SomaLogic Inc. Q1 2023 Earnings Call
Speaker 1: You.
Speaker 2: Good afternoon, and welcome to SomaLogic's first quarter 2023 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.
Speaker 2: As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Marissa Veitch with Gilmartin Group Investor Relations for introductory comments.
Speaker 3: Thank you. Today, SomaLogic released financial results for the quarter ended March 31, 2023. A copy of the press release is available on the company's website.
Speaker 3: 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 provision of the Private Securities Litigation Reform Act of 1995.
Speaker 3: Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.
Speaker 3: All forward-looking statements, including without limitation, those relating to our market opportunity, growth margin and future financial performance, protein content and database growth, customer-based diagnostic pipeline, expectations for hiring, and growth in our organization are based upon our current estimates and various assumptions.
Speaker 3: 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.
Speaker 3: Accordingly, you should not place undue reliance on these statements.
Speaker 3: For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our latest Form 10-K or 10-Q filed with the Securities and Exchange Commission.
Speaker 3: This conference call contains time-sensitive information and is accurate only as with the live broadcast today, May 11, 2023.
Speaker 3: FOMA logic disclaims any intention or obligation to accept 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 now turn the call over to Adam Cage, Interim Chief Executive Officer.
Speaker 4: Thank you all for joining us this afternoon.
Speaker 4: It has been a busy six weeks from stepping into the CEO role. There's work to do and decisions to make, but I remain excited to lead Somalogic into this next phase with a talented and dedicated team.
Speaker 4: During my portion of the call today, I'll provide a brief overview of our first quarter results and some of my early impressions before turning the line to Sean, our CFO , who will then review our financial results for the first quarter.
Speaker 4: In our last call, we announced significant changes to the leadership and the board and committed to focusing resources to serve our life sciences customers. The changes are centered around a simple objective, driving accelerated and predictable growth while improving operational rigor.
Speaker 4: and significantly reducing spend. We are leading innovators in the proteomics market, and we know what we need to do to execute on this objective.
Speaker 4: Revenue for the first quarter was $20.4 million, tracking in line with our full year outlook.
Speaker 4: In addition, our expense reduction initiatives are on track, and we continue to actively assess opportunities to take our cost discipline further, reflecting our commitment to running the business efficiently, with a focus on discipline to cash management to maintain the strength of our balance sheet.
Speaker 4: Plenty of work remains ahead. Somalogic is just starting to become a scaled global commercial enterprise.
Speaker 4: In recent years, the transition has been too slow and the spend too high, and we are focused on fundamentally changing that dynamic.
Speaker 4: Translating our assets, most importantly, our innovative technology.
Speaker 4: into sustainable revenue growth requires commercial execution, and as part of that process, thoughtful customer engagement. This takes time and requires some shifts in how we develop and deliver innovation, support, and service across the Somalogic platform.
Speaker 4: Today we are focused on expanding our commercial base, where we saw nice traction over the course of the first quarter. We continue to see ample opportunity to scale our existing customers while we grow and diversify our biopharma engagements across clinical, translational, and early discovery projects.
Speaker 4: Our operations are currently focused in North America, but we see significant opportunity to expand to new customers domestically and in the media and APEC. To this end, we recently announced a key partnership with BioStar, a Shanghai-based leader in life sciences.
Speaker 4: to support our commercial rollout in China.
Speaker 4: This builds on our partnership with G42, our first authorized site in the Middle East, which we announced earlier this year.
Speaker 4: An important contributor to commercial excellence is offering solutions to customers that meet their specific needs.
Speaker 4: in large part by accelerating our authorized site or kits offering.
Speaker 4: so that institutions around the world can run the Somascan assay in their own lab.
Speaker 4: We expect to double the number of our sites by the end of 2023. We also remain on track with our partnership with Illumina to deliver the Somasgan Asse utilizing Illumina's market lead and install base of next generation sequencers.
Speaker 4: With the full force of Illuminous Commercial Team a quick and incentivized to market and sell our proteomics platform.
Speaker 4: We continue to expect early access to begin in 2024.
Speaker 4: bolstering our suite of solutions is our ongoing work to bring more comprehensive, biologically relevant information to customers. As we drive forward in content leadership, we are pleased to reiterate that our summer skin 10kplex solution is on track for the fourth quarter rollout.
Speaker 4: As I mentioned in my opening remarks, our balance sheet and cash position were named a key differentiator for our business, a specialision this current market environment.
Speaker 4: Today, while we remain heads down on operational and commercial execution, the board and I are actively evaluating inorganic opportunities, including those that could fundamentally change our business profile.
Speaker 4: In closing, six weeks in, I have continued confidence in position in Somalagic to increase revenue and improve margins while spending less capital. It's a simple statement that requires hard work and discipline.
