fully take hold go one night. We are encouraged by the early results, but we realize there's still a lot of hard work to be done.

Geographically, we experienced strong sequential growth across all regions.

Since joining we successfully rebuilt the America sales team attracting high quality and skilled salespeople to drive our commercial efforts forward, which we believe is responsible in part but early success this past quarter.

We'll continue to invest in leadership and standard work across the globe outside the U S. We know what the headwinds from macroeconomic challenges and ethics question and we are positioning ourselves for when these markets become healthier.

Our second priority is to improve operating discipline, we have stepped up our troops business system or Sps, which we view as a force multiplier lean as a way of thinking that we apply to everything we do and every facet of our business. We continue to rollout SBS training across the organization.

And I'm proud to report that our team has embraced the kaizen approach of continuous improvement displaying a revitalized sense of pride and empowerment.

Do.

We're beginning to see the benefits of SBA has translated into performance and we are on the way to achieving our stated goal of 700 to 1000 basis point gross margin improvement by year end 'twenty to 'twenty. Three we expect this should result in non-GAAP product and service gross margin of 65% to 68%.

By year end, 2023, driven by lean transformation and volume growth and value of silly.

In this environment controlling cost is funded.

Our aim is to significantly reduce operating costs to generate positive cash flow by year end 2020. So the team is doing what we brought in to do to make that a reality and we believe we are well on our way to achieving this goal.

There's more clean up to do as I, just outlined but I can tell you. This we're spending less today than when I joined excluding business improvement expenses, which we expect to substantially reduce as we approach year end.

In August we announced a phased restructuring plan, which entails the adoption in general and administrative expenses.

Right sizing, our Microfluidics business and further portfolio rationalization, we are well into chapter one with significant reduction in head count and a smaller real estate footprint and our south San Francisco headquarters today restructuring efforts have improved our operating margin by 600 to 800 basis points.

All $8 million net on an annualized basis, and we will execute on the next phases of our restructuring plan to generate positive cash flow by year end 'twenty to 'twenty four.

We are making because across several functions also such that we can invest in other areas, whether it would be the biggest impact on our business for example targeted investment in R&D and bringing in look quiet talent.

Sps is not only allowing us to position our coal business for future growth, but enables the necessary changes to get the supporting infrastructure integration ready as we look to complement our product portfolio through targeted M&A with.

Which brings me to our third priority strategic capital allocation M&A has its own time frame, but our proprietary deal pipeline is full we can walk and chew gum at the same time we are in.

Intensely focused on reinvigorating our core business.

While at the same time executing on our aggressive M&A strategy, we continue to seek out opportunities for Mcdonald's.

That have revenue potential and synergies, we'd all like assistant infrastructure to strengthen our connection to pharma and partnering with translational and clinical researchers.

As mentioned earlier in my prepared remarks, we have been working tirelessly to streamline the organization to build the foundation that can support both organic and inorganic growth initiatives, allowing us to offer the industry's best innovations on desk chair global infrastructure, we know on mission and we.

No we work for our shareholders and look forward to meeting with some of you at the Jefferies London Healthcare Conference next week.

Now, let me turn it on what's a big win for a review of our financial results they quit.

Thanks, Michael and good afternoon, everyone. As Michael noted we are pleased with our results for the third quarter, which showed top line sequential improvement across all of the geographic markets we serve.

This is illustrative of the rebuilding of part of our sales team and the improvements that have been made by the new leadership team.

Now let me begin with a review of revenue for the third quarter of 2022.

Total core revenue for the quarter was $24 $8 million, an increase of 30% sequentially and up 3% year over year at constant exchange rates.

Core instrument revenue across our mass cytometry, and Microfluidics segment of $7 8 million was up sequentially from $2 $7 million and down from $9 5 million in the year ago period.

Core consumables revenue of $11.1 million was up sequentially from $8 $9 million and from 10 1 million in the year ago period.

Core service revenue of $5 9 million was approximately flat sequentially and year over year.

Other revenue, which includes product development license in grant revenue for the third quarter was approximately $500000.

It included the third and final tranche of a legal settlement of 300000.

We are pleased with the sequential recovery in our business in the quarter with 18%, 76% and 43% growth in the Americas Asia Pacific and EMEA regions, respectively.

We are beginning to see the benefits of rebuilding our sales team in North America and implementing SBS.

Our operations, including his systematic staged approach this contributed to top line sequential revenue increase across all the geographical region.

For additional commentary on our revenue, including geographic breakdown. Please refer to our third quarter Form 10-Q filing when available.

Moving on now to our operating performance.

Our operating results in 2020 to include certain items related to the strategic financing transaction and subsequent business improvement actions taken by the new management team, including the ongoing rationalization of our product portfolio and restructuring program announced in August 2022.

Items increased operating loss by $6 $1 million and $24 $5 million.

For the three and nine months ended September 32022. These.

These business improvement actions are ongoing and we expect to incur additional related expenses in the fourth quarter of 2022 and into 2023, although at a lower level.

I will focus the balance of my comments, primarily on non-GAAP results, which exclude certain nonoperating a noncash item. Please.

Please note that the reconciliation tables between our GAAP and non-GAAP measures are provided at the end of our earnings press release that was issued earlier today.

non-GAAP net loss was $28 million compared to $25 8 million reported for the prior quarter, primarily reflecting higher revenues and higher gross margin.

GAAP net loss for the quarter ended September 30 of 2022 was $29 4 million compared to $63 5 million for Q2 2022.

Net loss in the second quarter included approximately $25 million of losses related to the forward sales of the series B preferred stock and bridge loans and $3 $5 million related to the impairment of the instant or intangible asset.

During the quarter, we incurred a charge of $2 $2 million included in cost of goods sold.

Related to the termination of our Microfluidics instrument manufacturing contract beginning in early 2023, we were manufactured these instruments in our Singapore manufacturing facility.

With time, we believe this action will improve quality and reduce manufacturing costs.

non-GAAP product and service margin was 47.7% up from 37, 7% for the second quarter, but down from 58, 9% for the third quarter of last year.

Margins in both Q2, and Q3 were impacted by charges related to portfolio rationalization.

And the termination of our manufacturing contract. Excluding these charges non-GAAP product and service margins were approximately 58% in both Q3 and Q2.

non-GAAP operating expenses were $33 $2 million down sequentially from $34 $1 million and compared to $28 4 million for the year ago period. The year over year increase was primarily driven by the charges related to the business improvement actions that I mentioned earlier.

Moving on now to cash flow and the balance sheet cash and cash equivalents and short term investments were $185 $2 million compared with $211 2 million as of June 30 of 2022.

During the quarter, our operating cash burn of about $24 6 million was down sequentially from approximately 30 million in Q2 2022.

As Michael mentioned, one of our key goals is to reduce operating cash burn and generate positive free cash flow by year end 'twenty 'twenty. Four we are beginning to see progress here and expect to see additional benefits as our previously announced restructuring plan continues through the remainder of this year into 2023.

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

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

Afternoon, everyone.

This concludes today's conference call.

You may disconnect your lines at this time, thank you for your participation.

Yeah.

Okay.

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