Speaker 4: But we are focused on delivering against these objectives and building shareholder value.
Speaker 4: I will now turn to call to Sean Blakeman, CFO , to review our financial performance and outlook.
Speaker 5: next sergeant. now
Speaker 4: Thanks Adam. Turning to our financial results for the first quarter.
Speaker 4: Revenue for the three months ended March 31, 2023, with $20.4 million.
Speaker 4: and 11% decrease from $23 million in the same period of the prior year.
Speaker 4: This quarter's revenue was in line with our expectations and reflects continued customer expansion as our commercial team matures and achieves higher productivity.
Speaker 4: In the comparison of Q1 of 2023 to Q1 of 2022, it's worth noting that Q1 of 2022 benefited from $3 million of any V licensing revenue. And net of that number, our revenue growth was 2% year over year.
Speaker 4: Gross margin for the first quarter of 2023 was 39.6% compared to 49.3% in the first quarter of the prior year. Gross margins were driven down primarily by customer mix, including app-based services completed for our work with the Human Technical Institute. As mentioned during our last earnings call, we expect four-year gross margins will return to the 50% plus range as customer mix shifts in future quarters.
Speaker 4: Total operating expenses for the first quarter of 2023 were $48.3 million.
Speaker 4: an 8% increase from $44.6 million in the first quarter of 2022.
Speaker 4: compared to 13.8 million dollars in the first quarter of 2022.
Speaker 4: The health general and administrative expenses for the first quarter of 2023 were $34.2 million.
Speaker 4: including nearly $1.3 million in non-cash executive transmission charges.
Speaker 4: compared to $30.8 million in the first quarter of 2022. On a cash basis, our operating expenses align with our expense reduction efforts.
Speaker 4: For clarity, our full year gap operating expenses are expected to be around $170 million with stock compensation being approximately $25 million.
Speaker 4: Adjusted EBITDA for the first quarter of 2023 was a loss of $36.1 million compared to an adjusted EBITDA loss of $32.3 million in the first quarter of 2022.
Speaker 4: And we ended the quarter with $500.6 million of cash, cash equivalents, and short-term investments. As expected, Q1s burn with $39 million with higher than we anticipate for the remainder of the year due to the impact of various 2022 restructuring charges. We expect more modest restructuring charges in Q2 with quarterly cash burn decreasing sequentially for the remainder of the year. We reiterate our guidance of $120 million or less in total cash burn for 2023. Turning to our four-year outlook.
Speaker 4: We are reiterating our 2023 revenue guidance of $80 million to $84 million.
Speaker 4: reiterating our 2023 revenue guidance of $80 million to $84 million. Driven primarily by APA Services and Product Sales.
Speaker 4: Our primary objective in 2023 is to apply more rigorous focus, process, and fiscal discipline across the organization.
Speaker 4: Our progress in the first quarter is reflective of that, with our commercial performance and cash burn tracking to plan. At this point, I would like to turn the call back to Add. Thanks, Sean. With that, we will open it up to questions. Operator?
Speaker 2: Thank you. At this time, we will conduct the question and answer session.
Speaker 2: As a reminder to ask a question, please you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker 2: To withdraw your question, please press star 1 1 again. We ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster.
Speaker 2: Our first question comes from the line of Dan Brennan of PD Cowan. Your line is going to open.
Speaker 6: Okay, thank you. Thanks for the questions, guys. Maybe just starting on the kit business, are you talking about doubling the number of customers?
Speaker 6: Year of a year. I think on the first quarter call you discussed maybe a gating factor with some of the robotics the upfront stuff So maybe just give us some color on kind of how that's going the kit roll out and maybe some color on how many kits Customers you have any any context for the revenue contribution you're expecting this year. Thanks. I'm gonna have a couple of follow ups
Speaker 4: Yeah, Dan. Thanks for that. It's Adam here. So yeah, we're still 100% committed to doubling the number of sites that we have by year at. So when we left, got together, we had eight sites, we continue to make great traction.
Speaker 4: at least double the number of sites that we have by year end. As it relates to kit contribution, it isn't something we've pulled out or sort of teased out from our guidance, but one of the things that we're highly confident in is, is we select the right partners, and that's part of when I was thinking about, sort of, you mentioned gating.
Speaker 4: We don't have any gating issues as it relates to the robotics per se. It's really just ensuring we've got the right partners in the right geographies that can hit the ground running. In so while I would expect in certain areas, there could be a wider range of pull-through per customer because we get these things up and running. We're doing our best just to ensure that sort of country by country, territory by territory, we're selecting those partners.
Speaker 6: we think can be the most successful partners for us. Okay, maybe on bio-farm and there's been a lot of noise is quarter to date across the industry with emerging bio-farma, having the break, even some large farm, where we've seen some pauses, particularly for instrumentas. Maybe give us some color, kind of what you're seeing with Q2 and the funnel.
Speaker 6: Any help on maybe what's contracted this year from some of the larger customers? Sure Dan, I think for us.
Speaker 7: You know, there's a blessing and a curse of having fairly small share of wallet at many of these accounts. And so I think for us, we're not really seeing a lot of that break tapping that you mentioned, you know, we're still not active at some of the accounts where I'm highly confident. We could and will be.
Speaker 7: active and so for us it's really about taking those existing accounts that we have, penetrating further into those accounts with the value of the Somascan platform. And then in terms of knocking on new doors, it's something we've been able to do successfully as we've grown our commercial effort. It was the last couple of courts.
Speaker 6: And then maybe on the gross margin, so, so, you mentioned you had that maybe it was one big contract. Maybe there are some others I know you've signed on a couple of these big deals that are lower margin because they're important, but can you give us a sense if you strip like how much that big deal or deals contributed? At the end of your sex retirement, respond with this proposal.
Speaker 6: to this lower gross margins, which missed your guidance in the first quarter, and then how much visibility and confidence you have getting north of 50 or 50 plus by year, you know, for the full year? Yeah, nothing fundamentally changed. I mean, it was, you know, it was a little off again due to some kind of loss, small number type of adjustments in the COGS, but
Speaker 4: It was all really due to that transitory customer mix, as we mentioned in the call, Dan. And we're very confident when you look at the core business outside of that, it does reflect those 50% margins. So we're confident that we'll see the business go back to that net of those transitory mix issues.
Speaker 6: And then sorry for a couple of just maybe two more. Any help on pacing from here, you know, you guided for the first quarter at the end of March. So I think most of it felt like it was pretty good visibility. You guys sound good in terms of how things are going out of the gate. You know, Adam, with you with the, you know, kind of at the helm. But how do we think about at least Q2?
Speaker 6: Or you know, and or you want to give us any help on how do your pages out? Yeah, this is Sean again. I would say that you know looking at our guide that would imply that each quarter is not going to be a lot different from from the others throughout the year, but I would you know think about it in terms of having a modest bias in the second half as Kits ramp up. God, and let me be final one. Adam, you talked in the beginning about it takes time.
Speaker 6: and require shifts to show traction. So I'm just wondering, could you give us a little flavor in that? Maybe it sounded a little bit more alike. Obviously you're still a very young company, but just kind of, you know, what have you observed? You know, you've been at the company, I think, for, you know, maybe a couple years, but what are you observing now in terms of penetrating customers and things of that nature? Thanks.
Speaker 7: Yeah, thanks, Dan. Yeah, so I've been the company a little over a year and you know, I'm just a couple of months into this role.
Speaker 7: I think a couple things that I would just note just to re-enterate and sort of comments from earlier.
Speaker 7: It's really important to meet customers where they want to be met. And so, you know, if we're not present in certain geographies, it's impossible for us to get share of wallet in those areas. So we're working on fixing that. I think the second thing I would mention around kits, we've been slow to get that rolled out. You know, and we know, and this is something, you know, just for my history and experience in the industry.
Speaker 7: It's absolutely critical. Not everyone wants to be doing business in a services model and sending samples to us here in Boulder, Colorado. And so the KISS model is a huge driver and then the ongoing diversification of our product platform, including our relationship with Illumina, which will give us access to their install base and their commercial team.
Speaker 7: For NGS, it's going to be critical to our growth going forward.
Speaker 2: Okay. Great. Thank you. Please stand by for our next question.
Speaker 2: Our next question comes from the line of van areas of CIFL. Your line is now open.
Thanks for your time. Adam, maybe on China and the Bioskr partnership, when does the Shanghai Cycle live and is in 7,000?
Assa content going to be available both as a service and kit next year. Can you just talk about the sales presence that you have in Asia right now? I think last year the plan was to go from basically no heads to ten or so. Where is that building? Where might you finish the year? Yeah, thanks Dan. Thanks for mentioning the partnership with BioStar.
They have a commercial channel, so on behalf of their customers, and that will give us access to a wide range of biopharma and academic and government accounts there in the country of China. More broadly, to the second part of your question, Dan, on the sales presence in Asia, we're at about 10 people right now. We've been deliberate and focused on the business side of the industry.
Okay, great. Maybe just a follow-up, just thinking about some of the catalysts over the next 12 to 18 months. I wanted to ask about the Illumina partnership. Are the terms of that deal when it comes to just fees and economics? Are they said and if so, can you remind us how that work? Okay.
And just as an update, maybe where are you in terms of key milestones and just overall tech development?
Techno-is-stones, everything's going really well. I've been nothing but thrilled with the engagement from all levels of the company, but the Illuminati team has extremely engaged and passionate about getting this product out to market. Progress is going quite well. We still are on track to have early access in 2024, which is what we had announced as the original plan. Okay. Maybe just if Dan's going to hit the half a dozen mark on the questions, maybe I'll feel comfortable sticking a third in here.
Going back to the partnership in Asia, should we think about something similar for Europe ? Mea was on the list of strategic focuses last year. I'm just wondering if a similar approach might be taken. Thanks a bunch. Yes, sure. Thank you, Dan. It is. One of the things we've been able to do in Mea is...
Australia to Boulder. And so you know while we do have a good services business in EMEA, we do expect that a good chunk of the growth and part of that strategy there will be to enable those authorized sites just to give folks a distributed kit solution there in the markets as well as the option you know certainly of sending samples you know back to us at headquarters in Boulder.
they so desire. Please stand by for our next question.
Our next question comes from the line of Kyle Mixon of Cataqued. Your line is now open. Your line is now open.
Hey guys, thanks for taking the questions. Congrats on the quarter. Can you just talk about the product revenue this quarter kind of below our model? What happened with kits that you didn't already discuss on the call earlier? Thanks.
Hey Kyle, this is Sean. Well, I mean, I would point out that, you know, still year over year, we're approximately 300% growth in kits. I think it's, you know, in this early, you know, the early rollout of the kits, you know, probably don't want to get ahead of ourselves in trying to read too much into each quarter.
The real metric here, as you know, Adams put out, is really the installation pace. You know, we're still confident about our ability to more than double the number of kitsides. So as far as our expectations for this year, it's really not reflected in that Q1 number. It's nothing that's happened. It's just again, just, you know, as we roll out, I would expect that to be.
something that you're not going to necessarily see something go sequentially every quarter until we have a large install base.
Okay, thanks, Sean. So maybe Adam just talked about the order funnel kind of pent up demand for the 10K launch later in 2023. I mean, I'm just curious if there could be like an air pocket here, if there's going to be some delayed orders potentially, just given that, you know, really exciting products coming out pretty soon. Thanks.
Yeah, thanks Kyle. We're the content leader today with our 7K product. And so while our customers are very excited to get their hands on 10K, we aren't seeing stalling as a result of that. We've got ongoing pipeline that's very strong.
both on the service side of things as well as the enthusiasm around kits. Everything is on track as I mentioned earlier as it relates to our 10K launch. We're super excited to continue to extend our technology leadership in that area.
both on the service side of things as well as the enthusiasm around kits. Everything's on track as I mentioned earlier as it relates to our 10k launch. We're super excited to continue to extend our technology leadership in that area. Please stand by for our next question.
Our next question comes from the line of Brandon Quiard of Jefferies. Your line is now open. Great, thanks. Good afternoon. Adam, back on the new China partner, Biostar. I just want to know.
have over a thousand customers. Just curious, how many of those do you think are potential proteomics opportunities for them to service with some scan? Yeah, sure, Brandon. I'd like to say all of them, a huge number. I mean, one of the reasons that we selected BioSTAR, I would say there's, you know.
Two or three really strong reasons. One, just incredible track record there in the market with innovative technologies being driven out of multinational corporations like ourselves. Two great commercial reach. So they've been a distributor for a variety of technologies. So they've got a very strong selling presence.
on the side they have a deliberate focus on having the most innovative technologies in their lab with highly trained and skilled operators running and so they've got a fantastic customer base that spans, you know, the bio pharma's, you know that are headquartered in the country of China as well as those that aren't.
as well as incredible relationships with many of the large academic and government institutions in the country. Okay, then any chance you're able to share an updated statistic in terms of total number of customers over the last 12 months? I think the last number you gave us.
162 and any color between pharma and academia researchers in terms of the main
Yeah, sure Brandon, I can take the second part of your question first, which we're roughly 65% or so biopharma in terms of our customers from a revenue perspective, smaller as it relates to total count of customers. You're right, we did disclose just a couple of weeks back, you know, when we worked together for our year end that 160.
a large biopharma is one in that type of count. And so for us, what we're really focused on is ensuring that we're extending our reach within the existing customers that we have so that we're penetrating different therapeutic areas, different areas, different geographies of those, particularly for some of the larger biopharmas.
And then of course we're trying to continue to extend and expand our reach into new customers. So it's a huge focus for us and we're measuring that from an internal perspective. It's one of the key measurements for our commercial effort. At this time I would now like to turn it back to Adam Page for closing remarks. Yeah, I want to just thank you all for joining us. We're excited about the progress that we're making.
I'll see you next time.